Interactive Brokers LLC ("IBKR") provides the following backup statistics and results of surveys conducted by IBKR in support of the statements contained in this video, in addition to the information referenced in the footnotes on the IBKR website page containing the video.
IBKR believes in transparency and in keeping customers informed regarding the execution quality of their orders. In furtherance of this, IBKR publishes monthly metrics showing execution prices, commissions, fees, and rebates and ultimately the true bottom-line price, including all improved, dis-improved, and unimproved amounts, and explaining our precise methodology for our calculation. Based on these all-in costs, clients' total cost of executing and clearing U.S. Regulation NMS stocks through IBKR averaged 0.4 basis points for June 2017 and 0.8 basis point for the trailing twelve months. Based on these all-in costs, clients' total cost of executing and clearing U.S. Regulation NMS stocks through IBKR averaged 1.9 basis points for June 2018 and 1.0 basis point for the trailing twelve months. Please see Attachment A.
IBKR's price improvement for US stocks is significantly better than the industry as a whole, according to the Transaction Auditing Group, Inc. ("TAG")1. TAG conducted an independent review of the execution prices in U.S. stock transactions executed by IBKR for the first half of 2017. This analysis for stocks included all market orders from 100 to 10,000 shares as compared to the industry as a whole. TAG found that orders executed by IBKR received an average of $0.31 (31 cents) price improvement over the national best bid or offer per 100 shares versus an industry average of $0.26 (26 cents) price improvement across the industry (i.e., IBKR was 5 cents better than the industry average as computed by TAG). Please see Attachment B. A similar survey conducted for executions during the second half of 2018 found that IBKR received an average of $0.58 (58 cents) price improvement over the national best bid or offer per 100 shares versus an industry average of $0.06 (6 cents) price improvement across the industry (i.e., IBKR was 52 cents better than the industry average as computed by IHS Markit Technology and Analytics Group (formerly TAG).
IBKR pays interest on idle overnight cash in customer brokerage accounts automatically, without requiring the customer to take any additional action to enroll in any program. Where other brokerage firms generally require a customer to elect to participate and enroll in a sweep product or to invest in a money-market mutual fund in order to earn interest on their free cash balances, IBKR automatically pays interest as an intrinsic feature of its brokerage accounts. There is no additional sign-up required, no check box the customer must identify and click, no additional account agreement the customer must sign and return, and no additional exposure to risk from any other party. Please see ibkr.com/interest
In a survey of 11 of some of the biggest firms in the brokerage industry, only two offer a feature similar to what IBKR offers and the interest they pay is far lower. Please see Attachment E.
IBKR pays more interest on free credit balances than most of the banks in the ValuePenguin survey. In July 2017, when IBKR paid 0.66% interest, customers were earning anywhere from 0% to at most around 0.351% on cash balances in their bank accounts according to the ValuePenguin survey2.
A 2018 study performed by ValuePenguin found banks to pay the following interest rates:
In comparison, in 2018 IBKR paid 1.41% on free cash balances above $10,000 where the account exceeded $100,000 in value. A copy of the studies for 2017 is provided as Attachment C and a copy of the 2018 ValuePenguin report is provided as Attachment D.
IBKR pays more than double, and often almost triple, compared to what banks pay to their customers on free credit balances, according to the ValuePenguin survey referenced above. Please see the information provided above and the accompanying 2017 studies (Attachment C), and the 2018 ValuePenguin report (Attachment D).
Brokerage Sweep Intelligence reports regularly published by Crane Data LLC, an independent researcher, provide the various interest rates that the largest broker-dealers, as defined by Crane Data, pay on bank deposit and brokerage sweep products. The Brokerage Sweep Intelligence reports surveyed 11 of the biggest brokerage firms, and in both 2017 and 2018, IBKR paid more to customers holding free cash balances than any of these 11 firms paid on either brokerage account free cash balances or bank sweep products3. As of July 2017, IBKR paid 0.66% on free cash balances of more than $10,000 if the value of all assets in the account exceeded $100,0004. In comparison, the rates of the sweep products were the following (see Attachment E):
IBKR continues to pay more on free credit balances in customers' accounts. As of July 2018, IBKR paid 1.41% on free cash balances of more than $10,000 if the value of all assets in the securities account exceeded $100,0005. In comparison, representative rates of other brokerages' bank sweep products were as follows:
IBKR's margin loan rates are lower than the lowest rates offered by the banks surveyed below, rates often afforded only to individuals with excellent or good credit. IBKR's standard margin interest rate was 2.16% in 20176. In comparison, representative bank rates for consumer borrowing products in 2017 were7:
In 2018, when IBKR was offering a standard margin interest rate of 2.92%8, banks were offering the following rates9:
IBKR's margin rates are also the best margin rates in the brokerage industry according to Barron's Online Broker Survey, which reviews a series of broker-dealers ranking them according to costs, range of offerings, and trading technology, amongst other things. As part of the cost analysis, Barron's looked at the margin interest rates each firm in the survey charged borrowers at varying balances.
In both the 2017 and 2018 Barron's reports, IBKR was found to charge the lowest interest to customers who borrowed on margin regardless of how little or how much the customer borrowed. In fact, the interest IBKR charged on margin loans was less than half as much as what other broker-dealers in the survey charged. The full reports, which included a survey of 16 broker-dealers in 2017 and 19 broker-dealers in 2018, are included as Attachment I and Attachment J.
Lower transaction costs, higher rates paid on free credit balances and, lower margin rates offered by IBKR will improve customers' overall returns compared to paying higher transaction costs and receiving less favorable interest rates.
Objective, independent data provided by TAG consistently demonstrates that IBKR offers overall more favorable prices for our customers' orders than the industry average. Please see Attachment B.
In addition, the information provided above clearly shows that IBKR pays more on free credit balances. Customers get paid interest just by carrying overnight cash in their account. Nothing more, no additional steps are required.
Furthermore, as noted above, IBKR's margin rates are demonstrably the lowest in the industry. See, e.g., T. Carey, Barron's 2017 Best Online Broker Ranking (Mar 18, 2017); T. Carey, Interactive Brokers Takes Top Spot in Online Broker Ranking (Mar 24, 2018). Likewise, IBKR's margin rates also beat the rates banks offer on consumer loans.
Numerous academic studies, as well as a multitude of actions and statements of the SEC over the years make clear that low transaction costs (such as high-quality order execution and favorable interest rates) are critical to customers' investment returns and certainly "make a difference in investors' trading results." See, e.g., Proposed Regulation NMS, SEC Rel. No. 34-50870 (Dec. 27, 2004) (Execution of investors' orders "without incurring large transaction costs" is one of the "most important public policy functions of the secondary equity markets.").
The Commission's conclusions are based on a wealth of academic studies that have consistently observed that lower transaction costs in the form of higher execution quality are critical to overall investment returns:
"The significance of trading costs suggests that many organizations will find it worthwhile to increases their vigilance, particularly as order routing and trading become increasingly integrated into large electronic networks. The best that small investors can do is to … use discount brokers."
D. Logue and E. Berkowitz, Transaction Costs, Journal of Portfolio Management (Winter 2001)
See also Larry Harris, Trading and Exchanges, Market Microstructure for Practitioners (2003) ("Transaction costs lower portfolio performance. Reducing transaction costs…improves performance more than improving portfolio selection decisions."); Edelen, Evans and Kadlec, Scale Effects In Mutual Fund Performance: The Role Of Trading Costs, (2006) ("[A]nnual trading costs bear a statistically significant negatively relation to performance").
IBKR does not promise any specific result for any specific transaction or trading strategy. However, IBKR's higher execution quality, higher interest rates on free credit balances, and lower margin rates, as demonstrated above, will improve customers' overall investment performance as compared to paying higher transaction costs.