Interactive Brokers Group (IBKR) 10-K risk factor changes: FY2019 vs FY2018

In addition to the risks identified elsewhere in this Annual Report on Form [removed: 10-K,] [added: 10\-K,] the following risk factors apply to our business results of operations and financial condition:

[removed: _Control] [added: Control] by Mr. Thomas Peterffy of a majority of the combined voting power of our common stock may [removed: give_ _rise] [added: give rise] to conflicts of interests and could discourage a change of control that other stockholders may [removed: favor,_ _which] [added: favor, which] could negatively affect our stock price, and adversely affect stockholders in other [removed: ways._][added: ways.]

Mr. Thomas Peterffy, our [removed: founder, Chairman] [added: founder] and [removed: Chief Executive Officer,] [added: Chairman,] and his affiliates beneficially own approximately 89.6% of the economic interests and all of the voting interests in Holdings, which owns all of our Class B common stock, representing approximately [removed: 81.9%] [added: 81.5%] of the combined voting power of all classes of our voting stock.

Moreover, because of Mr. Thomas Peterffy’s substantial ownership, we are eligible to be and are, treated as a “controlled company” for purposes of the [removed: IEX] [added: Nasdaq] Rules.

As a result, we are not required by [removed: IEX] [added: Nasdaq] to have a majority of independent directors or to maintain Compensation and Nominating and Corporate Governance Committees composed entirely of independent directors to continue to list the shares of our common stock on [removed: IEX.][added: Nasdaq.]

[removed: _We] [added: We] are dependent on IBG LLC to distribute cash to us in amounts sufficient to pay our tax liabilities [removed: and_ _other expenses._][added: and other expenses.]

We are a holding company and our primary assets are our approximately [removed: 18.1%] [added: 18.5%] equity interest in IBG LLC and our controlling interest and related rights as the sole managing member of IBG LLC and, as such, we operate and control all of the business and affairs of IBG LLC and are able to consolidate IBG LLC’s financial results [added: into our financial statements.]

[removed: _We] [added: We] are required to pay Holdings for the benefit relating to additional tax depreciation or [removed: amortization_ _deductions] [added: amortization deductions] we claim as a result of the tax basis [removed: step-up] [added: step\-up] our subsidiaries received in connection with our [removed: IPO_ _and] [added: initial public offering and] certain subsequent redemptions of Holdings membership [removed: interests._][added: interests.]

In connection with our [removed: IPO,] [added: initial public offering (“IPO”),] we purchased interests in IBG LLC from Holdings for cash.

The tax savings that we would actually realize as a result of this increase in tax basis likely would be significantly less than this amount multiplied by our effective tax rate due to a number of factors, including the allocation of a portion of the increase in tax basis to foreign or [removed: non-depreciable] [added: non\-depreciable] fixed assets, the impact of the increase in the tax basis on our ability to use foreign tax credits and the rules relating to the amortization of intangible assets, for example.

Based on facts and assumptions as of December 31, [removed: 2018,] [added: 2019,] including that subsequent purchases of IBG LLC interests will occur in fully taxable transactions, the potential tax basis increase resulting from the historical and future purchases of the IBG LLC interests held by Holdings could be as much as [removed: $12.8] [added: $9.0] billion.

The tax basis of [removed: $12.8] [added: $9.0] billion assumes that (a) all remaining IBG LLC membership interests held by Holdings are purchased by us in a taxable transaction and (b) such purchases in the future are made at prices that reflect the closing share price as of December 31, [removed: 2018.][added: 2019.]

In order to have a [removed: $12.8] [added: $9.0] billion tax basis, the offering price per share of Class A common stock in such future public offering will need to exceed the then current cost basis per share of Class A common stock by approximately [removed: $39.36.][added: $29.93.]

[removed: _Future] [added: Future] sales of our common stock in the public market could lower our stock price, and any additional [removed: capital_ _raised] [added: capital raised] by us through the sale of equity or convertible securities may dilute your ownership in [removed: us._][added: us.]

We currently have approximately [removed: 75] [added: 77] million outstanding shares of common stock.

Assuming no [removed: anti-dilution] [added: anti\-dilution] adjustments based on combinations or divisions of our common stock, the offerings referred to above could result in the issuance by us of up to an additional approximately 339 million shares of common stock.

[removed: _Certain] [added: Certain] provisions in our amended and restated certificate of incorporation may prevent efforts by [removed: our_ _stockholders] [added: our stockholders] to change our direction or [removed: management._][added: management.]

Provisions contained in our amended and restated certificate of incorporation could make it more difficult for a [removed: third party] [added: third-party] to acquire us, even if doing so might be beneficial to our stockholders.

[removed: _Our] [added: Our] business may be harmed by global events beyond our control, including overall slowdowns in [removed: securities_ _trading._][added: securities trading.]

[removed: _Our] [added: Our] business could be harmed by a systemic market [removed: event._][added: event.]

[removed: _Our] [added: Our] future success will depend on our response to the demand for new services, products and [removed: technologies._][added: technologies.]

The demand for [removed: market making services, particularly] [added: our] services that rely on electronic communications gateways, is characterized by:

[removed: | | • |] [added: -] rapid technological change; [removed: |]

[removed: | | • |] [added: -] changing customer demands; [removed: |]

[removed: | | • |] [added: -] the need to enhance existing services and products or introduce new services and products; and [removed: |]

[removed: | | • |] [added: -] evolving industry standards. [removed: |]

Our future success will depend, in part, on our ability to respond to the demand for new services, products and technologies on a timely and [removed: cost-effective] [added: cost\-effective] basis and to adapt to technological advancements and changing standards to address the increasingly sophisticated [removed: requirements and varied needs of our customers and prospective customers.]

[removed: _Our] [added: Our] reliance on our computer software could cause us great financial harm in the event of any disruption [removed: or_ _corruption] [added: or corruption] of our computer software.

We may experience technology failures while developing our [removed: software._][added: software.]

Any disruption [removed: for any reason] in the proper functioning [removed: or any corruption] of our software [removed: or] [added: due to, for example,] erroneous or corrupted [removed: data] [added: data, or cyber-attacks,] may cause us to make erroneous trades or suspend our services and could cause us great financial harm.

[removed: _We] [added: We] depend on our proprietary technology, and our future results may be impacted if we cannot [removed: maintain_ _technological] [added: maintain technological] superiority in our [removed: industry._][added: industry.]

[removed: _The] [added: The] loss of our key employees would materially adversely affect our [removed: business._][added: business.]

[removed: _We] [added: We] may not pay dividends on our common stock at any time in the foreseeable [removed: future._][added: future.]

[removed: _Our] [added: Our] future efforts to sell shares or raise additional capital may be delayed or prohibited by [removed: regulations._][added: regulations.]

[removed: IBUK, THC,] IBC, [added: IBUK, IBEU, IBKRFS] and IBHK are subject to similar change in control regulations promulgated by the [added: IIROC in Canada, the] FCA in the United Kingdom, the [removed: IIROC] [added: CSSF] in [removed: Canada] [added: Luxembourg, FINMA in Switzerland] and the SFC in Hong Kong, respectively.

[removed: _Regulatory] [added: Regulatory] and legal uncertainties could harm our [removed: business._][added: business.]

Our [removed: broker-dealer] [added: broker\-dealer] subsidiaries are subject to regulations in the U.S. and abroad covering all aspects of their business.

Regulatory bodies include, in the U.S., the SEC, FINRA, the Board of Governors of the Federal Reserve System, the Chicago Board Options Exchange, the Chicago Mercantile Exchange, the CFTC, and the NFA; in Canada, the IIROC and various Canadian securities commissions; in the United Kingdom, the FCA; in [added: Luxembourg, the CSSF; in] Switzerland, FINMA; in India, the Securities and Exchange Board of India; in Hong Kong, the SFC; in [removed: Australia, the Australian Securities and Investment Commission; and in] Japan, the FSA and the Japan Securities Dealers [removed: Association.][added: Association; and in Australia, the Australian Securities and Investment Commission.]

Our mode of operation and profitability may be directly affected by additional legislation changes in rules promulgated by various domestic and foreign government agencies and [removed: self-regulatory] [added: self\-regulatory] organizations that oversee our businesses, and changes in the interpretation or enforcement of existing laws and rules, including the potential imposition of transaction taxes.

Domestic and foreign stock exchanges, other [removed: self-regulatory] [added: self\-regulatory] organizations and state and foreign securities commissions can censure, fine, issue [removed: cease-and-desist] [added: cease\-and\-desist] orders, suspend or expel a [removed: broker-dealer] [added: broker\-dealer] or any of its officers or employees.

requirements and varied needs of our customers and prospective customers.

We are subject to regulatory oversight and examination by numerous governmental and self-regulatory authorities.

We are currently providing information to certain of such authorities, including FINRA, the SEC, the CFTC and the United States Department of Justice, and cooperating with those authorities.

The regulators are focused on compliance practices, including anti money laundering and Bank Secrecy Act practices.

We periodically review these practices to make them more robust and to keep pace with changing regulatory standards, and we have been enhancing and augmenting our procedures and personnel in these areas over the past several years.

While the outcome of the examinations and inquiries currently in progress cannot be predicted, we do not believe that they are likely to have a materially adverse effect on our financial results.

to charge lower or zero commissions.

Any loss or expense incurred due to defaults by our customers in failing to

| --- | --- | --- |

into our financial statements.

Our estimated annual losses from reimbursements to customers whose accounts

In addition, alternative trading systems such as ECNs are an alternative for individual and institutional investors, as well as broker-dealers, to avoid directing their trades through market makers, and could result in reduced revenues derived from our market making business.

Given that we manage a globally integrated portfolio, we may have large and substantially offsetting positions in securities that trade on different exchanges that close at different times of the trading day.

The following discussion should be read in conjunction with the audited consolidated financial statements and the related notes in Part II, Item 8, of this Annual Report on Form [removed: 10-K.][added: 10\-K.]

In addition to historical information, the following discussion also contains [removed: forward-looking] [added: forward\-looking] statements that include risks and uncertainties.

Our actual results may differ materially from those anticipated in these [removed: forward-looking] [added: forward\-looking] statements as a result of certain factors, including those set forth under the heading “Risk Factors” in Part I, Item 1A of this Annual Report on Form [removed: 10-K.][added: 10\-K.]

We are an automated global electronic broker and market maker (although, we have substantially exited our options market making business - see Note 2 [removed: - Discontinued] [added: – “Discontinued] Operations and Costs Associated with Exit or Disposal [removed: Activities] [added: Activities”] to the audited consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K).

We specialize in routing orders and executing and processing trades in [removed: securities, futures] [added: stocks, options, futures, forex, bonds, mutual funds] and [removed: foreign exchange instruments] [added: ETFs] on more than [removed: 120] [added: 135] electronic exchanges and market centers around the world.

Since our inception in 1977, we have focused on developing proprietary software to automate [removed: broker-dealer] [added: broker\-dealer] functions.

Our primary assets are our ownership of approximately [removed: 18.1%] [added: 18.5%] of the membership interests of IBG LLC, the current holding company for our businesses, and our controlling interest and related contractual rights as the sole managing member of IBG LLC.

The remaining approximately [removed: 81.9%] [added: 81.5%] of IBG LLC membership interests are held by Holdings, a holding company that is owned by our [removed: founder, Chairman] [added: founder] and [removed: Chief Executive Officer,] [added: Chairman,] Mr. Thomas Peterffy and his affiliates, management and other employees of IBG LLC, and certain other members.

[added: *Electronic Brokerage.*] As an electronic broker, we execute, clear and settle trades globally for both institutional and individual customers.

Capitalizing on our proprietary technology, [removed: IB’s] [added: our] systems provide our customers with the capability to monitor multiple markets around the world simultaneously and to execute trades electronically in these markets at a low cost, in multiple products and currencies from a single trading account.

We offer our customers access to all classes of tradable, primarily [removed: exchange-listed] [added: exchange\-listed] products, including stocks, [removed: bonds,] options, futures, [removed: forex and] [added: forex, bonds,] mutual funds [added: and ETFs] traded on more than [removed: 120] [added: 135 electronic] exchanges and market centers in [removed: 29] [added: 33] countries and in [removed: 24] [added: 25] currencies seamlessly around the world.

The emerging complexity of multiple market centers has provided us with the opportunity [removed: of building] [added: to build] and continuously [removed: adapting] [added: adapt] our order routing software to secure excellent execution prices.

Currently, approximately [removed: 68%] [added: 70%] of our customers reside outside the U.S. in over 200 countries and territories, and over 50% of new customers come from outside the U.S. Approximately 65% of our customers’ equity is in institutional accounts such as hedge funds, financial advisors, proprietary trading desks and introducing brokers.

For example, we offer prime brokerage services, including [removed: capital introduction] [added: financing] and securities lending to hedge funds; our model portfolio technology and automated share allocation and rebalancing tools are particularly attractive to financial advisors; and our trading [removed: platform] [added: platform, global access] and low pricing attract introducing brokers.

[removed: _Market Making._] As previously announced, we transferred our U.S. options market making operations to Two Sigma Securities, LLC effective September 29, 2017 and also exited the majority of our options market making activities outside the U.S. by December 31, 2017.

We intend to continue conducting certain proprietary trading activities in stocks and related instruments to facilitate our electronic brokerage customers’ trading in products such as ETFs, ADRs, CFDs and other financial instruments, as well as exchange-traded market making activities in a few select markets outside of the U.S. However, we do not expect the [removed: facilitation] [added: remaining] activity to be of sufficient size as to require reporting as a separate segment [removed: after we discontinue our options market making activities.][added: in the future.]

Among our customer base, volatility is [removed: strongly] [added: highly] correlated with customer trading activity across product types.

Institutional customers, such as hedge funds, mutual funds, introducing brokers, proprietary trading groups and financial advisors, comprised approximately [removed: 51%] [added: 50%] of total accounts and approximately 65% of total customer equity at the end of [removed: 2018.][added: 2019.]

The following is a summary of the key profit drivers that affect our business and how they compared to [removed: 2017:][added: 2018:]

[removed: _Global] [added: *Global] trading [removed: volumes._] [added: volumes.*] According to data received from [removed: exchanges worldwide,] [added: exchanges,] volumes in [removed: exchange-listed equity-based] [added: exchange\-listed equity\-based] options [removed: increased] [added: decreased] by approximately [removed: 27% globally and 23%] [added: 13%] in the U.S. for the year ended December 31, [removed: 2018,] [added: 2019,] compared to [removed: 2017.][added: 2018.]

See [removed: tables on pages [55-](#tTRADEV)[56](#tTRADEV2) of] [added: the “Trading Volumes and Brokerage Statistics” section below in] this [removed: Annual Report on Form 10-K] [added: Item 7] for additional details regarding our trade volumes, contract and share [removed: volumes] [added: volumes,] and brokerage statistics.

[removed: _Volatility._] [added: *Volatility.*] Based on the Chicago Board Options Exchange Volatility Index (“VIX®”), [removed: the] average U.S. market volatility [removed: increased] [added: decreased] to [removed: 16.6] [added: 15.4] in [removed: 2018, up 49%] [added: 2019, down 7%] from the average of [removed: 11.1] [added: 16.6] in [removed: 2017.][added: 2018.]

[removed: Higher] [added: Lower] volatility [removed: improves] [added: tends to curtail] our electronic brokerage performance because it generally corresponds to [removed: higher] [added: lower] trading volumes.

In [removed: 2018,] [added: 2019,] as the VIX [removed: increased,] [added: decreased,] we saw a [removed: positive] [added: negative] impact on customer trading activity, which [removed: rose 25%,] [added: decreased 6%,] and our commissions revenue, which [removed: rose 20%.][added: decreased 9%.]

[removed: _Interest Rates._] [added: *Interest Rates.*] The U.S. Federal Reserve [removed: continued its] [added: conducted a] series of [removed: increases] [added: reductions] in the target federal funds rate [added: in 2019,] with [removed: hikes] [added: rate cuts] in [removed: March, June,] [added: July,] September and [removed: December 2018,] [added: October,] while rates in other currencies were mixed.

Because we pay among the highest rates in the brokerage industry on qualified customer cash [removed: balances] [added: balances,] and charge among the lowest rates on margin borrowings, we attract customers who seek to maximize their yields and minimize their costs.

As our margin balances are tied to benchmark rates, [removed: rising] [added: declining] U.S. interest rates [removed: have enhanced] [added: reduce] the interest we receive on our U.S. dollar customer margin balances.

[removed: Rising] [added: Falling] rates also [removed: increase] [added: reduce] the interest we earn on our segregated cash, the majority of which is invested in U.S. government securities and related instruments.

[removed: Higher] [added: Lower] rates also [removed: raise] [added: reduce] our interest expense, as we pass along [removed: more] [added: the reduced] interest [added: rate] to our customers.

While the interest we pay on customer cash balances and the interest we earn on customer margin loans is based on fixed spreads around benchmark rates, additional net interest income is earned on [removed: non-interest bearing] [added: lower or non-interest-bearing] customer balances, e.g., on securities accounts with less than $100,000 in equity, and on rising balances.

Electronic brokerage net interest income grew [removed: 38%,] [added: 17%,] compared to [removed: 2017.][added: 2018.]

[removed: _Currency fluctuations._] [added: *Currency fluctuations.*] As a global electronic broker and market maker trading on exchanges around the world in multiple currencies, we are exposed to foreign currency risk.

During [removed: 2018] [added: 2019] the value of the GLOBAL, as measured in U.S. dollars, decreased [removed: 1.14%] [added: 0.06%] compared to its value as of December 31, [removed: 2017,] [added: 2018,] which had a negative impact on our comprehensive earnings for [removed: 2018.][added: 2019.]

A discussion of our approach for managing foreign currency exposure is contained in Part II, Item 7A of this Annual Report on Form [removed: 10-K] [added: 10\-K] entitled “Quantitative and Qualitative Disclosures about Market Risk.”

Diluted earnings per share were [removed: $2.28] [added: $2.10] for the year ended December 31, [removed: 2018] [added: 2019] (“current year”), compared to diluted earnings per share of [removed: $1.07] [added: $2.28] for the year ended December 31, [removed: 2017] [added: 2018] (“prior year”).

[removed: Diluted] [added: Adjusted diluted] earnings per share [removed: on comprehensive income] were [removed: $2.09] [added: $2.27] for the current year, compared to [removed: $1.22] [added: adjusted diluted earnings per share of $2.28] for the prior year.

[added: Corporate:] In connection with our currency diversification strategy (i.e., GLOBALs) as of December 31, [removed: 2018,] [added: 2019,] approximately 30% of our equity was denominated in currencies other than the U.S. dollar.

In the current year, our currency diversification strategy decreased our comprehensive earnings by [removed: $99] [added: $36] million (compared to [removed: an increase] [added: a decrease] of [removed: $175] [added: $99] million in the prior year), as the U.S. dollar value of the GLOBAL decreased by approximately [removed: 1.14%,] [added: 0.06%,] compared to its value as of December 31, [removed: 2017.][added: 2018.]

The effects of our currency diversification strategy are reported as (1) a component of other income [added: (loss of $60 million)] in the consolidated statement of comprehensive income and (2) [removed: OCI] [added: other comprehensive income (“OCI”) (gain of $24 million)] in the consolidated statement of financial condition and the consolidated statement of comprehensive income.

[removed: _Consolidated:_] [added: Consolidated*:*] For the current year, our net revenues were [removed: $1,903] [added: $1,937] million and income before income taxes was [removed: $1,196] [added: $1,157] million, compared to net revenues of [removed: $1,702] [added: $1,903] million and income before income taxes of [removed: $1,049] [added: $1,196] million in the prior year.

During 2019, we exited our Canadian market making operations.

During 2019, U.S. market volatility was generally lower than in the prior year, amid greater optimism about global economic growth and continued monetary easing by central banks.

Equity market indices around the globe were predominantly up, led by the U.S., where the S&P 500 index rose 29%.

U.S. interest rates were lowered three times by the Federal Reserve in 2019, nearly reversing all the rate hikes of the prior year, while trends in benchmark rates of other currencies were mixed.

In 2019, lower volatility led to decreases in trading volume, notably in the U.S., as our customers’ trading activity, which is sensitive to overall market trends, showed declines.

In addition, lower benchmark interest rates, which can be beneficial by reducing the rate of interest paid on customer cash, can also give us fewer opportunities to earn more net interest income on fully interest-sensitive balances.

In an improving market environment, with mainly lower interest rates and rising asset values, customer account growth was robust, with total customer accounts increasing 15% from 2018 to 690 thousand.

Healthy inflows from customers, combined with securities market increases that generally benefited customers’ investment values, led to customer equity growth of 36% to $174.1 billion.

Further, U.S. volumes decreased in exchange-listed futures by 19% and in equities by 20%, due to the decline in volatility among other factors.

Decreases in benchmark rates can lead to lower net interest income and a narrower net interest margin.

Higher net interest income was due to rising average customer credit balances, up 9% in 2019, in part due to an inflow of new accounts, along with expanded prime broker financing and strong securities lending activity.

This was partly offset by average customer margin loan balances decreasing 9%, due to our customers’ reduced appetite for leverage as compared to 2018.

In the fourth quarter of this year, we introduced the reporting of non-GAAP financial measures, which exclude certain items that may not be indicative of our core operating results and business outlook and may be useful in evaluating the operating performance of our business and provide a better comparison of our results in the current period to those in prior and future periods.

See the “Non-GAAP Financial Measures” section below in this Item 7 for additional details.

Adjusted net revenues were $1,984 million and adjusted income before income taxes was $1,246 million, compared to adjusted net revenues of $1,913 million and adjusted income before income taxes of $1,206 million in the prior year.

During the year ended December 31, 2019, we recognized a net aggregate loss of approximately $42 million.

In June 2018 we consummated a strategic investment in Up Fintech Holding Limited (“Tiger Brokers”) by purchasing preferred shares that represented a 7.4% beneficial ownership interest.

On March 20, 2019, Tiger Brokers priced its initial public offering of American Depositary Shares listed on Nasdaq Global Select market and, concurrently with their initial public offering, we purchased unregistered ordinary shares in Tiger Brokers through a private placement offering which transactions resulted in a beneficial ownership interest of 7.6%.

For the year ended December 31, 2019 we recognized a net mark-to-market gain of $9 million on this investment.

Retail transaction volumes may not be sustainable and are not predictable.

Changes in interest rates may not be predictable.

New legislation or modifications to existing regulations and rules could occur in the future.

A driver of our market making profits is the relationship between actual and implied volatility in the equities markets.

Hence, our profitability is increased when actual volatility runs above implied volatility and it is decreased when actual volatility falls below implied volatility.

Implied volatility tends to lag actual volatility.

The table below presents our consolidated results of operations for the periods indicated.

| General and administrative | | | 112 | | | 96 | | | 86 |

| | | | | | | | | | |

| | | | | | | | | | |

| | | | | | | | | | |

| Net income available for common stockholders | | $ | 161 | | $ | 169 | | $ | 76 |

| | | | | | | | | | |

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | | Year-Ended December 31, | | | | |

| | | 2019 | | 2018 | | 2017 |

| | | | | | | |

| Commissions | | 36% | | 41% | | 38% |

| Other income | | 6% | | 8% | | 20% |

| Total revenues | | 133% | | 124% | | 113% |

| --- | --- | --- |

In connection with our IPO priced on May 3, 2007, IBG, Inc. purchased 10.0% of the membership interests in IBG LLC, became the sole managing member of IBG LLC and began to consolidate IBG LLC’s financial results into its financial statements.

_Electronic Brokerage._ We conduct our electronic brokerage business through certain Interactive Brokers (“IB”) subsidiaries.

We provide a host of analytical and business tools such as Investors’ MarketplaceSM, which allows wealth advisors to search for money managers and assign them to customer accounts based on their investment strategy.

EmployeeTrackSM is widely used by compliance officers of financial institutions to streamline the process of tracking their employees’ brokerage activities.

The Probability Lab® allows our customers to analyze option strategies under various market assumptions.

Risk NavigatorSM is a real-time market risk management platform that allows our customers to measure risk exposure across multiple asset classes around the globe.

Portfolio BuilderSM allows our customers to set up an investment strategy based on research and rankings from top research providers and fundamental data.

IBKR Asset Management recruits registered financial advisors, vets them, analyzes their investment track records, groups them by their risk profile, and allows retail investors to assign their accounts to be traded by one or more advisors.

In addition, our Greenwich Compliance affiliate offers direct expert registration and start-up compliance services, as well as answers to basic day-to-day compliance questions for experienced investors and traders looking to start their own investment advisor firms.

Greenwich Compliance professionals have regulatory and industry experience, and they can help investment advisors trading on the IB platform meet their registration and compliance needs.

We have recently expanded the range of financial services we offer our customers through our Integrated Investment Management program, where customers can perform many different types of transactions from a single account.

Our Interactive Brokers Debit Mastercard® allows customers to spend and borrow directly against their account and to make purchases and ATM withdrawals anywhere Debit Mastercard® is accepted around the world.

Our Insured Bank Deposit Sweep Program provides customers with up to $2,500,000 of Federal Deposit Insurance Corporation (“FDIC”) insurance on their eligible cash balances in addition to the existing $250,000 Securities Investor Protection Corporation (“SIPC”) coverage, for a maximum coverage of $2,750,000.

Bill Pay allows customers to make electronic or check payments in the U.S. It can be configured for one-time or recurring payments and permits customers to schedule future payments.

In addition, our customers can now have their paychecks or other recurring payments directly deposited into their brokerage account.

As a market maker, in the few select markets in which we operate, we provide liquidity by offering competitively tight bid/offer spreads over a broad base of tradable, exchange-listed products.

As principal, we commit our own capital and derive revenues or incur losses from the difference between the price paid when securities are bought and the price received when those securities are sold.

Because we provide continuous bid and offer quotations and we are continuously both buying and selling quoted securities, we may have either a long or a short position in a particular product at a given point in time.

Our entire portfolio is evaluated many times per second and continuously rebalanced throughout the trading day, thus minimizing the risk of our portfolio at all times.

The operating business segments are supported by our corporate segment which provides centralized services and executes our currency diversification strategy.

During 2018, U.S. market volatility was significantly higher than in the prior year, reflecting greater geopolitical and economic uncertainty.

Equity market indices around the globe were predominantly down, with the S&P 500 index declining 6%, less than the more substantial declines in most European and Asian markets.

U.S. interest rates continued on an upward path, while trends in benchmark rates of other currencies were mixed.

With positive customer account and asset growth, we would expect our customers’ trading activity to outpace general market volume measures, especially in periods with higher volatility.

In addition, higher benchmark interest rates give us an opportunity to earn more net interest income on fully interest-sensitive assets.

Amid this uncertain market environment, customer account growth remained robust, with total customer accounts increasing 24% from 2017 to 598 thousand.

Customer equity increased 3% to $128.4 billion as healthy inflows from customers more than offset securities market declines impacting customers’ existing positions.

During 2018 we accounted for approximately 4.2% (5.1% in 2017) of the exchange-listed equity-based options volume traded worldwide (including options on ETFs and stock index products), and approximately 6.5% (7.7% in 2017) of exchange-listed equity-based options volume traded in the U.S. This decrease was primarily due to exiting our options market making activities in the U.S. It is important to note that although options volume is a readily comparable measure, it reflects only a portion of the volume that generates our commission revenues.

Increases in benchmark rates have generally led to higher net interest income and wider net interest margin.

During this time, average customer credit balances rose 6% due, in part, to an inflow of new accounts, and average customer margin loan balances increased 26%, due to our customers’ appetite for increased leverage, along with expanded prime broker financing.

The results for the prior year were negatively impacted by the effects of the Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017.

As a result of the Tax Act, the prior year includes a net reduction in consolidated earnings of approximately $84 million, of which $62 million was due to the one-time repatriation tax and a net $22 million was related to the remeasurement of our U.S. deferred tax assets at lower enacted corporate tax rates.

Margin shortfalls were met in a timely manner by delivery of additional shares by the customers.

Through February 27, 2019, the Company has recognized an aggregate loss of approximately $47 million.

The Company is currently evaluating pursuing the collection of the debts.

Our Risk Management Committee continuously monitors and evaluates our risk management policies, including the implementation of policies and procedures to enhance the detection and prevention of these types of events.

_Market Making:_ For the current year, income before income taxes in our market making segment increased $61 million, to a gain of $34 million compared to the prior year, primarily due to lower operating costs on the remaining operations and the non-recurrence of two items recognized in the prior year: $25 million in one-time exit costs related to the wind-down of our options market making business, partially offset by an $11 million gain on the transfer of our U.S. market making business.

As of December 31, 2018, on a prospective basis, approximately 98% of the resources related to the $40 million in annual net expenses have been transferred to the electronic brokerage segment and the majority of the remaining 2% is expected to be transferred during 2019.

We intend to continue conducting certain proprietary trading activities in stocks and related instruments to facilitate our electronic brokerage customers’ trading in products such as ETFs, ADRs, CFDs and other financial instruments, as well as exchange-traded market making activities in a few select markets outside of the U.S. However, we do not expect the facilitation activities to be of sufficient size as to require reporting as a separate segment after we discontinue our options market making activities.

Our exposures to market risks arise from assumptions built into our pricing models, equity price risk, foreign currency exchange rate fluctuations related to our international operations, changes in interest rates [removed: which impact our variable-rate debt obligations, if any,] and risks relating to the extension of margin credit to our customers.

Generally, we incur [removed: trading-related] [added: trading\-related] market risk as a result of activities in the market making segment, where the substantial majority of our [removed: Value-at-Risk] [added: Value\-at\-Risk] (“VaR”) for market risk exposures is generated.

In addition, we incur [removed: non-trading-related] [added: non\-trading\-related] market risk primarily from investment activities and from foreign currency exposure held in the equity of our foreign [removed: affiliates,] [added: subsidiaries,] i.e., our [removed: non-U.S.] [added: non\-U.S.] brokerage [removed: affiliates] [added: subsidiaries] and information technology [removed: affiliates,] [added: subsidiaries,] and held to meet target balances in our currency diversification strategy.

We use various risk management tools in managing our market risk, which are embedded in our [removed: real-time] [added: real\-time] market making systems.

Our [added: market making] strategy is to calculate quotes a few seconds ahead of the market and execute small trades at a tiny but favorable differential as a result.

Under risk management policies implemented and monitored primarily through our computer systems, reports to management, including risk profiles, profit and loss analysis and trading performance, are prepared on a [removed: real-time] [added: real\-time] basis as well as daily and periodical bases.

Our assets and liabilities are [removed: marked-to-market] [added: marked\-to\-market] daily for financial reporting purposes and [removed: re-valued] [added: re\-valued] continuously throughout the trading day for risk management and asset/liability management purposes.

[removed: _Pricing] [added: Pricing] Model [removed: Exposure_][added: Exposure]

[removed: _Foreign] [added: Foreign] Currency [removed: Exposure_][added: Exposure]

[removed: | | • | IBKRFS buys and sells securities denominated in various currencies and carries bank balances and borrows and lends such currencies in its regular course of business. At the end of each accounting period, IBKRFS’ assets and liabilities are revalued into Swiss francs for presentation in its financial statements.] The resulting foreign currency gains or losses are reported in IBKRFS’ income statement and, as translated into U.S. dollars for U.S. GAAP purposes, in our consolidated statement of comprehensive [removed: income,] [added: income] as a component of other income. [removed: |]

[removed: | | • | IBKRFS’ financial statements are presented in Swiss francs (i.e., its functional currency) as noted above.] At the end of each accounting period, IBKRFS’ net worth is translated at the then prevailing exchange rate into U.S. dollars and the resulting translation gain or loss is reported as OCI in our consolidated statement of financial condition and consolidated statement of comprehensive income. [removed: OCI is also produced by our other non-U.S. subsidiaries. |]

Historically, we have taken the approach of not hedging the above exposures, based on the notion that the cost of constantly hedging over the years would amount to more than the random impact of rate changes on our [removed: non-U.S.] [added: non\-U.S.] dollar balances.

The U.S. dollar value of the GLOBAL decreased [removed: from $ 0.978 to $ 0.967, or 1.14%,] [added: 0.06%] as of December 31, [removed: 2018] [added: 2019] compared to December 31, [removed: 2017.][added: 2018.]

As of December 31, [removed: 2018,] [added: 2019,] approximately 30% of our equity was denominated in currencies other than the U.S. dollar.

The table below [removed: shows] [added: presents] a comparison of the U.S. dollar equivalent of the GLOBAL [removed: as of December 31, 2018 and 2017.][added: for the periods indicated.]

| Currency | [removed: Composition] | [removed: |] [added: Composition] | FX Rate | | [removed: | GLOBAL in USD] [added: USD] Equiv. | | | [removed: % of Comp.] | [removed: |] [added: Comp.] | [removed: Net Equity (in] [added: (in] USD millions) | | | FX Rate | | [removed: | GLOBAL in USD] [added: USD] Equiv. | | | [removed: % of Comp.] | [removed: |] [added: Comp.] | [removed: Net Equity (in] [added: (in] USD millions) | | | [removed: CHANGE in %] [added: %] of Comp. | | [removed: |]

| USD | | 0.68 | | [removed: |] 1.0000 | | | 0.680 | | [removed: | 69.5] [added: 70.3%] | [removed: %] | $ | [removed: 4,471 |] [added: 5,031] | | 1.0000 | | | 0.680 | | [removed: | 70.3] [added: 70.3%] | [removed: %] | $ | [removed: 5,031 | |] [added: 5,586] | [removed: 0.8] | [removed: %] [added: 0.0%] |

| CHF | | 0.02 | | [removed: | 1.0263 | | | 0.021 | |] [added: 1.0190] | [removed: 2.1] | [removed: %] | [added: 0.020] | [removed: 135] | [added: 2.1%] | | [removed: 1.0190] | [added: 151] | | [removed: 0.020] [added: 1.0334] | | | [removed: 2.1] [added: 0.021] | [removed: %] | [added: 2.1%] | [removed: 151] | | [added: 170] | [removed: 0.0] | [removed: %] [added: 0.0%] |

| MXN | | 0.17 | | [removed: |] 0.0509 | | | 0.009 | | [removed: | 0.9 | %] [added: 0.9%] | | [removed: 57] | [added: 64] | | [removed: 0.0509] [added: 0.0528] | | | 0.009 | | [removed: | 0.9 | % |] [added: 0.9%] | [removed: 64] | | [added: 74] | [removed: 0.0] | [removed: %] [added: 0.0%] |

| DKK | | 0.02 | | [removed: | 0.1612] [added: 0.1536] | | | 0.003 | | [removed: | 0.3 | %] [added: 0.3%] | | [removed: 21] | [added: 23] | | [removed: 0.1536] [added: 0.1501] | | | 0.003 | | [removed: | 0.3 | % |] [added: 0.3%] | [removed: 23] | | [added: 25] | [removed: 0.0] | [removed: %] [added: 0.0%] |

[removed: _Interest] [added: Interest] Rate [removed: Risk_][added: Risk]

We had no [removed: variable-rate] [added: variable\-rate] debt outstanding as of December 31, [removed: 2018.][added: 2019.]

We pay our electronic brokerage customers interest based on benchmark overnight interest rates in various currencies, on cash balances above $10 thousand (or equivalent) in securities accounts holding more than $100 thousand [added: and at lower, tiered rates for accounts holding less than $100 thousand] (or equivalent) net asset value.

Based on customer balances and investments outstanding as of December 31, [removed: 2018,] [added: 2019,] and assuming reinvestment of maturing instruments in instruments of short-term duration, an unexpected increase of 0.25% over current U.S. dollar interest rate levels would increase our net interest income by approximately [removed: $15] [added: $20] million over the first year and [removed: $16] [added: $22] million on an annualized basis, assuming the full effect of reinvestment at higher rates.

Based on customer balances and investments outstanding as of December 31, [removed: 2018,] [added: 2019,] and assuming reinvestment of maturing instruments in instruments of short-term duration, an unexpected decrease in U.S. dollar interest rates of 0.25% would decrease our net interest income by approximately [removed: $7] [added: $17] million over the first year and [removed: $16] [added: $22] million on an annualized basis, assuming the full effect of reinvestment at lower rates.

[removed: _Dividend Risk_][added: Dividend Risk]

[removed: _Margin Loans_][added: Margin Loans]

Because we indemnify and hold harmless our clearing [removed: firms] [added: houses and counterparties] from certain liabilities or claims, the use of margin loans and short sales may expose us to significant [removed: off-balance-sheet] [added: off\-balance\-sheet] risk in the event that collateral requirements are not sufficient to fully cover losses that customers may incur and those customers fail to satisfy their obligations.

As of December 31, [removed: 2018,] [added: 2019,] we had [removed: $27.0] [added: $31.3] billion in margin loans extended to our customers.

As a matter of practice, we enforce [removed: real-time] [added: real\-time] margin compliance monitoring and liquidate customers’ positions if their equity falls below required margin requirements.

Our credit exposure is to a great extent mitigated by our policy of automatically evaluating each account throughout the trading day and closing out positions automatically for accounts that are found to be [removed: under-margined.][added: under\-margined.]

[removed: _Value-at-Risk_][added: Value\-at\-Risk]

Our [removed: one-day] [added: one\-day] VaR is defined as the unrealized loss in portfolio value that, based on historically observed market risk factors, would have been exceeded with a frequency of one percent, based on a calculation with a confidence interval of 99%.

[removed: _Stress Test_][added: Stress Test]

| Market Risk Category | [removed: At December 31, 2018] | | [added: 2019] | [removed: At December 31, 2017] | | [added: 2018] | [removed: Average 2018] | | [added: 2019] | [removed: High 2018] | | [added: 2019] |

| | [removed: (in millions)] | | [added: (in millions)] | | | | | | | | | |

| [removed: Trading(1)] [added: Trading (1)] | | | | | | | | | | | | |

| Equities and [removed: Currencies(2)] [added: Currencies (2)] | [added: |] $ | 7 | | $ | 7 | | $ | [removed: 8] [added: 7] | | $ | [removed: 9 |] [added: 8] |

| Fixed [removed: Income(3)] [added: Income (3)] | | [removed: —] | [added: \-] | | [removed: —] | [added: \-] | | [removed: —] | [added: \-] | | [removed: —] | [added: \-] |

| Trading Total | [added: |] $ | 7 | | $ | 7 | | $ | [removed: 8] [added: 7] | | $ | [removed: 9 |] [added: 8] |

IBKRFS buys and sells securities denominated in various currencies and carries bank balances and borrows and lends such currencies in its regular course of business.

At the end of each accounting period, IBKRFS’ assets and liabilities are revalued into Swiss francs for presentation in its financial statements.

IBKRFS’ financial statements are presented in Swiss francs (i.e., its functional currency) as noted above.

OCI is also produced by our other non\-U.S. subsidiaries.

| | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | As of 12/31/2018 | | | | | | | | | | As of 12/31/2019 | | | | | | | | | | |

| | | | | | GLOBAL in | | | | % of | Net Equity | | | | | GLOBAL in | | | | % of | Net Equity | | | CHANGE in | |

| EUR | | 0.09 | | 1.1467 | | | 0.103 | | 10.7% | | | 763 | | 1.1213 | | | 0.101 | | 10.4% | | | 829 | | \-0.2% |

| JPY | | 4.41 | | 0.0091 | | | 0.040 | | 4.2% | | | 298 | | 0.0092 | | | 0.041 | | 4.2% | | | 333 | | 0.0% |

| GBP | | 0.02 | | 1.2760 | | | 0.026 | | 2.6% | | | 189 | | 1.3261 | | | 0.027 | | 2.7% | | | 218 | | 0.1% |

| HKD | | 0.14 | | 0.1277 | | | 0.018 | | 1.8% | | | 132 | | 0.1284 | | | 0.018 | | 1.9% | | | 147 | | 0.0% |

| INR | | 1.10 | | 0.0144 | | | 0.016 | | 1.6% | | | 117 | | 0.0140 | | | 0.015 | | 1.6% | | | 126 | | 0.0% |

| CAD | | 0.02 | | 0.7332 | | | 0.015 | | 1.5% | | | 108 | | 0.7699 | | | 0.015 | | 1.6% | | | 127 | | 0.1% |

| CNH | | 0.10 | | 0.1456 | | | 0.015 | | 1.5% | | | 108 | | 0.1437 | | | 0.014 | | 1.5% | | | 118 | | 0.0% |

| AUD | | 0.02 | | 0.7052 | | | 0.014 | | 1.5% | | | 104 | | 0.7017 | | | 0.014 | | 1.5% | | | 115 | | 0.0% |

| SEK | | 0.05 | | 0.1129 | | | 0.006 | | 0.6% | | | 42 | | 0.1068 | | | 0.005 | | 0.6% | | | 44 | | 0.0% |

| NOK | | 0.03 | | 0.1157 | | | 0.003 | | 0.4% | | | 26 | | 0.1139 | | | 0.003 | | 0.4% | | | 28 | | 0.0% |

| | | | | | | | 0.967 | | 100.0% | | $ | 7,156 | | | | | 0.967 | | 100.0% | | $ | 7,940 | | 0.0% |

The amount of such risk cannot be quantified, however, the reduction of market making positions has substantially reduced this exposure.

Our Risk Management Committee continuously monitors and evaluates our risk management policies, including the implementation of policies and procedures to enhance the detection and prevention of theoretical events to mitigate margin loan losses.

| | | | | | | | | | | | | |

| | | | At December 31, | | | At December 31, | | | Average | | | High |

| | | | | | | | | | | | | |

| | | | | | | | | | | | | |

___________________________

The average and high VaR amounts for equities and currencies are based on end of day calculations performed in 2019.

The risks on these products were managed separately and measured using the stress test analysis.

| --- | --- | --- |

| | | | | As of 12/31/2017 | | | | | | | | | | | | As of 12/31/2018 | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| EUR | | 0.09 | | | 1.1998 | | | 0.108 | | | 11.0 | % | | 710 | | | 1.1467 | | | 0.103 | | | 10.7 | % | | 763 | | | –0.4 | % |

| JPY | | 4.41 | | | 0.0089 | | | 0.039 | | | 4.0 | % | | 257 | | | 0.0091 | | | 0.040 | | | 4.2 | % | | 298 | | | 0.2 | % |

| GBP | | 0.02 | | | 1.3514 | | | 0.027 | | | 2.8 | % | | 178 | | | 1.2760 | | | 0.026 | | | 2.6 | % | | 189 | | | –0.1 | % |

| HKD | | 0.14 | | | 0.1280 | | | 0.018 | | | 1.8 | % | | 118 | | | 0.1277 | | | 0.018 | | | 1.8 | % | | 132 | | | 0.0 | % |

| INR | | 1.10 | | | 0.0157 | | | 0.017 | | | 1.8 | % | | 113 | | | 0.0144 | | | 0.016 | | | 1.6 | % | | 117 | | | –0.1 | % |

| CAD | | 0.02 | | | 0.7950 | | | 0.016 | | | 1.6 | % | | 105 | | | 0.7332 | | | 0.015 | | | 1.5 | % | | 108 | | | –0.1 | % |

| CNH | | 0.10 | | | 0.1535 | | | 0.015 | | | 1.6 | % | | 101 | | | 0.1456 | | | 0.015 | | | 1.5 | % | | 108 | | | –0.1 | % |

| AUD | | 0.02 | | | 0.7802 | | | 0.016 | | | 1.6 | % | | 103 | | | 0.7052 | | | 0.014 | | | 1.5 | % | | 104 | | | –0.1 | % |

| SEK | | 0.05 | | | 0.1219 | | | 0.006 | | | 0.6 | % | | 40 | | | 0.1129 | | | 0.006 | | | 0.6 | % | | 42 | | | 0.0 | % |

| NOK | | 0.03 | | | 0.1218 | | | 0.004 | | | 0.4 | % | | 24 | | | 0.1157 | | | 0.003 | | | 0.4 | % | | 26 | | | 0.0 | % |

| | | | | | | | | 0.978 | | | 100.0 | % | $ | 6,433 | | | | | | 0.967 | | | 100.0 | % | $ | 7,156 | | | 0.0 | % |

The amount of such risk cannot be quantified.

We specialize in routing orders while striving to achieve best executions and processing trades in [removed: securities,] [added: stocks, options,] futures, foreign exchange [removed: instruments, bonds and] [added: instruments (“forex”), bonds,] mutual funds [added: and exchange traded funds (“ETFs”)] on more than [removed: 120] [added: 135] electronic exchanges and market centers around the world.

In the United States of America (“U.S.”), we conduct our business primarily from our headquarters in Greenwich, [removed: Connecticut] [added: Connecticut,] and from Chicago, Illinois.

Abroad, we conduct our business through offices located in Canada, the United Kingdom, [added: Luxembourg,] Switzerland, India, China (Hong Kong and Shanghai), Japan, and Australia.

As of December 31, [removed: 2018] [added: 2019,] we had [removed: 1,413] [added: 1,643] employees worldwide.

IBG, Inc. is a holding company whose primary asset is the ownership of approximately [removed: 18.1%] [added: 18.5%] of the membership interests of IBG LLC (the “Group”), the current holding company for our businesses.

When we use the terms “we,” “us,” and “our,” we mean [removed: IBG LLC and its subsidiaries for periods prior to the IPO, and] IBG, Inc. and its subsidiaries (including IBG [removed: LLC) for periods from and after the IPO.][added: LLC).]

Unless otherwise indicated, the [removed: term] [added: terms] “common stock” [removed: refers] [added: and “IBKR shares” refer] to the Class A common stock of IBG, Inc.

We are a successor to the market making business founded by our [removed: Chairman and Chief Executive Officer,] [added: Chairman,] Mr. Thomas Peterffy, on the floor of the American Stock Exchange in 1977.

Since our inception, we have focused on developing proprietary software to automate [removed: broker-dealer] [added: broker\-dealer] functions.

The proliferation of electronic exchanges [removed: in] [added: since] the [removed: last 28 years] [added: early 1990s] has provided us with the opportunity to integrate our software with an increasing number of exchanges and market centers to create one automatically functioning, computerized platform that requires minimal human intervention.

Over four decades of developing our automated trading platforms and our automation of many middle and back office functions have allowed us to become one of the lowest cost providers of [removed: broker-dealer] [added: broker\-dealer] services and significantly increase the volume of trades we handle.

Our activities are divided into two principal business segments: [removed: (1)] electronic brokerage and [removed: (2)] market making (being [removed: discontinued):][added: discontinued).]

We intend to continue conducting certain proprietary trading activities in stocks and related instruments to facilitate our electronic brokerage customers’ trading in products such as ETFs, ADRs, CFDs and other financial instruments, as well as exchange-traded [removed: options] market making activities in a few select markets outside of the U.S. However, we do not expect the facilitation activity to be of sufficient size as to require reporting as a separate segment [removed: after we discontinue our options market making activities.][added: in the near future.]

Our brokerage system [removed: contains] [added: features] unique architectural aspects that may impose a significant barrier to entry for firms wishing to compete in this business and permit us to compete favorably against our competitors.

We make available free of charge, on or through the investor relations section of our website, this Annual Report on Form [removed: 10-K,] [added: 10\-K,] Quarterly Reports on Form [removed: 10-Q, related Interactive Data exhibits,] [added: 10\-Q,] Current Reports on Form [removed: 8-K] [added: 8\-K] and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as proxy statements, registration statements, prospectus supplements, and Section 16 filings for our directors and officers, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”).

Within the time periods required by SEC and the [removed: Investors Exchange] [added: Nasdaq Stock Market] LLC [removed: (“IEX”),] [added: (“Nasdaq”),] we will post on our website any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior financial officer.

In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, as well as disclosure relating to certain [removed: non-GAAP] [added: non\-GAAP] financial measures, if any, (as defined in Regulation G) promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time.

Our Investor Relations Department can be contacted at Interactive Brokers Group, Inc., [removed: Eight Greenwich Office Park,] [added: Two Pickwick Plaza,] Greenwich, Connecticut [removed: 06831,] [added: 06830,] Attn: Investor Relations, telephone: [removed: 203-618-4070, e-mail: investor-relations@interactivebrokers.com.][added: 203\-618\-4070, e\-mail: investor\-relations@interactivebrokers.com.]

[removed: ][added: Description automatically generated](https://www.sec.gov/Archives/edgar/data/1381197/000138119720000006/ibkr-20191231x10kg001.jpg)]

[removed: | | (1) | In] [added: (1)In] connection with redemption transactions in 2018, as of December 31, [removed: 2018,] [added: 2019,] IBG Holdings LLC held for sale for the benefit of certain of its members [removed: 887,708] [added: 869,135] shares of IBG, Inc. Class A common stock, representing an additional 0.21% of the voting interests in IBG, Inc. [removed: See “Use of Proceeds” in Part II, Item 5 of this Annual Report on Form 10-K. |]

Our primary assets are our ownership of approximately [removed: 18.1%] [added: 18.5%] of the membership interests of IBG LLC, the current holding company for our businesses, and our controlling interest and related contractual rights as the sole managing member of IBG LLC.

The remaining approximately [removed: 81.9%] [added: 81.5%] of IBG LLC membership interests are held by IBG Holdings LLC (“Holdings”), a holding company that is owned directly and indirectly by our [removed: founder, Chairman] [added: founder] and [removed: Chief Executive Officer,] [added: Chairman,] Mr. Thomas Peterffy and his affiliates, management and other employees of IBG LLC, and certain other members.

The [removed: below] table [removed: shows] [added: below presents] the amount of IBG LLC membership interests held by IBG, Inc. and Holdings as of December 31, [removed: 2018.][added: 2019.]

| | [added: |] IBG, Inc. | | [removed: |] Holdings | | [removed: |] Total | [removed: | |]

Purchases of IBG LLC membership interests, held by Holdings, by the Company are governed by the exchange agreement among us, IBG LLC, Holdings and the historical members of IBG LLC, (the “Exchange Agreement”), a copy of which was filed as an exhibit to our Quarterly Report on Form [removed: 10-Q] [added: 10\-Q] for the quarter ended September 30, 2009 and filed with the SEC on November 9, 2009.

[removed: In] [added: Periodically since] June 2011, with the consent of Holdings and the Company (on its own behalf and acting as the sole managing member of IBG LLC), IBG LLC [added: has] agreed to redeem certain membership interests from Holdings through the sale of common stock and to distribute the proceeds of such sale to the beneficial owners of such membership interests.

[removed: Under these shelf registration statements,] [added: From 2011 through 2019,] the Company issued [removed: 15,396,082] [added: 15,417,157] shares of common stock (with a fair value of [removed: $505] [added: $506] million) to Holdings in exchange for an equivalent number of shares of member interests in IBG LLC.

[removed: _Electronic Brokerage - Interactive Brokers_][added: *Electronic Brokerage*]

Electronic brokerage represented [removed: 96%] [added: 97%] of net revenues and [removed: 97%] [added: 98%] of income before income taxes from electronic brokerage and market making combined during [removed: 2018.][added: 2019.]

Since launching this business in 1993, we have grown to approximately [removed: 598] [added: 690] thousand institutional and individual brokerage customers.

We provide our customers with what we believe to be one of the most effective and efficient electronic brokerage platforms in the [removed: industry.][added: industry, which includes advanced order management, trade execution and portfolio management.]

[removed: | | • | _Automated Risk Controls_ - Throughout the trading day, we calculate margin requirements for each of our customers on a real-time basis across all product classes (stocks, options, futures, bonds, forex and mutual funds) and across all currencies.] Our customers are alerted to approaching margin violations and if a customer’s equity falls below what is required to support that customer’s margin, we attempt to automatically liquidate positions on a [removed: real-time] [added: real\-time] basis to bring the customer’s account into margin compliance. [removed: This is done to protect IB, as well as the customer, from excessive losses. |]

[removed: | | • | _IBK__R Integrated_ _Investment Account_ -] [added: *IBKR Integrated Investment Account -*] From a single point of entry in one IBKR Integrated Investment Account our customers are able to transact in [removed: 24] [added: 25] currencies, across multiple classes of tradable, primarily [removed: exchange-listed products, including stocks, options, futures, bonds, forex and mutual funds] [added: exchange\-listed products] traded on more than [removed: 120] [added: 135 electronic] exchanges and market centers in [removed: 29] [added: 33] countries around the world seamlessly. [removed: |]

[removed: | | • | _IB SmartRouting__SM_ - Our customers benefit from our advanced order routing technology.] [added: *IB SmartRoutingSM* *–*] IB SmartRoutingSM retains control of the customer’s order, continuously searches for the best available price and, unlike most other routers, dynamically routes and [removed: re-routes] [added: re\-routes] all or parts of a customer’s order to achieve optimal execution and among the lowest execution and commission costs in the industry. [removed: To highlight the quality of our price executions, we publish on our website independent measurements performed by a third party provider of transaction analysis to illustrate IB’s net price improvement versus the industry. We also offer Transaction Cost Analysis reporting to allow customers to track execution performance using multiple criteria. |]

[removed: | | • | _Interactive Analytics__SM_ _and IB Option Analytics__SM_ -] We [removed: offer our customers state-of-the-art tools, which include a customizable trading platform, advanced analytic tools and over 60 sophisticated order types and algorithms. We] also provide a [removed: real-time] [added: real\-time] option analytics window which displays values that reflect the rate of change of an option’s price with respect to a unit change in each of a number of risk dimensions. [removed: |]

[removed: | | • | _Probability Lab__®_ _(Patent Pending)_ - The Probability Lab provides customers with an intuitive, visual method to analyze market participants’ future stock price forecasts based on current option prices.] This tool compares a customer’s stock price forecast versus that of the market, and scans the entire option universe for the highest Sharpe ratio [removed: multi-leg] [added: multi\-leg] option strategies that take advantage of the customer’s forecast. [removed: |]

[removed: | | • | _White Branding_ - Our large financial advisor and broker-dealer customers may “white brand” our trading interface, account management and reports with their firm’s identity.] Broker-dealer customers can also select from among our modular functionalities, such as order routing, trade reporting or clearing, on specific products or exchanges where they may not have [removed: up-to-date] [added: up\-to\-date] technology, in order to offer to their customers a complete global range of services and products. [removed: |]

[removed: | | • | _Investors’ Marketplace_ - The Investors’ Marketplace is an expansion of our Money Manager Marketplace and our Hedge Fund Capital Introduction program.] This program is the first electronic meeting place that brings together individual investors, financial advisors, money managers, fund managers, research analysts, technology providers, business developers and administrators, allowing them to interact to form connections and conduct business. [removed: |]

[removed: | | • | _Trade Desk_ -] [added: *Trade Desk -*] We offer [removed: broker-assisted] [added: broker\-assisted] trading through our block trade desk, which is ideal when customers are away from their computer; and through our corporate bond desk, for times when large customer orders need access to more liquidity than is currently available electronically. [removed: |]

[removed: | | • | _Model Portfolios_ - Model Portfolios offer advisors an efficient and time-saving approach to investing customer assets.] They allow advisors to create groupings of financial instruments based on specific investment themes, and then invest customer funds into these models. [removed: |]

For a description of these segments and the products and services they provide, refer to “Business Segments” below in this Item 1.

![A close up of a map

___________________________

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | Ownership % | 18.5% | | 81.5% | | 100.0% |

| | Membership interests | 76,759,595 | | 338,670,642 | | 415,430,237 |

Our key product offerings include:

*IBKR ProSM* is the traditional IBKR service designed for sophisticated investors.

IBKR ProSM offers the lowest cost access to stocks, options, futures, forex, bonds, mutual funds and ETFs on over 135 electronic exchanges and market centers in 33 countries.

*IBKR LiteSM* is a new offering that provides unlimited commission-free trades on U.S. exchange-listed stocks and ETFs as well as low cost access to global markets without required account minimums or inactivity fees to participating U.S. customers.

IBKR LiteSM was designed to meet the needs of investors who are seeking a simple, commission-free way to trade U.S. exchange-listed stocks and ETFs and do not wish to consider our efforts to obtain greater price improvement through our IB SmartRoutingSM system.

Our offering features a suite of cash management services, including:

Customers can use their card to make purchases and ATM withdrawals anywhere Debit Mastercard®1 is accepted around the world.

___________________________

1 Debit Mastercard is a trademark registered to Mastercard International Incorporated Corporation, Delaware, 2000 Purchase Street, Purchase, New York 10577-2405.

Customers continue earning the same competitive interest rates currently applied to cash held in their brokerage accounts with us.

We sweep each participating customer’s eligible cash balances daily to one or more banks, up to $246,500 per bank, allowing for the accrual of interest and keeping within the FDIC protected threshold.

Cash balances above $2,750,000 remain subject to safeguarding under the SEC's Customer Protection Rule 15c3-3.

*Investors’ MarketplaceSM* *-* The Investors’ MarketplaceSM is an expansion of our Money Manager Marketplace and our Hedge Fund Capital Introduction program.

*Fractional Trading* – Fractional Trading allows customers to buy and sell using a cash quantity or fractional shares, which are stock units that amount to less than one full share.

This new functionality allows customers to purchase as little as $1 of almost any U.S. stock, experiment with trading and investing without committing substantial sums of money, and learn about building and rebalancing diversified portfolios.

For all customers, our platform offers:

*Low Costs -* We provide our customers with among the industry’s lowest overall transaction costs in two ways.

First, we offer among the lowest execution, commission and financing costs in the industry.

Second, our IBKR ProSM customers benefit from our advanced routing of orders designed to achieve the best available trade price.

To highlight the quality of our price executions, we publish on our website independent measurements performed by a third-party provider of transaction analysis to illustrate our net price improvement for commissionable trades versus the industry.

We also offer Transaction Cost Analysis reporting to allow customers to track execution performance using multiple criteria.

Our IBKR ProSM customers benefit from our advanced order routing technology for all trades, while our IBKR LiteSM customers benefit from this technology for their trades in products not eligible for IBKR LiteSM.

*Automated* *Risk Controls -* Throughout the trading day, we calculate margin requirements for each of our customers on a real\-time basis across all product classes and across all currencies.

This is done to protect us, as well as the customer, from excessive losses.

*Flexible and Customizable System -* Our platform is designed to provide an efficient customer experience, beginning with a highly automated account opening process and ending with a fast trade execution and reporting.

Our sophisticated interface provides interactive real\-time views of account balances, positions, profits or losses, buying power and “what\-if” scenarios to enable our customers to more easily make informed investment decisions and trade effectively.

Our system is configured to remember the user’s preferences and is specifically designed for multi\-screen systems.

When away from their main workstations, customers are able to access their accounts through our IB WebTraderSM or MobileTraderSM interfaces for a seamless experience.

*Securities Financing Services -* We offer a suite of automated Stock Borrow and Lending tools, including our depth of availability, transparent rates, global reach and dedicated service representatives.

Our Stock Yield Enhancement Program allows our customers to lend their fully\-paid stock shares to us in exchange for cash collateral.

In turn, we lend these stocks in exchange for collateral and earn stock lending fees.

We pay our customers a rebate on the cash collateral generally equal to 50% of the income we earn from lending the shares.

This allows customers holding fully\-paid long stock positions to enhance their returns.

| --- | --- | --- |

On May 3, 2007, IBG, Inc. priced its initial public offering (the “IPO”) of shares of common stock.

In connection with the IPO, IBG, Inc. purchased 10.0% of the membership interests in IBG LLC and began to consolidate IBG LLC’s financial results into its financial statements.

| | • | As a direct market access broker, we serve the customers of both traditional brokers and prime brokers, including hedge funds, individuals, proprietary traders, financial advisors and introducing brokers. We provide our customers with an advanced order management, trade execution and portfolio management platform at a very low cost. Our customers can simultaneously access many financial markets worldwide and trade across multiple asset classes (stocks, options, futures, foreign exchange (“forex”), bonds and mutual funds) denominated in 24 different currencies, on one screen, from a single account based in any major currency. Our large financial advisor and broker-dealer customers may “white brand” our trading interface (i.e., make our trading interface available to their customers without referencing our name), or they can select from among our modular functionalities, such as order routing, trade reporting or clearing on specific products or exchanges where they may not have up-to-date technology to offer their customers a comprehensive, global range of services and products. The emerging complexity of multiple market centers provided us with the opportunity of building and continuously adapting our order routing software to secure excellent execution prices for our customers. |

| | • | As a market maker, in the few select markets in which we operate, we provide liquidity by offering competitively tight bid/offer spreads over a broad base of tradable, exchange-listed products. Our quotes are driven by proprietary mathematical models that assimilate market data and reevaluate our outstanding quotes many times per second. In the past several years our market making business has |

suffered from competitive pressures and, along with the rapid increase in our electronic brokerage business, we decided to discontinue our market making activities globally.

As previously announced, we transferred our U.S. options market making operations to Two Sigma Securities, LLC effective September 29, 2017 and also exited the majority of our options market making activities outside the U.S. by December 31, 2017.

Our electronic brokerage business benefits from our scale and volume, as well as from our proprietary technology, and expertise developed over the last 40 years.

Our focus on the development and maintenance of our unique technology for trading, risk management, clearing, settlement, banking and regulatory compliance enables us to provide lower transaction costs to our customers than our competitors.

In addition, we believe we gain a competitive advantage by applying the software features we have developed for a specific product or market to newly-introduced products and markets over others who may have less automated facilities or who operate only in a subset of the exchanges and market centers on which we operate.

In addition, many of our regulatory and compliance functions have been built into our integrated order routing and custodial systems.

Prior to the IPO, we had historically conducted our business through a limited liability company structure.

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Ownership % | | 18.1 | % | | 81.9 | % | | 100.0 | % |

| Membership interests | | 75,100,955 | | | 338,691,717 | | | 413,792,672 | |

The June 6, 2012 amendment (the “Amendment”), which was filed as an exhibit to our Form 8-K filed with the SEC on June 6, 2012, eliminated from the Exchange Agreement an alternative funding method, which provided that upon approval by the board of directors and by agreement of the Company, IBG LLC and Holdings, redemptions could be made in cash.

At the time of the Company’s IPO in 2007, three hundred sixty (360) million shares of authorized common stock were reserved for future sales and redemptions.

From 2008 through 2010, Holdings redeemed 5,013,259 IBG LLC shares for a total of $114 million, which redemptions were funded using cash on hand at IBG LLC.

Upon cash redemption these IBG LLC shares were retired.

On August 4, 2011, November 12, 2013, and July 28, 2017 the Company filed “shelf” Registration Statements on Form S-3 (File Number 333-176053, 333-192275 and 333-219552) with the SEC for the issuance of additional shares in connection with Holdings requesting redemption of a portion of its member interests in IBG LLC.

We conduct our electronic brokerage business through certain Interactive Brokers (“IB”) subsidiaries.

The following are key highlights of our electronic brokerage business:

| | • | _Low Costs_ - We provide our customers with among the industry’s lowest overall transaction costs in two ways. First, we offer among the lowest execution, commission and financing costs in the industry. Second, our customers benefit from our advanced routing of orders designed to achieve the best available trade price. In order to illustrate this advantage, we publish monthly brokerage metrics including our customers’ average net trade cost for Reg.-NMS stocks. In 2018, customers’ total all-in cost of executing and clearing U.S. Reg.-NMS stocks through IB, including brokerage commissions, regulatory and exchange fees and market impact, was 0.9 basis points of trade money, as measured against a daily volume-weighted average price (“VWAP”) benchmark. |

| | • | _Flexible and Customizable System_ - Our platform is designed to provide an efficient customer experience, beginning with a highly automated account opening process and ending with a fast trade execution. Our sophisticated interface provides interactive real-time views of account balances, positions, profits or losses, buying power and “what-if” scenarios to enable our customers to more easily make informed investment decisions and trade efficiently. Our system is configured to remember the user’s preferences and is specifically designed for multi-screen systems. When away from their main workstations, customers are able to access their accounts through our IB WebTraderSM or MobileTraderSM interfaces for a seamless experience. |

| | • | _IB Risk Navigator__SM_ - We offer free to all customers our real-time market risk management platform that unifies exposure across multiple asset classes around the globe. The system is capable of identifying overexposure to risk by starting at the portfolio level and drilling down into successively greater detail within multiple report views. Report data is updated every ten seconds or upon changes to portfolio composition. Predefined reports allow the summarization of a portfolio from different risk perspectives, and allow views of Exposure, Value at Risk (“VaR”), Delta, Gamma, Vega and Theta, profit and loss and position quantity measures for the different portfolio views. The system also offers the customer the ability to modify positions through “what-if” scenarios that show hypothetical changes to the risk summary. |

| | • | _Securities Financing Services_ - We offer a suite of automated Stock Borrow and Lending tools, including our depth of availability, transparent rates, global reach and dedicated service representatives. Our Stock Yield Enhancement Program allows our customers to lend their fully-paid stock shares to us in exchange for cash collateral. In turn, we lend these stocks in exchange for collateral and earn stock lending fees. We pay our customers a rebate on the cash collateral generally equal to 50% of the income we earn from lending the shares. This allows customers holding fully-paid long stock positions to enhance their returns. |

| | • | _IBKR Asset Management_ - IBKR Asset Management (formerly known as Covestor) recruits registered financial advisors, vets them, analyzes their investment track records, and groups them by their risk profile. Retail investors who are interested in having their individual accounts robo-traded are grouped by their risk and return preferences. Retail investors can assign their accounts to be traded by one or more advisors. IBKR Asset Management also offers to IB customers Smart Beta Portfolios which combine the benefits of actively managed fund stock selection techniques with passive ETF low cost automation to provide broad market exposure and potentially higher returns. |

We have conducted our market making business historically through our Timber Hill (“TH”) subsidiaries.

We intend to continue conducting certain proprietary trading activities in stocks and related instruments to facilitate our electronic brokerage customers’ trading in products such as ETFs, ADRs, CFDs and other financial instruments, as well as exchange-traded market making activities in a few select markets outside of the U.S. However, we do not expect the facilitation activity to be of sufficient size as to require reporting as a separate segment after we discontinue our options market making activities.

We established our electronic brokerage subsidiary, Interactive Brokers LLC (“IB LLC”), in 1993 to enhance the use of our global network of trading interfaces, exchange and clearinghouse memberships, and regulatory registrations assembled over the prior 16 years to serve our market making business.

We realized that electronic access to market centers worldwide through our network could easily be utilized by the very same floor traders and trading desk professionals who, in the coming years, would be displaced by the conversion of exchanges from open outcry to electronic systems.

We currently service approximately 598 thousand cleared customer accounts.

By offering portfolio margining and other institutional services, we have been able to persuade many of our trade execution hedge fund customers to utilize our cleared business solution, which benefits the hedge funds in terms of cost savings.

Prime brokers may offer increased leverage over Regulation T credit limitations and the Financial Industry Regulatory Authority (“FINRA”) margin requirements through offshore entities and joint back office arrangements.

Through portfolio margining, we are able to offer similar leverage with lower margin requirements that reflect the reduced risk of a hedged portfolio.

Our customers receive worldwide electronic access connectivity in one of three ways: the Trader Workstation via desktop or mobile device, our proprietary API, and/or industry standard FIX connectivity.

We have assembled what we believe is a highly talented group of employees.

banks and brokers, such as Goldman Sachs, Morgan Stanley and JP Morgan, and offerings to target professional traders by large online retail brokers.

| IB LLC | $ | 4,882 | | $ | 416 | | $ | 4,466 | |

| TH LLC | | 159 | | | — | | | 159 | |

In [removed: recent] [added: past] years, there has been an increasing incidence of litigation involving the brokerage industry, including class action suits that generally seek substantial damages, including in some cases punitive damages.

Compliance and trading problems that are reported to federal, state and provincial regulators, exchanges or other [removed: self-regulatory] [added: self\-regulatory] organizations by dissatisfied customers are investigated by such regulatory bodies, and, if pursued by such regulatory body or such customers, may rise to the level of arbitration or disciplinary action.

[removed: _Trading] [added: *Trading] Technologies [removed: Matter_][added: Matter*]

On February 3, 2010, Trading Technologies International, Inc. (“Trading Technologies”) filed a complaint in the U.S. District Court for the Northern District of Illinois, Eastern Division, against [removed: IBG, Inc.,] IBG [removed: LLC, Holdings,] [added: LLC] and IB [removed: LLC.][added: LLC (“Defendants”).]

The [removed: operative] complaint, as amended, alleges that the Defendants have infringed and continue to infringe twelve U.S. patents held by Trading Technologies.

Trading Technologies is seeking, among other things, unspecified damages and injunctive [removed: relief (“the Litigation”).][added: relief.]

The [removed: Defendants and/or certain codefendants filed] [added: asserted patents were the subject of] petitions [removed: with] [added: before] the United States Patent and Trademark Office (“USPTO”) [removed: for] [added: seeking] Covered Business Method Review (“CBM [removed: Review”) on the asserted patents.][added: Review”).]

The USPTO Patent Trial [removed: and] Appeal Board (“PTAB”) found all claims of ten of the twelve asserted patents to be invalid.

[removed: On February 13, 2019, the] [added: The] United States Court of Appeals for the Federal Circuit [removed: issued opinions in] [added: vacated] the [removed: appeals on] [added: CBM Review determinations of invalidity for] four [added: patents, concluding that these] patents [removed: from the] [added: were not eligible for] CBM [removed: Review determinations.][added: Review.]

[removed: _Class] [added: *Class] Action [removed: Matter_][added: Matter*]

The complaint alleges that the [removed: former customer and members of the] purported class of IB LLC’s customers were harmed by alleged “flaws” in the computerized system used [removed: by the Company] to close out (i.e., liquidate) positions in customer brokerage accounts that have margin deficiencies.

On September 26, [removed: 2018] [added: 2018,] the Court of Appeals affirmed the dismissal of plaintiff’s claims of breach of contract and commercially unreasonable liquidation but vacated and remanded back to the District Court plaintiff’s claims for negligence.

The Company filed a motion to dismiss the new complaint on January 15, [removed: 2019 requesting that the District Court dismiss the remaining negligence claims.][added: 2019, which was denied on September 30, 2019.]

Regardless of the [removed: ultimate] outcome of [added: this motion,] the [removed: motion to dismiss, we do] [added: Company does] not believe that a purported class action is appropriate given the great differences in portfolios, markets and many other circumstances surrounding [added: the liquidation of any particular customer’s margin deficient account.]

IB LLC and the related defendants intend to continue to defend themselves vigorously against the case and, consistent with past practice in connection with this type of unwarranted action, any potential claims for counsel fees and expenses incurred in defending the case [removed: shall] [added: may] be fully pursued against the plaintiff.

[removed: _Pending] [added: *Pending] Regulatory [removed: Inquiries_][added: Inquiries*]

Our businesses are heavily regulated by state, federal and foreign regulatory agencies as well as numerous exchanges and [removed: self-regulatory] [added: self\-regulatory] organizations.

Most of our companies are regulated under some or all of the following: state securities laws, U.S. and foreign securities, commodities and financial services laws and the rules of the more than 120 exchanges, market centers and [removed: self-regulatory] [added: self\-regulatory] organizations of which one or more of our companies may be members.

We have built and continue to build human and automated infrastructure [removed: to handle increased] [added: in light of increasing] regulatory scrutiny, which provides us with a possible advantage over potential newcomers to the business.

We are currently the subject of active or dormant regulatory inquiries regarding subjects including, but not limited to: audit trail reporting, trade reporting, best execution and order execution procedures, short sales, margin lending, [removed: anti-money laundering,] [added: anti\-money laundering or potentially manipulative trading by customers,] procedures for [removed: trading] [added: transfers] and [removed: handling low-priced] [added: trading of U.S. Micro-Cap] securities, procedures for accounts [removed: introduced] [added: managed] by [added: independent] financial advisors [removed: and other referrers,] [added: or referred by third parties,] technology development practices, business continuity planning and other topics of recent regulatory interest.

The District Court trial with respect to these four patents is scheduled for May 2020; however, the parties have filed a motion with the District Court to move the trial to November 2020.

On December 9, 2019, the Company filed a motion requesting that the District Court certify to the Connecticut Supreme Court two questions of Connecticut law directly relevant to the motion to dismiss.

Briefing has only recently been completed, and the District Court has not yet ruled on the motion.

*Regulatory Matters*

The Company is currently providing information to the Financial Industry Regulatory Authority (“FINRA”), the SEC, the Commodities and Futures Trading Commission (“CFTC”) and the United States Department of Justice focused on anti-money laundering and Bank Secrecy Act practices.

The Company periodically reviews these practices to make them more robust and to keep pace with changing regulatory standards, and the Company has been enhancing and augmenting its procedures and personnel in these areas over the past several years.

While the outcome of the examinations and inquiries currently in progress cannot be predicted, the Company does not believe that they are likely to have a materially adverse effect on its results of operations.

| --- | --- | --- |

Thereafter, Trading Technologies dismissed IBG, Inc. and Holdings from the case, leaving only IBG LLC and IB LLC as defendants (“Defendants”).

Trading Technologies also filed patent infringement lawsuits against approximately a dozen other companies in the same court.

The Litigation was consolidated with the other lawsuits filed by Trading Technologies.

The District Court granted the Defendants’ motion to stay the Litigation pending the CBM Reviews.

The Federal Circuit vacated the CBM Review determinations of invalidity for these four patents, concluding that these patents were not eligible for CBM Review.

At the Federal Circuit’s request, the parties filed letter briefs on February 22, 2019, stating how the Federal Circuit should proceed with the other pending appeals.

On February 26, 2019, the District Court ordered that the stay be lifted with respect to the four patents that are the subject of the Federal Circuit decision and scheduled trial for February 2020.

the liquidation of any particular customer’s margin-deficient account.

UNITED [removed: STATES][added: STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. 20549

[removed: FORM 10-K][added: FORM 10-K]

[removed: ANNUAL REPORT PURSUANT] [added: ANNUAL REPORT PURSUANT] TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year [removed: ended December 31, 2018][added: ended December 31, 2019]

Commission File [removed: Number: 001-33440][added: Number: 001-33440]

INTERACTIVE BROKERS GROUP, [removed: INC.][added: INC.]

[removed: (Exact] [added: (Exact] name of registrant as specified in its charter)

| [removed: (State] [added: Delaware ‎(State] or other jurisdiction of [removed: incorporation] [added: ‎incorporation] or organization) | [removed: (I.R.S.] [added: 30-0390693 ‎(I.R.S.] Employer [removed: Identification] [added: ‎Identification] No.) |

One Pickwick [removed: Plaza][added: Plaza]

[removed: Greenwich, Connecticut 06830][added: Greenwich, Connecticut 06830]

[removed: (Address] [added: (Address] of principal executive office)

[removed: (203) 618-5800][added: (203) 618-5800]

[removed: (Registrant’s] [added: (Registrant’s] telephone number, including area code)

| Title of each class | [added: Trading Symbol |] Name of the [removed: each] exchange on which registered |

| Common Stock, par value $.01 per share | [added: IBKR |] The [removed: Investors Exchange LLC] [added: Nasdaq Global Select Market ‎] |

Indicate by check mark whether the registrant is a [removed: well-known] [added: well\-known] seasoned issuer, as defined in Rule 405 of the securities act.

Yes [removed: ☒] [added: x] No o

Yes o No [removed: ☒][added: x]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation [removed: S-T] [added: S\-T] during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a [removed: non-accelerated] [added: non\-accelerated] filer, or a smaller reporting company.

See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule [removed: 12b-2] [added: 12b\-2] of the Exchange Act.

| Large accelerated filer [removed: ☒] [added: x] | Accelerated filer o | [removed: Non-accelerated] [added: Non\-accelerated] filer o [added: ‎] | Smaller reporting company o | Emerging growth company o |

Indicate by check mark whether the registrant is a shell company (as defined in Rule [removed: 12b-2] [added: 12b\-2] of the Exchange Act).

The aggregate market value of the voting and [removed: non-voting] [added: non\-voting] common equity stock held by [removed: non-affiliates] [added: non\-affiliates] of the registrant was approximately [removed: $4,653,486,080] [added: $4,032,724,571] computed by reference to the [removed: $64.41] [added: $54.20] closing sale price of the common stock on the [removed: NASDAQ Global Select Market,] [added: Investors Exchange LLC,] on June [removed: 30, 2018,] [added: 28, 2019,] the last business day of the registrant’s most recently completed second fiscal quarter.

As of February 25, [removed: 2019,] [added: 2020,] there were [removed: 75,100,952] [added: 76,750,794] shares of the issuer’s Class A common stock, par value $0.01 per share, outstanding and 100 shares of the issuer’s Class B common stock, par value $0.01 per share, outstanding.

Documents Incorporated by Reference: Portions of Registrant’s definitive proxy statement for its [removed: 2019] [added: 2020] annual meeting of shareholders are incorporated by reference in Part III of this Form [removed: 10-K.][added: 10\-K.]

ANNUAL REPORT ON FORM [removed: 10-K] [added: 10\-K] FOR THE YEAR ENDED DECEMBER 31, [removed: 2018][added: 2019]

[removed: Table of] [added: Table of] Contents

| [Cautionary Note Regarding Forward Looking [removed: Statements](#tCNR) | | |] [added: Statements](#CautionaryNote)] | | [removed: [1](#tCNR)] | [added: 1] |

| PART [removed: I | | |] [added: I] | | | |

| [removed: [ITEM 1.](#tI1) | [Business](#tI1) | |] [added: ITEM 1] | | [removed: [2](#tI1)] [added: [Business](#Business)] | [added: 2] |

| [removed: [ITEM 1A.](#tI1A) | [Risk Factors](#tI1A) | |] [added: ITEM 1A] | | [removed: [19](#tI1A)] [added: [Risk Factors](#RiskFactors)] | [added: 17] |

| [removed: [ITEM 1B.](#tI1B)] [added: ITEM 1B] | [added: |] [Unresolved Staff [removed: Comments](#tI1B) | | | | [28](#tI1B)] [added: Comments](#UnresolvedStaffComments)] | [added: 25] |

| [removed: [ITEM 2.](#tI2) | [Properties](#tI2) | |] [added: ITEM 2] | | [removed: [29](#tI2)] [added: [Properties](#Properties)] | [added: 26] |

| [removed: [ITEM 3.](#tI3)] [added: ITEM 3] | [added: |] [Legal Proceedings and Regulatory [removed: Matters](#tI3) | | | | [29](#tI3)] [added: Matters](#LegalProceedings)] | [added: 27] |

| [removed: [ITEM 4.](#tI4)] [added: ITEM 4] | [added: |] [Mine Safety [removed: Disclosures](#tI4) | | | | [31](#tI4)] [added: Disclosures](#MineSafety)] | [added: 28] |

| PART [removed: II | | |] [added: II] | | | |

| [removed: [ITEM 5.](#tI5)] [added: ITEM 5] | [added: |] [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#tI5) | | | | [32](#tI5)] [added: Securities](#MarketForCommonEquity)] | [added: 29] |

| | |

| | | |

Yes x No o

Yes x No o

| | | | | |

Yes o No x

| | | | |

| --- | --- | --- | --- |

| ITEM 9B | | [Other Information](#OtherInformation) | 109 |

| ITEM 11 | | [Executive Compensation](#ExecutiveCompensation) | 109 |

| ITEM 16 | | [10-K Summary](#Summary_10K) | 112 |

- the impact of accounting standards issued but not yet adopted;

10-K 1 bp15115x1_10k.htm FORM 10-K

| Delaware | 30-0390693 |

| --- | --- |

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

| --- | --- | --- | --- | --- | --- | --- |

| [ITEM 9B.](#tI9B) | [Other Information](#tI9B) | | | | [121](#tI9B) | |

| [ITEM 11.](#tI11) | [Executive Compensation](#tI11) | | | | [121](#tI11) | |

| --- | --- | --- |

| --- | --- | --- |

We [removed: also] lease [added: office and data center] facilities in [removed: 21 other locations] [added: 24 cities] throughout [removed: parts of] the world where we conduct our operations as set forth below.

The [removed: following] table [removed: sets forth] [added: below presents] certain information with respect to our leased [removed: facilities:][added: facilities as of December 31, 2019.]

| Location | [added: |] Space (sq. feet) | | [removed: | Expiration |] Principal Usage | [added: | |]

| North [removed: America] [added: America] | | | | | | [added: |]

| [added: |] Greenwich, CT | [removed: |] 163,510 | | [removed: 2030 |] Headquarters [removed: and data center] | [added: | |]

| [added: |] Chicago, IL | [removed: |] 60,276 | | [removed: 2026 |] Office space [added: and data center] | [added: | |]

| [removed: Secaucus, NJ] | [removed: | 5,785] [added: Other (7 locations)] | [added: 28,662] | [removed: 2022] | [removed: Data center and office] [added: Office] space [added: and data center] | [added: | |]

| [removed: Europe] [added: Europe] | | | | | | [added: |]

| [added: |] Zug, Switzerland | [removed: | 19,246 |] [added: 25,009] | [removed: 2019] | Office space | [added: | |]

| [added: |] London, United Kingdom | [removed: |] 12,969 | | [removed: 2023 |] Office space | [added: | |]

| [added: |] Tallinn, Estonia | [removed: |] 11,010 | | [removed: 2023 |] Office space | [added: | |]

| Asia - [removed: Pacific] [added: Pacific] | | | | | | [added: |]

| [added: |] Mumbai, India | [removed: | 30,985 |] [added: 54,275] | [removed: 2023] | Office space | [added: | |]

| [added: |] Hong Kong | [removed: | 10,826 |] [added: 17,565] | [removed: 2021] | Office space [added: and data center] | [added: | |]

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | | | | | | |

| | | | | | | |

| | Other (4 locations) | 19,980 | | Office space | | |

| | | | | | | |

| | Other (4 locations) | 19,741 | | Office space | | |

‎

| --- | --- | --- |

| --- | --- | --- | --- | --- | --- |

| Greenwich, CT | | 42,196 | | 2019 | Office space |

| Chicago, IL | | 4,000 | | 2021 | Data center |

| Washington, D.C. | | 8,884 | | 2024 | Office space |

| West Palm Beach, FL | | 8,509 | | 2026 | Office space |

| Montreal, Canada | | 4,566 | | 2019 | Office space |

| Vancouver, Canada | | 2,737 | | 2021 | Office space |

| Boston, MA | | 2,348 | | 2021 | Office space |

| San Francisco, CA | | 833 | | 2019 | Office space |

| | | | | | |

| Zug, Switzerland | | 4,435 | | 2021 | Office space |

| Zurich, Switzerland | | 4,000 | | 2019 | Data center |

| Luxembourg City, Luxembourg | | 8,533 | | 2023 | Office space |

| Budapest, Hungary | | 6,412 | | 2019 | Office space |

| St. Petersburg, Russia | | 2,742 | | 2019 | Office space |

| Vaduz, Liechtenstein | | 2,368 | | 2021 | Office space |

| Mumbai, India | | 12,061 | | 2020 | Office space |

| Mumbai, India | | 11,229 | | 2022 | Office space |

| Hong Kong | | 6,739 | | 2022 | Office space |

| Hong Kong | | 4,000 | | 2020 | Data center |

| Shanghai, China | | 7,648 | | 2021 | Office space |

| Sydney, Australia | | 3,358 | | 2023 | Office space |

| Tokyo, Japan | | 2,161 | | 2019 | Office space |

PART II

| --- | --- | --- |

PART II

Interactive Brokers Group Inc.’s Class A common stock trades under the symbol “IBKR” on the [removed: Investors Exchange] [added: Nasdaq Stock Market] LLC.

As of February [removed: 22, 2019,] [added: 24, 2020,] there were [removed: six] [added: seventeen] holders of record, which does not reflect those shares held beneficially or those shares held in “street” name.

The [removed: following] graph [added: below] compares cumulative total stockholder return on our common stock, the S&P 500 Index and the [removed: NASDAQ Financial-100] [added: Nasdaq Financial\-100] Index from December 31, [removed: 2013] [added: 2014] to December 31, [removed: 2018.][added: 2019.]

The comparison assumes $100 was invested on December 31, [removed: 2013] [added: 2014] in our common stock and each of the foregoing indices and assumes reinvestment of dividends before consideration of income taxes.

[removed: ][added: ]

[removed: | | (1) | The NASDAQ Financial-100 Index includes 100 of the largest domestic and international financial securities listed on The NASDAQ Stock Market based on market capitalization.] They include companies classified according to the Industry Classification Benchmark as Financials, which are included within the [removed: NASDAQ] [added: Nasdaq] Bank, [removed: NASDAQ] [added: Nasdaq] Insurance, and [removed: NASDAQ] [added: Nasdaq] Other Finance Indexes. [removed: |]

[removed: | | (2) | The] [added: (2)The] S&P 500 Index includes 500 large cap common stocks actively traded in the U.S. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock markets, the New York Stock Exchange and [removed: NASDAQ. |][added: Nasdaq.]

The [removed: following] table [removed: provides] [added: below presents] information about shares of common stock available for future awards under all [removed: of] the Company’s equity compensation plans as of December 31, [removed: 2018.][added: 2019.]

| Equity compensation plans [removed: not approved by security holders] | | [removed: N/A] | | | [removed: N/A] | [removed: | | — | |]

[removed: | | (1) | Amount] [added: (1)Amount] represents restricted stock units available for future issuance of grants under the Company’s [added: amended] 2007 Stock Incentive Plan. [removed: |]

___________________________

(1)The Nasdaq Financial\-100 Index includes 100 of the largest domestic and international financial securities listed on The Nasdaq Stock Market based on market capitalization.

On October 7, 2019, the Company filed a Prospectus Supplement on Form 424B (File Number 333-219552) with the SEC to register up to 1,000,000 shares of common stock, offering the opportunity for eligible persons to receive awards in the form of such shares by participating in one or more promotions that are designed to attract new customers to the Company’s brokerage platform, increase assets held with the Company’s brokerage subsidiaries and enhance customer loyalty.

As of December 31, 2019, the Company has issued 10,000 shares to IBG LLC for distribution to eligible customers of certain of its subsidiaries.

Assuming all shares were issued, IBG, Inc.’s interest in IBG LLC would increase from 18.5% to 18.7%.

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| | Number of securities to be | | | | Number of securities |

| | issued upon exercise of | | Weighted-average exercise | | remaining available for |

| | outstanding options, | | price of outstanding options | | future awards under |

| | warrants and rights | | warrants and rights | | equity compensation plans(1) |

| approved by security holders | N/A | | N/A | | 4,659,381 |

| Total | — | | — | | 4,659,381 |

___________________________

‎

| --- | --- | --- |

Purchases of IBG LLC membership interests, held by Holdings, by the Company are governed by the Exchange Agreement, a copy of which was filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 and filed with the SEC on November 9, 2009.

The Exchange Agreement, as amended June 6, 2012 and July 23, 2015, provides that the Company may facilitate the redemption by Holdings of interests held by its members through the issuance of shares of common stock through a public offering in exchange for the interests in IBG LLC being redeemed by Holdings.

On an annual basis, each holder of a membership interest may request that Holdings redeem the liquefiable portion of that holder’s interest.

We expect Holdings to use the net proceeds it receives from such sales to redeem an identical number of Holdings membership interests from the requesting holders.

At the time of the Company’s IPO in 2007, three hundred sixty (360) million shares of authorized common stock were reserved for future sales and redemptions.

From 2008 through 2017, Holdings redeemed 18,871,614 IBG LLC shares with an approximate total value of $525 million, which redemptions were funded using cash on hand at IBG LLC and through issuances of common stock.

On July 27, 2018, the Company issued 1,537,727 shares of Class A common stock (with a fair value of $94 million) to Holdings, for sale for the benefit of, certain of its members in exchange for membership interests in IBG LLC equal in number to such number of shares of common stock issued by the Company.

The acquired shares are to be sold for the benefit of certain of the members of Holdings who elected to redeem a portion of their Holdings membership interests in open market transactions pursuant to one or more Rule 10b5-1 trading plans (collectively, the “Plans”).

A portion of the acquired shares was sold during 2018 pursuant to the Plans, in open market transactions.

The remaining shares are held for sale under certain conditions, pursuant to the Plans.

All sales made pursuant to the Plans are disclosed publicly in accordance with applicable securities laws, rules and regulations through appropriate filings with the SEC, as applicable.

As a consequence of this transaction, IBG, Inc.’s interest in IBG LLC increased to approximately 18.1%, with Holdings owning the remaining 81.9%.

The redemptions also resulted in an increase in the Holdings interest held by Mr. Thomas Peterffy and his affiliates from approximately 89.2% to approximately 89.6%.

On October 13, 2015, the Company filed a Post-Effective Amendment to multiple Registration Statements filed under the Securities Act of 1933, as amended (the “Securities Act”) on Form S-8.

The Post-Effective Amendment contained a reoffer prospectus that registered 6,400,000 shares of the Company’s Class A common stock representing the Company’s estimate of shares that will be withheld from employees related to the vesting of restricted stock units, under the amended 2007 Stock Incentive Plan (the “SIP Plan”), over the next nine years from the time of the filing, based on the tax rates at that time and historical employee elections.

The above shares are being issued by the SIP Plan under the following registration statements: Registration No. 333-142686, filed on May 7, 2007; Registration No. 333-174913, filed on June 15, 2011; and Registration No. 333-203358, filed on April 10, 2015.

The SIP Plan provides employees with two options to pay for their withholding tax obligations, which become due when restricted stock units vest into shares: either (1) reimburse the Company via cash payment, or (2) elect to have the Selling Stockholder withhold a portion of the vesting shares.

In the case of employees who elect to have IBG LLC withhold shares to cover their tax obligations, those shares are transferred to IBG LLC, which in turn, sells those shares in open market transactions to recover the amount paid to the tax authorities on the employees’ behalf.

For the year ended December 31, 2018 the Company sold 564,141 shares of its Class A common stock withheld from employees (with a fair value of $45 million) in open market transactions.

The proceeds were used to reimburse the Company for withholding taxes paid by the Company on the employees’ behalf.

As per General Instruction C of Form S-8, the sale of the shares described above constitutes a resale or reoffer of the Company’s Class A common stock.

The Company has re-issued 2,081,152 shares under this reoffer prospectus.

The reoffer prospectus allows for future sales by IBG LLC, on a continuous or delayed basis, to the public without restriction.

| | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options warrants and rights | | | Number of securities remaining available for future awards under equity compensation plans(1) | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Equity compensation plans approved by security holders | | N/A | | | N/A | | | 5,943,616 | |

| Total | | — | | | — | | | 5,943,616 | |

The [removed: following] tables [removed: set forth] [added: below present] selected historical consolidated financial and other data of the [removed: Company.][added: Company for the periods indicated.]

| | [removed: Year Ended] [added: | Year-Ended] December 31, | | | | | | | | | | | | | | [removed: |]

| | [removed: 2018] | [added: 2019] | | [removed: 2017] | [added: 2018] | | [removed: 2016] | [added: 2017] | | [removed: 2015] | [added: 2016] | | [removed: 2014] | [added: 2015] | |

| [added: Consolidated Statement of Comprehensive Income Data] | [added: |] (in millions, except share and per share amounts) | | | | | | | | | | | | | | [removed: |]

| Commissions | [added: |] $ | [removed: 777] [added: 706] | | $ | [removed: 647] [added: 777] | | $ | [removed: 612] [added: 647] | | $ | [removed: 617] [added: 612] | | $ | [removed: 549 |] [added: 617] |

| Interest income | | [removed: 1,392] | [added: 1,726] | | [removed: 908] | [added: 1,392] | | [removed: 606] | [added: 908] | | [removed: 492] | [added: 606] | | [removed: 416] | [added: 492] |

| Trading gains | | [removed: 39] | [added: 27] | | [removed: 40] | [added: 39] | | [removed: 163] | [added: 40] | | [removed: 269] | [added: 163] | | [removed: 261] | [added: 269] |

| Other (loss) [removed: income(1)] [added: income (1)] | | [removed: 158] | [added: 121] | | [removed: 332] | [added: 158] | | [removed: 94] | [added: 332] | | [removed: (122] | [removed: )] [added: 94] | | [removed: (111] | [removed: )] [added: (122)] |

| Total revenues | | [removed: 2,366] | [added: 2,580] | | [removed: 1,927] | [added: 2,366] | | [removed: 1,475] | [added: 1,927] | | [removed: 1,256] | [added: 1,475] | | [removed: 1,115] | [added: 1,256] |

| Interest expense | | [removed: 463] | [added: 643] | | [removed: 225] | [added: 463] | | [removed: 79] | [added: 225] | | [removed: 67] | [added: 79] | | [removed: 72] | [added: 67] |

| Total net revenues | | [removed: 1,903] | [added: 1,937] | | [removed: 1,702] | [added: 1,903] | | [removed: 1,396] | [added: 1,702] | | [removed: 1,189] | [added: 1,396] | | [removed: 1,043] | [added: 1,189] |

| Execution, clearing and distribution fees | | [removed: 269] | [added: 251] | | [removed: 241] | [added: 269] | | [removed: 244] | [added: 241] | | [removed: 231] | [added: 244] | | [removed: 212] | [added: 231] |

| Fixed expenses | | [removed: 434] | [added: 485] | | [removed: 410] | [added: 434] | | [removed: 385] | [added: 410] | | [removed: 354] | [added: 385] | | [removed: 322] | [added: 354] |

| Customer bad [removed: debt(2)] [added: debt (2)] | | [removed: 4] | [added: 44] | | [removed: 2] | [added: 4] | | [removed: 6] | [added: 2] | | [removed: 146] | [added: 6] | | [removed: 3] | [added: 146] |

| Total non-interest expenses | | [removed: 707] | [added: 780] | | [removed: 653] | [added: 707] | | [removed: 635] | [added: 653] | | [removed: 731] | [added: 635] | | [removed: 537] | [added: 731] |

| Income before income taxes | | [removed: 1,196] | [added: 1,157] | | [removed: 1,049] | [added: 1,196] | | [removed: 761] | [added: 1,049] | | [removed: 458] | [added: 761] | | [removed: 506] | [added: 458] |

| Income tax [removed: expense(1)] [added: expense (1)] | | [removed: 71] | [added: 68] | | [removed: 256] | [added: 71] | | [removed: 62] | [added: 256] | | [removed: 43] | [added: 62] | | [removed: 47] | [added: 43] |

| Net income | | [removed: 1,125] | [added: 1,089] | | [removed: 793] | [added: 1,125] | | [removed: 699] | [added: 793] | | [removed: 415] | [added: 699] | | [removed: 459] | [added: 415] |

| Less net income attributable to noncontrolling interests | | [removed: 956] | [added: 928] | | [removed: 717] | [added: 956] | | [removed: 615] | [added: 717] | | [removed: 366] | [added: 615] | | [removed: 414] | [added: 366] |

| Net income available for common stockholders | [added: |] $ | [removed: 169] [added: 161] | | $ | [removed: 76] [added: 169] | | $ | [removed: 84] [added: 76] | | $ | [removed: 49] [added: 84] | | $ | [removed: 45 |] [added: 49] |