Interactive Brokers looks beyond US borders for growth opportunities

US retail trading reached new heights during the Covid-19 pandemic. Since then, it’s grown steadily overseas. Trading platform operators such as electronic brokerage Interactive Brokers have positioned themselves to capitalize on that business, with major US exchanges ramping up their marketing in Europe and Southeast Asia.

This extra attention being paid to retail customers is not without impact on institutional players. As traditional capital markets tech providers gain exposure to a larger audience, these companies, in turn, can sell new datasets and insights on retail trading patterns and emerging markets to their legacy clients, as well as usher in needed liquidity.

Retail has also presented a business opportunity for institutional fintech companies, clearing firms, brokers, and exchanges. Futures Industry Association president Walt Lukken declared in March at the organization’s second roundtable on retail that the trend was “here to stay”.

Steve Sanders, executive vice president of marketing and product development at the Greenwich, Connecticut-based broker says over 85% of their new clients now come from outside the US. Many of these clients want to trade in liquid US markets, but there is also interest in trading local markets.

In the past few months, Interactive Brokers penned a deal with Cboe to expand retail options trading in the European Union, added a spate of new products to its Japanese offering, extended hours on a popular Korean derivative, and launched daily options on a French index. Most recently, it added listed derivatives on Southeast Asian exchange Bursa Malaysia.

“We want to be on every exchange around the world,” Sanders says. He joined Interactive Brokers in 2001 after spending 15 years at Citi, where he developed an early retail trading platform for over-the-counter derivatives. When the project, Cybic, got caught in the dot-com crash and was scrapped at the last minute, he went to Interactive Brokers.

“I don’t think there are many more exchanges around the world left for us to hook into because I think we’ve gotten most of them,” Sanders says.

Interactive Brokers set up shop in 1977 as a one-man options market-making business. Today, it operates in about 150 markets, including Bursa Malaysia. The broker is starting with two listed derivatives, but Sanders says there are plans to add stocks.

The first listed derivative is a crude palm oil futures contract traded on Bursa Malaysia Derivatives. The contract has been a global price benchmark for the crude palm oil market since 1980 and is used in the edible oils and fats industry. The second is FKLI, a FTSE Bursa Malaysia Kuala Lumpur composite index futures contract. Like the crude palm oil future, it is traded on Bursa Malaysia Derivatives, and is used by institutional and retail investors to gain exposure to the underlying composite index constituents.

The electronic broker has not been alone in the push abroad. About five years ago, US exchanges began increasing their overseas marketing, says Sanders, starting with CME Group, which, in 2019, unveiled a joint product with Interactive Brokers that allowed some of the broker’s clients to trade CME Group Micro E-mini futures. Since then, the brokerage has done several co-branding campaigns with major US exchanges in Europe and Southeast Asia.

“At first, it was institutional. What that meant was calling up the local banks and brokers and prop traders to get them more interested. It was more of a sales-driven kind of marketing,” Sanders says. Now, it’s banner advertising, search engine work, and social media. “As they’ve seen growth in the retail segment, maybe a few years back, they started also focusing on retail.”

Retail trades from these regions have become a lucrative business for US exchanges, Sanders says. On Cboe’s quarterly results call in July, chief executive officer Fred Tomczyk and president Dave Howson called this the “import/export” model. By exporting marketing, data, and exchange access abroad, they import trading and volume back to their US exchange.

As the US Securities and Exchange Commission considers a bid from the startup equities exchange, 24X National Exchange, for extended 24-hour trading, international retail and institutional trading on US markets could increase as APAC traders gain access to US markets during Asia’s work day.

There is also movement, especially in Europe, to cultivate retail trading at home. Leaders in Europe are considering how retail volumes could inject needed liquidity into the bloc’s markets. Cboe’s Europe Derivatives exchange, which counts Interactive Brokers and cross-asset market maker IMC Trading as members, aims to do this with European options this fall.

“[Exchanges’] business has really been growing form overseas clients, just as ours has,” Sanders says of the exchanges. “It’s a really important component of what they do.” He notes that for retail, there’s probably faster growth outside the US than within.