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Understanding Interactive Brokers’ Electronic Brokerage Division

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Total net revenue

Interactive Brokers Group’s (IBKR) electronic brokerage division’s total net revenue rose to $1.0 billion in the first three quarters of 2017 from $945 million in the same period of the prior year, supported by commissions and interest income and offset by a fall in other income.

The electronic brokerage division’s income comprises interest, commissions, and other income. The division’s commissions rose to $478 million in first three quarters of 2017 from $462 million in the same period of the prior year, thanks to a rise in customer accounts, trading volumes, and average commission rates.

While Interactive Brokers Group has a last-12-month free cash flow yield of 2.5%, peers (XLF) Financial Engines (FNGN), LPL Financial Holdings (LPLA), and Raymond James Financial (RJF) have yields of 2.4%, 2.6%, and 3.2%, respectively.

Non-interest expenses

The division’s non-interest expenses comprise bad customer debt, execution, clearing, general, administrative, employee compensation and benefit, occupancy, depreciation, amortization, and communication expenses. Non-interest expenses rose to $407 million in the first three quarters of 2017 from $357 million in the same period of the prior year, primarily due to higher execution, clearing, general, and administrative expenses. General and administrative expenses rose to $130 million from $107 million.

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