Exclusive Online Only ContentInteractive Brokers Buys FutureTrade to Build Prime Services
November 21, 2007
In a bid to bolster its nascent prime brokerage business, Greenwich, Conn.-based Interactive Brokers Group (IB) is acquiring FutureTrade Technologies, a trading platform that caters to sizable hedge funds and other institutional customers, for an undisclosed amount of cash. The deal includes subsidiary FutureTrade Securities.
Thomas Peterffy, chairman and founder of Interactive Brokers, said he anticipates that Lake Forest, Calif.-based FutureTrade’s platform will be integrated with IB’s within four to six months. “We expect to be able to provide Interactive Brokers’ routing and execution technology to FutureTrade customers, including our options executions,” said Peterffy.
For FutureTrade’s 200 customers--which have an average of $200 million in assets under management--the deal will provide access to a much broader range of asset classes and geographical markets. FutureTrade offers trading in U.S. options and domestic and international equities, while IB also provides electronic trading access to non-U.S. options markets, futures, foreign exchange and fixed income on more than 70 exchanges and trading venues around the world, through a single account.
Interactive Brokers introduced prime brokerage services early this year, in preparation for the arrival of portfolio-margining accounts in April. The firm was one of 12 self-clearing broker-dealers initially approved to offer the accounts. Of the 2,000 such accounts opened by Sept. 30, IB had about 1,300, though its accounts were generally smaller than other brokers’.
Portfolio-margin accounts represented $58 billion in margin debt, of a total $380 billion, by July 31, though both numbers declined due to the market volatility this summer.
FutureTrade does not provide prime brokerage services to its customers, some of which manage billions of dollars in assets, according to Murray Finebaum, president and CEO of FutureTrade. However, the acquisition is based in part on its clients finding the firms’ integrated execution and clearing services attractive enough to switch over to IB for prime brokerage.
“The offering comes at a time when hedge funds want to trade globally to get alpha,” said Finebaum, who joined FutureTrade in 2001, three years after the firm started trading. Finebaum, whose Wall Street career includes stints as COO of Instinet and COO of the Chicago Mercantile Exchange’s Globex platform for Reuters, said FutureTrade and Interactive Brokers provide some overlapping services, but other services will be complimentary.
“We do a number of things that are uniquely suited to hedge funds’ workflow in terms of capturing trades, downloading them to prime brokers, and marking positions to market in real time,” said Finebaum. “Interactive Brokers also does a number of those things, but we do it specifically for hedge funds.” Finebaum will help integrate the firms’ trading platforms and build the prime brokerage business.
“The FutureTrade platform complements IB’s facilities and accordingly, when the two platforms are fully integrated, all facilities of both platforms will be available to all customers,” Peterffy said.
Interactive Brokers, which includes the Timber Hill market-making subsidiary, began brokerage operations in 1993. In May, the company sold 40 million shares of stock in an initial public offering, a 10 percent interest in the 500-person firm that in June executed 14 percent of the world’s equity options and 19 percent of U.S. options.
