Digital Assets Report


Like this article?

Sign up to our free newsletter

The power of execution

Related Topics

Being a fully automated online electronic brokerage firm, Interactive Brokers has found itself in an enviable position of adapting to new regulations such as MiFID II relatively seamlessly. As it already had a lot of the IT technology in place to demonstrate best execution, IB has not needed to go through a significant overhaul nor, importantly, has it needed to hire a lot of extra staff, thereby increasing its fixed costs.

One example of the technology IB uses which will help clients under MiFID II is IB SmartRoutingSM technology; essentially an algorithm that scours the markets to ensure that best price execution is achieved.

“It is very important within a MiFID II context,” comments Steve Sanders, EVP, Marketing and Product Development. “There was not much work for MiFID II in terms of our Smart Routing. However, in terms of reporting there was a lot of work to get it in place in an automated way.”

Costs can make or break a hedge fund’s performance, especially in the recent environment where they haven’t generated the types of returns seen in previous years. 

“If your prime broker hasn’t automated everything and doesn’t have the technology to automate, they aren’t going to be able to give managers the best price. Or, they’ll make some money on trade volume and limit the managers they work with to the biggest and best hedge funds. They have to because a lot of what they do is still manual,” states Sanders. 

In terms of developing new tools and IT capabilities, it has been a prolific year for Interactive Brokers. 

As Sanders explains: “We have a programming API which people can use to write code in C++, JavaScript and so on. This has now been enhanced to support Python for those engaged in programmatic trading. 

“We introduced a Forex auto swap program, which allows clients to carry live Forex positions with better carry costs when holding positions that aren’t being closed out intraday. They can essentially participate in the interbank Forex swap markets. For institutional traders, this has been an important introduction.”

In terms of product classes, the platform has added KOSDAQ 150 index futures, new FX options on USD and RMB on the Hong Kong Futures Exchange; it has added the South African rand as a deposit currency, and it has also added 222 China A large-cap stocks. 

“Moreover, we added a FTSE 250 future on the ICE (EU) and LME metal futures last year. We have also introduced a split spread order type, which builds upon the IB Smart Router. Rather than paying up to the ask quote for a market buy order, investors using the split spread algorithm may improve the fill by allowing their market or limit orders more latitude to fill,” confirms Sanders. 

Eris Exchange is a US-based futures exchange group that offers swap futures as the leading alternative to traditional over-the-counter (OTC) swaps. Interactive Brokers now offers Eris Swap Futures, meaning users are now able to gain access to interest rate swap risk; a market previously beyond their reach. 

One other important development has been the introduction of an Investors’ Marketplace, which provides a search tool for hedge fund allocators. 

“We currently have 2,911 hedge funds on our system, up from 2,494 last year. We can now show them to the marketplace, which is beneficial to hedge fund allocators,” concludes Sanders. 

Like this article? Sign up to our free newsletter

Most Popular

Further Reading