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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2014



Commission File Number: 001-33440

INTERACTIVE BROKERS GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  30-0390693
(I.R.S. Employer
Identification No.)

One Pickwick Plaza
Greenwich, Connecticut 06830

(Address of principal executive office)

(203) 618-5800
(Registrant's telephone number, including area code)

         Securities registered pursuant to Section 12(b) of the Act:

Title of each class   Name of the each exchange on which registered
Common Stock, par value $.01 per share   The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)

         Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the securities act. Yes ý    No o.

         Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the act. Yes o    No ý.

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o.

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý.

         The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant was approximately $1,329,833,125 computed by reference to the $23.29 closing sale price of the common stock on the NASDAQ Global Select Market, on June 30, 2014, the last business day of the registrant's most recently completed second fiscal quarter.

         As of March 2, 2015, there were 58,473,186 shares of the issuer's Class A common stock, par value $0.01 per share, outstanding and 100 shares of the issuer's Class B common stock, par value $0.01 per share, outstanding.

         Documents Incorporated by Reference: Portions of Registrant's definitive proxy statement for its 2015 annual meeting of shareholders are incorporated by reference in Part III of this Form 10-K.

   


Table of Contents


ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2013

Table of Contents

Cautionary Note Regarding Forward Looking Statements

    1

PART I

 

 

     

ITEM 1.

 

Business

    2

ITEM 1A.

 

Risk Factors

    24

ITEM 1B.

 

Unresolved Staff Comments

    35

ITEM 2.

 

Properties

    36

ITEM 3.

 

Legal Proceedings and Regulatory Matters

    36

ITEM 4.

 

Mine Safety Disclosures

    37

PART II

 

 

     

ITEM 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

    38

ITEM 6.

 

Selected Financial Data

    42

ITEM 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

    45

ITEM 7A.

 

Quantitative and Qualitative Disclosures about Market Risk

    77

ITEM 8.

 

Financial Statements and Supplementary Data

    83

ITEM 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

    131

ITEM 9A.

 

Controls and Procedures

    131

ITEM 9B.

 

Other Information

    135

PART III

 

 

     

ITEM 10.

 

Directors, Executive Officers and Corporate Governance

    135

ITEM 11.

 

Executive Compensation

    135

ITEM 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

    135

ITEM 13.

 

Transactions with Related Persons, Promoters and Certain Control Persons

    135

ITEM 14.

 

Principal Accountant Fees and Services

    135

PART IV

 

 

     

ITEM 15.

 

Exhibits and Financial Statement Schedules

    136

ITEMS 15 (a)(1) and 15 (a)(2)

 

Index to Financial Statements and Financial Statement Schedule

    138

SIGNATURES

         

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        We have included or incorporated by reference in this Annual Report on Form 10-K, and from time to time our management may make statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results, among other things, and may also include our belief regarding the effect of various legal proceedings, as set forth under "Legal Proceedings" in Part I, Item 3 of this Annual Report on Form 10-K, as well as statements about the objectives and effectiveness of our liquidity policies, statements about trends in or growth opportunities for our businesses, in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this Annual Report on Form 10-K. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, among others, those discussed below and under "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this Annual Report on Form 10-K.

        Factors that could cause actual results to differ materially from any future results, expressed or implied, in these forward-looking statements include, but are not limited to, the following:

        We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this Annual Report on Form 10-K.

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PART I

ITEM 1.    BUSINESS

Overview

        Interactive Brokers Group, Inc. ("IBG, Inc." or the "Company") is an automated global electronic broker and market maker. We custody and service accounts for hedge and mutual funds, RIAs, proprietary trading groups, introducing brokers and individual investors. We specialize in routing orders while striving to achieve best executions and processing trades in securities, futures, foreign exchange instruments, bonds and mutual funds on more than 100 electronic exchanges and trading venues around the world. In the U.S., our business is conducted from our headquarters in Greenwich, Connecticut and in Chicago, Illinois and Jersey City, New Jersey. Abroad, we conduct business through offices located in Canada, England, Switzerland, Hong Kong, India, Australia and Japan. At December 31, 2014 we had 960 employees worldwide.

        IBG, Inc. is a holding company and our primary assets are our ownership of approximately 14.5% of the membership interests of IBG LLC (the "Group"), the current holding company for our businesses. We are the sole managing member of IBG LLC. On May 3, 2007, IBG, Inc. priced its initial public offering (the "IPO") of shares of common stock. In connection with the IPO, IBG, Inc. purchased 10.0% of the membership interests in IBG LLC and began to consolidate IBG LLC's financial results into its financial statements. When we use the terms "we," "us," and "our," we mean IBG LLC and its subsidiaries for periods prior to the IPO, and IBG, Inc. and its subsidiaries (including IBG LLC) for periods from and after the IPO. Unless otherwise indicated, the term "common stock" refers to the Class A common stock of IBG, Inc.

        We are a successor to the market making business founded by our Chairman and Chief Executive Officer, Thomas Peterffy, on the floor of the American Stock Exchange in 1977. Since our inception, we have focused on developing proprietary software to automate broker-dealer functions. During that time, we have been a pioneer in developing and applying technology as a financial intermediary to increase liquidity and transparency in the capital markets in which we operate. The advent of electronic exchanges in the last 24 years has provided us with the opportunity to integrate our software with an increasing number of exchanges and trading venues into one automatically functioning, computerized platform that requires minimal human intervention. Over three decades of developing our automated trading platforms and our automation of many middle and back office functions have allowed us to become one of the lowest cost providers of broker- dealer services and significantly increase the volume of trades we handle.

        Our activities are divided into two principal business segments: (1) electronic brokerage and (2) market making:

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        Our electronic brokerage and market making businesses are complementary. Both benefit from our combined scale and volume, as well as from our proprietary technology. Our brokerage customers benefit from the technology and market structure expertise developed in our market making business. The expense of developing and maintaining our unique technology, clearing, settlement, banking and regulatory structure required by any specific exchange or market center is shared by both of our businesses. These economies, in turn, enable us to provide lower transaction costs to our customers than our competitors. In addition, we believe we gain a competitive advantage by applying the software features we have developed for a specific product or market to newly-introduced products and markets over others who may have less automated facilities in one or both of our businesses or who operate only in a subset of the exchanges and market centers on which we operate. Our trading system contains unique architectural aspects that, together with our massive trading volume in markets worldwide, may impose a significant barrier to entry for firms wishing to compete in our specific businesses and permit us to compete favorably against our competitors.

        Our internet address is www.interactivebrokers.com and the investor relations section of our web site is located at www.interactivebrokers.com/ir. We make available free of charge, on or through the investor relations section of our web site, this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, related Interactive Data exhibits, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission ("SEC"). Also posted on our web site are our Bylaws, our Amended and Restated Certificate of Incorporation, charters for the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee of our board of directors, our Accounting Matters Complaint Policy, our Whistle Blower Hotline, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics governing our directors, officers and employees. Within the time periods required by SEC and the NASDAQ Stock Market ("NASDAQ"), we will post on our web site any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior financial officer. In addition, our web site includes information concerning purchases and sales of our equity securities by our executive officers and directors, as well as disclosure relating to certain non-GAAP financial measures (as defined in Regulation G) promulgated under the Securities Act of 1933, as amended (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the "Exchange Act") that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time.

        Our Investor Relations Department can be contacted at Interactive Brokers Group, Inc., Eight Greenwich Office Park, Greenwich, Connecticut 06831, Attn: Investor Relations, telephone: 203-618-4070, e-mail: investor- relations@interactivebrokers.com.

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Our Organizational Structure and Overview of Recapitalization Transactions

        The graphic below illustrates our current ownership structure and reflects current ownership percentages. The graphic below does not display the subsidiaries of IBG LLC.

GRAPHIC

        Prior to the IPO, we had historically conducted our business through a limited liability company structure. Our primary assets are our ownership of approximately 14.5% of the membership interests of IBG LLC, the current holding company for our businesses, and our controlling interest and related contractual rights as the sole managing member of IBG LLC. The remaining approximately 85.5% of IBG LLC membership interests are held by IBG Holdings LLC ("Holdings"), a holding company that is owned by our founder, Chairman and Chief Executive Officer, Thomas Peterffy, and his affiliates, management and other employees of IBG LLC, and certain other members. The IBG LLC membership interests held by Holdings will be subject to purchase by us over time in connection with offerings by us of shares of our common stock. The below table shows the amount of IBG LLC membership interests held by IBG, Inc. and Holdings as of December 31, 2014.

 
  Public   Holdings   Total  

Ownership %

    14.5 %   85.5 %   100.0 %

Membership interests

    58,473,186     346,062,282     404,535,468  

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        Purchases of IBG LLC membership interests, held by Holdings, by the Company are governed by the exchange agreement among us, IBG LLC, Holdings and the historical members of IBG LLC, (the "Exchange Agreement"), a copy of which was filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 and filed with the SEC on November 9, 2009. The Exchange Agreement, as amended June 6, 2012, provides that the Company may facilitate the redemption by Holdings of interests held by its members through the issuance of shares of common stock through a public offering in exchange for the interests in IBG LLC being redeemed by Holdings. The June 6, 2012 amendment (the "Amendment"), which was filed as an exhibit to our Form 8-K filed with the SEC on June 6, 2012, eliminated from the Exchange Agreement an alternative funding method, which provided that upon approval by the board of directors and by agreement of the Company, IBG LLC and Holdings, redemptions could be made in cash.

        At the time of the Company's IPO in 2007, three hundred sixty (360) million shares of authorized common stock were reserved for future sales and redemptions. From 2008 through 2010, Holdings redeemed 5,013,259 IBG LLC shares for a total of $114 million, which redemptions were funded using cash on hand at IBG LLC. Upon cash redemption these IBG LLC shares were retired.

        In June 2011, with the consent of Holdings and the Company (on its own behalf and acting as the sole managing member of IBG LLC), IBG LLC agreed to redeem certain membership interests from Holdings through the sale of common stock and to distribute the proceeds of such sale to the beneficial owners of such membership interests. On August 4, 2011, the Company filed a "shelf" Registration Statement on Form S-3 (File Number 333-176053) with the SEC for the issuance of additional shares in connection with Holdings requesting redemption of a portion of its member interests in IBG LLC. On August 4, 2011, a Prospectus Supplement was filed by the Company with the SEC to issue 1,983,624 shares of common stock (with a fair value of $29 million) in exchange for an equivalent number of shares of member interests in IBG LLC.

        In November 2013, with the consent of Holdings and the Company (on its own behalf and acting as the sole managing member of IBG LLC), IBG LLC agreed to redeem certain membership interests from Holdings through the sale of common stock and to distribute the proceeds of such sale to the beneficial owners of such membership interests. On November 12, 2013, the Company filed a "shelf" Registration Statement on Form S-3 (File Number 333-192275) with the SEC for the issuance of additional shares in connection with Holdings requesting redemption of a portion of its member interests in IBG LLC. On November 12, 2013, a Prospectus Supplement was filed by the Company with the SEC to issue 4,683,415 shares of common stock (with a fair value of $109.7 million) in exchange for an equivalent number of shares of member interests in IBG LLC.

        On October 24, 2014 the Company filed a Prospectus Supplement with the SEC to issue 1,358,478 shares of common stock (with a fair value of $35.2 million) in exchange for an equivalent number of shares of member interests in IBG LLC.

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Segment Operating Results

 
   
  Year Ended December 31,  
 
   
  2014   2013   2012  
 
   
  (in millions)
 

Electronic Brokerage

  Net revenues(1)   $ 952.3   $ 818.5   $ 672.2  

  Non-interest expenses(2)     363.8     422.7     328.7  

  Income before income taxes   $ 588.5   $ 395.8   $ 343.5  

  Pre-tax profit margin     62 %   48 %   51 %

Market Making

 

Net revenues(1)

 
$

284.4
 
$

361.1
 
$

490.5
 

  Non-interest expenses     170.3     202.6     271.0  

  Income before income taxes   $ 114.1   $ 158.5   $ 219.5  

  Pre-tax profit margin     40 %   44 %   45 %

Corporate(3)

 

Net revenues(1)

 
$

(193.4

)

$

(103.4

)

$

(32.2

)

  Non-interest expenses     3.1     (0.4 )   3.8  

  Loss before income taxes   $ (196.5 ) $ (103.0 ) $ (36.0 )

Total

  Net revenues   $ 1,043.3   $ 1,076.2   $ 1,130.5  

  Non-interest expenses     537.2     624.9     603.5  

  Income before income taxes   $ 506.1   $ 451.3   $ 527.0  

  Pre-tax profit margin     49 %   42 %   47 %

(1)
Certain reclassifications have been made to previously reported amounts to conform with the current presentation of currency translation gains and losses related to our currency diversification strategy. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Presentation of Foreign Currency Effects" in Part II Item 7 of this Annual Report on Form 10-K.

(2)
Electronic brokerage non-interest expenses in 2013 included an unusual loss of $64 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Overview" in Part II Item 7 of this Annual Report on Form 10-K.

(3)
The Corporate segment includes corporate related activities, inter-segment eliminations and net gains and losses on foreign currency contracts held as part of our overall currency diversification strategy.

        Financial information concerning our business segments for each of 2014, 2013 and 2012 is set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the consolidated financial statements and the notes thereto, which are in Part II, Items 7 and 8 of this Annual Report on Form 10-K.

Electronic Brokerage—Interactive Brokers

        Electronic brokerage represented 77% of 2014 net revenues and 84% of 2014 income before income taxes from electronic brokerage and market making combined. We conduct our electronic brokerage business through our Interactive Brokers ("IB") subsidiaries. As an electronic broker, we execute, clear and settle trades globally for both institutional and individual customers. Capitalizing on the technology originally developed for our market making business, IB's systems provide our customers with the capability to monitor multiple markets around the world simultaneously and to

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execute trades electronically in these markets at a low cost in multiple products and currencies from a single trading account.

        Since launching this business in 1993, we have grown to approximately 281,000 institutional and individual brokerage customers. We provide our customers with what we believe to be one of the most effective and efficient electronic brokerage platforms in the industry. The following are key highlights of our electronic brokerage business:

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        IB is able to provide its customers with high-speed trade execution at low commission rates, in large part because it utilizes the backbone technology developed for Timber Hill's market making operations. As a result of our advanced electronic brokerage platform, IB attracts sophisticated and active investors. No single customer represented more than 1% of our commissions and execution fees in 2014.

Market Making—Timber Hill

        Market making represented 23% of 2014 net revenues from electronic brokerage and market making combined. We conduct our market making business through our Timber Hill ("TH") subsidiaries. As one of the largest market makers on many of the world's leading electronic exchanges,

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we provide liquidity by offering competitively tight bid/offer spreads over a broad base of over one million tradable, exchange-listed products, including equity derivative products, equity index derivative products, equity securities and futures. As principal, we commit our own capital and derive revenues or incur losses from the difference between the price paid when securities are bought and the price received when those securities are sold. Historically, our profits have been principally a function of transaction volume and price volatility of electronic exchange- traded products rather than the direction of price movements. Other factors, including the ratio of actual to implied volatility and shifts in foreign currency exchange rates, can also have a meaningful impact on our results, as described further in "Business Environment" in Part II, Item 7 of this Annual Report on Form 10-K.

        Our strategy is to calculate quotes at which supply and demand for a particular security are likely to be in balance a few seconds ahead of the market and execute small trades at tiny but favorable differentials. Because we provide continuous bid and offer quotations and we are continuously both buying and selling quoted securities, we may have either a long or a short position in a particular product at a given point in time. As a matter of practice, we will generally not take portfolio positions in either the broad market or the financial instruments of specific issuers in anticipation that prices will either rise or fall. Our entire portfolio is evaluated each second and continuously rebalanced throughout the trading day, thus minimizing the risk of our portfolio at all times. This real-time rebalancing of our portfolio, together with our real-time proprietary risk management system, enables us to curtail risk and to be profitable in both up-market and down-market scenarios. Our quotes are based on our proprietary model rather than customer order flow, and we believe that this approach provides us with a competitive advantage.

        We are a market leader in exchange-traded equity options and equity-index options and futures. Together with our electronic brokerage customers, in 2014 we accounted for approximately 8.5% of exchange-listed equity options traded worldwide according to data received from exchanges worldwide. Our ability to make markets in such a large number of exchanges and market centers simultaneously around the world is one of our core strengths and has contributed to the large volumes in our market making business. We engage in market making operations in North and South America, Europe and in the Asia/Pacific regions as described below.

        North and South American Market Making Activities.    Our U.S. market making activities are conducted through Timber Hill LLC ("TH LLC"), a SEC-registered securities broker-dealer that conducts market making in equity derivative products, equity index derivative products and equity securities. Since its inception in 1982, TH LLC has grown to become one of the largest listed options market makers in the United States. As of December 31, 2014, TH LLC held specialist, primary market maker or lead market maker designations in options on approximately 1,080 underlying securities listed in the United States. TH LLC is a member of the Boston Options Exchange, BATS exchange, Chicago Board Options Exchange, Chicago Mercantile Exchange, Chicago Board of Trade, International Securities Exchange, NYSE AMEX Options Exchange, NYSE Arca, OneChicago, NASDAQ OMX's PHLX and NOM option markets and the New York Mercantile Exchange. TH LLC also conducts market making activities in Mexico at the MEXDER and the Mexican Stock Exchange and in Brazil at BM&F BOVESPA S.A. We conduct market making activities in Canada through our Canadian subsidiary, Timber Hill Canada Company ("THC") at the Toronto Stock Exchange and Montreal Exchange. In addition, we participate in stock trading at various notable Electronic Communications Networks ("ECNs") in both the U.S. and Canada.

        European, Asian, and Australian Market Making Activities.    Our European, Asian, and Australian market making subsidiaries, primarily Timber Hill Europe AG ("THE"), conduct operations in 22 countries, comprising the major securities markets in these regions.

        We began our market making operations in Europe in 1990. In Germany and Switzerland, we have been among the largest equity options market makers in terms of volume on Eurex, one of the world's

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largest futures and options exchanges, which is jointly operated by Deutsche Börse AG and SIX Swiss Exchange. We have also been active in trading German stocks and warrants as a member of XETRA, the German electronic stock trading system, and the Frankfurt and Stuttgart stock exchanges; and in Switzerland as a member of the SIX Swiss Exchange. Our other European operations are conducted on the London Stock Exchange; the Weiner Börse AG; the Copenhagen Stock Exchange; the Helsinki Stock Exchange; the NYSE Euronext exchanges in Amsterdam, Paris, Brussels and London; NASDAQ OMX Nordic exchanges in Sweden, Finland and Denmark; the MEFF and Bolsa de Valores Madrid in Spain; the IDEM and Borsa Valori de Milano in Milan; and the ÖTOB in Vienna.

        Since 1995, we have conducted market making operations in Hong Kong. Our Hong Kong subsidiary, Timber Hill Securities Hong Kong Ltd ("THSHK"), is a member of the cash and derivatives markets of the Hong Kong Exchanges. Since 1997, we have conducted operations in Australia. Our Australian subsidiary, Timber Hill Australia Pty Ltd ("THA"), is a member of the Australian Stock Exchange, and routes orders for its trading on ASX 24 through its affiliate, Interactive Brokers LLC. We commenced trading in Japan during 2002, Korea and Singapore during 2004 and Taiwan in 2007. In 2008, we began our market making operation in India through our subsidiary, Interactive Brokers (India) Private Limited ("IBI"), which is a member of the National Stock Exchange of India and the Bombay Stock Exchange.

        Most of the above trading activities take place on exchanges and all securities and commodities that we trade are cleared by exchange owned or authorized clearing houses. Recently, the emergence of High Frequency Traders and others who compete with us but do not regularly provide liquidity have put our market making operations under pressure and its relative significance has diminished

Technology

        Our proprietary technology is the key to our success. We built our business on the belief that a fully computerized market making system that could integrate pricing and risk exposure information quickly and continuously would enable us to make markets profitably in many different financial instruments simultaneously. We believe that integrating our system with electronic exchanges and market centers results in transparency, liquidity and efficiencies of scale. Together with the IB SmartRoutingSM system and our low commissions, these features reduce overall transaction costs to our customers and, in turn, increases our transaction volume and profits. Over the past 37 years, we have developed an integrated trading system and communications network and have positioned our company as an efficient conduit for the global flow of risk capital across asset and product classes on electronic exchanges around the world, permitting us to have one of the lowest cost structures in the industry. We believe that developing, maintaining and continuing to enhance our proprietary technology provides us and our customers with the competitive advantage of being able to adapt quickly to the changing environment of our industry and to take advantage of opportunities presented by new exchanges, products or regulatory changes before our competitors.

        The quotes that we provide as market makers are driven by proprietary mathematical models that assimilate market data and re-evaluate our outstanding quotes each second. Because our technology infrastructure enables us to process large volumes of pricing and risk exposure information rapidly, we are able to make markets profitably in securities with relatively low spreads between bid and offer prices. As market makers, we must ensure that our interfaces connect effectively and efficiently with each exchange and market center where we make markets and that they are in complete conformity with all the applicable rules of each local venue. Utilizing up-to-date computer and telecommunications systems, we transmit continually updated pricing information directly to exchange computer devices and receive trade and quote information for immediate processing by our systems. As a result, we are able to maintain more effective control over our exposure to price and volatility movements on a real-time basis than many of our competitors. This control is important, not only because our system must process, clear and settle several hundred thousand market maker trades per day with a minimal number

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of errors, but also because the system monitors and manages the risk on the entire portfolio, which generally consists of more than ten million open contracts distributed among many hundred thousand different products. Using our system, which we believe affords an optimal interplay of decentralized trading activity and centralized risk management, we quote markets in over one million securities and futures products traded around the world.

        In our electronic brokerage business, our proprietary technology infrastructure enables us to provide our customers with the ability to execute trades at among the lowest commission costs in the industry. Additionally, our customers benefit from real-time systems optimization for our market making business. Customer trades are both automatically captured and reported in real time in our system. Our customers trade on more than 100 exchanges and market centers in 24 countries around the world. All of these exchanges are partially or fully electronic, meaning that a customer can buy or sell a product traded on that exchange via an electronic link from his or her computer terminal through our system to the exchange. We offer our products and services through a global communications network that is designed to provide secure, reliable and timely access to the most current market information. We provide our customers with a variety of means to connect to our brokerage systems, including dedicated point-to-point data lines, virtual private networks and the Internet.

        Specifically, our customers receive worldwide electronic access connectivity through our Trader Workstation (our real-time Java-based trading platform), our proprietary Application Programming Interface ("API"), and/or industry standard Financial Information Exchange ("FIX") connectivity. Customers who want a professional quality trading application with a sophisticated user interface utilize our Trader Workstation which can be accessed through a desktop or variety of mobile devices. Customers interested in developing program trading applications in MS-Excel, Java, Visual Basic or C++ utilize our API. Large institutions with FIX infrastructure prefer to use our FIX solution for seamless integration of their existing order gathering and reporting applications.

        While many brokerages, including some online brokerages, rely on manual procedures to execute many day-to-day functions, IB employs proprietary technology to automate, or otherwise facilitate, many of the following functions:

Research and Development

        One of our core strengths is our expertise in the rapid development and deployment of automated technology for the financial markets. Our core software technology is developed internally, and we do not generally rely on outside vendors for software development or maintenance. To achieve optimal performance from our systems, we are continuously rewriting and upgrading our software. Use of the best available technology not only improves our performance but also helps us attract and retain talented developers. Our software development costs are low because the employees who oversee the

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development of the software are the same employees who design the application and evaluate its performance. This also enables us to add features and further refine our software rapidly.

        Our internally-developed, fully integrated trading and risk management systems are unique and transact across all product classes on more than 100 markets and in 21 currencies around the world. These systems have the flexibility to assimilate new exchanges and new product classes without compromising transaction speed or fault tolerance. Fault tolerance, or the ability to maintain system performance despite exchange malfunctions or hardware failures, is crucial to successful market making and ensuring best executions for brokerage customers. Our systems are designed to detect exchange malfunctions and quickly take corrective actions by re-routing pending orders.

        Our company is technology-focused, and our management team is hands-on and technology-savvy. Most members of the management team write detailed program specifications for new applications. The development queue is prioritized and highly disciplined. Progress on programming initiatives is generally tracked on a weekly basis by a steering committee consisting of senior executives. This enables us to prioritize key initiatives and achieve rapid results. All new business starts as a software development project. We generally do not engage in any business that we cannot automate and incorporate into our platform prior to entering into the business.

        The rapid software development and deployment cycle is achieved by our ability to leverage a highly integrated, object oriented development environment. The software code is modular, with each object providing a specific function and being reusable in multiple applications. New software releases are tracked and tested with proprietary automated testing tools. We are not hindered by disparate and often limiting legacy systems assembled through acquisitions. Virtually all of our software has been developed and maintained with a unified purpose.

        For over 36 years, we have built and continuously refined our automated and integrated, real-time systems for world-wide trading, risk management, clearing and cash management, among others. We have also assembled a proprietary connectivity network between us and exchanges around the world. Efficiency and speed in performing prescribed functions are always crucial requirements for our systems. As a result, our trading systems are able to assimilate market data, recalculate and distribute streaming quotes for tradable products in all product classes each second.

Risk Management Activities

        The core of our risk management philosophy is the utilization of our fully integrated computer systems to perform critical, risk-management activities on a real-time basis. In our market making business, our real-time integrated risk management system seeks to ensure that overall IBG positions are continuously hedged at all times, curtailing risk. In our electronic brokerage business, integrated risk management seeks to ensure that each customer's positions are continuously credit checked and brought into compliance if equity falls short of margin requirements, curtailing bad debt losses.

        We actively manage our global currency exposure on a continuous basis by maintaining our equity in a basket of currencies we call the GLOBAL. In 2011, we expanded the composition of the GLOBAL from six to 16 currencies to better reflect the expanding breadth of our businesses around the world. We define the GLOBAL as consisting of fractions of a U.S. dollar, Euro, Japanese yen, British pound, Canadian dollar, Australian dollar, Swiss franc, Hong Kong dollar, Swedish krona, Mexican peso, Danish krone, Norwegian krone, South Korean won, Brazilian real, Indian rupee and Singapore dollar. The Company currently transacts business and is required to manage balances in each of these 16 currencies. The currencies comprising the GLOBAL and their relative proportions can change over time. Additional information regarding our currency diversification strategy is set forth in "Quantitative and Qualitative Disclosures About Market Risk" in Part II, Item 7A of this Annual Report on Form 10-K.

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Electronic Brokerage

        IB calculates margin requirements for each of its customers on a real-time basis across all product classes (stocks, options, futures, forex, bonds and mutual funds) and across all currencies. Recognizing that IB's customers are experienced investors, we expect our customers to manage their positions proactively and we provide tools to facilitate our customers' position management. However, if a customer's equity falls below what is required to support that customer's margin, IB will automatically liquidate positions on a real-time basis to bring the customer's account into margin compliance. We do this to protect IB, as well as the customer, from excessive losses. These systems further contribute to our low-cost structure. The entire credit management process is completely automated.

        As a safeguard, all liquidations are displayed on custom built liquidation monitoring screens that are part of the toolset our technical staff uses to monitor performance of our systems at all times the markets around the world are open. In the event our systems absorb erroneous market data from exchanges, which prompts liquidations, risk specialists on our technical staff have the capability to halt liquidations that meet specific criteria. The liquidation halt function is highly restricted.

        IB's customer interface includes color coding on the account screen and pop-up warning messages to notify customers that they are approaching their margin limits. This feature allows customers to take action, such as entering margin reducing trades, to avoid having IB liquidate their positions. These tools and real-time margining allow IB's customers to understand their trading risk at any moment of the day and help IB maintain low commissions.

Market Making

        We employ certain hedging and risk management techniques to protect us from a severe market dislocation. Our risk management policies are developed and implemented by our Chairman and our steering committee, which is comprised of senior executives of our various companies. Our strategy is to calculate quotes a few seconds ahead of the market and execute small trades at a tiny but favorable differential as a result. This strategy is made possible by our proprietary pricing model, which evaluates and monitors the risks inherent in our portfolio, assimilates market data and reevaluates the outstanding quotes in our portfolio each second. Our model automatically rebalances our positions throughout each trading day to manage risk exposures both on our options and futures positions and the underlying securities, and it will price the increased risk that a position would add to the overall portfolio into the bid and offer prices we post. Under risk management policies implemented and monitored primarily through our computer systems, reports to management, including risk profiles, profit and loss analysis and trading performance, are prepared on a real-time basis as well as daily and periodical bases. Although our market making is completely automated, the trading process and our risk are monitored by a team of individuals who, in real-time, observe various risk parameters of our consolidated positions. Our assets and liabilities are marked-to-market daily for financial reporting purposes and re-valued continuously throughout the trading day for risk management and asset/liability management purposes.

        Over the years, we have expanded our market presence and the number of financial instruments in which we make markets. This diversification acts as a passive form of portfolio risk management.

        We trade primarily the options on stocks (and individual stocks) whose underlying equity market capitalization is greater than $500 million. Throughout the trading day we produce online, real-time profit and loss, risk evaluation, activity and other management reports. Our software assembles from external sources a balance sheet and income statements for our accounting department and to reconcile to the trading system results.

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        The adaptability of our portfolio risk management system and our trading methods have allowed us to expand the number of financial instruments traded and the number of markets on which we trade.

Operational Controls

        We have automated the full cycle of controls surrounding the market making and brokerage businesses. Key automated controls include the following:

Transaction Processing

        Our transaction processing is automated over the full life cycle of a trade. Our market making software generates and disseminates to exchanges and market centers continuous bid and offer quotes on over one million tradable, exchange-listed products. Our fully automated smart router system searches for the best possible combination of prices available at the time a customer order is placed and immediately seeks to execute that order electronically or send it where the order has the highest possibility of execution at the best price.

        At the moment a trade is executed, our systems capture and deliver this information back to the source, either the market making system or via the brokerage system to the customer, in most cases within a fraction of a second. Simultaneously, the trade record is written into our clearing system, where it flows through a chain of control accounts that allow us to reconcile trades, positions and money until the final settlement occurs. Our integrated software tracks other important activities, such

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as dividends, corporate actions, options exercises, securities lending, margining, risk management and funds receipt and disbursement.

IB SmartRoutingSM

        IB SmartRoutingSM searches for the best destination price in view of the displayed prices, sizes and accumulated statistical information about the behavior of market centers at the time an order is placed, and IB SmartRoutingSM immediately seeks to execute that order electronically. Unlike other smart routers, IB SmartRoutingSM never relinquishes control of the order, and constantly searches for the best price. It continuously evaluates fast-changing market conditions and dynamically re-routes all or parts of the order seeking to achieve optimal execution. IB SmartRoutingSM represents each leg of a spread order independently and enters each leg at the best possible venue. IB SmartRouting AutorecoverySM re-routes a customer's U.S. options order in the case of an exchange malfunction, with IB undertaking the risk of double executions. In addition, IB SmartRoutingSM checks each new order to see if it could be executed against any of its pending orders. As the system gains more users, this feature becomes more important for customers in a world of multiple exchanges, trading venues and penny priced orders because it increases the possibility of best executions for our customers ahead of customers of other brokers. As a result of this feature, our customers have a greater chance of executing limit orders and can do so sooner than those who use other routers.

Clearing and Margining

        Our activities in the United States are entirely self-cleared. We are a full clearing member of The OCC (Options Clearing Corporation), the Chicago Mercantile Exchange Clearing House ("CMECH"), The Depository Trust Clearing Corporation and ICE Clear U.S.

        Due to our large positions in broad based index products, we benefit from the cross-margin system maintained by OCC and CMECH. For example, if we hold a position in an OCC-cleared product and have an offsetting position in a CMECH cleared product, the cross-margin computation takes both positions into account, thereby reducing the overall margin requirement. The reduced margin benefit proves especially useful during times of market stress, such as on days with large price movements when intra-day margin calls may be reduced or eliminated by the cross-margin calculation.

        In addition, we are fully or partially self-cleared in Canada, Great Britain, Switzerland, France, Germany, Belgium, Austria, the Netherlands, Norway, Sweden, Denmark, Finland, Hong Kong and India.

Customers

        We established our electronic brokerage subsidiary, IB, in 1993 to enhance the use of our global network of trading interfaces, exchange and clearinghouse memberships and regulatory registrations assembled over the prior 16 years to serve our market making business. We realized that electronic access to market centers worldwide through our network could easily be utilized by the very same floor traders and trading desk professionals who, in the coming years, would be displaced by the conversion of exchanges from open outcry to electronic systems.

        We currently service approximately 281,000 cleared customer accounts. Our customers reside in over 190 countries around the world.

        The target IB customer is one that requires the latest in trading technology, worldwide access and expects low overall transaction costs. IB's customers are mainly comprised of "self-service" individuals, former floor traders, trading desk professionals, electronic retail brokers, financial advisors who are comfortable with technology, banks that require global access, and hedge funds.

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        Our customers fall into three groups based on services provided: cleared customers, trade execution customers and wholesale customers. By offering portfolio margining, we have been able to persuade more of our trade execution hedge fund customers to utilize our cleared business solution, which benefits the hedge funds in terms of cost savings. Many prime brokers once offered increased leverage over Regulation T credit limitations and NYSE margin requirements through offshore entities and joint back office arrangements. Following the market turmoil of late 2008 and the resulting tightening of credit, we observed competition in this area diminish. Through portfolio margining, IB is able to offer similar leverage with lower margin requirements that reflect the reduced risk of a hedged portfolio.

        Our non-cleared customers include large online brokers and increasing numbers of the proprietary and customer trading units of U.S., Canadian and European commercial banks. These customers are attracted by the IB SmartRouting SM technology as well as our direct access to stock, options, futures, forex and bond markets worldwide.

        Our customers receive worldwide electronic access connectivity in one of three ways: the Trader Workstation via desktop or mobile device, our proprietary API, and/or industry standard FIX connectivity.

Employees and Culture

        We take pride in our technology-focused company culture and embrace it as one of our fundamental strengths. We remain committed to improving our technology, and we try to minimize corporate hierarchy to facilitate efficient communication among employees. We have assembled what we believe is a highly talented group of employees. As we grow, we expect to continue to provide significant rewards for our employees who provide substantial value to us and the world's financial markets.

        As of December 31, 2014, we had 960 employees, all of whom were employed on a full-time basis. None of our employees are covered by collective bargaining agreements. We believe that our relations with our employees are good.

Competition

Electronic Brokerage

        The market for electronic brokerage services is rapidly evolving and highly competitive. IB believes that it fits neither within the definition of a traditional broker nor that of a prime broker. IB's primary competitors include offerings targeted to professional traders by large retail online brokers (such as TD

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Ameritrade's thinkorswim, E*TRADE Pro business, and The Charles Schwab Corporation's StreetSmart Edge and optionsXpress businesses) and the prime brokerage and electronic brokerage arms of major investment banks and brokers (such as Goldman Sachs' Electronic Trading (GSET), REDIPlus, and Morgan Stanley's Passport business). We also encounter competition to a lesser extent from full commission brokerage firms including Bank of America Merrill Lynch and Morgan Stanley Smith Barney, as well as other financial institutions, most of which provide online brokerage services. The electronic brokerage businesses of many of our competitors are relatively insignificant in the totality of their firms' business and many impose significant account equity minimums, which IB does not. IB provides access to a global range of products from a single IB Universal AccountSM and professional level executions and pricing, which positions it in competition with niche direct-access providers and prime brokers. In addition to offering low commissions and financing rates, IB provides sophisticated order types and analytical tools that give a competitive edge to its customers.

Market Making

        Historically, competition has come from registered market making firms which range from sole proprietors with very limited resources to large, integrated broker-dealers. Today, Timber Hill's major competitors continue to be large broker-dealers, such as Goldman Sachs, Morgan Stanley, UBS, Citigroup, Bank of America Merrill Lynch, and niche players such as Citadel, Susquehanna, Virtu, Wolverine Trading, Group One Trading, Peak6 and Knight Capital Group. Some of our competitors in market making are larger than we are and have more captive order flow, although this is less true with respect to our narrow focus on options, futures and ETFs listed on electronic exchanges.

        The competitive environment for market makers has evolved considerably in the past several years, most notably with the rise in high frequency trading firms ("HFTs"), which transact significant trading volume on electronic exchanges by using complex algorithms and high speed execution software that analyzes market conditions. HFTs that are not registered market makers operate with fewer regulatory restrictions and are able to move more quickly and trade more cheaply. This issue is currently an area of focus amongst regulators who are examining the practices of HFTs and their impact on market structure.

        To compete successfully, we believe that we must have more sophisticated, versatile and robust software than our competitors. This is our primary focus, as contrasted with many of our competitors. With respect to these competitors, Timber Hill maintains the advantage of having had much longer experience with the development and usage of its proprietary electronic brokerage and market making systems. Market conditions that are difficult for other market participants often present Timber Hill with the opportunities inherent in diminished competition. Our advantage is our expertise and decades of single-minded focus on developing our technology. This enables us to have a unique platform specializing strictly in electronic market making and brokerage.

Regulation

        Our securities and derivatives businesses are extensively regulated by U.S. federal and state regulators, foreign regulatory agencies, numerous exchanges and self-regulatory organizations ("SROs") of which our subsidiaries are members. In the current era of heightened regulation of financial institutions, we expect to incur increasing compliance costs, along with the industry as a whole.

Overview

        As registered U.S. broker-dealers, Interactive Brokers LLC ("IB LLC") and TH LLC are subject to the rules and regulations of the Exchange Act, and as members of various exchanges, we are also subject to such exchanges' rules and requirements. Additionally, as registered futures commission merchants, IB LLC and TH LLC are subject to the Commodity Exchange Act and rules promulgated

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by the Commodity Futures Trading Commission ("CFTC") and the various commodity exchanges of which they are members. Finally, we are subject to the requirements of various self-regulatory organizations such as the Financial Industry Regulatory Authority ("FINRA") and the National Futures Association ("NFA"). Our foreign affiliates are similarly regulated under the laws and institutional framework of the countries in which they operate.

        U.S. broker-dealers and futures commission merchants are subject to laws, rules and regulations that cover all aspects of the securities and derivatives business, including:

        In addition, the businesses that we may conduct are limited by our agreements with and our oversight by regulators. Participation in new business lines, including trading of new products or participation on new exchanges or in new countries often requires governmental and/or exchange approvals, which may take significant time and resources. As a result, we may be prevented from entering new businesses that may be profitable in a timely manner, or at all.

        As certain of our subsidiaries are members of FINRA, we are subject to certain regulations regarding changes in control of our ownership. FINRA Rule 1017 generally provides that FINRA approval must be obtained in connection with any transaction resulting in a change in control of a member firm. The FINRA defines control as ownership of 25% or more of the firm's equity by a single entity or person and would include a change in control of a parent company. As a result of these regulations, our future efforts to sell shares or raise additional capital may be delayed or prohibited by FINRA.

Net Capital Rule

        The SEC, FINRA, CFTC and various other regulatory agencies within the United States have stringent rules and regulations with respect to the maintenance of specific levels of net capital by regulated entities. Generally, a broker-dealer's capital is net worth plus qualified subordinated debt less deductions for certain types of assets. The Net Capital Rule requires that at least a minimum part of a broker-dealer's assets be maintained in a relatively liquid form.

        If these net capital rules are changed or expanded, or if there is an unusually large charge against our net capital, our operations that require the intensive use of capital would be limited. A large operating loss or charge against our net capital could adversely affect our ability to expand or even maintain these current levels of business, which could have a material adverse effect on our business and financial condition.

        The U.S. regulators impose rules that require notification when net capital falls below certain predefined criteria. These rules also dictate the ratio of debt-to-equity in the regulatory capital composition of a broker-dealer, and constrain the ability of a broker-dealer to expand its business under certain circumstances. If a firm fails to maintain the required net capital, it may be subject to suspension or revocation of registration by the applicable regulatory agency, and suspension or expulsion by these regulators could ultimately lead to the firm's liquidation. Additionally, the Net

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Capital Rule and certain FINRA rules impose requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to U.S. regulators and approval from FINRA for certain capital withdrawals.

        At December 31, 2014, aggregate excess regulatory capital for all of the operating companies was $3.27 billion.

        TH LLC and IB LLC are subject to the Uniform Net Capital Rule (Rule 15c3-1) under the Exchange Act and the CFTC's minimum financial requirements (Regulation 1.17) under the Commodities Exchange Act, and THE is subject to the Swiss Financial Market Supervisory Authority eligible equity requirement. Additionally, THSHK is subject to the Hong Kong Securities and Futures Commission financial resource requirement, THA is subject to the Australian Stock Exchange liquid capital requirement, Timber Hill (Lichtenstein) AG is subject to the Financial Market Authority Liechtenstein eligible capital requirements, THC and Interactive Brokers Canada Inc. ("IBC") are subject to the Investment Industry Regulatory Organization of Canada risk adjusted capital requirement, Interactive Brokers (U.K.) Limited ("IBUK") is subject to the U.K. Financial Conduct Authority ("FCA") financial resources requirement, IBI is subject to the National Stock Exchange of India net capital requirements and Interactive Brokers Securities Japan, Inc. ("IBSJ") is subject to the Japanese Financial Supervisory Agency capital requirements. The following table summarizes capital, capital requirements and excess regulatory capital:

 
  Net Capital/
Eligible Equity
  Requirement   Excess  
 
  (in millions)
 

IB LLC

  $ 2,333.9   $ 279.0   $ 2,054.9  

TH LLC

    374.2     63.6     310.6  

THE

    661.7     205.3     456.4  

Other regulated Operating Companies

    486.0     36.1     449.9  

  $ 3,855.8   $ 584.0   $ 3,271.8  

        At December 31, 2014, all of the operating companies were in compliance with their respective regulatory capital requirements. For additional information regarding our net capital requirements see Note 17 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

Protection of Customer Assets

        To conduct customer activities, IB LLC is obligated under rules mandated by its primary regulators, the SEC and the CFTC, to segregate cash or qualified securities belonging to customers. In accordance with the Securities Exchange Act of 1934, IB LLC is required to maintain separate bank accounts for the exclusive benefit of customers. In accordance with the Commodity Exchange Act, IB LLC is required to segregate all monies, securities and property received from commodities customers in specially designated accounts. IBC, IBUK and IBSJ are subject to similar requirements within their respective jurisdictions.

        To further enhance the protection of our customers' assets, in 2011, IB LLC sought and received approval from FINRA to perform the customer reserve computation on a daily basis, instead of once per week. IB LLC has been performing daily computations since December 2011, along with daily adjustments of the money set aside in safekeeping for our customers.

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Supervision and Compliance

        Our Compliance Department supports and seeks to ensure proper operations of our market making and electronic brokerage businesses. The philosophy of the Compliance Department, and our company as a whole, is to build automated systems to try to eliminate manual steps in the compliance process and then to augment these systems with experienced staff members who apply their judgment where needed. We have built automated systems to handle wide-ranging compliance issues such as trade and audit trail reporting, financial operations reporting, enforcement of short sale rules, enforcement of margin rules and pattern day trading restrictions, review of employee correspondence, archival of required records, execution quality and order routing reports, approval and documentation of new customer accounts, and anti-money laundering and anti-fraud surveillance. In light of our automated operations and our automated compliance systems, we have a smaller and more efficient Compliance Department than many traditional securities firms. Nonetheless, we have increased the staffing in our Compliance Department over the past several years to meet the increased regulatory burdens faced by all industry participants.

        Our electronic brokerage and market making companies have Chief Compliance Officers who report to the Company's CEO, General Counsel and its Audit and Compliance Committee. These Chief Compliance Officers, plus certain other senior staff members, are FINRA and NFA registered principals with supervisory responsibility over the various aspects of our businesses. Similar roles are undertaken by staff in certain non-U.S. locations as well. Staff members in the Compliance Department and in other departments of the firm are also registered with FINRA, NFA or other regulatory organizations.

Patriot Act and Increased Anti-Money Laundering ("AML") and "Know Your Customer" Obligations

        Registered broker-dealers traditionally have been subject to a variety of rules that require that they "know their customers" and monitor their customers' transactions for potential suspicious activities. With the passage of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "Patriot Act"), broker-dealers are subject to even more stringent requirements. Likewise, the SEC, CFTC, foreign regulators, and the various exchanges and SROs, of which IB companies are members, have passed numerous AML and customer due diligence rules. Significant criminal and civil penalties can be imposed for violations of the Patriot Act, and significant fines and regulatory penalties for violations of other governmental and SRO AML rules.

        As required by the Patriot Act and other rules, we have established comprehensive anti-money laundering and customer identification procedures, designated AML compliance officers, trained our employees and conducted independent audits of our programs. Our anti-money laundering screening is conducted using a mix of automated and manual reviews and has been structured to comply with regulations in various jurisdictions. We collect required information through our new account opening process and screen accounts against databases for the purposes of identity verification and for review of negative information and appearance on government lists, including the Office of Foreign Assets and Control, Specially Designated Nationals and Blocked Persons lists. Additionally, we have developed methods for risk control and continue to add upon specialized processes, queries and automated reports designed to identify money laundering, fraud and other suspicious activities.

Dodd-Frank Reform Act

        The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes strict reporting and disclosure requirements on the financial services industry. Management is monitoring this and other accounting and regulatory rulemaking developments for their potential effect on the Company's financial statements and internal controls over financial reporting.

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Business Continuity Planning

        Federal regulators and industry self-regulatory organizations have passed a series of rules in the past several years requiring regulated firms to maintain business continuity plans that describe what actions firms would take in the event of a disaster (such as a fire, natural disaster or terrorist incident) that might significantly disrupt operations. IB has developed business continuity plans that describe steps that the firm and its employees would take in the event of various scenarios. The firm has built a backup site for certain key operations at its Chicago facilities that would be utilized in the event of a significant outage at the firm's Greenwich headquarters. In addition, the firm has strengthened the infrastructure at its Greenwich headquarters and has built redundancy of systems so that certain operations can be handled from multiple offices. The firm continually evaluates opportunities to further its business continuity planning efforts.

Foreign Regulation

        Our international subsidiaries are subject to extensive regulation in the various jurisdictions where they have operations. The most significant of our international subsidiaries are: THE, registered to do business in Switzerland as a securities dealer; THSHK, registered to do business in Hong Kong as a securities dealer; THA, registered to do business in Australia as a securities dealer and futures broker; IBUK, registered to do business in the U.K. as a broker; IBC and THC, registered to do business in Canada as an investment dealer and securities dealer, respectively; IBI, registered to do business in India as a stock broker and IBSJ, registered in Japan as a financial instruments firm with the Kanto Regional Finance Bureau and the Financial Supervisory Agency.

        In Hong Kong, the Securities and Futures Commission ("SFC") regulates our subsidiary, THSHK, as a securities dealer. The compliance requirements of the SFC include, among other things, net capital requirements and stockholders' equity requirements. The SFC regulates the activities of the officers, directors, employees and other persons affiliated with THSHK and requires the registration of such persons.

        In Canada, both THC and IBC are subject to the Investment Industry Regulatory Organization of Canada ("IIROC") risk adjusted capital requirement. In Switzerland, THE is subject to the Swiss Financial Market Supervisory Authority eligible equity requirement. In Australia, THA is subject to the Australian Stock Exchange liquid capital requirement. In the United Kingdom, IBUK is subject to the U.K Financial Conduct Authority financial resources requirement.

        In India, IBI is subject to the National Stock Exchange and Bombay Stock Exchange capital requirements. In Japan, IBSJ is subject to the Financial Supervisory Agency, the Osaka Securities Exchange and the Tokyo Stock Exchange capital requirements.

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Executive Officers and Directors of Interactive Brokers Group, Inc.

        The following table sets forth the names, ages and positions of our current directors and executive officers.

Name
  Age   Position

Thomas Peterffy

    70   Chairman of the Board of Directors and Chief Executive Officer

Earl H. Nemser

    67   Vice Chairman and Director

Milan Galik

    48   President and Director

Paul J. Brody

    54   Chief Financial Officer, Treasurer, Secretary and Director

Thomas A. Frank

    59   Executive Vice President and Chief Information Officer

Lawrence E. Harris

    58   Director

Hans R. Stoll

    75   Director

Wayne Wagner

    76   Director

Richard Gates

    43   Director

        Thomas Peterffy.    Thomas Peterffy has been at the forefront of applying computer technology to automate trading and brokerage functions since he emigrated from Hungary to the United States in 1965. In 1977, after purchasing a seat on the American Stock Exchange and trading as an individual marker maker in equity options, Mr. Peterffy was among the first to apply a computerized mathematical model to continuously value equity option prices. By 1986, Mr. Peterffy developed and employed a fully integrated, automated market making system for stocks, options and futures. As this pioneering system extended around the globe, online brokerage functions were added and, in 1993, Interactive Brokers was formed.

        Earl H. Nemser.    Mr. Nemser has been our Vice Chairman since 1988 and also serves as a director and/or officer for various subsidiaries of IBG LLC. Mr. Nemser has served as Special Counsel to the law firm Dechert LLP since January 2005. Prior to such time Mr. Nemser served as Partner at the law firms of Swidler Berlin Shereff Friedman, LLP from 1995 to December 2004 and Cadwalader, Wickersham & Taft LLP prior to 1995. Mr. Nemser received a Bachelor of Arts degree in economics from New York University in 1967 and a Juris Doctor, magna cum laude, from Boston University School of Law in 1970.

        Milan Galik.    Mr. Galik joined us in 1990 as a software developer and has served as President of the Company and IBG LLC since October 2014. Mr. Galik served as Senior Vice President, Software Development of IBG LLC from October 2003 to October 2014. In addition, Mr. Galik has served as Vice President of Timber Hill LLC since April 1998 and serves as a member of the board of directors of the Boston Options Exchange. Mr. Galik received a Master of Science degree in electrical engineering from the Technical University of Budapest in 1990.

        Paul J. Brody.    Mr. Brody joined us in 1987 and has served as Chief Financial Officer since December 2003. Mr. Brody serves as a director and/or officer for various subsidiaries of IBG LLC. From 2005 to 2012 Mr. Brody served as a director, and for a portion of that time as member Vice Chairman, of The Options Clearing Corporation, of which Timber Hill LLC and Interactive Brokers LLC are members. He also serves as a director of Quadriserv Inc., an electronic securities lending platform provider. Mr. Brody received a Bachelor of Arts degree in economics from Cornell University in 1982.

        Thomas A. Frank.    Dr. Frank joined us in 1985 and has served since July 1999 as Executive Vice President and Chief Information Officer of Interactive Brokers LLC. In addition, Dr. Frank has served as Vice President of Timber Hill LLC since December 1990. Dr. Frank received a Ph.D. in physics from the Massachusetts Institute of Technology in 1985.

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        Lawrence E. Harris.    Dr. Harris has been a director since July 2007. He is a professor of Finance and Business Economics at the University of Southern California, where he holds the Fred V. Keenan Chair in Finance at the Marshall School of Business. Dr. Harris also serves as trustee of the Clipper Fund, director of the Selected Funds, and as the research coordinator of the Institute for Quantitative Research in Finance. Dr. Harris formerly served as Chief Economist of the U.S. Securities and Exchange Commission. Dr. Harris earned his Ph.D. in Economics from the University of Chicago, and is a CFA charterholder. He is an expert in the economics of securities market microstructure and the uses of transactions data in financial research. He has written extensively about trading rules, transaction costs, index markets, and market regulation. Dr. Harris is also the author of the widely respected textbook "Trading and Exchanges: Market Microstructure for Practitioners."

        Hans R. Stoll.    Dr. Stoll has been a director since April 2008. He is The Anne Marie and Thomas B. Walker, Jr., Professor of Finance, Emeritus at the Owen Graduate School of Management, Vanderbilt University and founder of the Financial Markets Research Center. Dr. Stoll has published several books and more than 60 articles on numerous securities and finance related subjects. He is known for developing the put call parity relation and for his work in market microstructure. Dr. Stoll was on the faculty of the Wharton School from 1966 to 1980 at which time he joined the faculty at Vanderbilt. Dr. Stoll served as a member of the board of directors of the Options Clearing Corporation from 2005 to 2008. He has been President of the American Finance Association. Dr. Stoll received his A.B. degree from Swarthmore College in 1961 and his M.B.A. and Ph.D. degrees from the Graduate School of Business of the University of Chicago in 1963 and 1966, respectively.

        Wayne Wagner.    Mr. Wagner has been a director since April 2014. He is a consultant on issues related to investment management and securities trading. He co-founded Plexus Group, now part of ITG, Inc., in 1986. Plexus provided trading evaluation and advisory services to money managers, brokerage firms and pension plan sponsors. He was also a founding partner of Wilshire Associates and served as the Chief Investment Officer of Wilshire Asset Management. He participated in the design of the operating, balancing and evaluation algorithms for the world's first operational index fund at Wells Fargo Bank. He is recognized as instrumental in pioneering processes to reduce the costs of trading. Mr. Wagner has authored several books on the topic of trading and investment management and is currently the Research Committee Chairman of the CFA-Institute Research Foundation.

        Richard Gates.    Mr. Gates co-founded TFS Capital in 1997. TFS is an independent advisory firm that has been dedicated to the construction of quantitative models that are designed to identify market inefficiencies. As a portfolio manager at this firm, he oversees several hedge funds and mutual funds that take both long and short positions in equities and futures. At TFS, his focus is on trade execution, factor research and business development. Mr. Gates graduated from the University of Virginia in 1994 with a bachelor's degree in Chemical Engineering.

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ITEM 1A.    RISK FACTORS

        We face a variety of risks that are substantial and inherent in our businesses, including market, liquidity, credit, operational, legal and regulatory. In addition to the risks identified elsewhere in this Annual Report on Form 10-K, the following risk factors apply to our business results of operations and financial condition:


Risks Related to Our Company Structure

Control by Thomas Peterffy of a majority of the combined voting power of our common stock may give rise to conflicts of interests and could discourage a change of control that other stockholders may favor, which could negatively affect our stock price, and adversely affect stockholders in other ways.

        Thomas Peterffy, our founder, Chairman and Chief Executive Officer, and his affiliates beneficially own approximately 88.0% of the economic interests and all of the voting interests in Holdings, which owns all of our Class B common stock, representing approximately 85.5% of the combined voting power of all classes of our voting stock. As a result, Mr. Peterffy has the ability to elect all of the members of our board of directors and thereby to control our management and affairs, including determinations with respect to acquisitions, dispositions, material expansions or contractions of our business, entry into new lines of business, borrowings, issuances of common stock or other securities, and the declaration and payment of dividends on our common stock. In addition, Mr. Peterffy is able to determine the outcome of all matters requiring stockholder approval and will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude any unsolicited acquisition of our company. The concentration of ownership could discourage potential takeover attempts that other stockholders may favor and could deprive stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and this may adversely affect the market price of our common stock.

        Moreover, because of Mr. Peterffy's substantial ownership, we are eligible to be and are, treated as a "controlled company" for purposes of the NASDAQ Marketplace Rules. As a result, we are not required by NASDAQ to have a majority of independent directors or to maintain Compensation and Nominating and Corporate Governance Committees composed entirely of independent directors to continue to list the shares of our common stock on The NASDAQ Global Select Market ("NASDAQ GS"). Our Compensation Committee is comprised of Messrs. Thomas Peterffy (Chairman of the Compensation Committee) and Earl H. Nemser (our Vice Chairman). Mr. Peterffy's membership on the Compensation Committee may give rise to conflicts of interests in that Mr. Peterffy is able to influence all matters relating to executive compensation, including his own compensation.

We are dependent on IBG LLC to distribute cash to us in amounts sufficient to pay our tax liabilities and other expenses.

        We are a holding company and our primary assets are our approximately 14.5% equity interest in IBG LLC and our controlling interest and related rights as the sole managing member of IBG LLC and, as such, we operate and control all of the business and affairs of IBG LLC and are able to consolidate IBG LLC's financial results into our financial statements. We have no independent means of generating revenues. IBG LLC is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to U.S. federal income tax. Instead, its taxable income is allocated on a pro rata basis to Holdings and us. Accordingly, we incur income taxes on our proportionate share of the net taxable income of IBG LLC, and also incur expenses related to our operations. We intend to cause IBG LLC to distribute cash to its members in amounts at least equal to that necessary to cover their tax liabilities, if any, with respect to the earnings of IBG LLC. To the extent we need funds to pay such taxes, or for any other purpose, and IBG LLC is unable to provide such funds, it could have a material adverse effect on our business, financial condition or results of operations.

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We are required to pay Holdings for the benefit relating to additional tax depreciation or amortization deductions we claim as a result of the tax basis step-up our subsidiaries received in connection with our IPO and certain subsequent redemptions of Holdings membership interests.

        In connection with our IPO, we purchased interests in IBG LLC from Holdings for cash. In August 2011, November 2013 and October 2014, in connection with redemptions of Holdings membership interests, we acquired additional interests in IBG LLC by issuing shares of Class A common stock in exchange for an equivalent number of shares of member interests in IBG LLC (the "Redemptions"). In addition, IBG LLC membership interests held by Holdings may be sold in the future to us and financed by our issuances of shares of our common stock. The initial purchase and the Redemptions did, and the subsequent purchases may, result in increases in the tax basis of the tangible and intangible assets of IBG LLC and its subsidiaries that otherwise would not have been available. Such increase will be approximately equal to the amount by which our stock price at the time of the purchase exceeds the income tax basis of the assets of IBG LLC underlying the IBG LLC interests acquired by us. These increases in tax basis will result in increased deductions in computing our taxable income and resulting tax savings for us generally over the 15 year period which commenced with the initial purchase. We have agreed to pay 85% of these tax savings, if any, to Holdings as they are realized as additional consideration for the IBG LLC interests that we acquire.

        As a result of the IPO and the redemptions by Holdings, the increase in the tax basis attributable to our interest in IBG LLC is $1.09 billion. The tax savings that we would actually realize as a result of this increase in tax basis likely would be significantly less than this amount multiplied by our effective tax rate due to a number of factors, including the allocation of a portion of the increase in tax basis to foreign or non-depreciable fixed assets, the impact of the increase in the tax basis on our ability to use foreign tax credits and the rules relating to the amortization of intangible assets, for example. Based on current facts and assumptions, including that subsequent purchases of IBG LLC interests will occur in fully taxable transactions, the potential tax basis increase resulting from the historical and future purchases of the IBG LLC interests held by Holdings could be as much as $6.76 billion. The tax receivable agreement requires 85% of such tax savings, if any, to be paid to Holdings, with the balance to be retained by us. The actual increase in tax basis depends, among other factors, upon the price of shares of our common stock at the time of the purchase and the extent to which such purchases are taxable and, as a result, could differ materially from this amount. Our ability to achieve benefits from any such increase, and the amount of the payments to be made under the tax receivable agreement, depends upon a number of factors, as discussed above, including the timing and amount of our future income.

        The tax basis of $6.76 billion assumes that (a) all remaining IBG LLC membership interests held by Holdings are purchased by the Company and (b) such purchases in the future are made at prices that reflect the closing share price at December 31, 2014. In order to have a $6.76 billion tax basis, the offering price per share of Class A common stock in such future public offering will need to exceed the then current cost basis per share of Class A common stock by approximately $16.39.

        If either immediately before or immediately after any purchase or the related issuance of our stock, the Holdings members own or are deemed to own, in the aggregate, more than 20% of our outstanding stock, then all or part of any increase in the tax basis of goodwill may not be amortizable and, thus, our ability to realize the annual tax savings that otherwise would have resulted if such tax basis were amortizable may be significantly reduced. Although the Holdings members are prohibited under the Exchange Agreement from purchasing shares of Class A common stock, grants of our stock to employees and directors who are also members or related to members of Holdings and the application of certain tax attribution rules, such as among family members and partners in a partnership, could result in Holdings members being deemed for tax purposes to own shares of Class A common stock.

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        If the IRS successfully challenges the tax basis increase, under certain circumstances, we could be required to make payments to Holdings under the tax receivable agreement in excess of our cash tax savings.

Future sales of our common stock in the public market could lower our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us.

        The members of Holdings have the right to cause the redemption of their Holdings membership interests over time in connection with offerings of shares of our common stock. We intend to sell additional shares of common stock in public offerings in the future, which may include offerings of our common stock to finance future purchases of IBG LLC membership interests which, in turn, will finance corresponding redemptions of Holdings membership interests. These offerings and related transactions were anticipated to occur on or about each of the first eight years following the IPO. Given the absence of any public offering subsequent to our IPO in 2007 through 2010 (and the relatively minor amounts associated with the 2011, 2013 and 2014 redemptions) and depending on the timing of redemptions, this offering schedule will be extended into the future in accordance with the Exchange Agreement. The size and occurrence of these offerings may be affected by market conditions. We may also issue additional shares of common stock or convertible debt securities to finance future acquisitions or business combinations. We currently have approximately 58.5 million outstanding shares of common stock. Assuming no anti-dilution adjustments based on combinations or divisions of our common stock, the offerings referred to above could result in the issuance by us of up to an additional approximately 346.1 million shares of common stock. It is possible, however, that such shares could be issued in one or a few large transactions.

        We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock may have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may cause the market price of our common stock to decline.

Certain provisions in our amended and restated certificate of incorporation may prevent efforts by our stockholders to change our direction or management.

        Provisions contained in our amended and restated certificate of incorporation could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. For example, our amended and restated certificate of incorporation authorizes our board of directors to determine the rights, preferences, privileges and restrictions of unissued series of preferred stock, without any vote or action by our stockholders. We could issue a series of preferred stock that could impede the completion of a merger, tender offer or other takeover attempt. These provisions may discourage potential acquisition proposals and may delay, deter or prevent a change of control of us, including through transactions, and, in particular, unsolicited transactions, that some or all of our stockholders might consider to be desirable. As a result, efforts by our stockholders to change our direction or management may be unsuccessful.


Risks Related to Our Business

Our business may be harmed by global events beyond our control, including overall slowdowns in securities trading.

        Like other brokerage and financial services firms, our business and profitability are directly affected by elements that are beyond our control, such as economic and political conditions, broad trends in business and finance, changes in volume of securities and futures transactions, changes in the markets in which such transactions occur and changes in how such transactions are processed. A weakness in equity markets, such as a slowdown causing reduction in trading volume in U.S. or foreign

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securities and derivatives, has historically resulted in reduced transaction revenues and would have a material adverse effect on our business, financial condition and results of operations.

Because our revenues and profitability depend on trading volume, they are prone to significant fluctuations and are difficult to predict.

        Our revenues are dependent on the level of trading activity on securities and derivatives exchanges in the United States and abroad. In the past, our revenues and operating results have varied significantly from period to period due primarily to the willingness of competitors to trade more aggressively by decreasing their bid/offer spreads and thereby assuming more risk in order to acquire market share, to movements and trends in the underlying markets, and to fluctuations in trading levels. As a result, period to period comparisons of our revenues and operating results may not be meaningful, and future revenues and profitability may be subject to significant fluctuations or declines.

Our reliance on our computer software could cause us great financial harm in the event of any disruption or corruption of our computer software. We may experience technology failures while developing our software.

        We rely on our computer software to receive and properly process internal and external data. Any disruption for any reason in the proper functioning or any corruption of our software or erroneous or corrupted data may cause us to make erroneous trades or suspend our services and could cause us great financial harm. To maintain our competitive advantage, our software is under continuous development. As we identify and enhance our software, there is risk that software failures may occur and result in service interruptions and have other unintended consequences.

Our business could be harmed by a systemic market event.

        Some market participants could be overleveraged. In case of sudden, large price movements, such market participants may not be able to meet their obligations to brokers who, in turn, may not be able to meet their obligations to their counterparties. As a result, the financial system or a portion thereof could collapse, and the impact of such an event could be catastrophic to our business.

We may incur material trading losses from our market making activities.

        A substantial portion of our revenues and operating profits is derived from our trading as principal in our role as a market maker and specialist. We may incur trading losses relating to these activities since each primarily involves the purchase or sale of securities for our own account. In any period, we may incur trading losses in a significant number of securities for a variety of reasons including:

        These risks may limit or restrict our ability to either resell securities we purchased or to repurchase securities we sold. In addition, we may experience difficulty borrowing securities to make delivery to purchasers to whom we sold short, or lenders from whom we have borrowed. From time to time, we have large position concentrations in securities of a single issuer or issuers engaged in a specific industry or traded in a particular market. Such a concentration could result in higher trading losses than would occur if our positions and activities were less concentrated.

        In our role as a market maker, we attempt to derive a profit from the difference between the prices at which we buy and sell, or sell and buy, securities. However, competitive forces often require us to match the quotes other market makers display and to hold varying amounts of securities in inventory. By having to maintain inventory positions, we are subjected to a high degree of risk. We cannot assure you that we will be able to manage such risk successfully or that we will not experience

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significant losses from such activities, which could have a material adverse effect on our business, financial condition and operating results.

Reduced spreads in securities pricing, levels of trading activity and trading through market makers and/or specialists could harm our business.

        Computer-generated buy/sell programs and other technological advances and regulatory changes in the marketplace may continue to tighten spreads on securities transactions. Tighter spreads and increased competition could make the execution of trades and market making activities less profitable. In addition, new and enhanced alternative trading systems such as ECNs have emerged as an alternative for individual and institutional investors, as well as broker-dealers, to avoid directing their trades through market makers, and could result in reduced revenues derived from our market making business.

We may incur losses in our market making activities in the event of failures of our proprietary pricing model.

        The success of our market making business is substantially dependent on the accuracy of our proprietary pricing mathematical model, which continuously evaluates and monitors the risks inherent in our portfolio, assimilates market data and reevaluates our outstanding quotes each second. Our model is designed to automatically rebalance our positions throughout the trading day to manage risk exposures on our positions in options, futures and the underlying securities. In the event of a flaw in our pricing model and/or a failure in the related software, our pricing model may lead to unexpected and/or unprofitable trades, which may result in material trading losses.

The valuation of the financial instruments we hold may result in large and occasionally anomalous swings in the value of our positions and in our earnings in any period.

        The market prices of our long and short positions are reflected on our books at closing prices which are typically the last trade price before the official close of the primary exchange on which each such security trades. Given that we manage a globally integrated portfolio, we may have large and substantially offsetting positions in securities that trade on different exchanges that close at different times of the trading day. As a result, there may be large and occasionally anomalous swings in the value of our positions daily and, accordingly, in our earnings in any period. This is especially true on the last business day of each calendar quarter.

We are exposed to losses due to lack of perfect information.

        As market makers, we provide liquidity by buying from sellers and selling to buyers. Quite often, we trade with others who have different information than we do, and as a result, we may accumulate unfavorable positions preceding large price movements in companies. Should the frequency or magnitude of these events increase, our losses will likely increase correspondingly.

Rules governing specialists and designated market makers may require us to make unprofitable trades or prevent us from making profitable trades.

        Specialists and designated market makers are granted certain rights and have certain obligations to "make a market" in a particular security. They agree to specific obligations to maintain a fair and orderly market. In acting as a specialist or designated market maker, we are subjected to a high degree of risk by having to support an orderly market. In this role, we may at times be required to make trades that adversely affect our profitability. In addition, we may at times be unable to trade for our own account in circumstances in which it may be to our advantage to trade, and we may be obligated to act as a principal when buyers or sellers outnumber each other. In those instances, we may take a position counter to the market, buying or selling securities to support an orderly market. Additionally, the rules of the markets which govern our activities as a specialist or designated market maker are subject to change. If these rules are made more stringent, our trading revenues and profits as specialist or designated market maker could be adversely affected.

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We are subject to potential losses as a result of our clearing and execution activities.

        As a clearing member firm providing financing services to certain of our brokerage customers, we are ultimately responsible for their financial performance in connection with various stock, options and futures transactions. Our clearing operations require a commitment of our capital and, despite safeguards implemented by our software, involve risks of losses due to the potential failure of our customers to perform their obligations under these transactions. If our customers default on their obligations, we remain financially liable for such obligations, and although these obligations are collateralized, we are subject to market risk in the liquidation of customer collateral to satisfy those obligations. There can be no assurance that our risk management procedures will be adequate. Any liability arising from clearing operations could have a material adverse effect on our business, financial condition and/or operating results.

        As a clearing member firm of securities and commodities clearing houses in the United States and abroad, we are also exposed to clearing member credit risk. Securities and commodities clearing houses require member firms to deposit cash and/or government securities to a clearing fund. If a clearing member defaults in its obligations to the clearing house in an amount larger than its own margin and clearing fund deposits, the shortfall is absorbed pro rata from the deposits of the other clearing members. Many clearing houses of which we are members also have the authority to assess their members for additional funds if the clearing fund is depleted. A large clearing member default could result in a substantial cost to us if we are required to pay such assessments.

We may not pay dividends on our common stock at any time in the foreseeable future.

        As a holding company for our interest in IBG LLC, we will be dependent upon the ability of IBG LLC to generate earnings and cash flows and distribute them to us so that we may pay any dividends to our stockholders. To the extent (if any) that we have excess cash, any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial conditions, cash requirement, contractual restrictions and other factors that our board of directors may deem relevant. In December 2010 and December 2012, special cash dividends were paid to holders of our common stock. Since the second quarter of 2011, the Company has declared and paid a quarterly cash dividend of $0.10 per share. Although not required, we currently intend to pay quarterly dividends of $0.10 per share to our common stockholders for the foreseeable future.

Regulatory and legal uncertainties could harm our business.

        The securities and derivatives businesses are heavily regulated. Firms in financial service industries have been subject to an increasingly regulated environment over recent years, and penalties and fines sought by regulatory authorities have increased accordingly. This regulatory and enforcement environment has created uncertainty with respect to various types of transactions that historically had been entered into by financial services firms and that were generally believed to be permissible and appropriate. Our broker-dealer subsidiaries are subject to regulations in the United States and abroad covering all aspects of their business. Regulatory bodies include, in the United States, the SEC, FINRA, the Board of Governors of the Federal Reserve System, the Chicago Board Options Exchange, the Chicago Mercantile Exchange, the Commodity Futures Trading Commission, and the National Futures Association; in Switzerland, the Swiss Financial Market Supervisory Authority; in the United Kingdom, the Financial Conduct Authority; in Hong Kong, the Securities and Futures Commission; in Australia, the Australian Securities and Investment Commission; in India, the Securities and Exchange Board of India; in Canada, the Investment Industry Regulatory Organization of Canada and various Canadian securities commissions; and in Japan, the Financial Supervisory Agency and the Japan Securities Dealers Association. Our mode of operation and profitability may be directly affected by additional legislation changes in rules promulgated by various domestic and foreign government

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agencies and self-regulatory organizations that oversee our businesses, and changes in the interpretation or enforcement of existing laws and rules, including the potential imposition of transaction taxes. Noncompliance with applicable laws or regulations could result in sanctions being levied against us, including fines and censures, suspension or expulsion from a certain jurisdiction or market or the revocation or limitation of licenses. Noncompliance with applicable laws or regulations could adversely affect our reputation, prospects, revenues and earnings. In addition, changes in current laws or regulations or in governmental policies could adversely affect our operations, revenues and earnings.

        Domestic and foreign stock exchanges, other self-regulatory organizations and state and foreign securities commissions can censure, fine, issue cease- and-desist orders, suspend or expel a broker-dealer or any of its officers or employees. Our ability to comply with all applicable laws and rules is largely dependent on our internal system to ensure compliance, as well as our ability to attract and retain qualified compliance personnel. We could be subject to disciplinary or other actions in the future due to claimed noncompliance, which could have a material adverse effect on our business, financial condition and results of operations. To continue to operate and to expand our services internationally, we may have to comply with the regulatory controls of each country in which we conduct, or intend to conduct business, the requirements of which may not be clearly defined. The varying compliance requirements of these different regulatory jurisdictions, which are often unclear, may limit our ability to continue existing international operations and further expand internationally.

Our future efforts to sell shares or raise additional capital may be delayed or prohibited by regulations.

        As certain of our subsidiaries are members of FINRA, we are subject to certain regulations regarding changes in control of our ownership. FINRA Rule 1017 generally provides that FINRA approval must be obtained in connection with any transaction resulting in a change in control of a member firm. FINRA defines control as ownership of 25% or more of the firm's equity by a single entity or person and would include a change in control of a parent company. Interactive Brokers (U.K.) Limited is subject to similar change in control regulations promulgated by the FCA in the United Kingdom. As a result of these regulations, our future efforts to sell shares or raise additional capital may be delayed or prohibited. We may be subject to similar restrictions in other jurisdictions in which we operate.

We depend on our proprietary technology, and our future results may be impacted if we cannot maintain technological superiority in our industry.

        Our success in the past has largely been attributable to our sophisticated proprietary technology that has taken many years to develop. We have benefited from the fact that the type of proprietary technology equivalent to that which we employ has not been widely available to our competitors. If our technology becomes more widely available to our current or future competitors for any reason, our operating results may be adversely affected. Additionally, adoption or development of similar or more advanced technologies by our competitors may require that we devote substantial resources to the development of more advanced technology to remain competitive. The markets in which we compete are characterized by rapidly changing technology, evolving industry standards and changing trading systems, practices and techniques. Although we have been at the forefront of many of these developments in the past, we may not be able to keep up with these rapid changes in the future, develop new technology, realize a return on amounts invested in developing new technologies or remain competitive in the future.

The loss of our key employees would materially adversely affect our business.

        Our key executives have substantial experience and have made significant contributions to our business, and our continued success is dependent upon the retention of our key management executives, as well as the services provided by our staff of trading system, technology and programming

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specialists and a number of other key managerial, marketing, planning, financial, technical and operations personnel. The loss of such key personnel could have a material adverse effect on our business. Growth in our business is dependent, to a large degree, on our ability to retain and attract such employees.

We are exposed to risks associated with our international operations.

        During 2014, approximately 27% of our net revenues were generated by our operating companies outside the United States. We are exposed to risks and uncertainties inherent in doing business in international markets, particularly in the heavily regulated brokerage industry. Such risks and uncertainties include political, economic and financial instability; unexpected changes in regulatory requirements, tariffs and other trade barriers; exchange rate fluctuations; applicable currency controls; and difficulties in staffing, including reliance on newly hired local experts, and managing foreign operations. These risks could cause a material adverse effect on our business, financial condition or results of operations.

We do not have fully redundant systems. System failures could harm our business.

        If our systems fail to perform, we could experience unanticipated disruptions in operations, slower response times or decreased customer service and customer satisfaction. Our ability to facilitate transactions successfully and provide high quality customer service also depends on the efficient and uninterrupted operation of our computer and communications hardware and software systems. Our service has experienced periodic system interruptions, which we believe will continue to occur from time to time. Our systems and operations also are vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunication failures, break-ins, sabotage, computer viruses, intentional acts of vandalism and similar events. While we currently maintain redundant servers to provide limited service during system disruptions, we do not have fully redundant systems, and our formal disaster recovery plan does not include restoration of all services. For example, we have backup facilities at our disaster recovery site that enable us, in the case of complete failure of our main North America data center, to recover and complete all pending transactions, provide customers with access to their accounts to deposit or withdraw money, transfer positions to other brokers and manage their risk by continuing trading through the use of marketable orders. These backup services are currently limited to U.S. markets. We do not currently have separate backup facilities dedicated to our non-U.S. operations. It is our intention to provide for and progressively deploy backup facilities for our global facilities over time. In addition, we do not carry business interruption insurance to compensate for losses that could occur to the extent not required. Any system failure that causes an interruption in our service or decreases the responsiveness of our service could impair our reputation, damage our brand name and materially adversely affect our business, financial condition and results of operations.

Failure of third-party systems on which we rely could adversely affect our business.

        We rely on certain third-party computer systems or third-party service providers, including clearing systems, exchange systems, Internet service, communications facilities and other facilities. Any interruption in these third-party services, or deterioration in their performance, could be disruptive to our business. If our arrangement with any third party is terminated, we may not be able to find an alternative source of systems support on a timely basis or on commercially reasonable terms. This could have a material adverse effect on our business, financial condition and results of operations.

We face competition in our market making activities.

        In our market making activities, we compete with other firms based on our ability to provide liquidity at competitive prices and to attract order flow. These firms include registered market makers as well as high frequency trading firms ("HFTs") that act as market makers. Both types of competitors

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range from sole proprietors with very limited resources to a few highly sophisticated groups which have substantially greater financial and other resources, including research and development personnel, than we do. These larger and better capitalized competitors may be better able to respond to changes in the market making industry, to compete for skilled professionals, to finance acquisitions, to fund internal growth and to compete for market share generally. HFTs that are not registered market makers have certain advantages over registered market making firms that may allow them to bypass regulatory restrictions and trade more quickly and cheaply than registered market makers at some exchanges. We may not be able to compete effectively against HFTs or market makers with greater financial resources, and our failure to do so could materially and adversely affect our business, financial condition and results of operations. As in the past, we may in the future face enhanced competition, resulting in narrowing bid/offer spreads in the marketplace that may adversely impact our financial performance. This is especially likely if HFTs continue to receive advantages in capturing order flow or if others can acquire systems that enable them to predict markets or process trades more efficiently than we can.

Our direct market access clearing and non-clearing brokerage operations face intense competition.

        With respect to our direct market access brokerage business, the market for electronic and interactive bidding, offering and trading services in connection with equities, options and futures is relatively new, rapidly evolving and intensely competitive. We expect competition to continue and intensify in the future. Our current and potential future competition principally comes from five categories of competitors:

        In addition, we compete with financial institutions, mutual fund sponsors and other organizations, many of which provide online, direct market access or other investing services. A number of brokers provide our technology and execution services to their customers, and these brokers will become our competitors if they develop their own technology. Some of our competitors in this area have greater name recognition, longer operating histories and significantly greater financial, technical, marketing and other resources than we have and offer a wider range of services and financial products than we do. Some of our competitors may also have an ability to charge lower commissions. We cannot assure you that we will be able to compete effectively or efficiently with current or future competitors. These increasing levels of competition in the online trading industry could significantly harm this aspect of our business.

We are subject to risks relating to litigation and potential securities laws liability.

        We are exposed to substantial risks of liability under federal and state securities laws, other federal and state laws and court decisions, as well as rules and regulations promulgated by the SEC, the CFTC, the Federal Reserve, state securities regulators, the self-regulatory organizations and foreign regulatory agencies. We are also subject to the risk of litigation and claims that may be without merit. We could incur significant legal expenses in defending ourselves against and resolving lawsuits or claims. An adverse resolution of any future lawsuits or claims against us could result in a negative perception of

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our company and cause the market price of our common stock to decline or otherwise have an adverse effect on our business, financial condition and/or operating results. See Part I, Item 3, "Legal Proceedings and Regulatory Matters."

Any future acquisitions may result in significant transaction expenses, integration and consolidation risks and risks associated with entering new markets, and we may be unable to profitably operate our consolidated company.

        Although our growth strategy has not focused historically on acquisitions, we may in the future engage in evaluations of potential acquisitions and new businesses. We may not have the financial resources necessary to consummate any acquisitions in the future or the ability to obtain the necessary funds on satisfactory terms. Any future acquisitions may result in significant transaction expenses and risks associated with entering new markets in addition to integration and consolidation risks. Because acquisitions historically have not been a core part of our growth strategy, we have no material experience in successfully utilizing acquisitions. We may not have sufficient management, financial and other resources to integrate any such future acquisitions or to successfully operate new businesses and we may be unable to profitably operate our expanded company.

Internet-related issues may reduce or slow the growth in the use of our services in the future.

        Critical issues concerning the commercial use of the Internet, such as ease of access, security, privacy, reliability, cost, and quality of service, remain unresolved and may adversely impact the growth of Internet use. If Internet usage continues to increase rapidly, the Internet infrastructure may not be able to support the demands placed on it by this growth, and its performance and reliability may decline. Although our larger institutional customers use leased data lines to communicate with us, our ability to increase the speed with which we provide services to consumers and to increase the scope and quality of such services is limited by and dependent upon the speed and reliability of our customers' access to the Internet, which is beyond our control. If periods of decreased performance, outages or delays on the Internet occur frequently or other critical issues concerning the Internet are not resolved, overall Internet usage or usage of our web based products could increase more slowly or decline, which would cause our business, results of operations and financial condition to be materially and adversely affected.

Our computer infrastructure may be vulnerable to security breaches. Any such problems could jeopardize confidential information transmitted over the Internet, cause interruptions in our operations or cause us to have liability to third persons.

        Our computer infrastructure is potentially vulnerable to physical or electronic computer break-ins, viruses and similar disruptive problems and security breaches. Any such problems or security breaches could cause us to have liability to one or more third parties, including our customers, and disrupt our operations. A party able to circumvent our security measures could misappropriate proprietary information or customer information, jeopardize the confidential nature of information transmitted over the Internet or cause interruptions in our operations. Concerns over the security of Internet transactions and the privacy of users could also inhibit the growth of the Internet or the electronic brokerage industry in general, particularly as a means of conducting commercial transactions. To the extent that our activities involve the storage and transmission of proprietary information such as personal financial information, security breaches could expose us to a risk of financial loss, litigation and other liabilities. Our estimated annual losses from reimbursements to customers whose accounts have been negatively affected by unauthorized access have historically been less than $500,000 annually, but instances of unauthorized access of customer accounts have been increasing recently on an industry-wide basis. Our current insurance program may protect us against some, but not all, of such losses. Any of these events, particularly if they (individually or in the aggregate) result in a loss of

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confidence in our company or electronic brokerage firms in general, could have a material adverse effect on our business, results of operations and financial condition.

We may not be able to protect our intellectual property rights or may be prevented from using intellectual property necessary for our business.

        We rely primarily on trade secret, contract, copyright, patent and trademark laws to protect our proprietary technology. It is possible that third parties may copy or otherwise obtain and use our proprietary technology without authorization or otherwise infringe on our rights. We may also face claims of infringement that could interfere with our ability to use technology that is material to our business operations.

        In the future, we may have to rely on litigation to enforce our intellectual property rights, protect our trade secrets, determine the validity and scope of the proprietary rights of others or defend against claims of infringement or invalidity. Any such litigation, whether successful or unsuccessful, could result in substantial costs and the diversion of resources and the attention of management, any of which could negatively affect our business.

Our future success will depend on our response to the demand for new services, products and technologies.

        The demand for market making services, particularly services that rely on electronic communications gateways, is characterized by:

        New services, products and technologies may render our existing services, products and technologies less competitive. Our future success will depend, in part, on our ability to respond to the demand for new services, products and technologies on a timely and cost-effective basis and to adapt to technological advancements and changing standards to address the increasingly sophisticated requirements and varied needs of our customers and prospective customers. We cannot assure you that we will be successful in developing, introducing or marketing new services, products and technologies. In addition, we may experience difficulties that could delay or prevent the successful development, introduction or marketing of these services and products, and our new service and product enhancements may not achieve market acceptance. Any failure on our part to anticipate or respond adequately to technological advancements, customer requirements or changing industry standards, or any significant delays in the development, introduction or availability of new services, products or enhancements could have a material adverse effect on our business, financial condition and operating results.

Market making in forex-based products entails significant risk, and unforeseen events in such business could have an adverse effect on our business, financial condition and results of operation.

        Our activities in market making for forex-based products include the trading of cash in foreign currencies with banks and exchange-listed futures, options on futures, options on cash deposits and currency-based ETFs. All of the risks that pertain to our market making activities in equity-based products also apply to our forex-based market making. In addition, we have comparatively less experience in the forex markets and even though we have expanded this activity slowly, any kind of unexpected event can occur that can result in great financial loss.

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We are subject to counterparty risk whereby defaults by parties with whom we do business can have an adverse effect on our business, financial condition and/or operating results.

        In our electronic brokerage business, our customer margin credit exposure is to a great extent mitigated by our policy of automatically evaluating each account throughout the trading day and closing out positions automatically for accounts that are found to be under-margined. While this methodology is effective in most situations, it may not be effective in situations in which no liquid market exists for the relevant securities or commodities or in which, for any reason, automatic liquidation for certain accounts has been disabled. If no liquid market exists or automatic liquidation has been disabled, we are subject to risks inherent in extending credit, especially during periods of rapidly declining markets. Any loss or expense incurred due to defaults by our customers in failing to repay margin loans or to maintain adequate collateral for these loans would cause harm to our business.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

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ITEM 2.    PROPERTIES

        Our headquarters are located in Greenwich, Connecticut. We also lease facilities in 14 other locations throughout parts of the world where we conduct our operations as set forth below. Unless otherwise indicated, all properties are used by both our market making and electronic brokerage segments. We believe our present facilities, together with our current options to extend lease terms, are adequate for our current needs.

        The following table sets forth certain information with respect to our leased facilities:

Location
  Space (sq. feet)   Expiration   Principal Usage

Greenwich, CT

    81,266     2019   Headquarters and data center

Greenwich, CT

    37,404     2019   Office space

Jersey City, NJ

    5,869     2018   Office space

Chicago, IL

    61,492     2017   Office space and data center

Washington, D.C. 

    1,035     2015   Office space

Montreal, Canada

    4,566     2019   Office space

London, United Kingdom

    2,283     2015   Office space

Zug, Switzerland

    23,672     2017   Office space and data center

Vaduz, Liechtenstein

    2,370     2017   Office space

Sydney, Australia

    2,649     2016   Office space

Hong Kong

    9,336     2018   Office space and data center

Budapest, Hungary

    4,297     2018   Office space

St. Petersburg, Russia

    2,742     2015   Office space

Tallinn, Estonia

    4,844     2016   Office space

Mumbai, India

    5,700     2017   Office space

Tokyo, Japan

    2,161     2016   Office space

Shanghai, China

    3,635     2018   Office space

ITEM 3.    LEGAL PROCEEDINGS AND REGULATORY MATTERS

        The securities and commodities industry is highly regulated and many aspects of our business involve substantial risk of liability. In recent years, there has been an increasing incidence of litigation involving the brokerage industry, including class action suits that generally seek substantial damages, including in some cases punitive damages. Compliance and trading problems that are reported to federal, state and provincial regulators, exchanges or other self-regulatory organizations by dissatisfied customers are investigated by such regulatory bodies, and, if pursued by such regulatory body or such customers, may rise to the level of arbitration or disciplinary action. We are also subject to periodic regulatory audits and inspections.

        Like other brokerage firms, we have been named as a defendant in lawsuits and from time to time we have been threatened with, or named as a defendant in, arbitrations and administrative proceedings. The following contains information regarding potentially material pending litigation and pending regulatory inquiries. We may in the future become involved in additional litigation or regulatory proceedings in the ordinary course of our business, including litigation or regulatory proceedings that could be material to our business.

Trading Technologies Matter

        On February 3, 2010, Trading Technologies International, Inc. ("Trading Technologies") filed a complaint in the United States District Court for the Northern District of Illinois, Eastern Division, against Interactive Brokers Group, Inc., IBG LLC, Holdings, and Interactive Brokers LLC. Thereafter, Trading Technologies dismissed Interactive Brokers Group, Inc. and Holdings from the case, leaving

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only IBG LLC and Interactive Brokers LLC as defendants ("Defendants"). The operative complaint, as amended, alleges that the Defendants have infringed and continue to infringe twelve U.S. patents held by Trading Technologies. Trading Technologies is seeking, among other things, unspecified damages and injunctive relief ("the Litigation").

        The Defendants filed an answer to Trading Technologies' amended complaint, as well as related counterclaims. The defendants deny Trading Technologies' claims, assert that the asserted patents are not infringed and are invalid, and assert several other defenses as well.

        Trading Technologies also filed patent infringement lawsuits against approximately a dozen other companies in the same court, many of which are still pending. The Litigation was consolidated with the other lawsuits filed by Trading Technologies.

        On June 2, 2014, the Defendants filed a motion to stay the Litigation pursuant to Section 18(b) of the America Invents Act in light of petitions for Covered Business Method ("CBM") Review on five asserted patents filed with the United States Patent and Trademark Office ("USPTO") by other defendants in the consolidated cases. Some of the other defendants have similarly requested a stay in light of such petitions. On December 2, 2014, the USPTO issued decisions instituting CBM Review on four of the asserted patents for which CBM petitions were filed, declining to institute CBM Review on one of the asserted patents. The District Court has not yet ruled on the motions to stay.

        The case is in the early stages and discovery has yet to begin. While it is too early to predict the outcome of the matter, we believe we have meritorious defenses to the allegations made in the complaint and intend to defend ourselves vigorously against them. However, litigation is inherently uncertain and there can be no guarantee that the Company will prevail or that the litigation can be settled on favorable terms.

Pending Regulatory Inquiries

        IB's businesses are heavily regulated by state, federal and foreign regulatory agencies as well as numerous exchanges and self-regulatory organizations ("SRO"). IB's various companies are regulated under state securities laws, U.S. and foreign securities, commodities and financial services laws and under the rules of more than 25 exchanges and SROs. In the current era of dramatically heightened regulatory scrutiny of financial institutions, IB has incurred sharply increased compliance costs, along with the industry as a whole. Increased regulation also creates increased barriers to entry, however, and IB has built human and automated infrastructure to handle increased regulatory scrutiny, which provides IB an advantage over potential newcomers to the business.

        IB receives hundreds of regulatory inquiries each year in addition to being subject to frequent regulatory examinations. The great majority of these inquiries do not lead to fines or any further action against IB. Most often, regulators do not inform IB as to when and if an inquiry has been concluded. IB is currently the subject of regulatory inquiries regarding topics such as order audit trail reporting, trade reporting, short sales, margin lending, anti-money laundering, technology development practices, business continuity planning and other topics of recent regulatory interest. IB is unaware of any specific regulatory matter that, itself, or together with similar regulatory matters, would have a material impact on IB's financial condition. Nonetheless, in the current climate, we expect to pay significant regulatory fines on various topics on an ongoing basis, as other regulated financial services businesses do. The amount of any fines, and when and if they will be incurred, is impossible to predict given the nature of the regulatory process.

ITEM 4.    MINE SAFETY DISCLOSURES

        Not applicable.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Information

        The following table shows the high and low sale prices for the periods indicated for the Company's common stock, as reported by NASDAQ.

 
  Sales Price  
 
  High   Low  
 
  (in dollars)
 

2013

             

First Quarter

  $ 15.14   $ 13.61  

Second Quarter

  $ 16.60   $ 14.07  

Third Quarter

  $ 18.89   $ 16.16  

Fourth Quarter

  $ 24.98   $ 18.91  

2014

             

First Quarter

  $ 20.73   $ 21.67  

Second Quarter

  $ 24.33   $ 21.15  

Third Quarter

  $ 26.21   $ 22.12  

Fourth Quarter

  $ 29.57   $ 23.59  

2015

             

Year-to-date February 24, 2015

  $ 32.63   $ 28.09  

        The closing price of our common stock on February 24, 2015, as reported by NASDAQ, was $32.13 per share.

Holders

        On February 20, 2015, there were four holders of record, which does not reflect those shares held beneficially or those shares held in "street" name. Accordingly, the number of beneficial owners of our common stock exceeds this number.

Dividends and Other Restrictions

        In December 2010, the Company effected a series of dividend payments, including a dividend of $1.79 per share, which was paid to the Company's common shareholders. In December 2012, the Company paid a special dividend of $1.00 per share to the Company's common shareholders. During the second quarter of 2011, the Company declared and paid a cash dividend of $0.10 per share and has continued this quarterly dividend policy through the current fiscal year end and into the first quarter of 2015. We currently intend to pay quarterly dividends of $0.10 per share to our common stockholders for the foreseeable future.

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Stockholder Return Performance Graph

        The following graph compares cumulative total stockholder return on our common stock, the S&P 500 Index and the NASDAQ Financial-100 Index from December 31, 2009 to December 31, 2014. The comparison assumes $100 was invested on December 31, 2009 in our common stock and each of the foregoing indices and assumes reinvestment of dividends before consideration of income taxes.

GRAPHIC


(1)
The NASDAQ Financial-100 Index includes 100 of the largest domestic and international financial securities listed on The NASDAQ Stock Market based on market capitalization. They include companies classified according to the Industry Classification Benchmark as Financials, which are included within the NASDAQ Bank, NASDAQ Insurance, and NASDAQ Other Finance Indexes.

(2)
The S&P 500 Index includes 500 large cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock markets, the New York Stock Exchange and NASDAQ.

        The stock performance depicted in the graph above is not to be relied upon as indicative of future performance. The stock performance graph shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate the same by reference, nor shall it be deemed to be "soliciting material" or to be "filed" with the SEC or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act.

Use of Proceeds from Member Redemption

        Purchases of IBG LLC membership interests, held by Holdings, by the Company are governed by the Exchange Agreement, a copy of which was filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 and filed with the SEC on November 9, 2009. The Exchange Agreement, as amended June 6, 2012, provides that the Company may facilitate the redemption by Holdings of interests held by its members through the issuance of shares of common stock through a public offering in exchange for the interests in IBG LLC being redeemed by Holdings. The June 6, 2012 amendment (the "Amendment"), which was filed as an exhibit to our Form 8-K filed with the SEC on June 6, 2012, eliminated from the Exchange Agreement an alternative funding method, which provided that upon approval by the board of directors and by agreement of the Company, IBG LLC and Holdings, redemptions could be made in cash.

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        At the time of the Company's IPO in 2007, three hundred sixty (360) million shares of authorized common stock were reserved for future sales and redemptions.

        On an annual basis, each holder of a membership interest may request that the liquefiable portion of that holder's interest be redeemed by Holdings. We expect Holdings to use the net proceeds it receives from such sales to redeem an identical number of Holdings membership interests from the requesting holders.

        With the consent of Holdings and the Company (on its own behalf and acting as the sole managing member of IBG LLC), IBG LLC agreed in October 2014 to redeem certain membership interests from Holdings through the sale of common stock and the distribution of the proceeds of such sale to the beneficial owners of such membership interests.

        On October 24, 2014, the Company issued 1,358,478 shares of Class A common stock (with a fair value of $35.2 million) to Holdings, for sale for the benefit of, certain of its members in exchange for membership interests in IBG LLC equal in number to such number of shares of common stock issued by the Company. It is intended that the acquired shares will be sold for the benefit of certain of the members of Holdings who have elected to redeem a portion of their Holdings membership interests. The shares to be sold are sold in open market transactions pursuant to a Rule 10b5-1 trading plan (the "Plan").

        Certain officers and directors are among the members of Holdings who have elected to redeem a portion of their Holdings membership interests and therefore have an interest in the proceeds of sale of 225,095 shares of the Class A common stock to be sold pursuant to the Plan. In addition, certain current and former employees of the Company and its subsidiaries also elected the redemption of a portion of their membership interests in Holdings and therefore have an interest in the balance of the shares to be sold under the Plan and/or distributed by Holdings. Neither Mr. Thomas Peterffy nor his affiliates have elected to redeem any of their Holdings membership interests and therefore have no interest in the proceeds of sale or distribution of the shares of Class A common stock acquired by Holdings on November October 24, 2014.

        As a consequence of this transaction, IBG, Inc.'s interest in IBG LLC increased to approximately 14.5%, with Holdings owning the remaining 85.5%. The redemptions also resulted in an increase in the Holdings interest held by Thomas Peterffy and his affiliates from approximately 87.6% to approximately 88.0%. The redemptions were completed during October, 2014.

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Securities Authorized for Issuance under Equity Compensation Plans

        The following table provides information about shares of common stock available for future awards under all of the Company's equity compensation plans as of December 31, 2014. The Company has not made grants of common stock outside of its equity compensation plans:

 
  Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
  Weighted-average exercise
price of outstanding options
warrants and rights
  Number of securities
remaining available for
future issuance under
equity compensation plans(1)
 

Equity compensation plans approved by security holders

    N/A     N/A     10,286,472  

Equity compensation plans not approved by security holders

    N/A     N/A      

Total

            10,286,472  

(1)
Amount represents shares available for future issuance of grants under the Company's 2007 Stock Incentive Plan ("SIP"). The amount excludes shares purchased from employees to satisfy their tax withholding obligations for vested shares, which are held as treasury stock. On April 24, 2014, the Company's stockholders approved an additional 10,000,000 shares to be distributed under the SIP. This increased the total number of shares available to be distributed under this plan to 30,000,000 shares, from 20,000,000 shares. There are no shares available for future issuance of grants under the 2007 ROI Unit Stock Plan; all shares under this plan have been granted.

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ITEM 6.    SELECTED FINANCIAL DATA

        The following tables set forth selected historical consolidated financial and other data of IBG, Inc. They are presented for the years ended, and as of, December 31, 2010, 2011, 2012, 2013 and 2014.

        The following selected historical consolidated financial and other data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

 
  Year Ended December 31,  
 
  2014   2013   2012   2011   2010  
 
  (in millions except share and per share data)
 

Consolidated Statement of Comprehensive Income Data

                               

Revenues

                               

Trading gains(1)

  $ 261.2   $ 331.2   $ 466.0   $ 633.7   $ 554.6  

Commissions and execution fees

    548.8     502.1     412.6     456.2     386.8  

Interest income(1)

    416.2     303.4     270.3     280.1     172.5  

Other (loss) income(1)

    (110.7 )   (8.8 )   43.6     74.6     (125.6 )

Total revenues

    1,115.5     1,127.9     1,192.5     1,444.6     988.3  

Interest expense

    72.2     51.7     62.0     86.3     66.2  

Total net revenues

    1,043.3     1,076.2     1,130.5     1,358.3     922.1  

Non-interest expenses

                               

Execution and clearing

    211.5     242.5     251.0     281.3     272.6  

Employee compensation and benefits

    204.8     205.3     244.5     216.3     203.6  

Occupancy, depreciation and amortization

    39.4     38.9     38.8     37.1     37.3  

Communications

    24.2     23.1     23.3     23.6     23.5  

General and administrative(2)

    57.3     115.1     45.9     58.9     47.7  

Total non-interest expenses

    537.2     624.9     603.5     617.2     584.7  

Income before income taxes

    506.1     451.3     527.0     741.1     337.4  

Income tax expense

    47.3     33.7     30.0     53.9     60.3  

Net income

    458.8     417.6     497.0     687.2     277.1  

Less net income attributable to noncontrolling interests

    414.3     380.6     456.3     625.3     286.7  

Net income attributible to common stockholders(3)

  $ 44.5   $ 37.0   $ 40.7   $ 61.9   $ (9.6 )

Earnings per share(3)

                               

Basic

  $ 0.79   $ 0.74   $ 0.89   $ 1.39   $ (0.23 )

Diluted

  $ 0.77   $ 0.73   $ 0.89   $ 1.37   $ (0.23 )

Comprehensive income attributable to common stockholders

  $ 41.8   $ 34.3   $ 52.0   $ 59.2   $ 0.7  

Comprehensive income attributable to noncontrolling interests

  $ 322.3   $ 355.9   $ 473.3   $ 597.5   $ 418.9  

Comprehensive earnings per share

                               

Basic

  $ 0.52   $ 0.39   $ 1.13   $ 1.33   $ 0.01  

Diluted

  $ 0.51   $ 0.38   $ 1.13   $ 1.31   $ 0.01  

Weighted average common shares outstanding

                               

Basic

    56,492,381     49,742,428     46,814,676     43,924,554     41,870,926  

Diluted

    57,709,668     50,924,736     47,070,522     44,364,902     42,498,705  

(1)
Certain reclassifications have been made to previously reported amounts to conform with the current presentation of currency translation gains and losses related to our currency diversification strategy. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Presentation of Foreign Currency Effects" in Part II Item 7 of this Annual Report on Form 10-K.

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(2)
In 2013, general and administrative expenses include an unusual loss of $64 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Overview" in Part II Item 7 of this Annual Report on Form 10-K.

(3)
In 2011, earnings per share were impacted by a tax benefit that the Company recognized during preparation of its 2010 income tax returns. In connection with the special dividend paid by our Swiss operating company in December 2010, we were able to capture additional foreign tax credits, which resulted in an estimated $0.12 increase in diluted earnings per share.

 
  Year ended
December 31,
2010
 
 
  (in dollars)
 

Diluted earnings per share as reported

  $ (0.23 )

Effect of special dividend on earnings per share

    0.71  

Adjusted diluted earnings per share

  $ 0.48  

 
  December 31,  
 
  2014   2013   2012   2011   2010  
 
  (in millions)
 

Cash, cash equivalents and short-term investments(1)

  $ 17,059.1   $ 15,591.3   $ 14,525.9   $ 12,140.8   $ 9,578.6  

Total assets(2)(3)

  $ 43,385.0   $ 37,870.7   $ 33,199.6   $ 30,404.4   $ 28,500.0  

Total liabilities(3)

  $ 38,200.3   $ 32,778.5   $ 28,386.5   $ 25,592.4   $ 24,207.0  

Redeemable noncontrolling interests(4)

  $ 0.0   $ 0.0   $ 0.0   $ 5,269.6   $ 6,320.8  

Stockholders' equity (deficit)(4)(5)

  $ 4,418.3   $ 4,384.9   $ 598.5   $ (459.5 ) $ (2,029.2 )

Noncontrolling interests

  $ 766.3   $ 707.3   $ 4,214.6   $ 1.8   $ 1.5  

(1)
Cash, cash equivalents and short-term investments represent cash and cash equivalents, cash and securities segregated under federal and other regulations, short-term investments and securities purchased under agreements to resell.

(2)
At December 31, 2014, approximately $42.95 billion, or 99.0%, of total assets were considered to be liquid and consisted primarily of cash, marketable securities and collateralized receivables.

(3)
As a result of our acquisition from Holdings of IBG LLC membership interests, we received not only an interest in IBG LLC but also, for federal income tax purposes, a step-up to the federal income tax basis of the assets of IBG LLC underlying such additional interest. This increased tax basis is expected to result in tax benefits as a result of increased amortization deductions. We will retain 15% of the tax benefits actually realized. As set forth in the tax receivable agreement we entered into with Holdings, we will pay the remaining 85% of the realized tax benefits relating to any applicable tax year to Holdings. The deferred tax asset was $278.8 million, $294.7 million, $281.6 million, $297.9 million and $313.6 million and the corresponding payable to Holdings was

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(4)
As discussed in Note 4 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, prior to June 6, 2012, the Company reported Holdings' interests in IBG LLC as redeemable noncontrolling interests, at redemption value and separate from equity. Redemption value for these redeemable noncontrolling interests was measured as the number of equivalent shares of IBG LLC member interests owned by Holdings multiplied by the then current market price per share of the Company's common stock. The excess of the redemption value over the book value of these interests, which did not affect net income attributable to common stockholders or cash flows, was required to be accounted for as a reduction of the Company's stockholders' equity in the consolidated statements of financial condition. These fair value adjustments had the effect of decreasing reported stockholders' equity by $1.0 billion, $2.5 billion and $1.9 billion as of December 31, 2011, 2010 and 2009, respectively. Accordingly, the above condensed consolidated statement of financial condition information is presented as if ASC 810-10 and ASC 480-10-S99 had been applied historically. Subsequent to June 6, 2012, the Company has reported noncontrolling interests attributable to Holdings as a component of the Company's total equity, valued based on Holding's proportionate ownership in IBG LLC.

(5)
In December of 2010 and 2012, the Company paid special cash dividends of $1.79 and $1.00 per share, respectively, to holders of the Company's common stock. The payment of these dividends resulted in a decrease in the Company's stockholders' equity (deficit) balances from prior years.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion should be read in conjunction with the audited consolidated financial statements and the related notes in Item 8, included elsewhere in this report. In addition to historical information, the following discussion also contains forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K.

Business Overview

        We are an automated global electronic market maker and broker. We custody and service accounts for hedge and mutual funds, RIAs, proprietary trading group, introducing brokers and individual investors. We specialize in routing orders and executing and processing trades in securities, futures and foreign exchange instruments on more than 100 electronic exchanges and trading venues around the world. Since our inception in 1977, we have focused on developing proprietary software to automate broker-dealer functions. The advent of electronic exchanges in the last 24 years has provided us with the opportunity to integrate our software with an increasing number of exchanges and trading venues into one automatically functioning, computerized platform that requires minimal human intervention.

        In connection with our IPO priced on May 3, 2007, IBG, Inc. purchased 10.0% of the membership interests in IBG LLC, became the sole managing member of IBG LLC and began to consolidate IBG LLC's financial results into its financial statements. Our primary assets are our ownership of approximately 14.5% of the membership interests of IBG LLC, the current holding company for our businesses, and our controlling interest and related contractual rights as the sole managing member of IBG LLC. The remaining approximately 85.5% of IBG LLC membership interests are held by Holdings, a holding company that is owned by our founder, Chairman and Chief Executive Officer, Thomas Peterffy, and his affiliates, management and other employees of IBG LLC, and certain other members. The IBG LLC membership interests held by Holdings will be subject to purchase by us over time in connection with offerings by us of shares of our common stock.

Business Segments

        The Company reports its results in two operating business segments, electronic brokerage and market making. These segments are analyzed separately as these are the two principal business activities from which we derive our revenues and to which we allocate resources.

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        The operating business segments are supported by our corporate segment which provides centralized services and executes Company's currency diversification strategy.

Business Environment

        The operating environment for our brokerage business continued to exhibit positive trends in 2014. Rising investor optimism, strong valuation gains in the equity markets and brief periods of increased volatility contributed to the favorable operating environment.

        We maintained our position as the largest U.S. electronic broker as measured by number of customer revenue trades. Customer trading volumes increased 17% over the prior year, outpacing the industry and driving a 9% increase in commission revenue. This growth was most pronounced in stock trading, followed by options and futures. Market values continued to rise as U.S. indexes added to their gains from 2013, with the S&P 500 Index climbing 11% over its year-ago level, contributing to our 24% increase in customer equity.

        New customer account growth continued to gain momentum as total customer accounts increased 18% in 2014. Institutional customers, such as hedge funds, mutual funds, introducing brokers, proprietary trading groups and financial advisors, comprised approximately 29% of total accounts at the end of 2014. Average equity per account increased by 6%, to $202,000, at year-end. Our customer base is geographically diversified. Our customers reside in over 190 countries and over 60% of new customers came from outside the U.S.

        Customers continued to take advantage of our low margin lending rates, which are tied to benchmark rates, such as the Federal Funds rate in the U.S. In 2014, our customers paid 0.5% to 1.6% for their margin loans with us. This drove growth of our margin balances to a record high of $16.9 billion, an increase of 25% over the prior year. Brokerage net interest income grew 39% in 2014.

        Market making segment results declined in 2014 due to the continuation of a difficult operating environment for market makers with strong competition from high frequency traders (HFT's) and historically low volatility levels, which depressed our trading gains.

        The following is a summary of the key profit drivers that affect our business and how they compared to the prior year:

        Global trading volumes.    According to data received from exchanges worldwide, volumes in exchange-listed equity-based options increased by approximately 3% globally and 4% in the U.S. for the year ended December 31, 2014, as compared to 2013. During 2014 (2013) we accounted for approximately 8.5% (9.1%) of the exchange-listed equity-based options (including options on ETFs and stock index products) volume traded worldwide and approximately 11.2% (11.8%) of exchange-listed equity-based options volume traded in the U.S. It is important to note that this metric is not directly correlated with our profits. A discussion of our approach for managing foreign currency exposure is contained in Part II, Item 7A of this Annual Report on Form 10-K entitled "Quantitative and Qualitative Disclosures about Market Risk."

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        See the tables on pages 60-61 of this Annual Report on Form 10-K for additional details regarding our trade volumes, contract and share volumes and brokerage statistics.

        Volatility.    Our market making profits are generally correlated with market volatility since we typically maintain an overall long volatility position, which protects us against a severe market dislocation in either direction. Based on the Chicago Board Options Exchange Volatility Index ("VIX®"), the average volatility remained at historically low levels, averaging 14.2 in 2014, unchanged from the average in 2013.

        The ratio of actual to implied volatility is also meaningful to our results. Because the cost of hedging our positions is based on implied volatility, while our trading profits are, in part, based on actual market volatility, a higher ratio is generally favorable and a lower ratio generally has a negative effect on our trading gains. This ratio averaged approximately 79% during 2014, slightly higher than the average of 77% in 2013.

        Currency fluctuations.    As a global electronic broker and market maker trading on exchanges around the world in multiple currencies, we are exposed to foreign currency risk. We actively manage this exposure by keeping our net worth in proportion to a defined basket of 16 currencies we call the "GLOBAL" in order to diversify our risk and to align our hedging strategy with the currencies that we use in our business. Because we report our financial results in U.S. dollars, the change in the value of the GLOBAL to the U.S. dollar affects our earnings. The value of the GLOBAL, as measured in U.S. dollars, at December 31, 2014 declined 6% compared to its value at December 31, 2013. This had a negative impact on our comprehensive earnings in 2014.

Presentation of Foreign Currency Effects

        In this reporting period, we have taken several steps to improve the transparency of our currency diversification strategy.

        These actions place the income statement effects of our currency diversification in the corporate segment, thereby providing a clearer picture of the core operating results in the market making segment.

        For comparative purposes, certain reclassifications have been made to previously reported amounts to conform with the current presentation. These changes had no effect on total consolidated net revenues or on net income.

Financial Overview

        Diluted earnings per share were $0.77 for the year ended December 31, 2014. The calculation of diluted earnings per share is detailed in Note 4 to the audited consolidated financial statements, in Part II, Item 8 of this Annual Report on Form 10-K. Diluted earnings per share were $0.73 for the year ended December 31, 2013.

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        On a comprehensive basis, which includes the effect of changes in the U.S. dollar value of the Company's non-U.S. subsidiaries, diluted earnings per share were $0.51 for the year ended December 31, 2014, compared to diluted earnings per share of $0.67 for the same period in 2013.

        For the year ended December 31, 2014, our net revenues were $1,043.3 million and income before income taxes was $506.1 million, compared to net revenues of $1,076.2 million and income before income taxes of $451.3 million for 2013. Compared to 2013, trading gains decreased 21% in 2014, commissions and execution fees increased 9% and net interest income increased 37%. Our pretax margin for the year ended December 31, 2014 was 49%, compared to 42% for 2013.

        Our net revenues were negatively impacted by currency translation effects from the strengthening of the U.S. dollar against other currencies. Currency translation effects are largely a result of our currency diversification strategy. We have determined to base our net worth in GLOBALs, a self-defined basket of currencies in which we maintain our equity. As a result, approximately 59% of our equity is denominated in currencies other than U.S. dollar. The effects of our currency diversification strategy appear in two places in the financial statements: (1) as a component of other income in the consolidated statement of comprehensive income and (2) as other comprehensive income ("OCI") in the consolidated statement of financial condition and the consolidated statement of comprehensive income. The full effect of the GLOBAL is captured in comprehensive income. For the year ended December 31, 2014 the value of the GLOBAL as measured in U.S. Dollars decreased approximately 6% as compared to the same period last year.

        During the year ended December 31, 2014, income before income taxes in our electronic brokerage segment increased by 49% compared to 2013. Commissions and execution fees increased by 9% on higher customer trade volumes and net interest income grew by 39% from the prior year, driven by higher customer balances and higher customer borrowings. Pretax margin increased to 62% from 48% in the same time periods. Customer accounts grew 18% from the prior year and customer equity increased 24% during 2014. Total Daily Average Revenue Trades ("DARTs") for cleared and execution-only customers increased 16% to 566 thousand during the year ended December 31, 2014, compared to 486 thousand during the year ended December 31, 2013.

        In October 2013, a small number of the Company's brokerage customers had taken relatively large positions in four securities listed on the Singapore Exchange. In early October, within a very short timeframe, these securities lost over 90% of their value. The customer accounts were margined and fell into deficits totaling $64 million prior to the time the Company took possession of their securities positions. At December 31, 2014, the Company has recognized an aggregate loss of approximately $82 million. The maximum aggregate loss, which would occur if the securities' prices all fell to zero and none of the debts were collected, would be approximately $84 million. The Company is currently pursuing the collection of the debts. The ultimate effect of this incident on the Company's results will depend upon market conditions and the outcome of the Company's debt collection efforts.

        During the year ended December 31, 2014, income before income taxes in our market making segment decreased 28%, compared with 2013. Trading gains were negatively impacted by low volatility levels, as measured by the VIX®; and low ratio of actual to implied volatility. Pretax margin decreased to 40% in 2014, as compared to 44% in 2013.

        Market making, by its nature, does not produce predictable earnings. Our results in any given period may be materially affected by volumes in the global financial markets, the level of competition and other factors. Electronic brokerage is more predictable, but it is dependent on customer activity, growth in customer accounts and assets, interest rates and other factors. For a further discussion of the factors, that may affect our future operating results, please see the description of risk factors in Part I, Item 1A of this Annual Report on Form 10-K.

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        The following two tables present net revenues and income before income taxes for each of our business segments for the periods indicated.

        Net revenues of each of our segments and our total net revenues are summarized below:

 
  Year Ended December 31,  
 
  2014   2013   2012  
 
  (in millions)
 

Electronic brokerage(1)

  $ 952.3   $ 818.5   $ 672.2  

Market making(1)

    284.4     361.1     490.5  

Corporate(1)(2)

    (193.4 )   (103.4 )   (32.2 )

Total

  $ 1,043.3   $ 1,076.2   $ 1,130.5  

(1)
Certain reclassifications have been made to previously reported amounts to conform with the current presentation of the impact our currency diversification strategy.

(2)
The corporate segment includes corporate related activities, inter-segment eliminations gains and losses on positions held as part of our overall currency diversification strategy.

        Income before income taxes of each of our segments and our total income before income taxes are summarized below:

 
  Year Ended December 31,  
 
  2014   2013   2012  
 
  (in millions)
 

Electronic brokerage(1)

  $ 588.5   $ 395.8   $ 343.5  

Market making(1)

    114.1     158.5     219.5  

Corporate(1)(2)

    (196.5 )   (103.0 )   (36.0 )

Total

  $ 506.1   $ 451.3   $ 527.0  

(1)
Certain reclassifications have been made to previously reported amounts to conform with the current presentation of the impact our currency diversification strategy.

(2)
The corporate segment includes corporate related activities, inter-segment eliminations and gains and losses on positions held as part of our overall currency diversification strategy.

Revenue

Trading Gains

        Trading gains are generated in the normal course of market making. Trading revenues are, in general, proportional to the trading activity in the markets. Our revenue base is highly diversified and comprised of millions of relatively small individual trades of various financial products traded on electronic exchanges, primarily in stocks, options and futures. Trading gains accounted for approximately 23%, 29% and 39% of our total revenues for the years ended December 31, 2014, 2013 and 2012, respectively.

        Trading gains also include revenues from net dividends. Market making activities require us to hold a substantial inventory of equity securities. We derive significant revenues in the form of dividend income from these equity securities. This dividend income is largely offset by dividend expense incurred when we make significant payments in lieu of dividends on short positions in securities in our portfolio. Dividend income and expense arise from holding market making positions over dates on which

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dividends are paid to shareholders of record. When a stock pays a dividend, its market price is generally adjusted downward to reflect the value paid to the shareholders of record, which will not be received by those who purchase the stock after the dividend date. Hence, the apparent gains and losses due to these price changes must be taken together with the dividends paid and received, respectively, to accurately reflect the results of our market making operations.

        As a result of the way we have integrated our market making and securities lending systems, our trading gains and our net interest income from the market making segment are interchangeable and depend on the mix of market making positions in our portfolio. When implied interest rates in the equity and equity options and futures markets exceed the actual interest rates available to us, our market making systems tend to buy stock and sell it forward, which produces higher trading gains and lower net interest income. When these rates are inverted, our market making systems tend to sell stock and buy it forward, which produces lower trading gains and higher net interest income.

        Our trading gains are geographically diversified. In 2014, 2013 and 2012, we generated 37%, 41% and 36%, respectively, of our trading gains from operations conducted internationally.

Commissions and Execution Fees

        We earn commissions and execution fees from our cleared customers for whom we act as an executing and clearing broker and from our non-cleared customers for whom we act as an execution-only broker. We have a commission structure that allows customers to choose between an all-inclusive "bundled" rate or an "unbundled" rate that offers lower commissions for high volume customers. For "unbundled" commissions, we charge regulatory and exchange fees, at our cost, separately from our commissions, adding transparency to our fee structure. Commissions and execution fees accounted for 49%, 45% and 35% of our total revenues for the years ended December 31, 2014, 2013 and 2012, respectively.

        Our commissions and execution fees are geographically diversified. In 2014, 2013 and 2012 we generated 25%, 26% and 28%, respectively, of commissions and execution fees from operations conducted internationally.

Interest Income and Interest Expense

        We earn interest on customer funds segregated in safekeeping accounts; on customer borrowings on margin, secured by marketable securities these customers hold with us; from our investment in government treasury securities; from borrowing securities in the general course of our market making and brokerage activities, and on bank balances. Interest income accounted for 37%, 27% and 23% of total revenues for the years ended December 31, 2014, 2013 and 2012, respectively. Interest income is partially offset by interest expense.

        We pay interest on cash balances customers hold with us; for cash received from lending securities in the general course of our market making and brokerage activities; and on our borrowings. Interest expense was 7%, 5% and 5% of total revenues for the years ended December 31, 2014, 2013 and 2012, respectively.

        We have automated and integrated our securities lending system with our trading system. As a result, we have been able to tailor our securities lending activity to produce more optimal results when taken together with trading gains (see description under "Trading Gains" above).

        Our net interest income accounted for approximately 33%, 23% and 18% of our total net revenues for the years ended December 31, 2014, 2013 and 2012, respectively.

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Other Income

        The largest component of other income is foreign exchange currency translation gains and losses from our currency diversification strategy. A discussion of our approach to managing foreign currency exposure is contained in Part II, Item 7A of this Annual Report on Form 10-K entitled "Quantitative and Qualitative Disclosures about Market Risk."

        Other income also consists of market data fee income, payment for order flow income, minimum activity fee income from customers and mark-to-market gains or losses on non-market making securities (generally, strategic investments and U.S. government securities). Our other income accounted for approximately –10%, –1% and 4% of our total revenues for each of the years ended December 31, 2014, 2013 and 2012, respectively.

Costs and Expenses

Execution and Clearing Expenses

        Our largest single expense category is execution and clearing expenses, which includes the costs of executing and clearing our market making and electronic brokerage trades, as well as other direct expenses, including payment for order flow, regulatory fees and market data fees. Execution fees are paid primarily to electronic exchanges and market centers on which we trade. Clearing fees are paid to clearing houses and clearing agents. Payments for order flow are made as part of exchange-mandated programs and to otherwise attract order volume to our system. Market data fees are fees paid to third parties to receive streaming price quotes and related information.

Employee Compensation and Benefits

        Employee compensation and benefits includes salaries, bonuses and other incentive compensation plans, group insurance, contributions to benefit programs and other related employee costs.

Occupancy, Depreciation and Amortization

        Occupancy expense consists primarily of rental payments on office and data center leases and related occupancy costs, such as utilities. Depreciation and amortization expense results from the depreciation of fixed assets such as computing and communications hardware as well as amortization of leasehold improvements and capitalized in-house software development.

Communications

        Communications expense consists primarily of the cost of voice and data telecommunications lines supporting our business, including connectivity to exchanges around the world.

General and Administrative

        Expenses in this category are primarily incurred for professional services, such as legal and audit work, bad debts, and other operating expenses such as advertising and exchange membership lease expenses.

Income Tax Expense

        We pay U.S. federal, state and local income taxes on our taxable income, which is proportional to the percentage of IBG LLC owned by IBG, Inc. Our subsidiaries are subject to income tax in the respective jurisdictions in which they operate.

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Subsequent Event

        On January 15, 2015, due to the sudden move in the value of the Swiss Franc that followed an unprecedented action by the Swiss National Bank, several of the Company's customers who held currency futures and spot positions suffered losses in excess of their deposits with the Company. The Company took immediate action to hedge its exposure to the foreign currency receivables from these customers. The Company estimates unsecured receivables, net of hedging activity, to be approximately $129 million. The Company is actively pursuing collection of the debts. The ultimate effect of this incident on the Company's results will depend upon the outcome of the Company's debt collection efforts.

Noncontrolling Interest

        We are the sole managing member of IBG LLC and, as such, operate and control all of the business and affairs of IBG LLC and its subsidiaries and consolidate IBG LLC's financial results into our financial statements. We hold approximately 14.5% ownership interest in IBG LLC. Holdings is owned by the original members of IBG LLC and holds approximately 85.5% ownership interest in IBG LLC. We reflect Holdings' ownership as a noncontrolling interest in our consolidated statement of financial condition, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows. Our share of IBG LLC's net income, excluding Holdings' noncontrolling interest, for 2014 was approximately 14.0% and similarly, outstanding shares of our common stock represent approximately 14.5% of the outstanding membership interests of IBG LLC.

Certain Trends and Uncertainties

        We believe that our continuing operations may be favorably or unfavorably impacted by the following trends that may affect our financial condition and results of operations.

        See "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K for a discussion of other risks that may affect our financial condition and results of operations.

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Results of Operations

        The tables in the period comparisons below provide summaries of our consolidated results of operations. The period-to-period comparisons below of financial results are not necessarily indicative of future results.

 
  Year Ended December 31,  
 
  2014   2013   2012  
 
  (in millions except share and per share data)
 

Revenues:

                   

Trading gains(1)

  $ 261.2   $ 331.2   $ 466.0  

Commissions and execution fees

    548.8     502.1     412.6  

Interest income(1)

    416.2     303.4     270.3  

Other income(1)

    (110.7 )   (8.8 )   43.6  

Total revenues

    1,115.5     1,127.9     1,192.5  

Interest expense

    72.2     51.7     62.0  

Total net revenues

    1,043.3     1,076.2     1,130.5  

Non-interest expenses:

                   

Execution and clearing

    211.5     242.5     251.0  

Employee compensation and benefits

    204.8     205.3     244.5  

Occupancy, depreciation and amortization

    39.4     38.9     38.8  

Communications

    24.2     23.1     23.3  

General and administrative

    57.3     115.1     45.9  

Total non-interest expenses

    537.2     624.9     603.5  

Income before income taxes

    506.1     451.3     527.0  

Income tax expense

    47.3     33.7     30.0  

Net income

    458.8     417.6     497.0  

Less net income attributable to noncontrolling interests

    414.3     380.6     456.3  

Net income attributable to common stockholders

  $ 44.5   $ 37.0   $ 40.7  

Earnings per share:

                   

Basic

  $ 0.79   $ 0.74   $ 0.89  

Diluted

  $ 0.77   $ 0.73   $ 0.89  

Weighted average common shares outstanding:

                   

Basic

    56,492,381     49,742,428     46,814,676  

Diluted

    57,709,668     50,924,736     47,070,522  

Comprehensive income:

                   

Net income attributable to common stockholders

  $ 44.5   $ 37.0   $ 40.7  

Other comprehensive income:

                   

Cumulative translation adjustment, before income taxes

    (15.3 )   (3.2 )   2.2  

Income taxes related to items of other comprehensive income

    (0.3 )   (0.5 )   (9.1 )

Other comprehensive income (loss), net of tax

    (15.0 )   (2.7 )   11.3  

Comprehensive income attributable to common stockholders

  $ 29.5   $ 34.3   $ 52.0  

Comprehensive income attributable to noncontrolling interests:

                   

Net income attributable to noncontrolling interests

  $ 414.3   $ 380.6   $ 456.3  

Other comprehensive income (loss)—cumulative translation adjustment

    (92.0 )   (24.7 )   17.0  

Comprehensive income attributable to noncontrolling interests

  $ 322.3   $ 355.9   $ 473.3  

(1)
Certain reclassifications have been made to previously reported amounts to conform with the current presentation of currency translation gains and losses related to our currency diversification strategy.

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        The following table sets forth our consolidated results of operations as a percent of our total revenues for the indicated periods:

 
  Year Ended December 31,  
 
  2014   2013   2012  

Revenues

                   

Trading gains

    25.0 %   30.8 %   41.2 %

Commissions and execution fees

    52.6 %   46.7 %   36.5 %

Interest income

    39.9 %   28.2 %   23.9 %

Other (loss) income

    –10.6 %   –0.8 %   3.9 %

Total revenues

    106.9 %   104.9 %   105.6 %

Interest expense

    6.9 %   4.9 %   5.6 %

Total net revenues

    100.0 %   100.0 %   100.0 %

Non-interest expenses

                   

Execution and clearing

    20.3 %   22.5 %   22.2 %

Employee compensation and benefits

    19.6 %   19.1 %   21.6 %

Occupancy, depreciation and amortization

    3.8 %   3.6 %   3.4 %

Communications

    2.3 %   2.1 %   2.1 %

General and administrative

    5.6 %   10.7 %   4.1 %

Total non-interest expenses

    51.6 %   58.0 %   53.4 %

Income before income taxes

    48.4 %   42.0 %   46.6 %

Income tax expense

    4.5 %   3.1 %   2.7 %

Net Income

    43.9 %   38.9 %   43.9 %

Less net income attributable to noncontrolling interests

    39.7 %   35.4 %   40.4 %

Net income (loss) attributable to common stockholders

    4.2 %   3.5 %   3.5 %

Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013

Net Revenues

        Total net revenues for the year ended December 31, 2014 decreased $32.9 million or 3%, to $1,043.3 million from $1,076.2 million during the year ended December 31, 2013. The decrease in net revenues was primarily due to lower trading gains and currency translation losses, partially offset by increased net interest income and commissions and execution fees. Trading volume is an important driver of revenues and costs for both our electronic brokerage and market making segments. During the year ended December 31, 2014 our volumes in options decreased 4%, while futures contracts and stock shares volume increased 1% and 61%, respectively, as compared to the year-ago period.

        Trading Gains.    Trading gains for the year ended December 31, 2014 decreased $70.0 million, or 21%, to $261.2 million from $331.2 million for the year ended December 31, 2013. As market makers, we provide liquidity by buying from sellers and selling to buyers. During the year ended December 31, 2014, our market making operations executed 64.5 million trades, a decrease of 1% as compared to the number of trades executed in the year ended December 31, 2013. Market making options and futures contract and stock share volumes decreased 15%, 14% and 6%, respectively, as compared to the year-ago period.

        Trading gains were negatively impacted by a market making environment with intense competition and low volatility. The VIX®, which measures perceived U.S. equity market volatility, was unchanged at 14.2 average for the year ended December 31, 2014 as compared to the year-ago period. The ratio of actual to implied volatility was up slightly at 79% for 2014 as compared to 77% for 2013. An

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approximate $16 million loss due to a trading error in the third quarter also negatively impacted trading gains.

        Included in trading gains are net dividends. Dividend income and expense arise from holding market making positions over dates on which dividends are paid to shareholders of record. When a stock pays a dividend, its market price is generally adjusted downward to reflect the value paid, which will not be received by those who purchase stock after the ex-dividend date. Hence, the apparent gains and losses due to these price changes, reflecting the value of dividends paid to shareholders, must be taken together with the dividends paid and received, respectively, to accurately reflect the results of our market making operations.

        Commissions and Execution Fees.    Commissions and execution fees for the year ended December 31, 2014 increased $46.7 million, or 9%, to $548.8 million, as compared to the year ended December 31, 2013, driven by continued customer account growth and increased customer activity, but moderated by lower commissions per customer order. Cleared customer options and futures contract volumes and stock share volumes increased 25%, 4% and 74%, respectively, from the same period last year. Total DARTs for cleared and execution-only customers for the year ended December 31, 2014 increased 16% to 566, as compared to 486 thousand during the year ended December 31, 2013. DARTs for cleared customers, i.e., customers for whom we execute trades as well as clear and carry positions, increased 17% to 515 thousand, for the year ended December 31, 2014, as compared to 441 thousand for the year-ago period. Average commission per DART for cleared customers, for the year ended December 31, 2014, decreased by 6% to $4.16, as compared to $4.41 for the same period last year.

        Interest Income and Interest Expense.    Net interest income (interest income less interest expense) for the year ended December 31, 2014 increased $92.3 million, or 37%, to $344.0 million, as compared to the year ended December 31, 2013. The increase in net interest income was driven by higher customer cash and margin balances and higher net fees earned from securities lending transactions.

        Net interest income on customer balances increased $43.4 million compared to the year-ago period. Average customer cash balances increased by 20%, to $28.22 billion and average customer fully secured margin borrowings increased 36% to $16.18 billion, for the year ended December 31, 2014, as compared to $23.59 billion and $11.88 billion, respectively, for the year ended December 31, 2013. The average Fed Funds effective rate decreased by approximately two basis points to 0.09% for the year ended December 31, 2014, as compared to the prior year.

        We earn fees on securities loaned and borrowed to support customer long and short stock holdings in margin accounts. In addition, our Stock Yield Enhancement Program provides an opportunity for customers with fully-paid stock to allow IB to lend it out. In exchange for lending out their stock, our customers receive generally 50% of the stock loan fees. IB places cash collateral securing the loans in the customer's account.

        In the market making segment, as a result of the way we have integrated our market making and securities lending systems, our trading income and our net interest income are interchangeable and depend on the mix of market making positions in our portfolio. When implied interest rates in the equity and equity options and futures markets exceed the actual interest rates available to us, our market making systems tend to buy stock and sell it forward, which produces higher trading gains and lower net interest income. When these rates are inverted, our market making systems tend to sell stock and buy it forward, which produces lower trading gains and higher net interest income.

        Average securities borrowed decreased by 8%, to $3.18 billion and average securities loaned increased by 34%, to $2.93 billion, for the year ended December 31, 2014 from the same period last year. Net interest earned from securities lending is also affected by the level of demand for securities positions held by our market making companies and our customers. During the year ended December 31, 2014, net fees earned by our brokerage and market making segments from securities

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lending transactions increased by 49%, or $46.5 million, as compared to the year ended December 31, 2013. The bulk of the increase in securities lending transactions came from the brokerage segment.

        Other Income.    Other income, for the year ended December 31, 2014, decreased $101.9 million, to a loss of $110.7 million, as compared to the year ended December 31, 2013. To improve the transparency of the financial impact of our currency diversification strategy, we report currency translation gains and losses related to the GLOBAL as other income instead of trading gains, as previously presented. The decrease in other income was driven by a $93.6 million increase in currency translation losses to a $185.2 loss million during the year ended December 31, 2014, compared to a $91.6 million loss in 2013. A discussion of our approach to managing foreign currency exposure is contained in Part II, Item 7A of this Annual Report on Form 10-K entitled "Quantitative and Qualitative Disclosures about Market Risk." Other income was also impacted by lower market date fee income, losses on other investments and lower dividend income paid on an investment, partially offset by exposure fees collected from customers.

Non-Interest Expenses

        Non-interest expenses, for the year ended December 31, 2014, decreased by $87.7 million, or 14%, to $537.2 million from $624.9 million, during the year ended December 31, 2013. The decrease was primarily due to lower execution and clearing fees and general and administrative expenses. As a percentage of total net revenues, non-interest expenses decreased to 51% for the year ended December 31, 2014 from 58% in the year ago period.

        Execution and Clearing.    Execution and clearing expenses for the year ended December 31, 2014, decreased $31.0 million, or 13%, to $211.5 million, as compared to the year ended December 31, 2013. The decrease reflects lower overall trading volumes in options and an increase in our executions on exchanges and ECN's with make-or-take revenue models. Under the make-or take fee model, we are paid for providing liquidity.

        Employee Compensation and Benefits.    Employee compensation and benefits expenses, for the year ended December 31, 2014, decreased by $0.5 million to $204.8 million, as compared to the year ended December 31, 2013, largely a result of lower insurance related expenses, partially offset by increased salaries. The number of employees increased 9% to 960 for the year ended December 31, 2014, as compared to 880 for the corresponding period in 2013. Within the operating segments, we continued to add staff in electronic brokerage and reduce staff in market making. As we continue to grow, our focus on automation has allowed us to maintain a relatively small staff. As a percentage of total net revenues, employee compensation and benefits expenses were 20% and 19% for the year ended December 31, 2014 and 2013, respectively.

        Occupancy, Depreciation and Amortization.    Occupancy, depreciation and amortization expenses increased $0.5 million to $39.4 million for the year ended December 31, 2014 as compared to the year ended December 31, 2013. As a percentage of total net revenues, occupancy, depreciation and amortization expense was 4% for both 2014 and 2013.

        Communications.    Communications expenses increased $1.1 million, or 5%, to $24.2 million for the year ended December 31, 2014, as compared to the year ended December 31, 2013. As a percentage of total net revenues, communications expenses were 2% for both 2014 and 2013.

        General and Administrative.    General and administrative expenses, for the year ended December 31, 2014, decreased $57.8 million, or 50%, to $57.3 million, as compared to the year ended December 31, 2013. The decrease in general and administrative expenses was primarily due to the non-recurrence of customer bad debt recognized in 2013 related to the Singapore stock issue, as

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described above in the "Financial Overview", partially offset by increases in advertising and professional services expenses.

Income Tax Expense

        Income tax expense for the year ended December 31, 2014 increased $13.6 million, or 40%, compared to income tax expense for the year ended December 31, 2013, while income before taxes increased by $54.8 million, or 12%, during the same period. The increase in income taxes is due to additional amortization of the deferred tax asset arising from the step-up in tax basis of our interests in IBG LLC, as a result of the 2013 and 2014 membership interest redemptions from Holdings. In addition, in 2013, we recognized greater tax benefits related to prior years, than in 2014.

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

        To provide meaningful comparisons, prior period amounts have been revised for changes in the presentation of currency translation classifications.

Net Revenues

        Total net revenues for the year ended December 31, 2013 decreased $54.3 million or 5%, to $1,076.2 million from $1,130.5 million during the year ended December 31, 2012. The decrease in net revenues was primarily due to lower trading gains compared to the prior year, partially offset by increases in commissions and execution fees and net interest income. Trading volume is an important driver of revenues and costs for both our electronic brokerage and market making segments. During the year ended December 31, 2013 our volumes in options decreased 6% from prior year levels while futures contracts and stock shares volumes increased 23% and 45%, respectively.

        Trading Gains.    Trading gains for the year ended December 31, 2013 decreased $134.8 million, or 29%, to $331.2 million from $466.0 million for the year ended December 31, 2012. As market makers, we provide liquidity by buying from sellers and selling to buyers. During the year ended December 31, 2013, our market making operations executed 65.3 million trades, an increase of 8% as compared to the number of trades executed in the year ended December 31, 2012. Market making options contract volume decreased 12% while futures contracts and stock shares volumes increased 44% and 38%, respectively, as compared to the year-ago period.

        Trading gains were negatively impacted by a market making environment with persistent low volatility and low actual-to-implied volatility. The VIX®, which measures perceived U.S. equity market volatility, decreased by 15% in the year ended December 31, 2013 as compared to the year-ago period.

        Included in trading gains are net dividends. Dividend income and expense arise from holding market making positions over dates on which dividends are paid to shareholders of record. When a stock pays a dividend, its market price is generally adjusted downward to reflect the value paid, which will not be received by those who purchase stock after the ex-dividend date. Hence, the apparent gains and losses due to these price changes, reflecting the value of dividends paid to shareholders, must be taken together with the dividends paid and received, respectively, to accurately reflect the results of our market making operations.

        Commissions and Execution Fees.    Commissions and execution fees for the year ended December 31, 2013 increased $89.5 million, or 22%, to $502.1 million, as compared to the year ended December 31, 2012, driven by continued customer account growth and increased customer activity. Cleared customer options, futures and stock volumes increased 25%, 20% and 45%, respectively. Total DARTs for cleared and execution-only customers for the year ended December 31, 2013 increased 18% to 486 thousand, as compared to 413 thousand during the year ended December 31, 2012. Average commission per DART for cleared customers, for the year ended December 31, 2013, increased by 6%

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to $4.41, as compared to $4.17 for the year ended December 31, 2012. DARTs for cleared customers, i.e., customers for whom we execute trades as well as clear and carry positions, increased 15% to 441 thousand, for the year ended December 31, 2013, as compared to 384 thousand for the year ended December 31, 2012.

        Interest Income and Interest Expense.    Net interest income (interest income less interest expense) for the year ended December 31, 2013 increased $43.4 million, or 21%, to $251.7 million, as compared to the year ended December 31, 2012. The increase in net interest income was driven by higher customer cash and margin balances and higher net fees earned from securities borrowed and loaned transactions.

        Net interest income on customer balances increased $18.4 million compared to the year-ago quarter. Average customer cash balances increased by 21%, to $23.59 billion, while average customer fully secured margin borrowings increased 37% to $11.88 billion, for the year ended December 31, 2013, as compared to $19.54 billion and $8.67 billion, respectively, for the year ended December 31, 2012. The average Fed Funds effective rate decreased by approximately three basis points to 0.11% for the year ended December 31, 2013.

        We earn fees on securities loaned and borrowed to support customer long and short stock holdings in margin accounts. In addition, our Stock Yield Enhancement Program provides an opportunity for customers with fully-paid stock to allow IB to lend it out. In exchange for lending out their stock, our customers receive generally 50% of the stock loan fees. IB places cash collateral securing the loans in the customer's account.

        In the market making segment, as a result of the way we have integrated our market making and securities lending systems, our trading income and our net interest income are interchangeable and depend on the mix of market making positions in our portfolio. When implied interest rates in the equity and equity options and futures markets exceed the actual interest rates available to us, our market making systems tend to buy stock and sell it forward, which produces higher trading gains and lower net interest income. When these rates are inverted, our market making systems tend to sell stock and buy it forward, which produces lower trading gains and higher net interest income.

        Average securities borrowed increased by 19%, to $3.47 billion and average securities loaned increased by 24%, to $2.19 billion, for the year ended December 31, 2013. Net interest earned from securities borrowed and loaned is also affected by the level of demand for securities positions held by our market making companies and by our customers. During the year ended December 31, 2013, net fees earned by our brokerage and market making segments from securities borrowed and loaned transactions increased $26.4 million as compared to the year ended December 31, 2012.

        Other Income.    Other income, for the year ended December 31, 2013, decreased $52.4 million, or 120%, to a loss of $8.8 million, as compared to the year ended December 31, 2012. To improve the transparency of the financial impact from our currency diversification strategy, we report currency translation gains and losses related to the GLOBAL as other income instead of trading gains, as previously presented. The decrease in other income was driven by a $61.7 million increase in currency to a $91.6 million loss during the year ended December 31, 2013, compared to a $29.9 million loss in 2012. A discussion of our approach to managing foreign currency exposure is contained in Part II, Item 7A of this Annual Report on Form 10-K entitled "Quantitative and Qualitative Disclosures about Market Risk."

Non-Interest Expenses

        Non-interest expenses, for the year ended December 31, 2013, increased by $21.4 million, or 4%, to $624.9 million from $603.5 million, during the year ended December 31, 2012. The increase was primarily due to higher customer bad debt expenses (contained in general and administrative expenses),

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partially offset by lower employee compensation and benefits expenses and lower execution and clearing fees in the market making segment. As a percentage of total net revenues, non-interest expenses increased to 58% for the year ended December 31, 2013 from 53% in 2012.

        Execution and Clearing.    Execution and clearing expenses for the year ended December 31, 2013, decreased $8.5 million, or 3%, to $242.5 million, as compared to the year ended December 31, 2012. The decrease reflects lower options volume in the market making segment, partially offset by higher volume across product types and market data fees in the electronic brokerage segment.

        Employee Compensation and Benefits.    Employee compensation and benefits expenses, for the year ended December 31, 2013, decreased by $39.2 million, or 16%, to $205.3 million, as compared to the year ended December 31, 2012, reflecting the non-recurrence of a special employee Stock Incentive Plan grant made in 2012, a payment made on unvested shares in our Stock Incentive plan in lieu of the December 2012 special dividend and lower incentive compensation related expenses. The number of employees decreased 1% to 880 for the year ended December 31, 2013, as compared to 891 for the corresponding period in 2012. Within the operating segments, we continued to add staff in electronic brokerage and reduce staff in market making. As we continue to grow, our focus on automation has allowed us to maintain a relatively small staff. As a percentage of total net revenues, employee compensation and benefits expenses were 19% and 22% for the year ended December 31, 2013 and 2012, respectively.

        Occupancy, Depreciation and Amortization.    Occupancy, depreciation and amortization expenses increased $0.1 million to $38.9 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012. As a percentage of total net revenues, occupancy, depreciation and amortization expense was 4% and 3% for the years ended December 31, 2013 and 2012, respectively.

        Communications.    Communications expenses decreased $0.2 million, or 1%, to $23.1 million for the year ended December 31, 2013, as compared to the year ended December 31, 2012. As a percentage of total net revenues, communications expenses were 2% for both 2013 and 2012.

        General and Administrative.    General and administrative expenses, for the year ended December 31, 2013, increased $69.2 million to $115.1 million, as compared to the year ended December 31, 2012. The increase in general and administrative expenses was primarily due to increases in customer bad debt related to the Singapore stock issue, as described above in the "Financial Overview" section.

Income Tax Expense

        Income tax expense for the year ended December 31, 2013 increased $3.7 million, or 12%, compared to income tax expense for the year ended December 31, 2012, while income before taxes decreased by $75.5 million, or 14%, during the same period. In 2012, we recognized greater tax benefits related to prior years, than in 2013.

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Supplemental Information

        The following tables present historical trading volumes for our business. However, volumes are not the only drivers in our business.

TRADE VOLUMES:
(in 000's, except %)

Period
  Market
Making
Trades
  %
Change
  Brokerage
Cleared
Trades
  %
Change
  Brokerage
Non
Cleared
Trades
  %
Change
  Total
Trades
  %
Change
  Avg. Trades
per U.S.
Trading Day
 

2010

    75,169           133,658           18,732           227,559           905  

2011

    63,602     –15 %   160,567     20 %   19,187     2 %   243,356     7 %   968  

2012

    60,421     –5 %   150,000     –7 %   16,118     –16 %   226,540     –7 %   904  

2013

    65,320     8 %   173,849     16 %   18,489     15 %   257,658     14 %   1,029  

2014

    64,530     –1 %   206,759     19 %   18,055     –2 %   289,344     12 %   1,155  

CONTRACT AND SHARE VOLUMES:
(in 000's, except %)

TOTAL

Period
  Options
(contracts)
  %
Change
  Futures
(contracts)
  %
Change
  Stocks
(shares)
  %
Change
 

2010

    678,856           96,193           84,469,874        

2011

    789,370     16 %   106,640     11 %   77,730,974     –8 %

2012

    698,140     –12 %   98,801     –7 %   65,872,960     –15 %

2013

    659,673     –6 %   121,776     23 %   95,479,739     45 %

2014

    631,265     –4 %   123,048     1 %   153,613,174     61 %

MARKET MAKING

Period
  Options
(contracts)
  %
Change
  Futures
(contracts)
  %
Change
  Stocks
(shares)
  %
Change
 

2010

    435,184           15,371           19,165,000        

2011

    503,053     16 %   15,519     1 %   11,788,769     –38 %

2012

    457,384     –9 %   12,660     –18 %   9,339,465     –21 %

2013

    404,490     –12 %   18,184     44 %   12,849,729     38 %

2014

    344,741     –15 %   15,668     –14 %   12,025,822     –6 %

Notes:

(1)
Futures contract volume includes options on futures

BROKERAGE TOTAL

Period
  Options
(contracts)
  %
Change
  Futures
(contracts)
  %
Change
  Stocks
(shares)
  %
Change
 

2010

    243,672           80,822           65,304,874        

2011

    286,317     18 %   91,121     13 %   65,942,205     1 %

2012

    240,756     –16 %   86,141     –5 %   56,533,495     –14 %

2013

    255,183     6 %   103,592     20 %   82,630,010     46 %

2014

    286,524     12 %   107,380     4 %   141,587,352     71 %

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BROKERAGE CLEARED

Period
  Options
(contracts)
  %
Change
  Futures
(contracts)
  %
Change
  Stocks
(shares)
  %
Change
 

2010

    103,054           79,144           62,077,741        

2011

    145,993     42 %   89,610     13 %   63,098,072     2 %

2012

    144,539     –1 %   84,794     –5 %   54,371,351     –14 %

2013

    180,660     25 %   101,732     20 %   78,829,785     45 %

2014

    225,662     25 %   106,074     4 %   137,153,132     74 %

Notes:

(1)
Futures contract volume includes options on futures

BROKERAGE STATISTICS:
(in 000's, except % and where noted)

 
  4Q2014   4Q2013   % Change  

Total Accounts

    281     239     18 %

Customer Equity (in billions)*

  $ 56.7   $ 45.7     24 %

Cleared DARTs

   
564
   
453
   
25

%

Total Customer DARTs

    619     499     24 %

Cleared Customers (in $'s, except DART per account)

   
 
   
 
   
 
 

Commission per DART

  $ 4.28   $ 4.23     1 %

DART per Avg. Account (Annualized)

    511     483     6 %

Net Revenue per Avg. Account (Annualized)

  $ 3,700   $ 3,375     10 %

*
Excludes non-customers.

Business Segments

        The following sections discuss results of our operations by business segment, excluding a discussion of corporate income and expense. In the following tables, revenues and expenses directly associated with each segment are included in determining income before income taxes. Due to the integrated nature of the business segments, estimates and judgments have been made in allocating certain revenue and expense items. Transactions between segments generally result from one subsidiary facilitating the business of another subsidiary through the use of its existing trading memberships and clearing arrangements. In such cases, certain revenue and expense items are eliminated to accurately reflect the external business conducted in each segment. Rates on transactions between segments are designed to approximate full costs. In addition to execution and clearing expenses, which are the main cost driver for both the market making segment and the electronic brokerage segment, each segment's operating expenses include (i) employee compensation and benefits expenses that are incurred directly in support of the businesses, (ii) general and administrative expenses, which include directly incurred expenses for property leases, professional fees, travel and entertainment, communications and information services, equipment, and (iii) indirect support costs (including compensation and other related operating expenses) for administrative services provided by IBG LLC. Such administrative services include, but are not limited to, computer software development and support, accounting, tax, legal and facilities management.

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Electronic Brokerage

        The following table sets forth the results of our electronic brokerage operations for the indicated periods:

 
  Year Ended December 31,  
 
  2014   2013   2012  
 
  (in millions)
 

Revenues

                   

Commissions and execution fees

  $ 549.0   $ 502.1   $ 412.6  

Interest income(1)

    352.0     254.2     213.1  

Other income(1)

    81.4     85.0     74.5  

Total revenues

    982.4     841.3     700.2  

Interest expense

    30.1     22.8     28.0  

Total net revenues

    952.3     818.5     672.2  

Non-interest expenses

                   

Execution and clearing

    147.7     159.1     135.8  

Employee compensation and benefits

    79.9     74.5     81.6  

Occupancy, depreciation and amortization

    11.2     12.5     12.1  

Communications

    11.5     9.7     8.9  

General and administrative

    113.5     166.9     90.3  

Total non-interest expenses

    363.8     422.7     328.7  

Income before income taxes

  $ 588.5   $ 395.8   $ 343.5  

(1)
Certain reclassifications have been made to previously reported amounts to conform with the current presentation of currency translation gains and losses related to our currency diversification strategy.

Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013

        Electronic brokerage total net revenues for the year ended December 31, 2014 increased $133.8 million, or 16%, to $952.3 million, from $818.5 million during the year ended December 31, 2014, primarily due to higher net interest income and commission revenue. Commissions and execution fees increased $46.9 million, or 9%, as a result of higher cleared customer volume in options and stock, partially offset by a lower average commission per customer order. Cleared customer volume rose in options and futures contracts and stock shares by 25%, 4% and 74%, respectively for the year ended December 31, 2014 from the prior year. Total DARTs from cleared and execution-only customers for the year ended December 31, 2014 increased 16% to 566 thousand, as compared to 486 thousand during the year ended December 31, 2013. DARTs from cleared customers for the year ended December 31, 2014 increased 17% to 515 thousand, as compared to 441 thousand during the year ended December 31, 2013.

        Net interest income increased $90.5 million, or 39% in the year ended December 31, 2014 as compared to the corresponding period in 2013. The increase in net interest income was attributable to higher net customer interest of $43.4 million, driven by a $4.65 billion increase in average customer credit balances and a $4.31 billion increase in average margin borrowings; as well as higher net fees from securities lending transactions of $46.1 million. The average Fed Funds effective rate decreased by approximately two basis points to 0.09% for the year ended December 31, 2014 from the prior year period. In 2014, the company purchased U.S. government securities for the purpose of satisfying regulatory requirements, which improved the yield on the investment of customer funds.

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        Electronic brokerage non-interest expenses for the year ended December 31, 2014 decreased $58.9 million, or 14%, as compared to the year ended December 31, 2013. Within non-interest expenses, execution and clearing expenses decreased by $11.4 million due to continued price competition between U.S. stock and options exchanges. Employee compensation and benefits expenses increased by $5.4 million, or 7% during the year ended December 31, 2014 as compared to the prior year. The increase in employee compensation and benefits expense reflects an 11% increase in the average number of brokerage employees from the same period last year. General and administrative expenses decreased $53.4 million during the year ended December 31, 2014 as compared to the year ago period, primarily due to the non-recurrence of a $64 million bad debt expense recorded in 2013, offset by minor increases across other general and administrative expenses. As a percentage of total net revenues, non-interest expenses decreased to 38% from 52% for the year ended December 31, 2014 as compared to 2013.

        Electronic brokerage income before income taxes increased $192.7 million, or 49%, to $588.5 million for the year ended December 31, 2014 from $395.8 million for the year ended December 31, 2013. As a percentage of total net revenues for the electronic brokerage segment, income before income taxes was 62% and 48% for the years ended December 31, 2014 and 2013, respectively.

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

        Electronic brokerage total net revenues for the year ended December 31, 2013 increased $146.3 million, or 22%, to $818.5 million, from $672.2 million during the year ended December 31, 2012, primarily due to higher commissions and execution fees and higher net interest income. Commissions and execution fees increased $89.5 million, or 22%, directly attributable to higher cleared customer volume, which rose in options and futures contracts and stock shares by 25%, 20% and 45%, respectively, for the year ended December 31, 2013 from the corresponding period in 2012. Total DARTs from cleared and execution-only customers for the year ended December 31, 2013 increased 18% to 486 thousand, as compared to 413 thousand during the year ended December 31, 2012. DARTs from cleared customers for the year ended December 31, 2013 increased 15% to 441 thousand, as compared to 384 thousand during the year ended December 31, 2012.

        Net interest income increased $ 46.3 million, or 25% in the year ended December 31, 2013 as compared to 2012. The increase in net interest income was attributable to an increase of $26.4 million in net fees from securities borrowed and loaned transactions as well as a $4.05 billion increase in average customer credit balances and an increase of $3.21 billion in average margin borrowings. The average Fed Funds effective rate decreased by approximately three basis points to 0.11% for the year ended December 31, 2013 from the prior year.

        Electronic brokerage non-interest expenses for the year ended December 31, 2013 increased $94.0 million, or 29%, as compared to the year ended December 31, 2012. Within non-interest expenses, execution and clearing expenses increased by $23.3 million, driven primarily by an increase in customer trading volume. Employee compensation and benefits expenses decreased by $7.1 million, or 9% during the year ended December 31, 2013 as compared to 2012. The decrease in employee compensation and benefits expense reflects the non-recurrence of the special discretionary grant of restricted stock units awarded in January 2012, a payment made on unvested shares in our Stock Incentive plan in lieu of the December 2012 special dividend and lower incentive compensation related expenses. General and administrative expenses increased $76.6 million, during the year ended December 31, 2013 as compared to 2012, primarily due to bad debt expense related to the Singapore stock issue, explained in further detail in the "Financial Overview" section. As a percentage of total net revenues, non-interest expenses increased to 52% from 49% for the year ended December 31, 2013 as compared to the corresponding period in 2012.

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        Electronic brokerage income before income taxes increased $52.3 million, or 15%, to $395.8 million for the year ended December 31, 2012 from $343.5 million for the year ended December 31, 2012. As a percentage of total net revenues for the electronic brokerage segment, income before income taxes was 48% and 51% for the years ended December 31, 2013 and 2012, respectively.

Market Making

        The following table sets forth the results of our market making operations for the indicated periods:

 
  Year Ended December 31,  
 
  2014   2013   2012  
 
  (in millions)
 

Revenues

                   

Trading gains(1)

  $ 261.5   $ 331.8   $ 466.0  

Interest income

    64.9     50.8     57.9  

Other income(1)

    1.9     7.7     2.6  

Total revenues

    328.3     390.3     526.5  

Interest expense

    43.9     29.2     36.0  

Total net revenues

    284.4     361.1     490.5  

Non-interest expenses

                   

Execution and clearing

    63.8     84.0     117.8  

Employee compensation and benefits

    40.8     45.9     66.8  

Occupancy, depreciation and amortization

    6.3     6.1     7.1  

Communications

    9.6     8.8     10.2  

General and administrative

    49.8     57.8     69.1  

Total non-interest expenses

    170.3     202.6     271.0  

Income before income taxes

  $ 114.1   $ 158.5   $ 219.5  

(1)
Certain reclassifications have been made to previously reported amounts to conform with the current presentation of currency translation gains and losses related to our currency diversification strategy.

Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013

        Market making total net revenues for the year ended December 31, 2014 decreased $76.7 million, or 21%, to $284.4 million, from $361.1 million during the year ended December 31, 2013. Trading gains for the year ended December 31, 2014 decreased $70.3 million, or 21% from the year-ago period. Trading gains were negatively impacted by a market making environment with intense competition and low average volatility. The VIX® was unchanged at 14.2 average for 2014 as compared to the prior year. The ratio of actual to implied volatility was up slightly at 79% for 2014 as compared to 77% for 2013. An approximate $16 million loss due to a trading error in the third quarter also negatively impacted trading gains.

        Market making options and futures contract volume and stock share volumes decreased 15%, 14%, and 6%, respectively, in the year ended December 31, 2014 as compared the prior year.

        Net interest income for the year ended December 31, 2014 decreased by $0.6 million, or 3%, to $21.0 million. As described above, our trading gains and our net interest income are interchangeable and depend on the mix of market making positions in our portfolio and on relative interest rates in the

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stock and options markets. In the year ended December 31, 2014, these factors, together with securities lending activity, produced less net interest income than in 2013.

        Market making non-interest expenses for the year ended December 31, 2014 decreased $32.3 million, or 16%, as compared to the year ended December 31, 2013. The decrease was primarily from a $20.2 million decrease in execution and clearing fees and an $8.0 million decrease in general and administrative expenses during the year ended December 31, 2014 as compared to the same period last year. The decrease in execution and clearing fees was driven by lower volume across all product classes. General and administrative expenses reflect a reduction in administrative and consulting fees, primarily for software development from the year-ago period. As a percentage of total net revenues, market making non-interest expenses were 60% and 56% for the years ended December 31, 2014 and 2013, respectively.

        Market making income before income taxes decreased $44.4 million, or 28%, to $114.1 million for the year ended December 31, 2014 from $158.5 million for the year ended December 31, 2013. As a percentage of total net revenues for the market making segment, income before income taxes was 40% and 44% for the years ended December 31, 2014 and 2013, respectively.

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

        Market making total net revenues for the year ended December 31, 2013 decreased $129.4 million, or 26%, to $361.1 million, from $490.5 million during the year ended December 31, 2012. Trading gains for the year ended December 31, 2013 decreased $134.2 million, or 29% from the prior year.

        Trading gains were negatively impacted by a 15% decrease in volatility, as measured by the VIX®, which decreased to 14.2, for the year ended December 31, 2013 as compared to the year-ago period. As a result, our trading gains, after removing the effects of currency translation, were 30% lower than those of the prior year.

        Market making options contract volume decreased 12%, while futures contracts and stock shares volumes increased 44% and 38%, respectively, in the year ended December 31, 2013 as compared to 2012.

        Net interest income for the year ended December 31, 2013 decreased by $0.3 million, or 1%, to $21.6 million. The decrease was driven by lower interest earned on firm cash balances, partially offset by an increase in net fees earned from securities borrowed and loaned transactions. As described above, our trading gains and our net interest income are interchangeable and depend on the mix of market making positions in our portfolio and on relative interest rates in the stock and options markets. In the year ended December 31, 2013, these factors, together with securities lending activity, produced less net interest income than in 2012.

        Market making non-interest expenses for the year ended December 31, 2013 decreased $68.4 million, or 25%, as compared to the year ended December 31, 2012. The decrease primarily resulted from a $33.8 million decrease in execution and clearing fees and a $20.9 million decrease in employee compensation and benefits during the year ended December 31, 2013 as compared to 2012. The decrease in execution and clearing fees was driven by lower options volume. The decrease in employee compensation and benefits expense reflects staff reductions as well as the non-recurrence of the special discretionary grant of restricted stock units awarded in January 2012, a payment made on unvested shares in our Stock Incentive plan in lieu of the December 2012 special dividend and lower incentive compensation related expenses. As a percentage of total net revenues, market making non-interest expenses increased to 74% from 59% for the year ended December 31, 2013 and 2012, respectively.

        Market making income before income taxes decreased $61.0 million, or 28%, to $158.5 million for the year ended December 31, 2013 from $219.5 million for the year ended December 31, 2012. As a

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percentage of total net revenues for the market making segment, income before income taxes was 44% and 45% for the years ended December 31, 2013 and 2012, respectively.

Liquidity and Capital Resources

        We maintain a highly liquid balance sheet. The majority of our assets consist of exchange-listed marketable securities inventories, which are marked-to-market daily, investment of customer funds and collateralized receivables arising from customer-related and proprietary securities transactions. Collateralized receivables consist primarily of customer margin loans, securities borrowed, and, to a lesser extent receivables from clearing houses for settlement of securities transactions, and securities purchased under agreements to resell. At December 31, 2014, total assets were $43.39 billion of which approximately $42.95 billion, or 99.0% were considered liquid.

        Daily monitoring of liquidity needs and available collateral levels is undertaken to help ensure that an appropriate liquidity cushion, in the form of unpledged collateral, is maintained at all times. Our ability to quickly reduce funding needs by balance sheet contraction without adversely affecting our core businesses and to pledge additional collateral in support of secured borrowings is continuously evaluated to ascertain the adequacy of our capital base.

        We actively manage our excess liquidity and we maintain significant borrowing facilities through the securities lending markets and with banks. As a general practice, we maintain sufficient levels of cash on hand to provide us with a buffer should we need immediately available funds for any reason.

        Liability balances in connection with our securities loaned and payables to customers were greater than their respective average monthly balances during the year ended December 31, 2014. Liability balances in connection with our short term borrowings were lower than their respective average monthly balances during the year ended December 31, 2014. Based on our current level of operations, we believe our cash flows from operations, available cash and available borrowings under our senior secured revolving credit facility will be adequate to meet our future liquidity needs for more than the next twelve months.

        Cash and cash equivalents held by the Company's non-U.S. operating companies at December 31, 2014 were $439.5 million ($421.2 million at December 31, 2013). These funds are primarily intended to finance each individual operating company's local operations, and thus would not be available to fund U.S. domestic operations unless repatriated through payment of dividends to IBG LLC. In December 2012, a dividend of $131.6 million was paid to IBG LLC from a non-U.S. subsidiary as part of the $400 million funding for the special cash dividend. The majority of the underlying earnings of this subsidiary had previously been subject to U.S. income taxes. Therefore, additional U.S. income taxes were required to be provided on a minority portion of this dividend. It is not currently the Company's intention to repatriate further amounts from non-U.S. operating companies. In the event dividends were to be paid to the Company in the future by a non-U.S. operating company, as occurred in connection with the special dividend in December 2010, the Company would be required to accrue and pay income taxes on such dividends to the extent that U.S. income taxes had not been paid previously on the income of the paying company.

        Historically, IBG, Inc.'s consolidated equity has consisted primarily of accumulated retained earnings, which to date have been sufficient to fund our operations and growth. IBG, Inc.'s consolidated equity increased 2% to $5.18 billion at December 2014 from $5.09 billion at December 31, 2013. This is attributable to total comprehensive income for 2014, offset by dividends paid during 2014.

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Cash Flows

        The following table sets forth our cash flows from operating activities, investing activities and financing activities for the periods indicated:

 
  Year Ended December 31,  
 
  2014   2013   2012  
 
  (in millions)
 

Net cash provided by operating activities

  $ 417.0   $ 140.9   $ 725.4  

Net cash provided by (used in) investing activities

    54.1     (32.4 )   (52.4 )

Net cash used in financing activities

    (308.0 )   (248.5 )   (605.2 )

Effect of exchange rate changes on cash and cash equivalents

    (107.0 )   (27.4 )   28.2  

Increase (decrease) in cash and cash equivalents

  $ 56.1   $ (167.4 ) $ 96.0  

        Our cash flows from operating activities are largely a reflection of the size and composition of trading positions held by our market making subsidiaries, and of the changes in customer cash and margin debit balances in our electronic brokerage business. Our cash flows from investing activities are primarily related to our currency diversification strategy, other investments, capitalized internal software development, purchases and sales of memberships at exchanges where we trade and strategic investments where such investments may enable us to offer better execution alternatives to our current and prospective customers, or create new opportunities for ourselves as market makers or where we can influence exchanges to provide competing products at better prices using sophisticated technology. Our cash flows from financing activities are comprised of short-term borrowings, long-term borrowings and capital transactions. Short-term borrowings from banks are part of our daily cash management in support of operating activities. Other borrowings provide us with flexible sources of excess liquidity and regulatory capital. Capital transactions consist primarily of the approximately $400 million special dividend paid in December 2012 as well as the quarterly dividends beginning in June 2011 and continuing through December 2014 paid to common stockholders, and related cash distributions paid to Holdings.

        Year Ended December 31, 2014:    Our cash and cash equivalents increased by $56.1 million to $1,269.3 million at the end of 2014. We raised $417.0 million in net cash from operating activities. We used net cash of $253.9 million in our investing and financing activities for dividends paid to our common stockholders and noncontrolling interests and payments made to Holdings under the Tax Receivable Agreement, partially offset by cash generated by other investments and an increase in short term borrowings. Under investing activities, purchases and sales of other investments mainly consisted transactions in marketable securities held for investment purposes.

        Year Ended December 31, 2013:    Our cash and cash equivalents decreased by $167.4 million to $1,213.2 million at the end of 2013. We raised $140.9 million in net cash from operating activities. We used net cash of $32.4 million in our investing activities to purchase other investments and for capital expenditures. We used $248.5 million in financing activities, primarily dividends paid and to reduce short-term borrowings.

        Year Ended December 31, 2012:    Our cash and cash equivalents increased by $96.0 million to $1,380.6 million at the end of 2012. We raised $725.4 million in net cash from operating activities. We used net cash of $52.4 million in our investing activities to purchase other investments and for capital expenditures. We used $605.2 million in financing activities, primarily in dividends paid, the repayment of senior notes outstanding and payments made to Holdings under the Tax receivable Agreement.

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Regulatory Capital Requirements

        Our principal operating subsidiaries are subject to separate regulation and capital requirements in the United States and other jurisdictions. TH LLC and IB LLC are registered U.S. broker-dealers and futures commission merchants, and their primary regulators include the SEC, the Commodity Futures Trading Commission, the Chicago Board Options Exchange, the Chicago Mercantile Exchange, the Financial Industry Regulatory Authority and the National Futures Association. THE is registered to do business in Switzerland as a securities dealer and is regulated by the Swiss Financial Market Supervisory Authority. IBUK is subject to regulation by the U.K. Financial Conduct Authority. Our various other operating subsidiaries are similarly regulated. See the notes to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information regarding our regulated subsidiaries.

        At December 31, 2014, aggregate excess regulatory capital for all of the operating companies was $3.27 billion, and all of the operating companies were in compliance with their respective regulatory capital requirements.

 
  Net Capital/
Eligible Equity
  Requirement   Excess  
 
  (in millions)
 

IB LLC

  $ 2,333.9   $ 279.0   $ 2,054.9  

TH LLC

    374.2     63.6     310.6  

THE

    661.7     205.3     456.4  

Other regulated Operating Companies

    486.0     36.1     449.9  

  $ 3,855.8   $ 584.0   $ 3,271.8  

Principal Indebtedness

Senior Secured Revolving Credit Facility

        On May 17, 2012, IBG LLC entered into a $100 million three-year senior secured revolving credit facility with a syndicate of banks. This credit facility replaced a similar two-year facility that expired on May 18, 2012. On August 8, 2014 IBG LLC elected to terminate this credit facility.

Senior Notes

        Prior to January 2012, IBG LLC periodically issued senior notes in private placements to certain qualified customers of IB LLC. IBG LLC used the proceeds from sales of the senior notes to provide capital to IBG LLC's broker-dealer subsidiaries in the form of subordinated loans and for other general purposes. Based on a review of its available liquidity resources, which resulted in a determination of a strong liquidity position, in January 2012 the Company decided to discontinue the Senior Notes Program. It is the Company's current intention that no new Senior Notes will be issued.

Capital Expenditures

        Our capital expenditures are comprised of compensation costs of our software engineering staff for development of software for internal use and expenditures for computer, networking and communications hardware. These expenditure items are reported as property and equipment. Capital expenditures for property and equipment were approximately $19.4, $16.8 and $18.0 million for the three years ended December 31, 2014, 2013 and 2012, respectively. In the future, we plan meet capital expenditure needs as we continue our focus on technology infrastructure initiatives to further enhance our competitive position. We anticipate that we will fund capital expenditures with cash from operations and cash on hand. In response to changing economic conditions, we believe we have the flexibility to modify our capital expenditures by adjusting them (either upward or downward) to match our actual performance. If we pursue any strategic acquisitions, we may incur additional capital expenditures.

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Contractual Obligations Summary

        Our contractual obligations principally include obligations associated with our outstanding indebtedness and interest payments as of December 31, 2014.

 
  Payments Due by Year  
 
  Total   2015 - 2016   2017 - 2018   Thereafter  
 
  (in Millions)
 

Payable to Holdings under Tax Receivable Agreement(1)

  $ 277.4   $ 41.1   $ 45.9   $ 190.4  

Operating leases

    41.9     22.9     18.4     0.6  

Total contractual cash obligations

  $ 319.3   $ 64.0   $ 64.3   $ 191.0  

(1)
As of December 31, 2014, contractual amounts owed under the tax receivable agreement of $277.4 million have been recorded in payable to affiliate in the consolidated financial statements representing management's best estimate of the amounts currently expected to be owed under the tax receivable agreement. Through December 31, 2014, approximately $86.2 million of cumulative cash payments have been made.

Seasonality

        Our businesses are subject to seasonal fluctuations, reflecting varying numbers of market participants at times during the year and varying numbers of trading days from quarter-to-quarter, including declines in trading activity due to holidays. Typical seasonal trends may be superseded by market or world events, which can have a significant impact on prices and trading volume.

Inflation

        Although we cannot accurately anticipate the effect of inflation on our operations, we believe that inflation has not had for the three most recent years, and is not likely in the foreseeable future to have, a material impact on our results of operations.

        The company purchased U.S. government securities for the purpose of satisfying U.S. regulatory requirements. Sudden increases in interest rates will cause mark-to-market losses on these securities. The impact of changes in interest rates is further described in ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Strategic Investments and Acquisitions

        We periodically engage in evaluations of potential strategic investments and acquisitions. The Company holds strategic investments in electronic trading exchanges including: Boston Options Exchange, LLC; OneChicago LLC and CBOE Stock Exchange, LLC. The Company has also made an investment in Quadriserv Inc., an electronic securities lending platform provider.

        We intend to continue making acquisitions on an opportunistic basis, generally only when the acquisition candidate will, in our opinion, enable us to acquire either technology or customers faster than we could develop them on our own. At December 31, 2014, there were no definitive agreements with respect to any material acquisition.

Certain Information Concerning Off-Balance-Sheet Arrangements

        IBG, Inc. may be exposed to a risk of loss not reflected in the consolidated financial statements for futures products, which represent obligations of the Company to settle at contracted prices, which may require repurchase or sale in the market at prevailing prices. Accordingly, these transactions result

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in off-balance sheet risk as IBG, Inc.'s cost to liquidate such futures contracts may exceed the amounts reported in our consolidated statements of financial condition.

Critical Accounting Policies

Valuation of Financial Instruments

        Due to the nature of our operations, substantially all of our financial instrument assets, comprised of financial instruments owned, securities purchased under agreements to resell, securities borrowed and receivables from brokers, dealers and clearing organizations are carried at fair value based on published market prices and are marked to market daily, or are assets which are short-term in nature and are reported at amounts approximating fair value. Similarly, all of our financial instrument liabilities that arise from financial instruments sold but not yet purchased, securities sold under agreements to repurchase, securities loaned and payables to brokers, dealers and clearing organizations are short-term in nature and are reported at quoted market prices or at amounts approximating fair value. Our long and short positions are valued at either the last consolidated trade price at the close of regular trading hours, in their respective markets. Given that we manage a globally integrated market making portfolio, we have large and substantially offsetting positions in securities and commodities that trade on different exchanges that close at different times of the trading day. As a result, there may be large and anomalous swings in the value of our positions daily and, accordingly, in our earnings in any period. This is especially true on the last business day of each calendar quarter, although such swings tend to come back into equilibrium on the first business day of the succeeding calendar quarter.

Principles of Consolidation, including Noncontrolling Interests

        The consolidated financial statements include the accounts of IBG, Inc. and its majority and wholly owned subsidiaries. As sole managing member of IBG LLC, IBG, Inc. exerts control over the Group's operations. In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") ASC Topic 810, "Consolidation", the Company consolidates the Group's consolidated financial statements and records as noncontrolling interest the interests in the Group that IBG, Inc. does not own.

        We are the sole managing member of IBG LLC and, as such, operate and control all of the business and affairs of IBG LLC and its subsidiaries and consolidate IBG LLC's financial results into our financial statements. We hold approximately 14.5% ownership interest in IBG LLC. Holdings is owned by the original members of IBG LLC and holds approximately 85.5% ownership interest in IBG LLC. Our share of IBG LLC's net income is approximately 14.5% and similarly, outstanding shares of our common stock represent approximately 14.5% of the outstanding membership interests of IBG LLC.

        Prior to the June 6, 2012 amendment to the Exchange Agreement (see Note 4 to the consolidated financial statements), the Company was required to report Holdings' ownership as redeemable noncontrolling interests (i.e., temporary equity), outside of total equity in the consolidated financial statements. Redemption value of these redeemable noncontrolling interests was measured as the number of equivalent shares of member interests in IBG LLC owned by Holdings multiplied by the then current market price per share of the Company's common stock. The excess of the redemption value over the book value of these interests, which did not affect net income attributable to common stockholders or cash flows, was required to be accounted for as a reduction of the Company's stockholders' equity in the consolidated statement of financial condition.

        The Company elected to recognize changes in redemption value in each reporting period immediately as they occurred as if the end of each reporting period was also the redemption date for the entire redeemable noncontrolling interest, notwithstanding that the redeemable noncontrolling

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interests are redeemable over a period of time pursuant to a redemption schedule (see Note 4 to the consolidated financial statements).

        For periods after the Amendment, the noncontrolling interests in IBG LLC attributable to Holdings will be reported as a component of total equity.

        The Company's policy is to consolidate all other entities in which it owns more than 50% unless it does not have control. All inter-company balances and transactions have been eliminated.

Earnings per Share

        Earnings per share ("EPS") are computed in accordance with FASB ASC Topic 260, "Earnings per Share." Shares of Class A and Class B common stock share proportionately in the earnings of IBG, Inc. Basic earnings per share are calculated utilizing net income available for common stockholders divided by the weighted average number of shares of Class A and Class B common stock outstanding for that period. Diluted earnings per share are calculated utilizing the Company's basic net income available for common stockholders divided by diluted weighted average shares outstanding with no adjustments to net income available to common stockholders for dilutive potential common shares.

        For periods prior to June 6, 2012, the Company has determined to reflect Topic D-98 measurement adjustments for non-fair value redemption rights through application of the two-class method of calculating earnings per share in lieu of recognizing the impact through the determination of net income attributable to common shareholders. Furthermore, the Company has elected to treat only the portion of the periodic measurement adjustments that reflect a redemption in excess of fair value as being akin to a dividend, reducing net income attributable to common stockholders for purposes of applying the two-class method. Decreases in the carrying amount of redeemable noncontrolling interests through Topic D-98 measurement adjustments are reflected in the application of the two-class method only to the extent they represent recoveries of amounts previously accounted for by applying the two-class method.

Stock-Based Compensation

        IBG, Inc. follows FASB ASC Topic 718, "Compensation—Stock Compensation" ("ASC Topic 718"), to account for its stock-based compensation plans. ASC Topic 718 requires all share-based payments to employees to be recognized in the consolidated financial statements using a fair value-based method. Grants, which are denominated in U.S. dollars, are communicated to employees in the year of grant, thereby establishing the fair value of each grant. The fair value of awards granted to employees are generally expensed as follows—50% in the year of grant in recognition of plan forfeiture provisions (described below) and the remaining 50% over the related vesting period utilizing the "graded vesting" method permitted under ASC Topic 718. In the case of "retirement eligible" employees (those employees older than 59), 100% of awards are expensed when granted.

        Awards granted under the stock-based compensation plans are subject to forfeiture in the event an employee ceases employment with the Company. The plans provide that employees who discontinue employment with the Company without cause and continue to meet the terms of the plans' post-employment provisions will forfeit 50% of unvested previously granted awards unless the employee is over the age of 59, in which case the employee would be eligible to receive 100% of unvested awards previously granted.

Contingencies

        Our policy is to estimate and accrue for potential losses that may arise out of litigation and regulatory proceedings, to the extent that such losses are probable and can be estimated, in accordance with FASB ASC Topic 450, "Contingencies." Significant judgment is required in making these estimates

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and our final liabilities may ultimately be materially different. Our total liability accrued with respect to litigation and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses based on, among other factors, the progress of each case, our experience with and industry experience with similar cases and the opinions and views of internal and external legal counsel. Given the inherent difficulty of predicting the outcome of our litigation and regulatory matters, particularly in cases or proceedings in which substantial or indeterminate damages or fines are sought, or where cases or proceedings are in the early stages, we cannot estimate losses or ranges of losses for cases or proceedings where there is only a reasona