Interactive Brokers warns Brexit could negatively impact its business
Electronic trading major Interactive Brokers Group, Inc. (NASDAQ:IBKR) has warned that the expected departure of the United Kingdom from the European Union could negatively impact its business and results of operations. The statement forms part of a Prospectus Supplement filed with the SEC on October 30, 2020.
On January 29, 2020, the European Parliament voted to ratify the Withdrawal Agreement and the UK officially left the EU at 11:00 p.m. (London time) on Friday, January 31, 2020. The Withdrawal Agreement provides for an 11-month transition period. This means that the bulk of EU rules and legislation will continue to apply in the UK during the Transition Period, which ends on December 31, 2020.
Interactive Brokers explains that it conducts business in the EU primarily through its UK affiliate, Interactive Brokers (U.K.) Limited (“IBUK”), and through its Luxembourg affiliate, Interactive Brokers Luxembourg SARL (“IBLUX”).
Interactive Brokers has sought to address Brexit-related risks by, inter alia, applying for additional licenses in Europe, through its affiliates Interactive Brokers Ireland Limited (“IBIE”) and Interactive Brokers Central Europe Zrt (“IBCE”). These license applications are pending. It is possible that one or both will still be in progress at December 31, 2020.
Interactive Brokers comments:
“Depending on the terms of the U.K.’s future relationship with the E.U. and timing, depending on the status of our E.U. pending license applications, depending on other regulatory flexibility and interpretations, and depending on IBLUX’s capacity to carry a larger portion of our E.U. client base, we could be unable to fully service some E.U. customers for some period of time subsequent to the expiration of the Transition Period”.
Although it is difficult to identify all risks that might arise from a delay in obtaining a license for IBIE, IBCE or both, the risks include potential limitations on Interactive Brokers’ ability to execute position-increasing transactions for existing clients of IBUK. There are also risks for Interactive Brokers’ ability to open accounts for new EU customers.
“These potential limitations could negatively impact our business in Europe, and could lead to the loss of clients and revenue from our European business”, the company says.
However, Interactive Brokers currently believes that any delay in its ability to service existing clients or open new accounts would be limited and temporary.