IBKR - Interactive Brokers

[chompsterama]

https://www.bamsec.com/transcripts/12474984?hl_id=41w5n7pnw

 

"We've said -- so right before the trade war happened, 16%, 1-6 percent, of our accounts were from Mainland China. That would be about 80-odd thousand, but we've also disclosed that all those accounts are maybe 1% of our revenues"

 

In other words, if your theory played out it could be a concern in regards to future revenue opportunities and is almost no risk to the current business.

[scorpioncapital]

Based on latest 10-q it appears for 6 months they paid a tax rate of 5.3%. This seems extremely low. I understand they have some sort of partnership structure but looking at the profitability of the business from a shareholder perspective should one normalize the tax rate to say 20 or 30% to get an apple to apple comparison of the net profitability to shareholder?

[chompsterama]

Based on latest 10-q it appears for 6 months they paid a tax rate of 5.3%. This seems extremely low. I understand they have some sort of partnership structure but looking at the profitability of the business from a shareholder perspective should one normalize the tax rate to say 20 or 30% to get an apple to apple comparison of the net profitability to shareholder?

 

yep

[KCLarkin]

Based on latest 10-q it appears for 6 months they paid a tax rate of 5.3%. This seems extremely low. I understand they have some sort of partnership structure but looking at the profitability of the business from a shareholder perspective should one normalize the tax rate to say 20 or 30% to get an apple to apple comparison of the net profitability to shareholder?

 

No. This is an artifact of the partnership structure. What you need to do is split the operating company income between the public shareholders and private shareholders first and then deal with the corporate taxes. The taxes last quarter are close to 20%, after accounting for the public/partnership split.

 

From the transcript:

 

To help investors better understand our earnings, the split between public shareholders and the noncontrolling interest is as follows:

Starting with reported income before income taxes of $225 million, we removed $1 million net expense attributable only to the public company to get pretax income for the operating company. We then deduct $9 million for income taxes paid by our operating companies, which are mostly foreign taxes.

This leads $217 million, of which 82%, or that $178 million reported on our income statement, is attributable to noncontrolling interest. The remaining 18%, or $39 million, is available for the public company shareholders. But as this is a non-GAAP measure, it is not reported on our income statement.

9

After we add back the $1 million net expense attributable only to the public company and deduct taxes of $6 million owed on the remaining $38 million, net income available for common stockholders is the $32 million you see reported on our income statement. The income tax expense you see on our income statement of $15 million consists of the $6 million paid by the public company plus the $9 million paid by the operating company.

[chompsterama]

from a shareholder perspective should one normalize the tax rate to say 20 or 30% to get an apple to apple comparison of the net profitability to shareholder?

 

yep

So...yep.

[scorpioncapital]

From what KcLarkin wrote, I get the impression the net income number after deducting the (large) minority interest includes something like 90% of the higher tax rate at the public company level and a small amount like 85% * 9 million paid by the operating company which will be a smaller amount?

 

 

[chompsterama]

IBKR to robinhood (verb) robinhood (the business)

 

https://www.interactivebrokers.com/en/index.php?f=45196

 

It's nice to see Peterffy change his mind on this.  It's always nice to see people act with how the world works vs. how it should work.  If Robinhood is any guide, this should be a good customer acq. tool.  Just hope the customer service to support it isn't ominous. 

[given2invest]

IBKR to robinhood (verb) robinhood (the business)

 

https://www.interactivebrokers.com/en/index.php?f=45196

 

It's nice to see Peterffy change his mind on this.  It's always nice to see people act with how the world works vs. how it should work.  If Robinhood is any guide, this should be a good customer acq. tool.  Just hope the customer service to support it isn't ominous.

 

IB customer service w/ their paying service is atrocious so I'd expect it to be...

[DooDiligence]

Couldn't find a Schwab thread so I'm putting this here,

 

https://www.cnbc.com/2019/10/01/charles-schwab-is-eliminating-online-commissions-for-trading-in-us-stocks-and-etfs.html

 

Apologies if this turns out to be an Onion article that CNBC picked up.

[Liberty]

https://www.cnbc.com/2019/10/01/charles-schwab-is-eliminating-online-commissions-for-trading-in-us-stocks-and-etfs.html

 

"Charles Schwab said on Tuesday that it is ending commissions for online trading.... Shares of Schwab fell 5% in premarket... TD Ameritrade plummeted more than 16%, ...  ETrade shares cratered more than 14% in premarket trading." [iBKR -4.7%]

[Gamecock-YT]

The race to the bottom continues...

[fareastwarriors]

 

 

TD Ameritrade Introduces $0 Commissions for Online Stock, ETF and Option Trades

 

 

https://www.amtd.com/news-and-stories/press-releases/press-release-details/2019/The-Best-Just-Got-Better-TD-Ameritrade-Introduces-0-Commissions-for-Online-Stock-ETF-and-Option-Trades/default.aspx

 

 

 

 

 

Expect much further consolidation of the discount brokerage industry.

 

Scale or sale!

[mcliu]

When will they pay us to trade?  ::)

[Spekulatius]

When will they pay us to trade?  ::)

 

I would like a money back guarantee, if the trades goes wrong.

 

FWIW, I have an account with Wells Fargo (grandfathered 100 free trades/year) and will move it to Schwab most likely at the end of the year. I also have accounts with Fidelity (great, but not OTC stock friendly and Interactive Brokers). I think Fidelity will respond with zero commissions this week.

[Hielko]

When will they pay us to trade?  ::)

If you provide liquidity on the right trading venue they do pay you already :)

[fareastwarriors]

Chuck is finally here for the party!

 

 

https://www.cnbc.com/2019/10/07/charles-schwab-says-brokers-move-to-zero-commissions-was-an-ultimate-goal-for-the-firm.html

[scorpioncapital]

Just wondering when ib will offer debit cards outside USA. Wondering if it's a legal or money laundering issue with MasterCard...

 

 

[bizaro86]

Hmm.. looks like it is on the open market, which is specifically excluded. I think I may need to sell these if IEX doesn't get registered by the end of the year. Maybe I can generate similar exposure with options in my non-registered account, as I flat out can't buy the same amount of shares. This is not great...

 

Update on this - I spent a bunch of time on it and concluded that neither the IEX listing or the Frankfurt listing met the requirements, but that their options were listed on a registered exchange. (Thanks rb!) So I sold the shares and  bought the same number of deep in the money calls in my rrsp. I should have saved the premiums (which weren't huge) because they have decided to move to Nasdaq, so I'd have been fine to hold the shares. I'll exercise the options prior to their expiry and keep my exposure.

 

I'm considering adding here, as I think IBKR has the lowest costs. That should mean lower commissions hurt them the least of all their competitors. In some ways, zero commissions might be a catalyst for people to look around, and those who do and are candidates for IB should be attracted to their other features (margin rates, for example)

[decko]

Everyone, What are your thoughts on the business model and its strengths going forward?  Will IBKR continue to grow and maintain margins

??  I think last year 70% of profits was NIM, does anyone have a good grasp on where their NIM goes from here? 

[muscleman]

Everyone, What are your thoughts on the business model and its strengths going forward?  Will IBKR continue to grow and maintain margins

??  I think last year 70% of profits was NIM, does anyone have a good grasp on where their NIM goes from here?

 

The question is how much NIM comes from the USD. They are charging customers interest to hold their cash in JPY, EUR and a ton of other currencies.

I think the competition is pretty intense, and it is key to watch how their IBKR Lite retains customers vs going to other 0 commission brokers.

[decko]

I understand some hedge funds being with IBKR over the schwabs of the world. In my opinion, I believe the majority of customers (all customers), say 60%-70% do not see the difference nor are they looking for a difference between IBKR and others.. They can trade at low cost and they probably feel safe with a big name. Can anyone tell me a major sustainable strength that IBKR has over the comps?

[TwoCitiesCapital]

I understand some hedge funds being with IBKR over the schwabs of the world. In my opinion, I believe the majority of customers (all customers), say 60%-70% do not see the difference nor are they looking for a difference between IBKR and others.. They can trade at low cost and they probably feel safe with a big name. Can anyone tell me a major sustainable strength that IBKR has over the comps?

 

Ability to trade in foreign markets for relatively affordable commissions

 

It's my understanding that Fidelity and Schwab can also do this, but they charge like $30-50 to trade international exchanges. IBKR's international commissions are comparable to their U.S. ones.

[Ross812]

I understand some hedge funds being with IBKR over the schwabs of the world. In my opinion, I believe the majority of customers (all customers), say 60%-70% do not see the difference nor are they looking for a difference between IBKR and others.. They can trade at low cost and they probably feel safe with a big name. Can anyone tell me a major sustainable strength that IBKR has over the comps?

 

IBKRs securities lending program is a huge advantage and their margin rates are better than the other brokerages. I don't think there business is people with less than 100 to 200k in the market. In their segment, they are unrivaled. 

[bizaro86]

I understand some hedge funds being with IBKR over the schwabs of the world. In my opinion, I believe the majority of customers (all customers), say 60%-70% do not see the difference nor are they looking for a difference between IBKR and others.. They can trade at low cost and they probably feel safe with a big name. Can anyone tell me a major sustainable strength that IBKR has over the comps?

 

IBKRs securities lending program is a huge advantage and their margin rates are better than the other brokerages. I don't think there business is people with less than 100 to 200k in the market. In their segment, they are unrivaled.

 

You also have to be doing something a bit complicated. For someone with a portfolio of 5 ETFs and a few buy and hold stocks I wouldn't bother with IBKR, even if that was millions of dollars.

[scorpioncapital]

I agree most of their money is made in borrowing. So if you want to borrow money at near 0% it's unbeatable. The trading platform is great but now with everyone being almost free...although IBKR is really cheap. Even the pro version tiered is like around 35 cents a trade for most purposes, especially high priced shares. In a way this is a play on growth of people investing globally in markets.