‘Investor confidence and activity are strong’ at fast-growing Interactive Brokers

GREENWICH — Since the start of the COVID-19 pandemic, trading among retail investors has surged — and a Greenwich-based brokerage continues to rank among the greatest beneficiaries.

The number of customer accounts at Interactive Brokers Group jumped 57 percent year over year to about 1.57 million, according to its third-quarter results released this week.

In the same period, the company recorded a daily average of about 2.26 million revenue-producing trades — rising 24 percent from the same period last year. Those trades include stocks and contracts for futures and options, with the company making money from trade commissions.

“Investor confidence and activity are strong across the globe, in all regions as we emerge from the pandemic,” Interactive Brokers founder and Chairman Thomas

Peterffy said in a statement that was read on an earnings call Tuesday by Nancy Stuebe, the company’s director of investor relations. “This activity continues to be led more by individual investors, who tend to stay with us, especially internationally, because we offer a broad product range and the lowest cost to those investors, and there are many who wish to invest globally. This breadth is one of our strategic advantages — one that is extremely difficult to offer.”

Despite the expanding customer base, Interactive Brokers’ quarterly revenues dropped 15 percent to $464 million, while profits fell 9 percent to $42 million. The decreases reflected the impact of a $185 million “mark-to-market” loss in the quarter on its investment in Chinese online brokerage UP Fintech, which is also known as Tiger Brokers. Peterffy noted the “depreciation” of Tiger Brokers’ stock price.

“Even though this started out with a relatively minor investment, it certainly has provided a lot of unintended distraction to our investors who look at our financials,” Peterffy said in his prepared comments. “With the new focus on the part of the Chinese government on data security, we now expect the stock to keep swinging for a while until they come to a clear understanding with the regulator of what is required and how to get there.”

As its customer base has burgeoned, Interactive Brokers continues to expand its offerings. Last month, it announced the launch of cryptocurrency trading, allowing clients to trade and “custody” Bitcoin, Ethereum, Litecoin and Bitcoin Cash.

“I think it’s a pain in the neck for them to have a different account when they want to buy some crypto versus when they want to buy a stock or sell an option or buy a future,” Peterffy said during the question-and-answer segment of the earnings call. “It’s so much nicer for a person like that to have all the assets in one account and see it on one screen and trade it from one screen. That’s what has always been our competitive strength — enabling people to trade products all over the world from one screen in any currency and from one account.”

The company is capable of growing its total number of accounts each year by “at least 30 percent going forward, indefinitely,” according to Peterffy.

“People have grown comfortable doing more and more of their financial business electronically,” he said in his prepared comments. “They have grown more connected to financial markets, institutions and each other online, which in turn drives even more people to participate.”

While retail investors’ surging interest has largely benefited Interactive Brokers and other brokerages, the spike in activity has created significant challenges. Interactive

Brokers faced major customer pushback in response to shortlived trading restrictions that it instituted in January amid the market frenzy surrounding the social media-hyped “meme stocks” of companies such as video-game retailer GameStop.

Some customers responded by filing lawsuits against Interactive Brokers and other brokerages, alleging that they manipulated the market with their new rules. Interactive Brokers has denied those allegations.

The company has also faced scrutiny from federal regulators. It will pay a civil penalty of $1.75 million to settle charges related to its alleged failure to prepare its electronic trading system for a historic plunge last year in the value of oil-futures contracts that led to tens of millions of dollars in customer losses, the federal Commodity Futures Trading Commission announced last month.

Interactive Brokers shares closed Wednesday at $75, up nearly 2 percent from Tuesday. They have hit at 52-week high of about $81 and a 52-week low of around $47.