Interactive Brokers Group (NASDAQ:IBKR) CFO Paul Brody said the company is seeing broad-based momentum across its client segments, while continuing to invest in technology-led initiatives ranging from prediction markets to customer service automation.
Client activity tied to markets, but growth broad across segments
Brody said the firm does not try to predict markets, but noted that Interactive Brokers’ scale means its client activity tends to “reflect what the market’s doing.” In periods of higher activity, he said, clients trade more, which supports commission revenue and related areas such as margin lending.
Brody also pointed to growth in the Introducing Broker channel, participation from banks and smaller introducing firms, and a Financial Advisors business model that avoids competing with external advisors by not having in-house advisors. He said the hedge fund segment is “going nicely,” supported by stepped-up “high-touch service,” with prop traders rounding out the segments.
Forecast contracts a major strategic focus
Brody framed Interactive Brokers as fundamentally a technology firm and said maintaining a technology advantage requires continual investment and geographic expansion. He singled out Forecast Contracts as a key newer initiative, describing “huge potential” for event and forecast markets.
He said Interactive Brokers operates its own exchange, ForecastEx, and offers the product through the broker platform under the name ForecastTrader. Brody characterized the rollout as early-stage, saying the company introduced the product in August 2024 and that a major early use case was the 2024 election.
Brody argued broader adoption will take time as market participants become familiar with the concept and as industrial users understand potential hedging use cases. He gave examples such as contracts tied to rainfall, wind speed, and other environmental variables that could affect agriculture, solar and wind operations, property disruption, and insurance.
Crypto, stablecoin funding, and product boundaries
Brody said the company’s crypto capabilities were added in response to customer demand, but emphasized that Interactive Brokers did not enter the custody portion of the crypto ecosystem due to perceived risk. Instead, it partners with platforms that provide execution for joint clients.
He also described a stablecoin funding feature: clients holding assets in stablecoin can transfer to a partner platform, which converts the stablecoin into U.S. dollars and sends dollars to Interactive Brokers. Brody said the broker sees it as a dollar deposit, while the process simplifies funding for clients who “started their asset lifetime in stablecoin.”
Asked about products that could dilute the platform, Brody said the firm prioritizes its long project list based on customer demand, but avoids certain complex order types that it believes could “create excess volatility for no economic benefit.”
Interest income model and commissions remain central
On net interest income (NII), Brody said the components must be viewed together, particularly in the U.S., where client credit balances are partially lent out to other clients via margin lending, with remaining balances placed in segregated locations such as banks and Treasuries. He described Interactive Brokers’ approach as a transparent fixed-spread model tied to published benchmarks by currency, with tiers posted on the company’s website.
Brody said cash balances are influenced by both account growth and market conditions, noting that in drawdowns clients may move out of securities into cash. He characterized that dynamic as part of a “balanced business model,” where trade activity can generate commissions while cash balances can support NII.
On non-interest revenue, Brody said commissions are the primary focus. He said market data revenue is largely pass-through, and he noted that Interactive Brokers’ zero-commission offering represents less than 5% of its business, which he attributed to clients valuing execution quality enough to pay commissions.
AI deployment, prime services, capital priorities, and skepticism on tokenization
Brody said Interactive Brokers is deploying AI in client service through its inquiry ticket system, where AI-generated responses are reviewed by staff before being sent to customers. He said the AI responses have improved over time, enabling a larger percentage to be sent without edits, supporting scalability without commensurate staffing increases.
He added that the company has made third-party AI tools available to staff globally and is collecting ideas for broader use, including in software development, while leaving adoption choices to individual programmers.
In prime brokerage, Brody said Interactive Brokers ranks number four by number of hedge funds, primarily serving $10 million to $50 million funds rather than $5 billion funds. He said the company established a High-Touch Prime Services desk that coordinates existing teams, including securities finance and an operational support group called Prime Serve, and that feedback has been positive despite the offering remaining relatively small.
On pricing, Brody said the firm does not see a reason to raise rates, emphasizing that low-cost execution enabled by technology has been the core model “from day one.” He referenced a 79% profit margin and discussed a “Gross Transactional Profit” measure that he said has reached 89%, driven partly by the SEC setting certain fees to zero mid-year last year (which he said will return) and by benefits from scale and routing improvements.
Brody said margin loans are at or near all-time highs and described the firm’s risk management as conservative, including stress tests and an “overnight exposure fee” used to incentivize clients to reduce risk. He said historical customer bad debt losses have been “minuscule.”
On capital, Brody said the company’s more than $20 billion capital base helps attract larger clients, while also being fragmented across global regulatory jurisdictions. Regarding shareholder returns, he said the company is not considering buybacks because only about 26% of shares are publicly held, and suggested dividends could remain in the 0.5% to 1% range given the firm’s growth orientation. He said the company monitors M&A but has not seen attractive fits or pricing.
Brody also expressed skepticism about tokenization, saying the company does not understand the economic value and questioning the benefits of buying broker-issued tokens that may not be fungible or liquid, and may trade only loosely in line with the underlying asset.
Separately, he discussed exploration of a U.S. national trust charter as a “natural expansion” to support custody needs for 40-Act funds and ETF issuers, potentially enabling a more seamless offering and facilitating fully paid securities lending. He also said the firm continues exploring a European bank license, though it is not the highest priority, citing potential benefits such as more efficient capital use.
About Interactive Brokers Group (NASDAQ:IBKR)
Interactive Brokers Group, Inc (NASDAQ: IBKR) is a global electronic brokerage holding company that provides trading, clearing and custody services to retail traders, institutional investors, proprietary trading groups and financial advisors. The firm offers direct access to a wide range of asset classes, including equities, options, futures, foreign exchange, bonds and exchange-traded funds across many international markets. Interactive Brokers emphasizes electronic order execution, automated trading and low transaction costs as core differentiators for its clients.
Its product suite centers on advanced trading platforms and infrastructure.
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