Presentation for University of São Paulowalterfm/cursos/mac5796/Nigel.pdf · Company's actual...
Transcript of Presentation for University of São Paulowalterfm/cursos/mac5796/Nigel.pdf · Company's actual...
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.
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Presenter
Nigel Adrian Steven NoyesManagerIB 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
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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.
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Company Overview
1977 – T. Peterffy buys a seaton the American Stock Exchange (AMEX). First to use computer generated fair values for options trading on the floor
1993 – In the USA our integrated market making system communicates with hand-held computers on exchange floors via radio waves
Automated markets in: Switzerland, France, England, Holland, Sweden, Austria, Spain, Hong Kong, Australia, Italy
1982 1984 1986 1988 1990 19921978 1980
1982 – Timber Hill, our market making business, is formed
1983 – First hand-held computer introduced on the trading floor of the AMEX
1990 – Become members of the first electronic options exchange, the DTB (now Eurex). First example of completely automated market making.
Timber Hill becomes one of the leading market makers at the DTB, claiming more than 10% of the trading volume.
1994 1996 1998 2000 2002 2004 2006
1995 – IB releases the first version of the Trader Workstation though which our customers have electronic access to the world’s markets
1999 – We demonstrate our best execution option routing to SEC chairman, Arthur Levitt
2000 – The first electronic options exchange in the USA, International Securities Exchange (ISE) is launched. From day one we maintain two sided continuous automated quotes for most listed products
2002 – Release of the IB Universal AccountSM: securities, currencies and commodities in multiple countries and currencies trade from a single account
At the forefront of building automated financial systems since 1977
Long history of helping to develop electronic exchanges
History
2008
2008 – The IB Risk NavigatorSM is launched, a real-time market risk management platform for customers, providing unified risk data across multiple asset classes around the globe.
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2009 – Customer equity reaches BRL $27 billion (USD $15.2 billion), a 71% increase year over year
Customer trades per account average over 600 in 2009
Management Team
Experienced, technology oriented management team, with longevity and significant economic interest
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 programmers6
Years with Age the company Position
Thomas Peterffy 65 34 President & CEO, Chairman of the BoardEarl H. Nemser 63 23 Vice Chairman & DirectorThomas A.J. Frank 55 26 EVP and CIOPaul J. Brody 50 24 CFO Group & DirectorMilan Galik 44 20 SVP Software Development & DirectorNext 8 officers 47 17
Average Tenure 20
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Agency Basis Electronic BrokerageWe execute, clear and settle trades on an agency basis onlyfor 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.
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
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Brokerage
Universal Worldwide Trading Access
One Universal Account –provides a single point of entry to all products and markets
Access to 90+ exchanges worldwide seamless trading across 14 currencies
Broad Products and Services Suite
Premier Trading Technology
Professional interface
Modular product offering
Dynamic “smart” routing and re-routing of orders for optimal execution
Integrated analytics
Paper-trading to test trading strategies
Seamless trading across product classes: stocks, options, futures, forex, bonds, mutual funds
Lower Commission and Execution Costs
Low execution costs:
Stocks $.0005 or less/share
Options $.70 or less/contract
High interest rates on customers’ cash balances
Low interest rates on customers’ margin balances
Rated #1 by Barron’s for 5th
straight year as lowest cost broker
Customers
-Banks- -Hedge Funds- -Advisors- -Introducing Brokers- -Individual Investors-9
Customer Trading Tools
ADVANCED TRADER
INTERFACE: SINGLE, MULTI-
PRODUCT SCREEN WITH REAL-
TIME MARKET PRICES AND
QUICK CLICK ORDER ENTRY
REAL TIME REPORTS: EXECUTION REPORTS
CUSTOMIZED ACCOUNT
STATEMENTS IN A CURRENCY A CUSTOMER CHOOSES
ANALYSIS:
TECHNICAL ANALYTICS
FUNDAMENTAL ANALYTICS
CHARTS
IB RISK NAVIGATOR SM
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
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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
Brokerage Risk Management
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Brokerage Growth
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Cleared Customer Assets & Accounts Annualized growth from 2003 –2Q 2010:
Customer accounts grew on average 24% per year
Customer equity grew on average 48% per year
0
20
40
60
80
100
120
140
160
$0$2$4$6$8
$10$12$14$16$18$20
2003 2004 2005 2006 2007 2008 2009 Jun 30 2010
Acco
unts
(000
's)
Equi
ty (B
illio
ns U
S$)
Customer Equity Customer Accounts
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
NOTE: Similar metrics for Brazilian brokers are not publicly available
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IB Schwab Ameritrade
Cleared accounts (in thousands) 147 7,891 7,890Cleared DARTs* (in thousands ) 385 437 413
Average annual trades per account 677 14 13Average commission per cleared trade $4.24 $12.15 $12.79
*DARTs = Daily Average Revenue Trades (based on customer orders)
As of and for the quarter ended June 30, 2010
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
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Timber Hill Non-Directional Market Making
Leading market maker in exchange listed equity options
Market maker, not an investor in securities or the broad market
Trading volumes drive profit generation; not the direction of the market
Long gamma position protects against a severe market dislocation
Large capital base
As illustrated to the left, Timber Hill’s portfolio defense is balanced. A market dislocation in either direction would result in position profit. The data contain no time component, and therefore, do not show the loss from the decaying value of options over time.
Up-Market / Down-Market Scenarios
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Timber Hill Risk Management
Our portfolio is evaluated several times a second and continuously rebalanced throughout the trading day
Execute many small trades at tiny but favorable differential
Global footprint allows risk management across multiple markets
323,000 average trades per day in 2Q10
Broad diversification across 600,000 tradable items protects capital base
Bid/Offer spreads may be widened to allow model time to react to news and generate new quotes
Proprietary risk management system estimates the fair value of financial instruments
Value at Risk (VaR) is typically less than $30 million
Financing limitations, both overall and product specific, are programmed as constraints
System hedges overall net position consistent with positive gamma profile
Teams of experienced traders around the world monitor the system during all trading hours
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0
500
1,000
1,500
2,000
2,500
3,000
3,500
2003 2004 2005 2006 2007 2008 2009 YTD 2010
BRL
Mill
ions
Fixed Costs Variable Costs Profit
31%
Relying on automation, we were able to trade on over 90 market centers and self-cleared most of our stocks, options and futures worldwide with 801 employees at the end of 2010
Profitability
63%
61%
61%
51%60%
68%
Low cost structure:
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50%
Note: 2008 was an extraordinary year in the world’s financial markets which contributed to record gains in our market making business
Net Revenue Diversification
Brokerage:
In 2009, 32% of total net revenues
2004 to 2009, net profit margin grew from 34% to 49%
No single customer contributed more than 1% of commissions in 2009
Market Making:
Over the past 3 years, 25% to 50% of trading revenues were generated from international operations
In 2009, executed 93 million market making trades
Make markets in over 602 thousand tradable, exchange-listed products
2001 Revenues
Market-Making 89%
Commissions 7%
Net Interest2%
Total net revenues = $667 million
2009 Revenues
Market-Making 57%
Commissions 32%
Net Interest5%
Total net revenues = $1,100 million
Other 5%
Other 2%
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Balance Sheet
BRL $48 billion (USD $27 billion) balance sheet, 98% liquid
T-Bills
Securities owned, marked to market daily
Stocks borrowed (100% collateralized)
Receivables from customers, collateralized by marketable securities
Long term borrowing consists of a bank revolver and private notes issued to qualified customers (most valuable customers)
Equity capital growth:
Low Financial Leverage
Highly Liquid
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2002 30-June-10BRL $2.9B BRL $8.9B(USD $1.6) (USD $4.8 B)
$0
$10
$20
$30
$40
$50
$60
$70
2003 2004 2005 2006 2007 2008 2009 6/30/10
Billi
ons
BRL
Current Assets Total Assets
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
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2003 2004 2005 2006 2007 2008 2009 6/30/10
Billi
ons
BRL
Equity Debt
For questions
Nigel [email protected]