Interactive Brokers Poised To Launch Muni Trading
By Nicole Brook
Greenwich’s Interactive Brokers will launch low-cost electronic trading in municipal bonds in the next week, according to Steve Sanders, senior vice-president for Business Development & Marketing at IB. The company, which already trades on a number of electronic bond exchanges, is very excited about this latest offering.
IB subscribes to the belief that if you build it, people will flock to it. The company has a track record of being the first to offer products and takes the long-term view. It realizes that a market does not take off overnight, rather the popularity of a product grows over time.
The genesis of new product launches is Thomas Peterffy, IB chairman and master planner, strategist and investor. If Peterffy likes a market, IB will offer it. Many times, IB blazes a path and puts products out there before their time, believing that the market will catch on. New products can take anywhere from months, to a year or more, to take off.
Municipal bond trading has the advantage of appealing to a wide range of investors. Whereas some markets, such as futures, require a sophisticated level of understanding, municipal bonds are a vanilla product and can be appealing to even the lay person. For anyone who invests in government bonds — the safest product out there and the easiest to understand — taking the next step to municpal bonds is usually straight forward.
The exact marketing campaign for the municipal bond product, commonly known as munis, has yet to be determined, but the product will certainly be offered to advisors with clients active in the muni market or who are looking to enter the market. IB is well placed as it runs a large business for advisors. There will also be a more mainstream element to its marketing, as this is a product that can be sold to a wider audience, and this may include a direct mail campaign.
The lights are never off at IB and the company is always brainstorming, looking for new markets and countries to enter. The requirements for entering a new country are straightorward: the presence of an electronic exchange and confirmation of a level playing field. For example, if you have to be an insider to profit on an exchange, IB does not offer it.
Of course, some products never capture the imagination of investors. In these instances, a few have been dropped, but most are left on the system in the hopes that interest will materialize at some point. Furthermore, once a product is programmed, there is no benefit in removing it.
IB runs direct mail campaigns quarterly and has been doing so for many years. The most recent campaign was to advertise US futures trading and this is a sector it has marketed regularly in the past. As all its trading is automated, it prides itself on offering the lowest price possible. The futures mailing was targeted at those who actively trade futures. IB rents lists from magazines and newspapers that specifically target the futures trading audience, though Sanders declined to reveal the exact publications. IB is able to reach a deep pool as it can target hundreds of thousands of individuals.
As for which products are offered, IB likes to switch it up. The company comes up with ideas for campaigns and studies the available mailing lists and strives for the best combination. Sanders declined to reveal how much revenue these direct mail campaigns generate, but noted that whenever IB embarks on direct mailing or banner advertising, the company, at the very least, makes its money back or it doesn’t engage at all. Over the years, IB has learned which campaigns are successful.
IB periodically revises it pricing. Lately, customers have been leaving messages on the boards noting that IB is no longer the cheapest in the industry, compared to some start-ups. Since IB prides itself on not only being a low-cost provider, but also the cheapest in the industry, it has dropped its prices, which will no doubt be warmly welcomed by its clients.