     hershy
Member
Username: hershy
Post Number: 2040
Registered: 10-2002
Rating: N/A
Votes: 0
|
| | Saturday, July 07, 2007 - 09:55 pm: |  
|
From Wnd.com
Interactive Brokers hit by options trading scheme
Broker alleges manipulation of Altana shares; market losses may near $1 bln
By Alistair Barr, MarketWatch
Last Update: 4:47 PM ET Jul 6, 2007
SAN FRANCISCO (MarketWatch) -- A scheme to manipulate the shares and options of German chemical maker Altana AG may have triggered a short squeeze that cost market makers and traders almost $1 billion in May, Interactive Brokers Group Inc. Chief Executive Thomas Peterffy said late Thursday.
Interactive Brokers, an electronic broker that went public in May in one of the biggest IPOs this year, said it lost roughly $37 million from the scheme. Peterffy, who still owns about 85% of the company, paid $37 million to Interactive (IBKR :
interactive brokers group in com
News , chart , profile , more
Last: 24.97-2.14-7.89%
4:00pm 07/06/2007
Delayed quote data
Add to portfolio
Analyst
Create alert
Insider
Discuss
Financials
Sponsored by:
IBKR24.97, -2.14, -7.9% ) to cover the losses, it added.
Interactive Brokers shares dropped more than 10% during Friday trading, touching a record low of $24.25. The stock has lost roughly 20% of its value since the IPO.
Peterffy's unusual move is the latest in an unorthodox career he's spent challenging the brokerage industry status quo by developing and advocating wider use of electronic trading.
Betsy Miller, an analyst at Sandler O'Neill, called the $37 million payment "a rare development," though not totally altruistic.
"This essentially removes the downside to the minority investors," she wrote in a note to clients on Friday. "As a practical matter, since Mr. Peterffy owns approximately 85% of Interactive Brokers, he would have been exposed to nearly as much of the loss if he had not purchased the claims."
Chart of IBKR
If the one-time loss doesn't hurt Interactive Brokers' business in the future, public investors will likely be hit with $5.6 million of the cost, the analyst estimated.
Still, Interactive Brokers shares closed down 7.9% to $24.97 on Friday.
"Investors were frustrated by the clarity of the disclosures," Miller wrote. "We hope that in the future, management makes a stronger effort to communicate complex issues."
Altana 'manipulation'
The $37 million loss relates to unusual trading in shares of Altana (XE:760080: news, chart, profile) , Interactive Brokers explained in a filing with the Securities and Exchange Commission.
On May 3, Altana declared a special 33 euro dividend, equal to almost three-quarters of the company's value. When the stock closed, traders colluded to force it roughly 25% below its regular trading price from earlier that day, excluding the new dividend, Interactive said.
That closing price skewed the value of Altana options on Eurex, the German derivatives exchange, leaving the market-making options positions of Interactive Brokers and others mis-priced on May 4, the company added.
The scheme, which involved selling 31 million shares of Altana at the close on May 3, triggered a short squeeze among market makers holding certain options positions. These brokers had to deliver a huge amount of Altana stock to cover their positions, forcing the shares up more than 80% in the days following the dividend announcement, Peterffy explained in a letter to Eurex, a copy of which was posted on Interactive's Web site.
Market makers and others affected by the scheme probably ended up with combined losses of 500 million euros ($680 million) to 700 million euros ($950 million), he estimated in the letter.
The Bafin, a Germany financial regulator, has launched an official investigation into the scheme, Peterffy also noted.
In line
Edward Ditmire, an analyst at Fox-Pitt, Kelton, said the decline in the shares was "unwarranted," noting that Interactive Brokers also released an estimate of second-quarter results that was in-line with Wall Street expectations.
"Interactive Brokers has been the victim of an unusual and highly manipulative scheme, and this is not indicative of ordinary business risk," the analyst wrote in a note to clients.
"We will have to wait for full release of second-quarter earnings to better understand the underlying trends which produced the otherwise in-line quarter, but we expect minimal impact to our estimates," he added. End of Story
Alistair Barr is a reporter for MarketWatch in San Francisco.
"The safest way to double your money is to fold it over and put it back in your pocket."
http://members.optusnet.com.au/~hershy/
|
