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January 30, 2008

IB Dives Into the Hedges With FutureTrade Buy

By James Ramage

Interactive Brokers, best known as a discount retail shop, is making a big push into the prime brokerage business.

The drive started slowly last April with the establishment of a prime brokerage division to service hedge funds.

In November, IB bought one of the last independent direct-market-access providers, FutureTrade, for undisclosed terms.

In doing so it augmented quickly and significantly the prime brokerage services it can offer its hedge fund, and other, clients, the firm said. IB absorbed FutureTrade's customer base of more than 200 institutions, its 40 software developers and its last five years' worth of technology.

And IB intends to leverage all of these, said Steve Sanders, its senior vice president of marketing and product development.

"Given our mission of providing our customers with the best technology at the lowest possible cost," he said, "we felt the prime broker business was a natural extension of our current business."

For FutureTrade, the sale means sharing its large, established hedge fund client expertise with a company that is determined to expand its execution and prime brokerage offerings with those clients. And FutureTrade looks forward to what's next, said Murray Finebaum, FutureTrade's president and chief executive.

Some of FutureTrade's DMA customers, such as Bear Stearns and Credit Suisse, are themselves prime broker competitors. But the purchase is not expected to affect any established FutureTrade relationship, according to Sanders and Finebaum. Instead, it should present those Bear Stearns or Credit Suisse customers with more prime broker service options. "Customers can continue to route to their current prime brokers, or they now have an alternative prime broker in IB that will provide a real-time portfolio margin system and low costs," Sanders said. "We are taking nothing away."

But Finebaum would not comment about whether FutureTrade's prime broker DMA customers have said they would perpetuate their relationships, knowing that their DMA provider now doubles as a competing prime broker.

Thomas Peterffy, IB's founder and CEO, expects to integrate the FutureTrade platformwith the IB platform within six months.

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