Timber Hill Becomes One of the Leading Market Makers at the DTB, Claiming for Options Trading on the Floor More Than 10% of the Trading Volume
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Presentation for University of São Paulo March 2011 Disclaimer The following information contains certain forward-looking statements that reflect the Company's current views with respect to certain current and future events and financial performance. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the Company's operations and business environment which may cause the Company's actual results to be materially different from any future results, expressed or implied, in these forward-looking statements. Any forward-looking statements are based upon information available to the Company on the date of this presentation. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any statements expressed or implied therein will not be realized. Additional information on risk factors that could potentially affect the Company's financial results may be found in the Company's filings with the Securities and Exchange Commission. 2 Presenter Nigel Adrian Steven Noyes Manager IB Brasil Participações Ltda. Biography: • Formerly Senior Software Engineer for Interactive Brokers Automated Risk Management System (2006-2010) • Formerly Senior Quantitative Analyst for Itaú Unibanco Asset Management (until June/2010) • Prior to this: Artificial Intelligence (A.I.) Researcher for Lockheed Martin Missiles and Space, one of the world’s largest Aerospace Companies • M.Sc. in Robotics from University of California at San Diego, B.Sc. in Computer Science from Cornell University • Certification in Quantitative Finance • Holds an invention disclosure with Lockheed Martin Missiles and Space in Artificial Intelligence for Unmanned Helicopters 3 Company Overview We are an automated, global: 1. Electronic Broker enabling customers to trade equities, options, futures and foreign exchange in multiple countries and currencies around the world 2. Market Maker providing liquidity in equities, options, futures and foreign exchange to over 90 markets in 27 countries These two lines of business are highly complementary – extensive knowledge and technological synergies, shared expenses Established business franchise - 33 years since inception . 2010, transacted 10% of the world’s and 13% of the US listed equity based options volume* . Equity capital organically grown to BRL $8.9 billion (USD $4.8 billion) by the end of 2Q 2010 * Source: based on world exchanges’ reported volumes. 4 History At the forefront of building automated financial systems since 1977 Long history of helping to develop electronic exchanges 1990 – Become members of the first electronic options exchange, the DTB 1977 – T. Peterffy buys a seat (now Eurex). First example of completely automated market making. on the American Stock Exchange (AMEX). First to use computer generated fair values Timber Hill becomes one of the leading market makers at the DTB, claiming for options trading on the floor more than 10% of the trading volume. 1978 1980 1982 1984 1986 1988 1990 1992 1982 – Timber Hill, our 1983 – First hand-held 1993 – In the USA our integrated market making system market making business, computer introduced on the communicates with hand-held computers on exchange floors via is formed trading floor of the AMEX radio waves Automated markets in: Switzerland, France, England, Holland, Sweden, Austria, Spain, Hong Kong, Australia, Italy 2000 – The first electronic options exchange in the USA, International 2008 – The IB Risk NavigatorSM is Securities Exchange (ISE) is launched. launched, a real-time market risk 1995 – IB releases the first version of the Trader From day one we maintain two sided management platform for customers, Workstation though which our customers have continuous automated quotes for most providing unified risk data across multiple electronic access to the world’s markets listed products asset classes around the globe. 1994 1996 1998 2000 2002 2004 2006 2008 1999 – We demonstrate our best execution 2002 – Release of the IB Universal 2009 – Customer equity reaches BRL $27 billion option routing to SEC chairman, Arthur Levitt AccountSM: securities, currencies and (USD $15.2 billion), a 71% increase year over year commodities in multiple countries and Customer trades per account average over 600 in currencies trade from a single account 5 2009 Management Team Experienced, technology oriented management team, with longevity and significant economic interest Years with Age the company Position Thomas Peterffy 65 34 President & CEO, Chairman of the Board Earl H. Nemser 63 23 Vice Chairman & Director Thomas A.J. Frank 55 26 EVP and CIO Paul J. Brody 50 24 CFO Group & Director Milan Galik 44 20 SVP Software Development & Director Next 8 officers 47 17 Average Tenure 20 As a group, our senior management team owns over 80% of the company Of the 15 steering committee members: 9 are in their 40’s 8 are computer programmers 6 Agency Basis Electronic Brokerage We execute, clear and settle trades on an agency basis only for both institutional and individual customers The IB Trader Workstation – “TWS” – allows our 147,000 customers in 140+ countries to access 90+ market destinations in 19 countries in 14 currencies in stocks, futures, options, forex and bonds from one screen, seamlessly. 7 Brokerage As an electronic broker, IB executes, clears and settles trades globally for both institutional and individual customers. Capitalizing on the technology developed and deployed for our brokerage business in 19 countries, IB’s systems provide our customers with the capability to monitor markets in real time. The target IB customer values excellent trading technology, worldwide access to tradable products and expects best executions Mainly “self-service” individuals, former floor traders, financial professionals, electronic retail brokers, banks and hedge funds Our low commission structure attracts investors that trade frequently. Average IB customer: Equity per account is approximately R$200,000 Trades approximately 600 times per year 8 Broad Products and Services Suite Premier Trading Universal Worldwide Lower Commission and Technology Trading Access Execution Costs Professional interface One Universal Account – Low execution costs: provides a single point of Modular product offering Stocks $.0005 or entry to all products and less/share Dynamic “smart” routing markets and re-routing of orders for Options $.70 or optimal execution Access to 90+ exchanges less/contract worldwide seamless trading Integrated analytics across 14 currencies High interest rates on customers’ cash balances Paper-trading to test trading strategies Low interest rates on customers’ margin balances Seamless trading across product classes: stocks, Rated #1 by Barron’s for 5th options, futures, forex, straight year as lowest cost bonds, mutual funds broker Customers -Banks- -Hedge Funds- -Advisors- -Introducing Brokers- -Individual Investors- 9 Customer Trading Tools IB Trader Workstation SM – “TWS” – Our own fully electronic interface Allows customers to use a browser version or install an application on their computer Large institutional customers can use dedicated lines ANALYSIS: ADVANCED TRADER INTERFACE: SINGLE, MULTI- TECHNICAL ANALYTICS PRODUCT SCREEN WITH REAL- FUNDAMENTAL ANALYTICS TIME MARKET PRICES AND CHARTS QUICK CLICK ORDER ENTRY IB RISK NAVIGATOR SM REAL TIME REPORTS: EXECUTION REPORTS CUSTOMIZED ACCOUNT STATEMENTS IN A CURRENCY A CUSTOMER CHOOSES 10 Brokerage Risk Management Real-time risk management across all product classes and currencies around the globe Approval / Rejection of all new orders Reliance on automation limits potential losses: . Customer orders are credit checked before acceptance . Continuous monitoring of customer positions throughout trading day Immediate auto liquidation occurs if customer’s equity falls below margin requirement These tools and real-time margining allow IBG’s customers to understand their trading risk at any moment of the day and help IBG maintain low commissions, by not having to price in the cost of credit losses 11 Brokerage Growth Cleared Customer Assets & Accounts Annualized growth from 2003 – 2Q 2010: $20 160 $18 140 Customer accounts grew $16 on average 24% per year 120 $14 Customer equity grew on $12 100 average 48% per year $10 80 $8 60 $6 (000's) Accounts Equity (Billions US$) 40 $4 $2 20 $0 0 2003 2004 2005 2006 2007 2008 2009 Jun 30 2010 Customer Equity Customer Accounts 12 Competition We have a unique customer base with a focus on quality rather than quantity Our target customer values best price execution at the lowest possible cost We keep our financing rates and commissions low so our customers are more profitable As of and for the quarter ended June 30, 2010 IB Schwab Ameritrade Cleared accounts (in thousands) 147 7,891 7,890 Cleared DARTs* (in thousands ) 385 437 413 Average annual trades per account 677 14 13 Average commission per cleared trade $4.24 $12.15 $12.79 *DARTs = Daily Average Revenue Trades (based on customer orders) NOTE: Similar metrics for Brazilian brokers are not publicly available 13 2nd Business Line - Timber Hill: Market Making Leading market maker in exchange listed equity options globally Generates electronic trading volume on the worldwide markets by posting continuous bid and offer quotes Adds transparency and liquidity to the exchanges 14 Timber Hill Non-Directional Market Making Leading market