# EDGAR Filing Document

**Accession Number:** 0001381197
**File Stem:** 0001140361-23-010700
**Filing Date:** 2023-3
**Character Count:** 278647
**Document Hash:** 7cba1fa6d9ee233a5a2bd4aecd3ba045
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001140361-23-010700.hdr.sgml**: 20230308

**ACCESSION NUMBER**: 0001140361-23-010700

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230308

**DATE AS OF CHANGE**: 20230308

**EFFECTIVENESS DATE**: 20230308

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Interactive Brokers Group, Inc.
- **CENTRAL INDEX KEY:** 0001381197
- **STANDARD INDUSTRIAL CLASSIFICATION:** SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211]
- **IRS NUMBER:** 300390693
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-33440
- **FILM NUMBER:** 23716671

**BUSINESS ADDRESS:**
- **STREET 1:** ONE PICKWICK PLAZA
- **CITY:** GREENWICH
- **STATE:** CT
- **ZIP:** 06830
- **BUSINESS PHONE:** 203-618-5800

**MAIL ADDRESS:**
- **STREET 1:** ONE PICKWICK PLAZA
- **CITY:** GREENWICH
- **STATE:** CT
- **ZIP:** 06830

### Attached PDF Documents

**Attachment 1:** `ny20005483x4_ars.pdf`

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![img-1.jpeg](img-1.jpeg)

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InteractiveBrokers

# Annual Report 2022

![img-4.jpeg](img-4.jpeg)

![img-5.jpeg](img-5.jpeg)

# Leading Growth as Interactive Brokers Connects Investors Around the World

Interactive Brokers expanded its business footprint around the world with its global product and service offerings.

## Profitability and Financial Strength

|  | 2017 | 2022 |
| --- | --- | --- |
| Company Net Revenues | $1.7 billion | $3.1 billion |
| Company Pretax Margin | 62% | 65% |
| Company Pretax Profit | $1.0 billion | $2.0 billion |
| Equity Capital | $6.4 billion | $11.6 billion |
| Total Assets | $61.2 billion | $115.1 billion |

Five years of growth

## Five-Year Compound Annual Growth Rate

### Client Accounts

(Thousands)

**34%**

GROWTH

![img-6.jpeg](img-6.jpeg)

### Client Equity

(Billions)

**20%**

GROWTH

![img-7.jpeg](img-7.jpeg)

### Total Client DARTs

(Thousands)

**25%**

GROWTH

![img-8.jpeg](img-8.jpeg)

MARGIN LOAN RATES

# Lowest Margin Loan Rates and Efficient Execution Prices Minimize Your Overall Trading Costs$^{1,2}$

## US Margin Loan Rates Comparison for IBKR Pro$^{3}$

|  | $25K | $300K | $1.5M | $3.5M |
| --- | --- | --- | --- | --- |
| Interactive Brokers 4 | 6.08% | 5.75% | 5.53% | 5.42% |
| E-Trade | 12.95% | 11.45% | N/A | N/A |
| Fidelity Investments | 12.33% | 11.08% | 8.50% | 8.50% |
| Charles Schwab | 12.33% | 11.08% | N/A | N/A |
| TD Ameritrade | 13.50% | 12.00% | N/A | N/A |

Margin borrowing is only for sophisticated investors with high risk tolerance. You may lose more than your initial investment. For additional information regarding margin loan rates, see ibkr.com/marginrates.

Each firm's information reflects the standard online margin loan rates obtained from their respective websites. Competitor rates and offers subject to change without notice. Services vary by firm.

1. According to StockBrokers.com Online Broker Survey 2023: Online Broker Reviews, February 6, 2023. 'Professionals can take advantage of industry-leading commissions, including the lowest margin rates across all balance tiers'.

2. Lower investment costs will increase your overall return on investment, but lower costs do not guarantee that your investment will be profitable.

3. Annual Percentage Rate (APR) on USD margin loan balances for **IBKR Pro** as of 02/07/2023. Interactive Brokers calculates the interest charged on margin loans using the applicable rates for each interest rate tier listed on its website. For additional information on margin loan rates, see ibkr.com/marginrates.

4. IBKR calculates the interest charged on margin loans using the applicable rates for each interest rate tier listed on its website. For additional information, see ibkr.com/interestrates.

![img-9.jpeg](img-9.jpeg)

#### CUSTOMER CASH INTEREST

# IBKR Clients **Earn up to 4.08%** on Their USD Uninvested Cash Balance$^{1}$

Clients receive interest at market-related rates on eligible cash balances in their securities accounts. These rates change on an equal basis with the federal funds rate.$^{2}$

1. Credit interest rate for IBKR Pro accounts as of 02/07/2023

2. Restrictions apply. For additional information on interest rates, see ibkr.com/interestrates.

SMART ROUTING

# Trading Costs are More Than Just Commissions

IBKR Pro offers IB SmartRouting,SM our tool that searches for the best price available at the time an order is entered, and seeks to immediately execute the order electronically.

For IBKR Pro clients, Interactive Brokers does not sell its customer order flow to high frequency traders. Orders go directly to an execution venue, including multiple exchanges, dark pools, and IBKR's own automated trading system (ATS).

To capture best price, all IBKR marketable options orders go through our unique auction process, which happens in less than one second.

- First, an order is auctioned off among over 20 top market makers.
- Next, the winning market maker chooses the exchange it wants to use to trade the order.
- Finally, Interactive Brokers posts the order at that exchange for a second auction: if there is a better price, the order receives the better price; if not, the original winner of the auction trades the order at that price.
- Similar auction procedures to those developed by Interactive Brokers have been listed in recent regulatory proposals.

Interactive Brokers has developed order types that allow any of its customers to participate in the auction process like a market maker.

![img-10.jpeg](img-10.jpeg)

![img-11.jpeg](img-11.jpeg)

IBKR GLOBALTRADER

# Simple. Worldwide. Trading.

IBKR GlobalTrader is a simple mobile trading app to trade stocks and options around the world. Simply deposit in your local currency and trade global stocks and options across 90+ stock exchanges in the US, Canada, Europe and Asia.$^{1}$

## Highlights

### **Deposit Locally. Trade Globally.**

Deposit in any of 26 different currencies and convert to the currency needed where you want to invest.

### **Options Wizard**

Utilize our tool to learn more about options and how to trade them.

### **Worldwide Options Trading**

Trade options on 30+ market centers using tools like the Options Wizard, which helps educate investors about options and how to trade them.

### **Unhappy with an Investment? Swap it.**

Exchange any stock owned for the equivalent amount of another with a single tap.

1 See globaltrader.ibkr.com for further details.

PRODUCTS & SERVICES

# New Products and Services
## Add Capabilities Designed to Maximize Client Portfolio Performance

![img-12.jpeg](img-12.jpeg)

### Fractional Shares Trading added for European stocks and ETFs

Clients now have the opportunity to invest across markets in a more affordable way. Pick any eligible US or European stock (or ETF, where available) and decide how much you want to invest. No stock is too expensive.

![img-13.jpeg](img-13.jpeg)

### Overnight Trading Hours

Our clients can trade select US ETFs around the clock, enabling them to react immediately to market moving news, and offering clients in Asia access to US equity markets during their trading day.

![img-14.jpeg](img-14.jpeg)

### Event Contracts

IBKR EventTrader is our web-based application for trading event contracts on select CME futures markets. Event contracts let investors trade their view on whether the price of key futures markets will move up or down by the end of each day's trading session. Because event contracts are connected to real-world events, they give clients a new way of gaining exposure to equity index, energy, metals and foreign currency futures markets, without having to be invested directly in them.

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com

![img-15.jpeg](img-15.jpeg)

![img-16.jpeg](img-16.jpeg)

### Podcasts

IBKR Podcasts is a new series that features interviews with executives, thought leaders, researchers and market experts from across the financial services industry. Episodes include discussions on topical themes regarding asset classes, global markets and trading.

![img-17.jpeg](img-17.jpeg)

### Recurring Investments

Set up and execute a predetermined investment strategy by automatically investing funds on a recurring schedule. Select from almost any US and European shares, select how often you want to invest, and on the start date you choose, your trade will execute and then repeat according to your schedule. And with fractional share trading, even small balances can be put to work.

![img-18.jpeg](img-18.jpeg)

### More from IBKR Campus

IBKR Economic Landscape was introduced as part of the Traders’ Insight series on IBKR Campus. Hear insights from IBKR’s Senior Economist on the state of the economy as well as on economic topics like inflation, key economic data, and FOMC meetings.

OPTIONS & FUTURES TRADING

# Powerful Tools for Options and Futures1

## Options

IBKR has the tools you need, from the Basics to Advanced Options Trading Worldwide1

### Low Options Commissions

Options commissions range from **USD 0.15** to **USD 0.65** per US options contract

**Trade options globally on 30+ market centers.**

### Professional Trading Platforms

Powerful, award-winning trading platforms2 and tools available on desktop, mobile, and web. View market data, positions and trade multiple asset classes and products side-by-side on a single screen.

### IBKR Campus

Learn about trading, financial markets and IBKR's trading tools. Improve your understanding of markets and keep on top of current events.

### Advanced Options Trading Tools

- OptionTrader
- Options Analytics
- Options Portfolio
- Options Strategy Builder
- Options Strategy Lab
- Probability Lab
- Volatility Lab
- Write Options Tool
- Rollover Options Tool

Options involve risk and are not suitable for all investors.

For information on the uses and risks of options, you can obtain a copy of the Options Clearing Corporation risk disclosure document titled Characteristics and Risks of Standardized Options by visiting ibkr.com/occ.

1. See ibkr.com/options
2. See ibkr.com/awards

![img-19.jpeg](img-19.jpeg)

## Gain Exposure or Hedge Risk

### Low Futures Commissions

Interactive Brokers' futures commissions range from **USD 0.25 to USD 0.85** per contract$^{1}$

### Multiple Futures Asset Classes

Gain exposure to a wide variety of commodities.

- ▪ Agriculture
- ▪ Cryptocurrency
- ▪ Currencies
- ▪ Energy
- ▪ Equity Indices
- ▪ Event Contracts
- ▪ Fixed Income
- ▪ Metals
- ▪ Softs
- ▪ Volatility Indices

### Professional Trading Platforms

Powerful, award-winning trading platforms$^{2}$ and tools available on desktop, mobile, and web, with over 100 order types - from limit orders to complex algorithmic trading - to help you execute any trading strategy.

### Advanced Futures Trading Tools

- ▪ ComboTrader
- ▪ SpreadTrader
- ▪ Index Arbitrage Meter

![img-0.jpeg](img-0.jpeg)

1. Plus exchange, regulatory and carrying fees  
2. See ibkr.com/awards

OUR COMMITMENT TO ESG

# Sustainability at Interactive Brokers

We recognize the importance of ESG in supporting our sustainability vision. Among other actions, we have created a dedicated ESG department to oversee our growing sustainability programs and ESG initiatives.

- We continue to **strengthen our corporate governance** and risk management processes, through the expansion of personnel, systems and technology.
- We have strengthened our procurement processes by the addition of a dedicated procurement department to ensure **responsible sourcing** and supply chain activity.
- We have taken steps to **reduce our global carbon footprint** and implement sustainable practices for our offices and data centers.
- We have significantly expanded our suite of **award-winning ESG investing and trading products over the last two years, including the IMPACT App,1 Impact Dashboard and ESG Scores** to give our clients additional tools for making investment decisions.

## IMPACT App

The IMPACT App is a simplified trading platform that allows users to seamlessly align their investments with their values.

Investors can select personally relevant investment criteria from 13 impact values, flag any investments based on company business practices, and score a portfolio based on how it aligns with their personal value preferences.

Donations to nonprofits, position swaps in the same dollar amount from one investment to another, and purchasing carbon offsets can all be done directly from the IMPACT app.

![img-1.jpeg](img-1.jpeg)

1. See impact.ibkr.com

# Consistent Recognition as an Industry Leader

BROKERCHOOSER

2023 BrokerChooser

Best Online Brokers

Best Online Broker

Best Stock Broker

Best Broker for Day Trading

Best Broker for Investing

#1 for Best Online Broker in Singapore

#1 for Online Brokers & Trading Platforms

in the United Kingdom

#1 for Best Online Brokers in India

#1 for Best Brokers for ESG Investing

StockBrokers.com

2022 StockBrokers.com Awards

#1 for Professional Tools

#1 for Futures Trading

#1 for Offering of Investments

#1 International Trading

5 out of 5 stars Offering of Investments

5 out of 5 stars Research

BARRON'S

2022 Barron's Awards1

Rated #1 - Best Online Broker (5/5 stars)

Rated #1 for Active Traders

Rated #1 for Information

Investopedia

2022 Investopedia Awards

4.6/5 stars Overall

Best Broker for International Trading

Best Online Broker for Advanced Traders

ForexBrokers.com

2023 ForexBrokers.com Awards

#1 Offering of Investments

#1 Professional Trading

#1 Institutional Clients

#1 ESG Offerings

5 out of 5 stars Overall

5 out of 5 stars Commissions & Fees

5 out of 5 stars Offering of Investments

5 out of 5 stars Platforms and Tools

5 out of 5 stars Research

@preqin

2022 Preqin Awards

Top Prime Broker

Top Hedge Fund Custodian

1. Barron's is a registered trademark of Dow Jones & Co. Inc. See ibkr.com/awards

February 24, 2023

![img-2.jpeg](img-2.jpeg)

Dear Shareholders:

In 2022 we continued on our winning ways, setting new highs for all of our metrics for profitability and financial strength.

Given rising interest rates and our cautious policy of not investing cash in distant maturities, we are able to offer over 4% interest on uninvested cash in our customers' brokerage accounts.

Since other banks and brokers are offering only a fraction of one percent, this should hopefully bring us many new customers.

Rereading my letters to you for the past two years, it gives me no joy to tell you that I was right about inflation, and my concerns about the mounting deficit fill me with dread as I look to the future.

Our only hope to avoid eventual collapse is to have an economy that grows faster than our spending.

But what can we reasonably expect? Given the mounting cost of debt service, and our stagnating economy, we'll surely add over 5% to our growing deficit this year.

Well, let's just kick the can down the road a bit further, maybe next year or the year after, AI and hydrogen energy will save us. I would not be so sure.

In all this economic uncertainty it would help a great deal to be able to set some realistic expectations that could help us prepare for what is to come.

Markets to the rescue!

Expect Interactive Brokers to reveal some new tools this year, to help you with your economic planning and hedge against the unexpected.

Sincerely,

A handwritten signature in black ink, appearing to read 'Thomas Peterffy'.

Thomas Peterffy
Chairman

# Interactive Brokers Group, Inc.  
2022 Financial Information  
Form 10-K

# **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**

**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 | Trading Symbol | Name of the exchange on which registered |
| --- | --- | --- |
| Common Stock, par value $.01 per share | IBKR | The 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 ☑

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the act. Yes ☐

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 ☑

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☑

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

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐

The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant was approximately $5,264,574,692 computed by reference to the $55.01 closing sale price of the common stock on the Nasdaq Global Select Market, on June 30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter.

As of February 21, 2023, there were 102,996,853 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 2023 annual meeting of shareholders are incorporated by reference in Part III of this Form 10-K.

# **ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2022**

# **Table of Contents**

| Cautionary Note Regarding Forward Looking Statements | 1 |
| --- | --- |
| PART I |  |
| ITEM 1 Business | 2 |
| ITEM 1A Risk Factors | 21 |
| ITEM 1B Unresolved Staff Comments | 32 |
| ITEM 2 Properties | 33 |
| ITEM 3 Legal Proceedings and Regulatory Matters | 33 |
| ITEM 4 Mine Safety Disclosures | 34 |
| PART II |  |
| ITEM 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 35 |
| ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations | 37 |
| ITEM 7A Quantitative and Qualitative Disclosures about Market Risk | 58 |
| ITEM 8 Financial Statements and Supplementary Data | 63 |
| ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 105 |
| ITEM 9A Controls and Procedures | 105 |
| ITEM 9B Other Information | 107 |
| PART III |  |
| ITEM 10 Directors, Executive Officers and Corporate Governance | 107 |
| ITEM 11 Executive Compensation | 107 |
| ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 107 |
| ITEM 13 Transactions with Related Persons, Promoters and Certain Control Persons | 107 |
| ITEM 14 Principal Accountant Fees and Services | 107 |
| PART IV |  |
| ITEM 15 Exhibits and Financial Statement Schedules | 108 |
| ITEMS 15 (a)(1) and 15 (a)(2) Index to Financial Statements and Financial Statement Schedule | 110 |
| ITEM 16 10-K Summary | 110 |
| SIGNATURES |  |

i

# 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 and Regulatory Matters” 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, included 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:

- • general economic conditions in the markets where we operate;
- • increased industry competition and downward pressures on electronic brokerage commissions and on bid/offer spreads in the remaining market making business we operate;
- • risks inherent to the electronic brokerage and market making businesses;
- • implied versus actual price volatility levels of the products in which we continue to make markets;
- • the general level of interest rates;
- • failure to protect or enforce our intellectual property rights in our proprietary technology;
- • our ability to keep up with rapid technological change;
- • system failures, cyber security threats and other disruptions;
- • non-performance of third-party vendors;
- • conflicts of interest and other risks due to our ownership and holding company structure;
- • the loss of key executives and failure to recruit and retain qualified personnel;
- • the risks associated with the expansion of our business;
- • our possible inability to integrate any businesses we acquire;
- • the impact of accounting standards issued but not yet adopted;
- • compliance with laws and regulations, including those relating to the securities industry;
- • the impact of the Coronavirus Disease 2019 (“COVID-19”) pandemic or another public health emergency; and
- • other factors discussed under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K or elsewhere in this Annual Report on Form 10-K.

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.

1

# PART I

## ITEM 1. BUSINESS

### Overview

Interactive Brokers Group, Inc. (“IBG, Inc.” or the “Company”) is an automated global electronic broker. We custody and service accounts for hedge and mutual funds, exchange-traded funds (“ETFs”), registered investment advisors, proprietary trading groups, introducing brokers and individual investors. We specialize in routing orders and executing and processing trades in stocks, options, futures, foreign exchange instruments (“forex”), bonds, mutual funds, ETFs and precious metals on more than 150 electronic exchanges and market centers in 33 countries and 26 currencies seamlessly around the world. In addition, our customers can use our trading platform to trade certain cryptocurrencies through a third-party cryptocurrency service provider that executes, clears and custodies the cryptocurrencies. In the United States of America (“U.S.”), we conduct our business primarily from our headquarters in Greenwich, Connecticut and from Chicago, Illinois. Abroad, we conduct our business through offices located in Canada, the United Kingdom, Ireland, Switzerland, Hungary, India, China (Hong Kong and Shanghai), Japan, Singapore and Australia. As of December 31, 2022, we had 2,820 employees worldwide.

IBG, Inc. is a holding company whose primary asset is the ownership of approximately 24.5% of the membership interests of IBG LLC, the current holding company for our businesses. IBG, Inc. is the sole managing member of IBG LLC.

When we use the terms “we,” “us,” “our,” and “IBKR,” we mean IBG, Inc. and its subsidiaries (including IBG LLC). Unless otherwise indicated, the terms “common stock” and “IBKR shares” refer to the Class A common stock of IBG, Inc.

We trace our roots to the market making business founded by our Chairman, Mr. 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. 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 proliferation of electronic exchanges and market centers since the early 1990s has allowed us to integrate our software with an increasing number of trading venues, creating automatically functioning, computerized platforms that require minimal human intervention. Over four decades of developing our automated trading platforms and automating many middle- and back-office functions have allowed us to become one of the lowest cost providers of broker-dealer services and to significantly increase the volume of trades we handle.

Our internet address is www.interactivebrokers.com and the investor relations section of our website is located at www.interactivebrokers.com/ir. We make available free of charge, on or through the investor relations section of our website, this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, 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, registration statements, prospectus supplements and Section 16 filings for our directors and officers, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”). The SEC maintains an internet site, www.sec.gov, that contains annual, quarterly and current reports, proxy and information statements and other information that issuers file electronically with the SEC. Our electronic SEC filings are made available to the public on the SEC’s internet site. In addition, posted on our website 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 LLC’s Global Select Market (“Nasdaq”), we will post on our website 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 website 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, if any, (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.

2

Our Investor Relations Department can be contacted at Interactive Brokers Group, Inc., Two Pickwick Plaza, Greenwich, Connecticut 06830, Attn: Investor Relations, e-mail: investor-relations@interactivebrokers.com.

### 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.

![img-0.jpeg](img-0.jpeg)

Our primary assets are our ownership of approximately 24.5% 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 75.5% of IBG LLC membership interests are held by IBG Holdings LLC (“Holdings”), a holding company that is owned directly and indirectly by our founder and Chairman, Mr. 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 table below presents the amount of IBG LLC membership interests held by IBG, Inc. and Holdings as of December 31, 2022.

|  | IBG, Inc. | Holdings | Total |
| --- | --- | --- | --- |
| Ownership % | 24.5% | 75.5% | 100.0% |
| Membership interests | 102,927,703 | 316,609,102 | 419,536,805 |

3

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 or directly to Holdings in exchange for the interests in IBG LLC being sold by Holdings. The common stock received from the Company is either distributed by Holdings to certain members in redemption of their Holdings interests or sold on behalf of such members in open market transactions, with the proceeds of such sales distributed by Holdings to certain members in redemption of their Holdings interests. From 2011 through 2022, the Company issued 37,478,697 shares of common stock (with a fair value of $1.7 billion) to Holdings in exchange for an equivalent number of shares of member interests in IBG LLC.

## Nature of Operations

As an electronic broker, we execute, clear and settle trades globally for both institutional and individual customers. Capitalizing on our proprietary technology, our systems provide our customers with the capability to monitor multiple markets around the world simultaneously and to execute trades electronically in these markets at a low cost in multiple products and currencies from a single unified platform. We offer our customers access to all tradable classes of primarily exchange-listed products, including stocks, options, futures, forex, bonds, mutual funds, ETFs, precious metals and cryptocurrencies traded on more than 150 electronic exchanges and market centers in 33 countries and in 26 currencies seamlessly around the world. The ever-growing complexity of multiple market centers has provided us with opportunities to build and continuously adapt our order routing software to secure excellent execution prices.

Since the launching of our electronic brokerage business in 1993, we have grown to approximately 2.1 million 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.

We are able to provide our customers with high-speed trade execution at low commission rates, in large part because of our proprietary technology. As a result of our advanced electronic brokerage platform, we are especially attractive to sophisticated and active investors.

Our customers can access IBKR’s premier technology through the following trading platforms:

- *Trader Workstation*$^{SM}$(TWS) - The TWS is our flagship desktop trading platform, designed for active traders and investors who trade multiple products and require power and flexibility. The TWS Mosaic interface provides intuitive out-of-the-box usability with quick and easy access to comprehensive trading, order management, chart, watchlist and portfolio tools all in a single, customizable workspace.
- *IBKR Mobile* - The IBKR Mobile app provides powerful trading tools and the same market-moving information as our desktop TWS trading platform. Our mobile app provides the functionality needed to trade and manage accounts from anywhere.
- *Client Portal* - Client Portal is a streamlined web-based platform. It gives the customer access to every resource they need to trade, monitor and manage their account.
- *IBKR GlobalTrader* - IBKR GlobalTrader is a simple mobile trading app to trade stocks and options worldwide. Customers can deposit in their local currency and trade stocks at 90+ exchanges and options at 30+ market centers around the world. Customers can also trade select U.S. ETFs around the clock, plus cryptocurrencies like Bitcoin, Bitcoin Cash, Ethereum and Litecoin - all from their mobile device.
- *IBKR APIs* - For our more sophisticated customers, IBKR APIs allows them to build custom trading applications and automate any part of the trading process to their specifications. We offer APIs for every experience level from our easy-to-use Excel API to our institutional grade FIX API.

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Our key product offerings include:

- *IBKR Pro$^{SM}$* is the core IBKR service designed for sophisticated investors. IBKR Pro$^{SM}$ offers the lowest cost access to stocks, options, futures, forex, bonds, mutual funds, ETFs, precious metals and cryptocurrencies from a single unified platform with no added spreads, ticket charges, account minimums or platform fees.
- *IBKR Lite$^{SM}$* provides unlimited commission-free trades on U.S. exchange-listed stocks and ETFs and low-cost access to global markets without required account minimums or platform fees to participating U.S. customers. IBKR Lite$^{SM}$ was designed to meet the needs of investors who are seeking a simple, commission-free way to trade U.S. exchange-listed stocks and ETFs and do not wish to consider our efforts to obtain greater price improvement through our IB SmartRouting$^{SM}$ system.
- *IBKR Universal account$^{SM}$* - From a single point of entry in their IBKR Universal$^{1}$ account$^{SM}$, our customers are able to transact in 26 currencies, across multiple classes of tradable, primarily exchange-listed products traded on more than 150 electronic exchanges and market centers in 33 countries around the world seamlessly. Our offering features a suite of cash management services, including:
  - *Interactive Brokers Debit Mastercard$^{®}$ and Interactive Brokers Canada Prepaid Mastercard$^{®}$ Card* - Interactive Brokers Debit Mastercard$^{®}$ and Interactive Brokers Canada Prepaid Mastercard$^{®}$ Card allow customers to spend and borrow directly against their account at lower interest rates than credit cards, personal loans and home equity lines of credit, with no monthly minimum payments and no late fees. Customers can use their card to make purchases and ATM withdrawals anywhere Debit Mastercard$^{®2}$ or Prepaid Mastercard$^{®2}$ are accepted around the world.
  - *Bill Pay* - Our Bill Pay program allows customers to make electronic or check payments to almost any company or individual in the U.S. The service can be configured for one-time or recurring payments and permits customers to schedule future payments.
  - *Direct Deposit and Mobile Check Deposit* - Our Direct Deposit program allows customers to automatically deposit paychecks, pension distributions and other recurring payments to their (non-retirement) brokerage account with us. In addition, U.S. customers can use our Mobile Check Deposit to directly deposit checks drawn on a U.S. bank.
  - *Request for Payment Service* - Through this new banking service, U.S. customers can make instant deposits, 24 hours a day, from their mobile banking app or other bank portal to fund their brokerage account with us. Funds deposited via Request for Payment are immediately available for trading. The service is available to customers with an account at J.P. Morgan Chase and, over time, other banks will be added.
- *Insured Bank Deposit Sweep Program* - Our Insured Bank Deposit Sweep Program provides eligible customers with up to $2,500,000 of Federal Deposit Insurance Corporation (“FDIC”) insurance on their eligible cash balances in addition to the existing $250,000 Securities Investor Protection Corporation (“SIPC”) coverage for total coverage of $2,750,000. Customers continue earning the same competitive interest rates currently applied to cash held in their brokerage accounts with us. We sweep each participating customer’s eligible cash balances daily to one or more banks, up to $246,500 per bank, allowing for the accrual of interest and keeping within the FDIC protected threshold. Cash balances above $2,750,000 remain subject to safeguarding under the SEC’s Customer Protection Rule 15c3-3.
- *Investors’ Marketplace$^{SM}$* - The Investors’ Marketplace$^{SM}$ is an expansion of our Money Manager Marketplace and our Hedge Fund Capital Introduction program. This program is the first electronic meeting place that brings together individual investors, financial advisors, money managers, fund managers, research analysts, technology providers, business developers and administrators, allowing them to interact to form connections and conduct business.

$^{1}$ U.S. regulations require securities and commodities activities to be conducted in separate accounts. Universal account refers to the consolidation of these accounts for display purposes only, enabling clients the ability to use a single platform to conduct trading activity and view consolidated activity and position information for all products and services offered.

$^{2}$ Debit Mastercard$^{®}$ and Prepaid Mastercard$^{®}$ are trademarks registered to Mastercard International Incorporated Corporation, Delaware, 2000 Purchase Street, Purchase, New York 10577-2405.

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- Mutual Fund Marketplace - The Mutual Fund Marketplace offers our customers access to more than 45,000 mutual funds worldwide, including more than 18,000 no-transaction-fee funds from more than 540 fund families.
- Bond Marketplace - The Bond Marketplace allows customers to search for the best yields from a vast universe of bonds from issuers in the Americas, Europe and Asia. We provide direct market access at a low cost to a wide array of corporate, government and municipal securities. Our customers obtain competitive bids and offers with low, transparent commissions and no hidden mark-ups.
- Cryptocurrency - Customers, including both individuals and advisors, can trade Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and Bitcoin Cash (BCH) through Paxos Trust Company, which executes, clears and custodies the cryptocurrencies, alongside other asset classes on a single unified platform.
- Fractional Trading - Fractional Trading allows customers to buy and sell any eligible U.S. or European stock (or ETF, where available), using either a specified cash amount or fractional shares, which are stock units that amount to less than one full share. With fractional shares, there is no minimum for European shares and customers can invest in U.S. shares with as little as $1.00. This functionality allows customers to experiment with trading and investing without committing substantial sums of money and learn about building and rebalancing diversified portfolios.
- U.S. Spot Gold - Customers can trade U.S. Spot Gold alongside other asset classes from a single unified platform. In addition, our customers have access to efficient pricing in quantities as small as one ounce and can request physical delivery of their U.S. Spot Gold position.
- No Transaction Fee Program for Exchange-Traded Funds - We offer a no transaction fee program for ETFs that reimburses IBKR ProSM customers and eligible non-U.S. customers for commissions paid on ETF shares held for at least 30 days.
- Event Contracts - IBKR EventTraderSM is our web-based platform for trading event contracts on select CME futures markets. IBKR EventTraderSM allows customers to trade their opinion about a specific question with a “yes” or “no” outcome.
- Overnight Trading Hours - Customers can trade select U.S. ETFs 231⁄2 hours a day, five days a week, enabling them to react immediately to market-moving news and conveniently trade at almost any time. It also provides customers in Asia with access to the U.S. Equity markets during their trading day.

For all customers, our platform offers:

- Low Costs - We provide our customers with among the industry’s lowest overall transaction costs in two ways. First, we offer among the lowest execution, commission and financing costs in the industry. Second, our IBKR ProSM customers benefit from our advanced routing of orders designed to achieve the best available trade price. In addition, customers earn interest on their uninvested cash balances above $10,000 (or the equivalent in foreign currency).
- IB SmartRoutingSM - IB SmartRoutingSM retains control of the customer’s order, continuously searches for the best available price and, unlike most other routers, dynamically routes and re-routes all or parts of a customer’s order to achieve optimal execution and among the lowest execution and commission costs in the industry. We offer Transaction Cost Analysis reporting to allow customers to track execution performance using multiple criteria. Our IBKR ProSM customers benefit from our advanced order routing technology for all trades, while our IBKR LiteSM customers benefit from this technology for their trades in products not eligible for IBKR LiteSM.
- Automated Risk Controls - Throughout the trading day, we calculate margin requirements for each of our customers on a real-time basis across all product classes and across all currencies. Our customers are alerted to approaching margin violations and if a customer’s equity falls below what is required to support that customer’s margin, we attempt to automatically liquidate positions to bring the customer’s account into margin compliance. This is done to protect us, as well as the customer, from excessive losses.

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- *Flexible and Customizable System* - Our platform is designed to provide an efficient customer experience, beginning with a highly automated account opening process and ending with fast trade execution and reporting. Our sophisticated interface provides interactive real-time views of account balances, positions, profits or losses, buying power and “what-if” scenarios to enable our customers to more easily make informed investment decisions and trade effectively. Our system is configured to remember the user’s preferences and is specifically designed for multi-screen systems. When away from their main workstations, customers can conveniently access their accounts through our IBKR Mobile platforms.
- *Securities Financing Services* - We offer a suite of automated Stock Borrow and Lending tools, including our depth of availability, transparent rates, global reach and dedicated service representatives. In addition, our Stock Yield Enhancement Program allows our customers to lend their fully-paid stock shares to us in exchange for cash or U.S. Treasury securities collateral. In turn, we lend these stocks in exchange for collateral and earn stock lending fees. We pay our customers interest on the collateral value generally equal to 50% of the income we earn from lending the shares. This allows customers holding fully-paid long stock positions to enhance their returns.
- *Block Trade Desk* - We offer broker-assisted trading through our *Corporate Bond* and *Stock and Option* block order desks. The desks help traders execute large or complex orders and monitor trades when customers are unable to do so. The desks source liquidity, bring SPX color from the pit, offer price discovery services, and help customers calibrate and execute complex algo trading strategies.
- *IBKR Campus* - IBKR Campus helps customers learn about the markets, products, and tools available through our platforms. IBKR Campus offers self-directed courses at the Traders’ Academy; live and recorded webinars; our Traders’ Insight market commentary blog; IBKR Podcasts, a new podcast series that interviews thought leaders from across the financial industry; the IBKR Quant Blog; and our Student Trading Lab, in which educators bring real-world trading experiences to their classroom. In addition, we provide content to Coursera, an online provider of learning content, for a certificate program called *Practical Guide to Trading*.

Promotional offerings include:

- *IBKR Refer a Friend Program* - Under the Refer a Friend program, we encourage existing customers to refer friends and family to IBKR. The referring customer can earn a flat fee payment of $200 while the new customer can receive up to $1,000 in IBKR stock. The specific program details and eligibility requirements are described on our website.

Analytical offerings on our platform include:

- *IBKR GlobalAnalyst$^{SM}$* - Our IBKR GlobalAnalyst$^{SM}$ tool, designed for investors who are interested in international portfolio diversification, helps find new opportunities to diversify an investor’s portfolio and discover undervalued companies that may have greater growth potential. The relative value of global stocks by region, country, industry or individually can be compared, and metrics displayed in one of 26 currencies. IBKR GlobalAnalyst$^{SM}$ can search across business sectors and allows for filtering by region, country and market capitalization.
- *PortfolioAnalyst$^{®}$* - Our PortfolioAnalyst$^{®}$ reporting tool is designed to allow customers to evaluate the performance of their complete financial portfolio. The tool consolidates data from a customer’s investment, checking, savings, annuity, incentive plans and credit card accounts, calculates GIPS$^{®}$ verified time-weighted and money-weighted returns, and offers robust reporting and benchmarking capabilities.
- *IB Risk Navigator$^{SM}$* - We offer to all customers our real-time market risk management platform that unifies exposure across multiple asset classes around the globe. The system is capable of identifying overexposure to risk by starting at the portfolio level and drilling down into successively greater detail within multiple report views. Report data is updated every ten seconds or upon changes to portfolio composition. Predefined reports allow the summarization of a portfolio from different risk perspectives, providing views of Exposure, Value at Risk (“VaR”), Delta, Gamma, Vega and Theta, profit and loss, and position quantity measures. The system also offers customers the ability to modify positions through “what-if” scenarios that show hypothetical changes to the risk profile.

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- • *Mutual Fund/ETF Parser* - The Parser categorizes the individual component stocks within mutual funds and ETFs, giving an accurate, granular picture of the overall exposure to asset classes, industry sectors and companies.
- • *Portfolio Builder* - Portfolio Builder supports our customers in setting up an investment strategy based on research and rankings from top buy-side providers and fundamental data; use filters to define the universe of equities that will comprise their strategy and back-test their strategy using up to three years of historical performance; work in hypothetical mode to adjust the strategy until the historical performance meets their standards; and with the click of a button let the system create the orders to invest in a strategy and track its performance in their portfolio.
- • *Environmental, Social and Governance (“ESG”) Tools*
  - • *IMPACT by Interactive Brokers$^{SM}$* - IMPACT by Interactive Brokers$^{SM}$(“IMPACT App”) is a unique, simple and intuitive mobile app that helps customers easily align their portfolio with their values, with a goal to help shape the future they wish to see. The IMPACT App allows customers to select their personal investment criteria from thirteen impact values and principles: Clean Air, Pure Water, Ocean Life, Land Health, Consumer Safety, Ethical Leadership, Gender Equality, Racial Equality, LGBTQ Inclusion, Company Transparency, Sustainable Product Lifecycle, Mindful Business Models and Fair Labor & Thriving Communities. Customers can also exclude investments based on business practices they would like to avoid. Based on these preferences, the IMPACT App will show customers how investment opportunities and their portfolio align with their beliefs.
  - • *Impact Dashboard* - The Impact Dashboard helps customers to evaluate and invest in companies that align with their values. Customers can select the values they care about from a list ranging from clean air to consumer safety and racial equality, and measure how both individual securities and their overall portfolio measure up against their criteria.
  - • *ESG Scores* - ESG Scores from Refinitiv give customers a new set of tools for making investment decisions based on more than just financial factors. Companies are scored along several dimensions, such as reducing emissions and supporting human rights, and customers can easily see how companies rank both overall and on each dimension.
  - • *Charitable Giving* - IBKR GIVE$^{SM}$ supports U.S. customers in making charitable donations directly from the IMPACT App. Using a comprehensive directory of U.S. charities and non-profit organizations from GuideStar$^{TM}$ by Candid, IBKR GIVE$^{SM}$ lets customers easily donate to a charity matching their values, or search for a non-profit of their choice.
  - • *Carbon Offsets* - Using the IMPACT App, U.S. customers can offset their carbon emissions by purchasing carbon offsets and can use the Carbon Offsets tool to select from either greenhouse-gas emitting activities related to household, transportation and food, or enter a specific amount of carbon to offset. We source and retire the carbon credits at the appropriate registries enabling customers to fully or partially offset their carbon footprints.
  - • *Socially Responsible Investing (SRI) Portfolios* - Interactive Advisors offers customers a selection of value portfolios grouped into Better Planet, Social Justice and Responsible Management categories. Customers can also customize any of their portfolios to exclude companies whose business practices concern them.
- • *Interactive Analytics$^{SM}$ and IB Option Analytics$^{SM}$* - We offer our customers state-of-the-art tools, which include a customizable trading platform, advanced analytic tools and over 100 sophisticated order types and algorithms. We also provide a real-time option analytics window that displays values reflecting the rate of change of an option’s price with respect to a unit change in each of several risk dimensions.

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- *Probability Lab® (Patent Pending)* - The Probability Lab® provides customers with an intuitive, visual method to analyze market participants’ future stock price forecasts based on current option prices. This tool compares a customer’s stock price forecast versus that of the market and scans the entire option universe for the highest Sharpe ratio multi-leg option strategies that take advantage of the customer’s forecast.
- *Goal Tracker* - Interactive Advisors’ Goal Tracker projects the hypothetical performance of a portfolio and monitors how likely it is the portfolio might achieve the goal. Customers can adjust inputs, such as monthly contribution amount, goal target date, or the cost or outflow associated with the goal, to estimate the likelihood of achieving a goal.

We cater to various customer groups with specific service needs.

For advisors, we offer:

- *Model Portfolios* - Model Portfolios offer advisors an efficient and time-saving approach to investing customer assets. They allow advisors to create groupings of financial instruments based on specific investment themes, and then invest customer funds into these models.
- *IBKR Allocation Order Tool* - The IBKR Allocation Order Tool streamlines the creation, execution, and allocation of group orders. The tool provides advisors with a single screen to enter trade allocations quickly across many customer accounts, advisors or strategies; allocate total quantity or cash quantity for user-specified values proportionally or equally; and modify orders or allocations on the fly. In addition, customers can use the Allocation Order Tool to project, preview and allocate trades to take advantage of potential capital losses for all or some of an advisor’s invested customers.
- *ESG Impact Profile* - The ESG Impact Profile helps advisors understand customer preferences for socially responsible and impact investing. Advisors’ customers can select personal investment criteria from thirteen impact values and principles and exclude investments based on ten categories.
- *IBKR Client Risk Profile* - IBKR Client Risk Profile is designed to help advisors determine the most suitable investments for their customers, based on each customer’s risk tolerance. This information is collected through a custom-designed questionnaire. Advisors can view the scores through the Advisor Portal and create custom pre-trade allocation groups and profiles in Trader WorkstationSM to place orders and allocate trades for customers with similar risk profiles.

For introducing brokers and advisors, we offer:

- *White Branding* - Our large financial advisor and broker-dealer customers may “white brand” our trading interface, account management and reports with their firm’s identity. Broker-dealer customers can also select from among our modular functionalities, such as order routing, trade reporting or clearing, on specific products or exchanges where they may not have up-to-date technology to offer to their customers a complete global range of services and products.

For customers looking for online advisory services, we offer:

- *Interactive Advisors* - Interactive Advisors recruits registered financial advisors, vets them, analyzes their investment track records, and groups them by their risk profile. Investors who are interested in having their individual accounts robo-traded are grouped by their risk and return preferences. Investors can assign their accounts to be traded by one or more advisors. Interactive Advisors also offers our customers Smart Beta Portfolios which combine the benefits of actively managed fund stock selection techniques with passive ETFs low-cost automation to provide broad market exposure and potentially higher returns, as well as Socially Responsible Investing.

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## Technology

Our proprietary technology is the key to our success. We believe that integrating our system with electronic exchanges and market centers worldwide results in transparency, liquidity and efficiencies of scale. Together with the IB SmartRouting$^{SM}$ system and our low execution costs, this approach reduces overall transaction costs to our IBKR Pro$^{SM}$ customers and, in turn, increases our transaction volume and profits (customers who elect to use our IBKR Lite$^{SM}$ offering do not take advantage of our IB SmartRouting$^{SM}$ technology). Over the past four decades, 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 marketplaces 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, pricing mechanisms or regulatory changes before our competitors.

Our proprietary technology infrastructure enables us to provide our customers with the ability to execute trades at among the lowest execution costs in the industry for comparable services. Customer trades are both automatically captured and reported in real time in our system. Our customers trade on more than 150 electronic exchanges and market centers in 33 countries around the world. These exchanges and market centers are all partially or fully electronic, meaning that customers can buy or sell a product traded on that exchange via an electronic link from their computer or mobile device 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 cross connects, dedicated point-to-point data lines, extranets, virtual private networks and the Internet.

Specifically, our customers receive worldwide electronic access through our Trader Workstation$^{SM}$(our real-time Java-based trading platform), our proprietary Application Programming Interface (“API”), our IBKR Mobile app, our customer-portal-based Quick Trade 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$^{SM}$, which can be accessed through a desktop or variety of mobile devices. Customers interested in developing programmatic trading utilize our API, which supports multiple programming languages. 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, we employ proprietary technology to automate, or otherwise facilitate, many of the following functions:

- account opening process;
- order routing and best execution;
- seamless trading across all types of securities, futures and currencies around the world from one account;
- order types and analytical tools offered to customers;
- securities lending and short stock availability;
- delivery of customer information, such as confirmations, customizable real-time account statements, audit trails and regulatory trade reporting;
- compliance;
- customer service; and
- risk management through automated real-time credit management of all new orders and margin monitoring.

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# 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 and in response to changing market conditions, we continuously rewrite and upgrade 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 relatively low because the employees who oversee the development of the software are often the same employees who design the application, evaluate its performance, and participate along with our quality assurance professionals in our robust quality assurance testing procedures. The involvement of our developers in each of these processes 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. 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 ensuring best executions for our customers. Our systems are designed to detect exchange malfunctions and quickly take corrective actions by re-routing pending orders when possible.

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

We achieve a rapid software development and deployment cycle by leveraging 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 our software has been developed and maintained with a unified purpose.

For over four decades, 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 and market centers around the world. Efficiency and speed in performing prescribed functions are always crucial requirements for our systems. As a result, our systems can assimilate market data, disseminate market prices to customers and update risk management information in real time, across tradable products in all available product classes and across multiple geographies.

# Risk Management Activities

Our risk management policies are developed and implemented by our Steering Committee, which is chaired by our Chief Executive Officer and comprised of senior executives of our various operating subsidiaries. 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. Our 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 calculate margin requirements for each of our customers on a real-time basis across all product classes (stocks, options, futures, forex, bonds, mutual funds, ETFs and other financial instruments) and across all currencies. Recognizing that our customers generally 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, we will automatically liquidate positions on a real-time basis to bring the customer's account into margin compliance. We do this to protect ourselves, as well as the customer, from excessive losses. These systems further contribute to our low-cost structure. The entire credit management process is automated.

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As a safeguard, all liquidations are displayed on custom built liquidation monitoring screens that are part of the toolset our risk management professionals use to minimize market exposure. In addition, our risk management staff uses these displays to monitor the performance of our risk systems at all times across all open markets around the world. Should our systems absorb erroneous market data from exchanges that prompt liquidations, our risk specialists have the capability to temporarily halt liquidations that meet specific criteria. The liquidation halt function is highly restricted.

Our customer interfaces include 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 their positions liquidated under our automated liquidation algorithm. These tools and real-time margining aid our customers in understanding their trading risk at any moment of the day and help us maintain low commissions.

We actively manage our global currency exposure on a continuous basis by maintaining our equity in a basket of currencies we call the GLOBAL. We define the GLOBAL as consisting of fractions of a U.S. dollar, Euro, Japanese yen, British pound, Swiss franc, Chinese renminbi, Indian rupee, Canadian dollar, Australian dollar and Hong Kong dollar. 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.

With respect to our remaining market making activities, we employ certain hedging and risk management techniques to protect us from a severe market dislocation. Our automated system evaluates and monitors the risks inherent in our portfolio, assimilates market data and reevaluates the outstanding quotes in our portfolio many times per second. Our model automatically rebalances our positions throughout each trading day to manage risk exposures. 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 real-time and periodical bases. Although our remaining market making activities are completely automated, the trading process and risk exposures are monitored by a team of individuals who, in real-time, observe various risk parameters of our consolidated positions.

### *Operational Risk and Controls*

We manage the operational risk inherent in our business and limit potential exposure to operational incidents by maintaining robust and comprehensive controls. Our control environment is designed to ensure that services and controls are resilient during periods of operational stress (e.g., extreme market volatility) and business disruptions. These controls are periodically assessed for both design appropriateness and operating effectiveness by our Enterprise Risk Management and Internal Audit functions. In addition, an Independent Service Auditor annually examines our brokerage operations system and the suitability of the design and operating effectiveness of the related controls (System and Organizational Controls 1 Report).

We have automated the full cycle of controls surrounding our businesses. Key automated controls include the following:

- Our technical operations team continuously monitors our network and the proper functioning of each of our nodes (exchanges and market centers, internet service providers (“ISPs”), leased customer lines and our own data centers) around the world.
- Our real-time credit manager software provides pre- and post-execution controls by:
  - testing every customer order to ensure that the customer’s account holds enough equity to support the execution of the order, rejecting the order if equity is insufficient or directing the order to an execution destination without delay if equity is sufficient; and
  - continuously updating a customer account’s equity and margin requirements and, if the account’s equity falls below its minimum margin requirements, automatically issuing liquidating orders in a smart sequence designed to minimize the impact on the account’s equity.
- Our clearing system captures trades in real-time and performs automated reconciliation of trades and positions, corporate action processing, customer account transfer, options exercise, securities lending and inventory management, allowing us to effectively manage operational risk.

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## ITEM 2. PROPERTIES

Our headquarters are located in Greenwich, Connecticut. We lease office and data center facilities in 27 cities throughout the world where we conduct our operations as set forth below. We believe our present facilities, together with our current options to extend lease terms, are adequate for our current needs.

The table below presents certain information with respect to our leased facilities as of December 31, 2022.

| Location | Space (sq. feet) | Principal Usage |
| --- | --- | --- |
| North America |  |  |
| Greenwich, CT | 163,510 | Headquarters |
| Chicago, IL | 100,871 | Office space and data center |
| New York, NY | 16,940 | Office space |
| Other (9 locations) | 39,262 | Office space and data center |
| Europe |  |  |
| Zug, Switzerland | 39,240 | Office space and data center |
| Budapest, Hungary | 36,202 | Office space |
| Dublin, Ireland | 17,982 | Office space |
| London, United Kingdom | 12,969 | Office space |
| Tallinn, Estonia | 12,731 | Office space |
| Other (2 locations) | 10,610 | Office space |
| Asia - Pacific |  |  |
| Mumbai, India | 81,553 | Office space |
| Hong Kong | 26,020 | Office space and data center |
| Other (6 locations) | 18,974 | 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 past 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. 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.

For more information regarding pending and threatened legal actions and proceedings see Note 14 - 'Commitments, Contingencies, and Guarantees' to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

### *Pending Regulatory Inquiries*

Our businesses are heavily regulated by state, federal and foreign regulatory agencies as well as numerous exchanges and self-regulatory organizations. Most of our companies are regulated under some or all of the following: state securities laws, U.S. and foreign securities, commodities and financial services laws and the rules of the more than 150 exchanges, market centers and self-regulatory organizations of which one or more of our companies may be members. In the current era of heightened regulatory scrutiny of financial institutions, we have incurred increased compliance costs, along with the industry as a whole. Increased regulation also creates increased barriers to entry. We have built and continue to build human and automated infrastructure in light of increasing regulatory scrutiny, which provides us with a possible advantage over potential newcomers to the business.

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We receive many 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 us. We are generally the subject of regulatory inquiries regarding subjects including, but not limited to: audit trail reporting, trade reporting, best execution and order execution procedures, display of market data, short sales, margin lending, exchange fees charged to customers, anti-money laundering or potentially manipulative trading by customers, procedures for accounts managed by independent financial advisors or referred by third parties, technology development practices, record-keeping, business continuity planning and other topics of recent regulatory interest. The Company has procedures for evaluating whether potential regulatory fines are probable, estimable and material and for updating its contingency reserves and disclosures accordingly. In the current climate, we expect to pay significant and increasing 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, typically 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

Interactive Brokers Group Inc.'s Class A common stock trades under the symbol "IBKR" on Nasdaq. As of February 16, 2023, there were 26 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

We currently intend to pay quarterly dividends of $0.10 per share to our common stockholders for the foreseeable future.

# Stockholder Return Performance Graph

The graph below compares cumulative total stockholder return on our common stock, the S&P 500 Index and the Nasdaq Financial-100 Index from December 31, 2017 to December 31, 2022. The comparison assumes $100 was invested on December 31, 2017 in our common stock and each of the foregoing indices and assumes reinvestment of dividends before consideration of income taxes.

![img-0.jpeg](img-0.jpeg)

- 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.
- The S&P 500 Index includes 500 large cap common stocks actively traded in the U.S. 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.

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## Use of Proceeds

On July 27, 2020, the Company filed a Prospectus Supplement on Form 424B (File Number 333-240121) with the SEC to re-register up to 990,000 shares of common stock, offering the opportunity for eligible persons to receive awards in the form of an offer to receive such shares by participating in one or more promotions that are designed to attract new customers to the Company’s brokerage platform, increase assets held with the Company’s brokerage business and enhance customer loyalty. From 2019 through 2022, the Company issued 320,000 shares to IBG LLC for distribution to eligible customers of certain of its subsidiaries.

On August 1, 2022, the Company filed a Prospectus Supplement on Form 424B5 (File Number 333-240121) with the SEC to issue 3,271,390 shares of common stock (with a fair value of $192 million) in exchange for an equivalent number of shares of member interests in IBG LLC.

As a consequence of these redemption transactions, and distribution of shares to employees, IBG, Inc.’s interest in IBG LLC has increased to approximately 24.5%, with Holdings owning the remaining 75.5% as of December 31, 2022. The redemptions also resulted in an increase in the Holdings interest held by Mr. Thomas Peterffy and his affiliates from approximately 84.6% at the IPO to approximately 90.5% as of December 31, 2022. See Note 4 - “Equity and Earnings per Share” and Note 10 - “Employee Incentive Plans” to the financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

## Securities Authorized for Issuance under Equity Compensation Plans

The table below presents information about shares of common stock available for future awards under all the Company’s equity compensation plans as of December 31, 2022. 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 awards under equity compensation plans (1) |
| --- | --- | --- | --- |
| Equity compensation plans approved by security holders . . . | N/A | N/A | 1,235,009 |
| Total . . . . . . . . . . . . . . . . . . . . . . . . | - | - | 1,235,009 |

(1) Amount represents restricted stock units available for future issuance of grants under the Company’s amended 2007 Stock Incentive Plan. The Company intends to submit for shareholder approval to authorize additional restricted stock units in the future as needed to maintain its equity compensation plans.

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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 Part II, Item 8, of this Annual Report on Form 10-K. 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 broker. We custody and service accounts for hedge and mutual funds, ETFs, registered investment advisers, proprietary trading groups, introducing brokers and individual investors. We specialize in routing orders and executing and processing trades in stocks, options, futures, forex, bonds, mutual funds, ETFs and precious metals on more than 150 electronic exchanges and market centers in 33 countries and 26 currencies seamlessly around the world. In addition, our customers can use our trading platform to trade certain cryptocurrencies through a third-party cryptocurrency service provider that executes, clears and custodies the cryptocurrencies.

As an electronic broker, we execute, clear and settle trades globally for both institutional and individual customers. Capitalizing on our proprietary technology, our systems provide our customers with the capability to monitor multiple markets around the world simultaneously and to execute trades electronically in these markets at a low cost, in multiple products and currencies from a single trading account. The ever-growing complexity of multiple market centers across diverse geographies provides us with ongoing opportunities to build and continuously adapt our order routing software to secure excellent execution prices.

Since our inception in 1977, we have focused on developing proprietary software to automate broker-dealer functions. The proliferation of electronic exchanges and market centers since the early 1990s has allowed us to integrate our software with an increasing number of trading venues, creating one automatically functioning, computerized platform that requires minimal human intervention.

Our customer base is diverse with respect to geography and type. Currently, approximately 79% of our customers reside outside the U.S. in over 200 countries and territories, and over 50% of new customers come from outside the U.S. Approximately 59% of our customers' equity is in institutional accounts such as hedge funds, financial advisors, proprietary trading desks and introducing brokers. Specialized products and services that we have developed successfully attract these accounts. For example, we offer prime brokerage services, including financing and securities lending, to hedge funds; our model portfolio technology and automated share allocation and rebalancing tools are particularly attractive to financial advisors; and our trading platform, global access and low pricing attract introducing brokers.

## Business Environment

Equities markets around the world were predominantly down in 2022, with major equity market indices in the U.S., Europe and Asia falling by double digits. This declining market backdrop occurred in the face of inflation, rising interest rates worldwide, fears of recession and unpredictable geopolitical uncertainty. Individual investors, who had helped drive equities markets higher in the prior year, were less engaged with them as economic conditions weakened in 2022.

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

*Global trading volumes.* According to industry data, in 2022 average daily volume in U.S. exchange-listed equity-based options increased by 5%, U.S. futures by 19% and U.S. listed cash equities volume by 4%, over the prior year.

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Various market cross-currents led to mixed results across our major product types: customer options, futures and foreign exchange volumes were up 3%, 33% and 18%, respectively, while stock volumes declined 58% compared to 2021. Volumes rose in financial futures, particularly foreign exchange and equity index futures, as higher inflation, a stronger U.S. dollar and investors looking to benefit from rising volatility drove this increase during the period. While stock trading volumes remain significantly higher than pre-pandemic levels, in 2022 they were below the unusually high levels of stock trading seen in 2021, a period dominated by trading in “meme” stocks and low-priced stocks generally.

Note that while U.S. options, futures and cash equities volumes are readily comparable measures, they reflect most but not all of the global volumes that generate our commission revenue. See “Trading Volumes and Customer Statistics” below in this Item 7 for additional details regarding our trade volumes, contract and share volumes, and customer statistics.

*Volatility.* U.S. market volatility, as measured by the average Chicago Board Options Exchange Volatility Index (“VIX®”), rose 32%, from an average of 19.7 in 2021 to 26.0 in 2022. Volatility increased as numerous cross-currents, from inflationary pressures, changing central interest rate policies, unpredictable world economies and geopolitical uncertainty, impacted markets worldwide.

In general, higher volatility improves our performance because it often correlates positively with customer trading activity across product types. In 2022, higher options and futures volumes in a period of elevated volatility demonstrated the continuing benefit of more participants in the financial markets and their increasing comfort with these exchange-listed derivative products, which can be used to manage risk amid heightened and ongoing geopolitical and interest rate uncertainty.

*Interest Rates.* In 2022, interest rates rose in a steady series of increases from the zero to 0.25% range that had been targeted for two years prior to March 2022. Over the course of 2022, the U.S. Federal Reserve increased the federal funds rate seven times, ending 2022 with a target range of 4.25% to 4.50%. By year end, the U.S. Treasury yield curve became inverted, with long-term rates markedly lower than short-term rates. In nearly every country, interest rates also rose in 2022 as central banks sought to control inflationary pressures.

Higher U.S. benchmark rates have boosted the interest we earn on our segregated cash, the majority of which is invested in U.S. government securities and related instruments. The environment of uncertainty over future U.S. Federal Reserve rate policy has led us to maintain a short duration investment profile, so that additional rate increases present more opportunities for interest-sensitive assets. Further, our margin balances are tied to benchmark rates, so rising rates have also improved the interest we earn on margin lending to our customers. We continue to offer among the lowest rates in the industry on margin lending, and we believe our low rates are an important feature that attracts customers to our platform.

Increasing rates also increase our interest expense. For example, in U.S. dollars we pay interest to customers when the federal funds effective rate is above 0.50%, which it has been since May 2022. Central banks in many other countries have also increased their interest rates in recent months. We believe the attractive rates we pay on customer cash are another important feature that draws customers to our platform.

Net interest income on customer cash and margin loan balances increased significantly compared to the prior year as the average federal funds effective rate increased to 1.68% in 2022 from 0.08% in 2021. During an extended period prior to 2022, the interest we paid on customer cash balances and earned on customer margin loans and investment of customer segregated funds resulted in spreads that were compressed at low benchmark rates. Benchmark interest rates over 50 basis points eliminate this spread compression and lead to higher net interest income.

Higher interest rates contributed to a 45% rise in net interest income over the prior year. Combined with increases in average interest-earning assets, particularly in segregated cash balances, these higher rates led to a widening of our net interest margin from 1.17% in 2021 to 1.53% in 2022.

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Currency fluctuations. As a global electronic broker trading on exchanges around the world in multiple currencies, we are exposed to foreign currency risk. We actively manage this exposure by keeping our equity in proportion to a defined basket of 10 currencies we call the “GLOBAL” 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 versus the U.S. dollar affects our earnings. In 2022, the value of the GLOBAL, as measured in U.S. dollars, decreased 1.85% compared to its value at December 31, 2021, which had a negative impact on our comprehensive earnings for the current year. A discussion of our approach for managing foreign currency exposure is contained in Part I, Item 7A of this Quarterly Report on Form 10-Q entitled “Quantitative and Qualitative Disclosures about Market Risk.”

## Financial Overview

We report non-GAAP financial measures, which exclude certain items that may not be indicative of our core operating results and business outlook and are useful in evaluating the operating performance of our business. See the “Non-GAAP Financial Measures” section below in this Item 7 for additional details.

Diluted earnings per share were $3.75 for the year ended December 31, 2022 (“current year”), compared to $3.24 for the year ended December 31, 2021 (“prior year”). Adjusted diluted earnings per share were $4.05 for the current year, compared to $3.37 for the prior year. The calculation of diluted earnings per share is detailed in Note 4 - “Equity and Earnings Per Share” to the audited consolidated financial statements, in Part II, Item 8 of this Annual Report on Form 10-K.

For the current year, our net revenues were $3,067 million and income before income taxes was $1,998 million, compared to net revenues of $2,714 million and income before income taxes of $1,787 million in the prior year. Adjusted net revenues were $3,213 million and adjusted income before income taxes was $2,144 million, compared to adjusted net revenues of $2,780 million and adjusted income before income taxes of $1,853 million in the prior year.

The financial highlights for the current year were:

- Net interest income increased 45% from the prior year to $1,668 million, driven by higher benchmark interest rates and customer credit balances, despite a decline in margin lending balances.
- Commission revenue decreased 2% from the prior year to $1,322 million on lower customer stock trading volumes, partially offset by higher futures and options volumes.
- Other income decreased $105 million from the prior year. This decrease was mainly comprised of (1) $63 million related to our currency diversification strategy and (2) $39 million related to our U.S. government securities portfolio; partially offset by (3) a $16 million gain related to our strategic investment in Up Fintech Holding Limited (“Tiger Brokers”).
- Pretax profit margin was 65%, down from 66% in the prior year. Adjusted pretax profit margin was 67% for both years.

In connection with our currency diversification strategy as of December 31, 2022, approximately 24% of our equity was denominated in currencies other than the U.S. dollar. In the current year, our currency diversification strategy decreased our comprehensive earnings by $211 million (compared to a decrease of $134 million in the prior year), as the U.S. dollar value of the GLOBAL decreased by approximately 1.85%, compared to its value as of December 31, 2021. The effects of our currency diversification strategy are reported as (1) a component of other income (loss of $100 million) in the consolidated statements of comprehensive income and (2) other comprehensive income (“OCI”) (loss of $111 million) in the consolidated statements of financial condition and the consolidated statements of comprehensive income. The full effect of the GLOBAL is captured in comprehensive income.

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## Certain Trends and Uncertainties

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

- Retail participation in the equity markets has fluctuated in the past due to investor sentiment, market conditions and a variety of other factors. Retail transaction volumes may not be sustainable and are not predictable.
- Consolidation among market centers may adversely affect the value of our IB SmartRouting$^{SM}$ software.
- Price competition among broker-dealers may continue to intensify.
- Benchmark interest rates have fluctuated over the past years due to economic conditions. Changes in interest rates may not be predictable.
- Fiscal and/or monetary policy may change and impact the financial services business and securities markets.
- New legislation or modifications to existing regulations and rules could occur in the future. Scrutiny of payment for order flow and order routing practices by regulatory and legislative authorities has increased.
- The COVID-19 pandemic precipitated unprecedented market conditions with equally unprecedented social and community challenges. The impact of the COVID-19 or another public health emergency going forward will depend on numerous evolving factors that cannot be accurately predicted, including the duration and spread of the pandemic, governmental regulations in response to the pandemic, and the effectiveness of vaccinations and other medical advancements.
- We continue to be exposed to the risks and uncertainties of doing business in international markets, particularly in the heavily regulated brokerage industry. Such risks and uncertainties include political, economic and financial instability, and foreign policy changes. For example, tensions between the U.S. and China have escalated recently, and changes in Chinese governmental oversight of Hong Kong and in the Chinese and Hong Kong capital markets could result in adverse effects on our business and loss of assets we hold in the region. Additionally, although our direct and indirect exposures to Russia and Ukraine are not material, the war in Ukraine and related sanctions have created substantial uncertainty in the global economy and financial markets. We continue to monitor the war and assess any potential impact to our business, including effects relating to currency control restrictions imposed by the Central Bank of Russia and restrictions by the Moscow Stock Exchange regarding the sale of assets by non-Russian residents.
- Our remaining market making activities will continue to be impacted by market structure changes, market conditions, the level of automation of competitors, and the relationship between actual and implied volatility in the equities markets.

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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## Trading Volumes and Customer Statistics

The tables below present historical trading volumes and customer statistics for our business. Trading volumes are the primary driver in our business. Information on our net interest income can be found elsewhere in this report.

### TRADE VOLUMES:

*(in thousands, except %)*

| Period | Cleared Customer Trades | % Change | Non-Cleared Customer Trades | % Change | Principal Trades | % Change | Total Trades | % Change | Avg. Trades per U.S. Trading Day |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2018 | 328,099 |  | 21,880 |  | 18,663 |  | 368,642 |  | 1,478 |
| 2019 | 302,289 | (8%) | 26,346 | 20% | 17,136 | (8%) | 345,771 | (6%) | 1,380 |
| 2020 | 620,405 | 105% | 56,834 | 116% | 27,039 | 58% | 704,278 | 104% | 2,795 |
| 2021 | 871,319 | 40% | 78,276 | 38% | 32,621 | 21% | 982,216 | 39% | 3,905 |
| 2022 | 735,619 | (16%) | 70,049 | -11% | 32,863 | 1% | 838,531 | (15%) | 3,347 |

### CONTRACT AND SHARE VOLUMES:

*(in thousands, except %)*

#### TOTAL

| Period | Options (contracts) | % Change | Futures (1) (contracts) | % Change | Stocks (shares) | % Change |
| --- | --- | --- | --- | --- | --- | --- |
| 2018 | 408,406 |  | 151,762 |  | 210,257,186 |  |
| 2019 | 390,739 | (4%) | 128,770 | (15%) | 176,752,967 | (16%) |
| 2020 | 624,035 | 60% | 167,078 | 30% | 338,513,068 | 92% |
| 2021 | 887,849 | 42% | 154,866 | (7%) | 771,273,709 | 128% |
| 2022 | 908,415 | 2% | 207,138 | 34% | 330,035,586 | (57%) |

#### ALL CUSTOMERS

| Period | Options (contracts) | % Change | Futures (1) (contracts) | % Change | Stocks (shares) | % Change |
| --- | --- | --- | --- | --- | --- | --- |
| 2018 | 358,852 |  | 148,485 |  | 198,909,375 |  |
| 2019 | 349,287 | (3%) | 126,363 | (15%) | 167,826,490 | (16%) |
| 2020 | 584,195 | 67% | 164,555 | 30% | 331,263,604 | 97% |
| 2021 | 852,169 | 46% | 152,787 | (7%) | 766,211,726 | 131% |
| 2022 | 873,914 | 3% | 203,933 | 33% | 325,368,714 | (58%) |

#### CLEARED CUSTOMERS

| Period | Options (contracts) | % Change | Futures (1) (contracts) | % Change | Stocks (shares) | % Change |
| --- | --- | --- | --- | --- | --- | --- |
| 2018 | 313,795 |  | 146,806 |  | 194,012,882 |  |
| 2019 | 302,068 | (4%) | 125,225 | (15%) | 163,030,500 | (16%) |
| 2020 | 518,965 | 72% | 163,101 | 30% | 320,376,365 | 97% |
| 2021 | 773,284 | 49% | 151,715 | (7%) | 752,720,070 | 135% |
| 2022 | 781,373 | 1% | 202,145 | 33% | 314,462,672 | (58%) |

(1) Futures contract volume includes options on futures.

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## PRINCIPAL TRANSACTIONS

| Period | Options (contracts) | % Change | Futures (1) (contracts) | % Change | Stocks (shares) | % Change |
| --- | --- | --- | --- | --- | --- | --- |
| 2018 | 49,554 |  | 3,277 |  | 11,347,811 |  |
| 2019 | 41,452 | (16%) | 2,407 | (27%) | 8,926,477 | (21%) |
| 2020 | 39,840 | (4%) | 2,523 | 5% | 7,249,464 | (19%) |
| 2021 | 35,680 | (10%) | 2,079 | (18%) | 5,061,983 | (30%) |
| 2022 | 34,501 | (3%) | 3,205 | 54% | 4,666,872 | (8%) |

(1) Futures contract volume includes options on futures.

## CUSTOMER STATISTICS:

| Year over Year | 2022 | 2021 | % Change |
| --- | --- | --- | --- |
| Total Accounts (in thousands) | 2,091 | 1,676 | 25% |
| Customer Equity (in billions) (1) | $306.7 | $373.8 | (18%) |
| Cleared DARTs (in thousands) (2) | 1,887 | 2,300 | (18%) |
| Total Customer DARTs (in thousands) (2) | 2,124 | 2,570 | (17%) |

### *Cleared Customers*

| Commission per Cleared Commissionable Order (3) | $2.83 | $2.37 | 19% |
| --- | --- | --- | --- |
| Cleared Avg. DARTs per Account (Annualized) | 206 | 339 | (39%) |

(1) Excludes non-customers.

(2) Daily average revenue trades (“DARTs”) are based on customer orders.

(3) Commissionable order - a customer order that generates commissions.

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## Results of Operations

The table below presents our consolidated results of operations for the periods indicated. The period-to-period comparisons below of financial results are not necessarily indicative of future results.

|  | Year-Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| (in millions, except share and per share amounts) |  |  |  |
| Revenues |  |  |  |
| Commissions | $1,322 | $1,350 | $1,112 |
| Other fees and services | 184 | 218 | 175 |
| Other income (loss) | (107) | (2) | 59 |
| Total non-interest income | 1,399 | 1,566 | 1,346 |
| Interest income | 2,686 | 1,372 | 1,133 |
| Interest expense | (1,018) | (224) | (261) |
| Total net interest income | 1,668 | 1,148 | 872 |
| Total net revenues | 3,067 | 2,714 | 2,218 |
| Non-interest expenses |  |  |  |
| Execution, clearing and distribution fees | 324 | 236 | 293 |
| Employee compensation and benefits | 454 | 399 | 325 |
| Occupancy, depreciation and amortization | 90 | 80 | 69 |
| Communications | 33 | 33 | 26 |
| General and administrative | 165 | 176 | 236 |
| Customer bad debt | 3 | 3 | 13 |
| Total non-interest expenses | 1,069 | 927 | 962 |
| Income before income taxes | 1,998 | 1,787 | 1,256 |
| Income tax expense | 156 | 151 | 77 |
| Net income | 1,842 | 1,636 | 1,179 |
| Less net income attributable to noncontrolling interests | 1,462 | 1,328 | 984 |
| Net income available for common stockholders | $380 | $308 | $195 |
| Earnings per share |  |  |  |
| Basic | $3.78 | $3.27 | $2.44 |
| Diluted | $3.75 | $3.24 | $2.42 |
| Weighted average common shares outstanding |  |  |  |
| Basic | 100,460,016 | 94,167,572 | 79,939,289 |
| Diluted | 101,299,609 | 95,009,880 | 80,638,908 |
| Comprehensive income |  |  |  |
| Net income available for common stockholders | $380 | $308 | $195 |
| Other comprehensive income |  |  |  |
| Cumulative translation adjustment, before income taxes | (26) | (22) | 26 |
| Income taxes related to items of other comprehensive income | - | - | - |
| Other comprehensive income (loss), net of tax | (26) | (22) | 26 |
| Comprehensive income available for common stockholders | $354 | $286 | $221 |
| Comprehensive income attributable to noncontrolling interests |  |  |  |
| Net income attributable to noncontrolling interests | $1,462 | $1,328 | $984 |
| Other comprehensive income - cumulative translation adjustment | (85) | (75) | 98 |
| Comprehensive income attributable to noncontrolling interests | $1,377 | $1,253 | $1,082 |

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The table below presents our consolidated results of operations as a percent of our total net revenues for the periods indicated.

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Revenues |  |  |  |
| Commissions | 43% | 50% | 50% |
| Other fees and services | 6% | 8% | 8% |
| Other income (loss) | (3%) | 0% | 3% |
| Total non-interest income | 46% | 58% | 61% |
| Interest income | 88% | 51% | 51% |
| Interest expense | (33%) | (8%) | (12%) |
| Total net interest income | 54% | 42% | 39% |
| Total net revenues | 100% | 100% | 100% |
| Non-interest expenses |  |  |  |
| Execution, clearing and distribution fees | 11% | 9% | 13% |
| Employee compensation and benefits | 15% | 15% | 15% |
| Occupancy, depreciation and amortization | 3% | 3% | 3% |
| Communications | 1% | 1% | 1% |
| General and administrative | 5% | 6% | 11% |
| Customer bad debt | 0% | 0% | 1% |
| Total non-interest expenses | 35% | 34% | 43% |
| Income before income taxes | 65% | 66% | 57% |
| Income tax expense | 5% | 6% | 3% |
| Net income | 60% | 60% | 53% |
| Less net income attributable to noncontrolling interests | 48% | 49% | 44% |
| Net income available for common stockholders | 12% | 11% | 9% |

# **Year Ended December 31, 2022 (“current year”) compared to the Year Ended December 31, 2021 (“prior year”)**

# ***Net Revenues***

Total net revenues, for the current year, increased $353 million, or 13%, compared to the prior year, to $3,067 million. The increase in net revenues was due to higher net interest income, partially offset by lower other income, other fees and services, and commissions.

# ***Commissions***

We earn commissions primarily from our cleared customers for whom we act as an executing and clearing broker and also from our non-cleared customers for whom we act as an execution-only broker. Our commission structure allows customers to choose between (1) an all-inclusive fixed, or “bundled”, rate; (2) a tiered, or “unbundled”, rate that offers lower commissions for high volume customers where we pass through regulatory and exchange fees; and (3) our IBKR Lite$^{SM}$ offering, which provides commission-free trades on U.S. exchange-listed stocks and ETFs. Instead of commission revenue, IBKR Lite$^{SM}$ trades generate payments from market makers and others to whom we route these orders, which are reported in commissions. Our commissions are geographically diversified. In 2022, 2021, and 2020 we generated 37%, 39% and 29%, respectively, of commissions from operations conducted by our subsidiaries outside the U.S.

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Commissions for the current year decreased $28 million, or 2%, compared to the prior year, to $1,322 million, driven by lower customer trading volumes in stocks, partially offset by higher volumes in futures and options. Total customer futures and options contract volumes increased 33% and 3%, respectively, while stock share volume decreased 58% from unusually high trading volume, primarily in “meme” stocks and low-priced stocks generally, in the prior year. Total DARTs for cleared and execution-only customers, for the current year, decreased 17% to 2.1 million, compared to 2.6 million for the prior year. DARTs for cleared customers, i.e., customers for whom we execute trades, as well as clear and carry positions, for the current year, decreased 18% to 1.9 million, compared to 2.3 million for the prior year. Average commission per commissionable order for cleared customers, for the current year, increased 19% to $2.83, compared to $2.37 for the prior year, as our customers’ trading volume mix resulted in higher per order commissions in options, stocks and forex.

#### *Other Fees and Services*

We earn fee income on services provided to customers, which includes market data fees, risk exposure fees, payments for order flow from exchange-mandated programs, minimum activity fees, and other fees and services charged to customers.

Other fees and services, for the current year decreased $34 million, or 16%, compared to the prior year, to $184 million, driven by a $15 million decrease in minimum activity fees, which were discontinued for most account types effective July 1, 2021, a $15 million decrease in IPO-related fee income, and a $5 million decrease in exposure fees as customers reduced risk; partially offset by a $4 million increase in FDIC sweep fees due to higher benchmark interest rates.

#### *Other Income (Loss)*

Other income consists of foreign exchange gains (losses) from our currency diversification strategy, gains (losses) from principal transactions, gains (losses) from our equity method investments, and other revenue not directly attributable to our core business offerings. 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, for the current year, decreased $105 million, compared to the prior year, to a loss of $107 million. This decrease was mainly comprised of $63 million related to our currency diversification strategy, a $39 million mark-to-market loss on our U.S. government securities portfolio in the current year, and $7 million related to trading activities; partially offset by a $16 million smaller loss related to our strategic investment in Up Fintech Holding Limited (“Tiger Brokers”).

#### *Interest Income and Interest Expense*

We earn interest on margin lending to customers secured by marketable securities these customers hold with us; from our investments in U.S. and foreign government securities; from borrowing and lending securities; on deposits (in positive interest rate currencies) with banks; and on certain customers’ cash balances in negative rate currencies. We pay interest on customer cash balances (in sufficiently positive interest rate currencies); for borrowing and lending securities; on deposits (in negative interest rate currencies) with banks; and on our borrowings.

Net interest income (interest income less interest expense), for the current year, increased $520 million, or 45%, compared to the prior year, to $1,668 million. The increase in net interest income was driven by higher benchmark interest rates and customer credit balances, despite a decline in margin lending balances.

Net interest income on customer balances, for the current year, increased $503 million, compared to the prior year, driven by an increase in the average federal funds effective rate to 1.68% from 0.08% in the prior year and a $10.9 billion increase in average customer credit balances; despite a $2.3 billion decrease in average margin lending balances. See the “Business Environment” section above in this Item 7 for a further discussion about the change in interest rates in the current year.

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We earn income 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 us to lend it out. We pay customers a rebate on the cash collateral generally equal to 50% of the income we earn from lending the shares. We place cash and/or U.S. Treasury securities, as collateral securing the loans in the customer’s account, in segregated accounts, or at an affiliate acting as collateral agent for the benefit of our customer.

In the current year, average securities borrowed balances increased 8%, to $4.0 billion, and average securities loaned balances decreased 7%, to $10.1 billion, compared to the prior year. Net interest earned from securities lending is affected by the level of demand for securities positions held by our customers that investors are looking to sell short. During the current year, net interest earned from securities lending transactions decreased $155 million, or 27%, compared to the prior year. Securities lending opportunities maintained a strong pace during the current year, despite fewer opportunities than the prior year. However, the rise in benchmark interest rates rise has shifted the interest reported as generated by lending securities to interest income on segregated cash (see further explanation below). It should be noted that securities lending transactions entered into to support customer activity may produce interest income (expense) that is offset by interest expense (income) related to customer balances.

The Company measures return on interest-earning assets using net interest margin (“NIM”). NIM is computed by dividing the annualized net interest income by the average interest-earning assets for the period. Interest-earning assets consist of cash and securities segregated for regulatory purposes (including U.S. government securities and securities purchased under agreements to resell), customer margin loans, securities borrowed, other interest-earning assets (solely firm assets) and customer cash balances swept into FDIC-insured banks as part of our Insured Bank Deposit Sweep Program. Interest-bearing liabilities consist of customer credit balances, securities loaned, and other interest-bearing liabilities.

Yields are generally a reflection of benchmark interest rates in each currency in which the Company and its customers hold cash balances. Because a meaningful portion of customer cash and margin loans are denominated in currencies other than the U.S. dollar, changes in U.S. benchmark interest rates do not impact the total amount of segregated cash and securities, customer margin loans and customer credit balances. Furthermore, because interest, when benchmark rates are at sufficiently high levels, is paid only on eligible cash credit balances (i.e., balances over $10 thousand or equivalent, in securities accounts with over $100 thousand in equity, and in smaller accounts at reduced rates), changes in benchmark interest rates are not passed through to the total amount of customer credit balances. Finally, the Company’s policies with respect to currencies with negative interest rates impact the overall yields on segregated cash and customer credit balances as effective interest rates in those currencies fluctuate.

Securities lending generates (1) net interest earned on lending a security, which is based on supply and demand for that security, and (2) interest earned on the cash collateral deposited for the loan of that security, which is based on benchmark interest rates. Because cash collateral from securities lending is held in specially designated bank accounts for the benefit of customers, in accordance with the U.S. customer protection rules, interest on this collateral is reported as net interest on segregated cash. Generally, as benchmark interest rates rise, an increasing portion of the interest earned on securities lending transactions is classified as net interest income on “Segregated cash and securities, net” instead of net interest income on “Securities borrowed and loaned, net”.

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The table below presents net interest income information corresponding to interest-earning assets and interest-bearing liabilities for the periods indicated.

|  | Year-Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
|  | (in millions) |  |  |
| Average interest-earning assets |  |  |  |
| Segregated cash and securities | $51,644 | $40,328 | $41,898 |
| Customer margin loans | 43,402 | 45,681 | 28,960 |
| Securities borrowed | 3,961 | 3,677 | 4,235 |
| Other interest-earning assets | 9,000 | 7,029 | 5,593 |
| FDIC sweeps 1 | 2,229 | 2,663 | 2,882 |
|  | $110,235 | $99,376 | $83,568 |
| Average interest-bearing liabilities |  |  |  |
| Customer credit balances | $90,172 | $79,297 | $67,540 |
| Securities loaned | 10,095 | 10,871 | 5,702 |
| Other interest-bearing liabilities | 4 | 109 | 215 |
|  | $100,271 | $90,277 | $73,457 |
| Net Interest income |  |  |  |
| Segregated cash and securities, net | $742 | $(9) | $166 |
| Customer margin loans 2 | 1,083 | 535 | 380 |
| Securities borrowed and loaned, net | 413 | 568 | 343 |
| Customer credit balances, net 2 | (763) | 33 | (46) |
| Other net interest income 1,3 | 207 | 36 | 55 |
| Net interest income 3 | $1,682 | $1,163 | $898 |
| Net interest margin (“NIM”) | 1.53% | 1.17% | 1.07% |
| Annualized Yields |  |  |  |
| Segregated cash and securities | 1.44% | -0.02% | 0.40% |
| Customer margin loans | 2.50% | 1.17% | 1.31% |
| Customer credit balances | 0.85% | -0.04% | 0.07% |

(1) Represents the average amount of customer cash swept into FDIC-insured banks as part of our Insured Bank Deposit Sweep Program. This item is not recorded in the Company’s consolidated statements of financial condition. Income derived from program deposits is reported in other net interest income in the table above.

(2) Interest income and interest expense on customer margin loans and customer credit balances, respectively, are calculated on daily cash balances within each customer’s account on a net basis, which may result in an offset of balances across multiple account segments (e.g., between securities and commodities segments).

(3) Includes income from financial instruments that has the same characteristics as interest, but is reported in other fees and services and other income in the Company’s consolidated statements of comprehensive income. For the years ended December 31, 2022, 2021, and 2020, $10 million, $15 million and $21 million were reported in other fees and services, respectively. For the years ended December 31, 2022, 2021, and 2020, $4 million, $0 million and $5 million were reported in other income, respectively.

### Non-Interest Expenses

Non-interest expenses, for the current year, increased $142 million, or 15%, compared to the prior year, to $1,069 million, mainly due to an $88 million increase in execution, clearing and distribution fees; a $55 million increase in employee compensation and benefits; and a $10 million increase in occupancy, depreciation and amortization; partially offset by a $11 million decrease in general and administrative expenses. As a percentage of total net revenues, non-interest expenses were 35% for the current year and 34% for the prior year.

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### *Execution, Clearing and Distribution Fees*

Execution, clearing and distribution fees include the costs of executing and clearing trades, net of liquidity rebates received from various exchanges and market centers, as well as 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. Market data fees are paid to third parties to receive streaming price quotes and related information.

Execution, clearing and distribution fees, for the current year, increased $88 million, or 37%, compared to the prior year, to $324 million, primarily driven by an $86 million increase in exchange fees on higher customer trading volumes in futures, which carry higher fees, and lower liquidity rebates; and a $12 million increase in regulatory fees due to higher SEC and FINRA fee rates; partially offset by a $6 million decrease in market data fees and a $3 million decrease in clearing and depository fees on lower options fee rates. As a percentage of total net revenues, execution, clearing and distribution fees were 11% for the current year and 9% for the prior year.

### *Employee Compensation and Benefits*

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

Employee compensation and benefits expenses, for the current year, increased $55 million, or 14%, compared to the prior year, to $454 million, associated with a 16% increase in the average number of employees to 2,721 for the current year, compared to 2,336 for the prior year. We continued to add staff worldwide in software development and compliance. 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 15% for both the current year and the prior year. Employee compensation and benefits expenses as a percentage of adjusted net revenues were 14% for both the current year and the prior year.

### *Occupancy, Depreciation and Amortization*

Occupancy expenses consist primarily of rental payments on office and data center leases and related occupancy costs, such as utilities. Depreciation and amortization expenses result 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.

Occupancy, depreciation and amortization expenses, for the current year, increased $10 million, or 13%, compared to the prior year, to $90 million, mainly due to higher costs related to the expansion of our physical space for both offices and data centers. As a percentage of total net revenues, occupancy, depreciation and amortization expenses were 3% for both the current year and the prior year.

### *Communications*

Communications expenses consist primarily of the cost of voice and data telecommunications lines supporting our business, including connectivity to exchanges and market centers around the world.

Communications expenses, for the current year, were unchanged, at $33 million. As a percentage of total net revenues, communications expenses were 1% for both the current year and the prior year.

### *General and Administrative*

General and administrative expenses consist primarily of advertising; professional services expenses, such as legal and audit work; legal and regulatory matters; and other operating expenses.

General and administrative expenses, for the current year, decreased $11 million, or 6%, compared to the prior year, to $165 million, primarily due to the non-recurrence of $19 million in costs for Brexit-related regulatory onboarding to bring our new brokerage operations on line in Europe incurred in the prior year and a $3 million decrease in legal and consulting expenses; partially offset by a $3 million increase in advertising expenses and a $5 million increase in software and network related expenses. As a percentage of total net revenues, general and administrative expenses were 5% for the current year and 6% for the prior year.

### *Customer Bad Debt*

Customer bad debt expense consists primarily of losses incurred by customers in excess of their assets with us, net of amounts recovered by us. Customer bad debt expense, for the current year, was unchanged at $3 million.

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### *Income Tax Expense*

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

Income tax expense, for the current year, increased $5 million, or 3%, compared to the prior year, to $156 million, primarily due to (1) higher income before income taxes at our operating subsidiaries outside the U.S.; (2) higher income before income taxes subject to U.S. income tax at IBG, Inc., additionally increased by IBG, Inc.'s higher average ownership percentage of IBG LLC, which rose from 22.6% to 24.0%; and (3) $6 million higher expense related to the remeasurement of deferred tax assets related to the step-up in basis arising from the acquisition of interests in IBG LLC, due to changes in the Company's effective tax rates; partially offset by (4) the non-recurrence of an $8 million tax settlement in the prior year; and (5) the non-recurrence of $6 million in expenses related to the repositioning of European operations in the aftermath of Brexit in the prior year.

The table below presents information about our income tax expense for the periods indicated.

|  | Year-Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
|  | (in millions, except %) |  |  |
| Consolidated |  |  |  |
| Consolidated income before income taxes | $1,998 | $1,787 | $1,256 |
| IBG, Inc. stand-alone income before income taxes | 2 | - | (4) |
| Operating subsidiaries income before income taxes | $1,996 | $1,787 | $1,260 |
| Operating subsidiaries |  |  |  |
| Income before income taxes | $1,996 | $1,787 | $1,260 |
| Income tax expense | 69 | 76 | 38 |
| Net income available to members | $1,927 | $1,711 | $1,222 |
| IBG, Inc. |  |  |  |
| Average ownership percentage in IBG LLC | 24.0% | 22.6% | 19.2% |
| Net income available to IBG, Inc. from operating subsidiaries | $463 | $383 | $237 |
| IBG, Inc. stand-alone income before income taxes | 4 | - | (3) |
| Income before income taxes | 467 | 383 | 234 |
| Income tax expense | 87 | 75 | 39 |
| Net income available to common stockholders | $380 | $308 | $195 |
| Consolidated income tax expense |  |  |  |
| Income tax expense attributable to operating subsidiaries | $69 | $76 | $38 |
| Income tax expense attributable IBG, Inc. | 87 | 75 | 39 |
| Consolidated income tax expense | $156 | $151 | $77 |

### *Operating Results*

Income before income taxes, for the current year, increased $211 million, or 12%, compared to the prior year, to $1,998 million. Pretax profit margin was 65% for the current year and 66% for the prior year.

Comparing our operating results for the current year to the prior year using non-GAAP financial measures, adjusted net revenues were $3,213 million, up 16%; adjusted income before income taxes was $2,144 million, up 16%; and adjusted pre-tax profit margin was 67% for both the current year and the prior year. See the 'Non-GAAP Financial Measures' section below in this Item 7 for additional details.

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# *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. As of December 31, 2022, we held approximately 24.5% ownership interest in IBG LLC. Holdings holds approximately 75.5% ownership interest in IBG LLC. We reflect Holdings' ownership as a noncontrolling interest in our consolidated statements of financial condition, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows. Our share of IBG LLC's net income, excluding Holdings' noncontrolling interest, for the current year was approximately 24.0%, compared to approximately 22.6% for the prior year.

# **Year Ended December 31, 2021 compared to the Year Ended December 31, 2020**

For a discussion of changes for the year ended December 31, 2021 compared to the Year Ended December 31, 2020 refer to the Annual Report on Form 10-K filed with the SEC on February 25, 2022.

# **Non-GAAP Financial Measures**

We use certain non-GAAP financial measures as additional measures to enhance the understanding of our financial results. These non-GAAP financial measures include adjusted net revenues, adjusted income before income taxes, adjusted net income available for common stockholders, and adjusted diluted earnings per share ("EPS"). We believe that these non-GAAP financial measures are important measures of our financial performance because they exclude certain items that may not be indicative of our core operating results and business outlook. We believe these non-GAAP financial measures are useful to investors and analysts in evaluating the operating performance of the business.

- We define adjusted net revenues as net revenues adjusted to remove the effect of our currency diversification strategy, our net mark-to-market gains (losses) on investments, and the remeasurement of our Tax Receivable Agreement ("TRA") liability.
- We define adjusted income before income taxes as income before income taxes adjusted to remove the effect of our currency diversification strategy, our net mark-to-market gains (losses) on investments, the remeasurement of our TRA liability, customer compensation expenses, and unusual bad debt expense.
- We define adjusted net income available to common stockholders as net income available for common stockholders adjusted to remove the after-tax effects attributable to IBG, Inc. of our currency diversification strategy, our net mark-to-market gains (losses) on investments, the remeasurement of our TRA liability, customer compensation expenses, unusual bad debt expense, and the remeasurement of certain deferred tax assets.
- We define adjusted diluted EPS as adjusted net income available for common stockholders divided by the diluted weighted average number of shares outstanding for the period.

Mark-to-market on investments represents the net mark-to-market gains (losses) on investments in equity securities that do not qualify for equity method accounting which are measured at fair value, on our U.S. government and municipal securities portfolios, which are typically held to maturity, and on certain other investments, including equity securities taken over by the Company from customers related to unusual losses on margin loans.

Remeasurement of our TRA liability represents the change in the amount payable to IBG Holdings LLC under the TRA, primarily due to changes in the Company's effective tax rates, which is related to the remeasurement of the deferred tax assets described below. For further information refer to Note 4 - Equity and Earnings per Share under Part II, Item 8 - Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Customer compensation expenses were incurred to compensate certain affected customers in connection with their losses on West Texas Intermediate Crude Oil contracts on April 20, 2020, as described below.

Unusual bad debt expense includes material losses on margin loans resulting from unusual events that occur in the marketplace. For the year-ended December 31, 2020, unusual bad debt expense reflects losses incurred by futures customers in excess of the equity in their accounts related to the West Texas Intermediate Crude Oil event described below.

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Remeasurement of certain deferred tax assets represents the change in the unamortized balance of deferred tax assets related to the step-up in basis arising from the acquisition of interests in IBG LLC, primarily due to changes in the Company’s effective tax rates. For further information refer to Note 4 - Equity and Earnings per Share under Part II, Item 8 - Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

We also report compensation and benefits expenses as a percent of adjusted net revenues, as we believe this measure is useful to investors and analysts in evaluating the growth of our work force in relation to the growth of our core revenues.

These non-GAAP financial measures should be considered in addition to, rather than as a substitute for, measures of financial performance prepared in accordance with GAAP$^{1}$.

#### *West Texas Intermediate Crude Oil Event*

On April 20, 2020 the energy markets exhibited extraordinary price activity in the New York Mercantile Exchange (“NYMEX”) West Texas Intermediate Crude Oil futures contract. The price of the May 2020 physically-settled futures contract dropped to an unprecedented negative price. This price was the basis for determining the settlement price for cash-settled futures contracts traded on the CME Globex and also for a separate, expiring cash-settled futures contract listed on the Intercontinental Exchange Europe (“ICE Europe”). Several of the Company’s customers held long positions in these CME and ICE Europe contracts, and as a result they incurred losses, including losses in excess of the equity in their accounts. The Company fulfilled the required variation margin settlements with the respective clearinghouses on behalf of its customers. The Company subsequently compensated certain affected customers in connection with their losses resulting from the contracts settling at a price below zero. As a result, the Company recognized an aggregate loss of approximately $104 million in the prior year, of which $103 million is included in general and administrative expenses and $1 million in customer bad debt expense in the consolidated statements of comprehensive income.

The tables below present a reconciliation of consolidated GAAP to non-GAAP financial measures for the periods indicated.

|  | Year-Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
|  | (in millions) |  |  |
| Adjusted net revenues |  |  |  |
| Net revenues - GAAP | $3,067 | $2,714 | $2,218 |
| Non-GAAP adjustments |  |  |  |
| Currency diversification strategy, net | 100 | 37 | 19 |
| Mark-to-market on investments | 52 | 30 | (36) |
| Remeasurement of TRA liability | (6) | (1) | 3 |
| Total non-GAAP adjustments | 146 | 66 | (14) |
| Adjusted net revenues | $3,213 | $2,780 | $2,204 |
| Adjusted income before income taxes |  |  |  |
| Income before income taxes - GAAP | $1,998 | $1,787 | $1,256 |
| Non-GAAP adjustments |  |  |  |
| Currency diversification strategy, net | 100 | 37 | 19 |
| Mark-to-market on investments | 52 | 30 | (36) |
| Remeasurement of TRA liability | (6) | (1) | 3 |
| Customer compensation expense | - | - | 103 |
| Bad debt expense | - | - | 1 |
| Total non-GAAP adjustments | 146 | 66 | 90 |
| Adjusted income before income taxes | $2,144 | $1,853 | $1,346 |
| Adjusted pre-tax profit margin | 67% | 67% | 61% |

$^{1}$ Refers to generally accepted accounting principles in the United States.

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|  | Year-Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
|  | (in millions) |  |  |
| Adjusted net income available for common stockholders |  |  |  |
| Net income available for common stockholders - GAAP . . . . . . . . . . | $380 | $308 | $195 |
| Non-GAAP adjustments |  |  |  |
| Currency diversification strategy, net . . . . . . . . . . . . . . . . . . . . . . . . | 24 | 8 | 4 |
| Mark-to-market on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 13 | 7 | (7) |
| Remeasurement of TRA liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . | (6) | (1) | 3 |
| Customer compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . | - | - | 20 |
| Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | - | - | - |
| Income tax effect of above adjustments 1 . . . . . . . . . . . . . . . . . . . . . | (7) | (3) | (3) |
| Remeasurement of deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . | 7 | 1 | (11) |
| Total non-GAAP adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 30 | 12 | 6 |
| Adjusted net income available for common stockholders . . . . . . . . . . . . . . . . . . . . . . . | $410 | $320 | $201 |

Note: Amounts may not add due to rounding.

|  | Year-Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
|  | (in dollars, except share amounts) |  |  |
| Adjusted diluted EPS |  |  |  |
| Diluted EPS - GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $3.75 | $3.24 | $2.42 |
| Non-GAAP adjustments |  |  |  |
| Currency diversification strategy, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 0.24 | 0.09 | 0.05 |
| Mark-to-market on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 0.12 | 0.07 | (0.08) |
| Remeasurement of TRA liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | (0.06) | (0.01) | 0.04 |
| Customer compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | - | - | 0.24 |
| Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | - | - | 0.00 |
| Income tax effect of above adjustments 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | (0.07) | (0.03) | (0.04) |
| Remeasurement of deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 0.07 | 0.01 | (0.14) |
| Total non-GAAP adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 0.30 | 0.13 | 0.08 |
| Adjusted diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | $4.05 | $3.37 | $2.49 |
| Diluted weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 101,299,609 | 95,009,880 | 80,638,908 |

Note: Amounts may not add due to rounding.

1 The income tax effect is estimated using the statutory income tax rates applicable to the Company.

## Liquidity and Capital Resources

We maintain a highly liquid balance sheet. The majority of our assets consist of investments of customer funds, collateralized receivables arising from customer-related and proprietary securities transactions, and exchange-listed marketable securities, which are marked-to-market daily. Collateralized receivables consist primarily of customer margin loans, securities borrowed, and securities purchased under agreements to resell. As of December 31, 2022, total assets were $115.1 billion of which approximately $114.2 billion, or 99.2%, were considered liquid.

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Decisions on the allocation of capital are based upon, among other things, prudent risk management guidelines, potential liquidity and cash flow needs for current and future business activities, regulatory capital requirements, and projected profitability. Our Treasury department, Market Risk Committee, Enterprise Risk Management department and other management control groups assist in evaluating, monitoring and controlling the impact that our business activities have on our financial condition, liquidity and capital structure. The objective of these policies is to support our business strategies while ensuring ongoing and sufficient liquidity. Our significant capital comprises an aggregate across our many regulated subsidiaries, and in addition to supporting our current and future expansion plans we believe this financial strength provides our customers with a source of confidence.

Daily monitoring of liquidity needs and available collateral levels is undertaken to help ensure that an appropriate liquidity cushion, in the form of cash and unpledged collateral, is maintained at all times. We actively manage our excess liquidity and maintain significant borrowing capabilities through the securities lending markets and in the form of credit facilities 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. In addition, pursuant to our liquidity risk management plan we perform periodic liquidity stress tests, which are designed to identify and reserve liquid assets that would be available under market or idiosyncratic stress events. Based on our current level of operations, we believe our cash flows from operations, available cash and available borrowings will be adequate to meet our future liquidity needs for more than the next twelve months.

As of December 31, 2022, liability balances in connection with payables to customers were higher than the average monthly balance during the current year and our securities loaned and short-term borrowings were lower than their respective average monthly balances during the current year.

Cash and cash equivalents held by our non-U.S. operating subsidiaries as of December 31, 2022 were $1,394 million ($1,058 million as of December 31, 2021). These funds are primarily intended to finance each individual operating subsidiary's local operations, and thus would not be available to fund U.S. domestic operations unless repatriated through payment of dividends to IBG LLC. As of December 31, 2022, we had no intention to repatriate any amounts from non-U.S. operating subsidiaries. With the enactment of the U.S. Tax Cuts and Jobs Act on December 22, 2017, we recognized a liability for the one-time transition tax on deemed repatriation of earnings of some of our foreign subsidiaries for the year ended December 31, 2017. As a result, in the event dividends were to be paid to the Company in the future by a non-U.S. operating subsidiaries, the Company would not be required to accrue and pay income taxes on such dividends, except for foreign taxes in the form of dividend withholding tax, if any, imposed on the recipient of the distribution or dividend distribution tax imposed on the payor of the distribution.

Historically, our consolidated equity has consisted primarily of accumulated retained earnings, which to date have been sufficient to fund our operations and growth. Our consolidated equity increased 14% to $11.6 billion as of December 31, 2022, from $10.2 billion as of December 31, 2021. This increase is attributable to total comprehensive income, partially offset by distributions and dividends paid during 2022.

### *Cash Flows*

The table below presents our cash flows from operating activities, investing activities and financing activities for the periods indicated.

|  | Year-Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
|  | (in millions) |  |  |
| Net cash provided by operating activities | $3,968 | $5,896 | $8,068 |
| Net cash used in investing activities | (67) | (188) | (50) |
| Net cash used in financing activities | (470) | (523) | (229) |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (111) | (97) | 124 |
| Increase in cash, cash equivalents and restricted cash | $3,320 | $5,088 | $7,913 |

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Our cash flows from operating activities are largely a reflection of the changes in customer credit and margin loan balances. Our cash flows from investing activities are primarily related to other investments, capitalized internal software development, purchases and sales of memberships, trading rights and shares 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, allow us to influence exchanges to provide competing products at better prices using sophisticated technology, or enable us to acquire either technology or customers faster than we could develop them on our own. Our cash flows from financing activities are comprised of short-term borrowings, capital transactions and payments made to Holdings under the Tax Receivable Agreement. Short-term borrowings from banks and through our senior notes program are part of our daily cash management in support of operating activities. Capital transactions consist primarily of quarterly dividends paid to common stockholders and related distributions paid to Holdings.

**Year Ended December 31, 2022:** Our cash, cash equivalents and restricted cash (i.e., cash and cash equivalents that are subject to withdrawal or usage restrictions) increased by $3,320 million to $28.6 billion for the year ended December 31, 2022. We raised $3,968 million in net cash from operating activities. We used net cash of $537 million in our investing and financing activities, primarily for distributions to noncontrolling interests, short-term borrowings, dividends paid to our common stockholders and payments made under the Tax Receivable Agreement. Investing activities mainly consisted of purchases of other investments and property, equipment and intangible assets.

# **Year Ended December 31, 2021:**

For a discussion of changes in cash flows for the year ended December 31, 2021 refer to our Annual Report on Form 10-K filed with the SEC on February 25, 2022.

# **Year Ended December 31, 2020:**

For a discussion of changes in cash flows for the year ended December 31, 2020 refer to our Annual Report on Form 10-K filed with the SEC on February 26, 2021.

# ***Senior Notes***

In 2020, IBG LLC initiated a program to offer senior notes in private placements to certain qualified customers of IB LLC. IBG LLC intends to use the proceeds for general financing purposes when interest spread opportunities arise. The senior notes are offered at an issue price of $1 thousand per note at an interest rate calculated by adding the benchmark rate to a rate (spread) that IBG LLC announces from time to time. The benchmark rate is the effective federal funds rate as reported by the Federal Reserve Bank of New York on the morning of the date of the offering. The senior notes mature no later than the thirtieth day following the issuance date, and IBG LLC, at its option, may redeem the senior notes at any time, at a redemption price equal to 100% of the principal amount of the senior notes to be redeemed, plus accrued and unpaid interest. During the year ended December 31, 2022, the Company did not issue any senior notes.

# ***Regulatory Capital Requirements***

As of December 31, 2022, all operating subsidiaries were in compliance with their respective regulatory capital requirements. For additional information regarding our regulatory capital requirements see Note 16 - “Regulatory Requirements” to the audited consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

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## 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, and leasehold improvements. These expenditure items are reported as property, equipment, and intangible assets. Capital expenditures for property, equipment, and intangible assets were approximately $69 million, $77 million and $50 million for the three years ended December 31, 2022, 2021, and 2020, respectively. In the future, we plan to meet capital expenditure needs with cash from operations and cash on hand, as we continue our focus on technology infrastructure initiatives to further enhance our competitive position. 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 additional strategic acquisitions, we may incur additional capital expenditures.

## Contractual Obligations Summary

Our contractual obligations principally include obligations associated with our outstanding indebtedness and interest payments as of December 31, 2022.

|  | Payments Due by Year |  |  |  |
| --- | --- | --- | --- | --- |
|  | Total | 2023-2024 | 2025-2026 | Thereafter |
|  | (in millions) |  |  |  |
| Payable to Holdings under Tax Receivable Agreement (1) | $214 | $50 | $26 | $138 |
| Operating leases | 159 | 56 | 40 | 63 |
| Transition Tax liability (2) | 44 | 26 | 18 | - |
| Total contractual cash obligations | $417 | $132 | $84 | $201 |

(1) As of December 31, 2022, contractual amounts owed under the Tax Receivable Agreement of $214 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, 2022, approximately $243 million of cumulative cash payments have been made.

(2) The Tax Act implemented a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries to be paid over an eight-year period starting in 2018. We believe this tax will not have a material impact on our liquidity.

## Seasonality

Our businesses are subject to seasonal fluctuations, reflecting varying numbers of market participants at times during the year, varying numbers of trading days from quarter-to-quarter, and 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 effects of inflation on our operations, we believe that, for the three most recent years, inflation has not had a material impact on our results of operations, though it may be a contributing factor to general uncertainty in the markets in the foreseeable future. Statements about future inflation are subject to the risk that actual inflation and its effects may differ, possibly materially, due to, among other things, changes in economic growth, impact of supply chain disruptions, unemployment and consumer demand.

## Investments in U.S. Government Securities

We invest in U.S. government securities to satisfy U.S. regulatory requirements. As a broker-dealer, unlike banks, we are required to mark these investments to market even though we intend to hold them to maturity. Sudden increases (decreases) in interest rates will cause mark-to-market losses (gains) on these securities, which are recovered (eliminated) if we hold them to maturity, as currently intended. The impact of changes in interest rates is further described 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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## Strategic Investments and Acquisitions

We regularly evaluate potential strategic investments and acquisitions. We hold strategic investments in certain electronic trading exchanges, including BOX Options Exchange, LLC. We also hold strategic investments in certain businesses, including Tiger Brokers, an online stock brokerage established for Chinese retail and institutional customers, in which we have a beneficial ownership interest of 7.6%.

We intend to continue making acquisitions on an opportunistic basis, generally only when the acquisition candidate will, in our opinion, enable us to offer better execution alternatives to our current and prospective customers, allow us to influence exchanges to provide competing products at better prices using sophisticated technology, or enable us to acquire either technology or customers faster than we could develop them on our own.

As of December 31, 2022, there were no other definitive agreements with respect to any material acquisition.

## Certain Information Concerning Off-Balance-Sheet Arrangements

We may be exposed to a risk of loss not reflected in our consolidated financial statements for futures products, which represent our obligations to settle at contracted prices, and which may require us to repurchase or sell in the market at prevailing prices. Accordingly, these transactions result in off-balance sheet risk, as our cost to liquidate such futures contracts may exceed the amounts reported in our consolidated statements of financial condition.

## Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements and accompanying notes. These estimates and assumptions are based on judgment and the best available information at the time. Therefore, actual results could differ materially from those estimates. We believe that the critical policies listed below represent the most significant estimates used in the preparation of our consolidated financial statements. See Note 2 - “Significant Accounting Policies” to the audited consolidated financial statements for a summary of our significant accounting policies in Part II, Item 8 of this Annual Report on Form 10-K.

### 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. Significant judgment is required in making these estimates 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 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 reasonable possibility that a loss may be incurred.

### Income Taxes

Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits are based on enacted tax laws and reflect management’s best assessment of estimated future taxes to be paid. We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Determining income tax expense requires significant judgment and estimates.

Deferred income tax assets and liabilities arise from temporary differences between the tax and financial statement recognition of the underlying assets and liabilities. In evaluating our ability to recover our deferred tax assets within the jurisdictions from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations.

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In projecting future taxable income, historical results are adjusted for changes in accounting policies and incorporate assumptions including the amount of future state, federal and foreign pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, three years of cumulative operating income (loss) are considered. Deferred income taxes have not been provided for U.S. tax liabilities or for additional foreign taxes on the unremitted earnings of foreign subsidiaries that have been indefinitely reinvested.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. We record tax liabilities in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 740 and adjust these liabilities when management’s judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in payments that are different from the current estimates of these tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information becomes available.

We recognize that a tax benefit from an uncertain tax position may be recognized only when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. A tax position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement.

#### **Accounting Pronouncements Issued but Not Yet Adopted**

For additional information regarding FASB Accounting Standards Updates (“ASU”s) that have been issued but not yet adopted and that may impact the Company, refer to Note 2 - “Significant Accounting Policies” to the audited consolidated financial statements in Part II, Item 8 of this annual Report on form 10-K.

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# ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks. Our exposures to market risks arise from assumptions built into our pricing models, equity price risk, foreign currency exchange rate fluctuations related to our international operations, changes in interest rates and risks relating to the extension of margin credit to our customers.

Market risk refers to the risk that a change in the level of one or more market prices, rates, indices, implied volatilities (the price volatility of the underlying instrument imputed from option prices), correlations or other market factors, such as market liquidity, will result in losses for a position or portfolio. Generally, we incur trading-related market risk as a result of our remaining market making activities, where the substantial majority of our Value-at-Risk (“VaR”) for market risk exposures is generated. In addition, we incur non-trading-related market risk primarily from investment activities and from foreign currency exposure held in the equity of our foreign subsidiaries, i.e., our non-U.S. brokerage subsidiaries and information technology subsidiaries, and held to meet target balances in our currency diversification strategy.

We use various risk management tools in managing our market risk, which are embedded in our real-time market making systems. 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 Steering Committee, which is chaired by our Chief Executive Officer and comprised of senior executives of our various operating subsidiaries. The strategy of our remaining market making activities 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 external market data and reevaluates the outstanding quotes in our portfolio many times per second. Our model automatically rebalances our positions throughout each trading day to manage risk exposures on our options and futures positions and the underlying securities and 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 remaining market making activities are 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.

We use a covariant VaR methodology to measure, monitor and review the market risk of our market making portfolios, with the exception of fixed income products, and our currency exposures. The risk of fixed income products, which comprise primarily U.S. government securities, is measured using a stress test.

## *Pricing Model Exposure*

As described above, our proprietary pricing model, which continuously evaluates and monitors the risks inherent in our portfolio, assimilates external market data and reevaluates the outstanding quotes in our entire portfolio many times per second. Certain aspects of the model rely on historical prices of securities. If the behavior of price movements of individual securities diverges substantially from what their historical behavior would predict, we might incur trading losses. We attempt to limit such risks by diversifying our portfolio across many different options, futures and underlying securities and avoiding concentrations of positions based on the same underlying security. Historically, our losses from these events have been immaterial in comparison to our annual trading profits.

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## Foreign Currency Exposure

As a result of our international activities and accumulated earnings in our foreign subsidiaries, our income and equity are exposed to fluctuations in foreign exchange rates. For example, some of our European and Asian operations are conducted by our Swiss subsidiary, IBKRFS. IBKRFS is regulated by the Swiss Financial Market Supervisory Authority as a securities dealer and its financial statements are presented in Swiss francs. Accordingly, IBKRFS is exposed to certain foreign exchange risks as described below:

- IBKRFS buys and sells securities denominated in various currencies and carries bank balances and borrows and lends such currencies in its regular course of business. At the end of each accounting period, IBKRFS' assets and liabilities are revalued into Swiss francs for presentation in its financial statements. The resulting foreign currency gains or losses are reported in IBKRFS' income statement and, as translated into U.S. dollars for U.S. GAAP purposes, in our consolidated statements of comprehensive income as a component of other income.
- IBKRFS' financial statements are presented in Swiss francs (i.e., its functional currency) as noted above. At the end of each accounting period, IBKRFS' equity is translated at the then prevailing exchange rate into U.S. dollars and the resulting translation gain or loss is reported as OCI in our consolidated statements of financial condition and consolidated statements of comprehensive income. OCI is also produced by our other non-U.S. subsidiaries.

Historically, we have taken the approach of not hedging the above exposures, based on the notion that the cost of constantly hedging over the years would amount to more than the random impact of rate changes on our non-U.S. dollar balances. For instance, an increase in the value of the Swiss franc would be unfavorable to the earnings of IBKRFS but would be counterbalanced to some extent by the fact that the translation gain or loss into U.S. dollars is likely to move in the opposite direction.

Our risk management systems incorporate cash forex to hedge our currency exposure at little or no cost. Currency spot positions entered into as part of our currency diversification strategy are held by the parent holding company, IBG LLC. In connection with the development of our currency diversification strategy, we determined to base our equity in GLOBALs, a basket of currencies.

Because we conduct business in many countries and many currencies and because we consider ourselves a global enterprise based in a diversified basket of currencies rather than a U.S. dollar based company, we actively manage our global currency exposure by maintaining our equity in GLOBALs. The U.S. dollar value of the GLOBAL decreased 1.85% as of December 31, 2022 compared to December 31, 2021. As of December 31, 2022, approximately 24% of our equity was denominated in currencies other than the U.S. dollar.

The table below presents a comparison of the U.S. dollar equivalent of the GLOBAL for the periods indicated.

| Currency | Composition | As of 12/31/2021 |  |  |  | As of 12/31/2022 |  |  |  | CHANGE in % of Comp. |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | FX Rate | GLOBAL in USD Equiv. | % of Comp. | Net Equity (in USD millions) | FX Rate | GLOBAL in USD Equiv. | % of Comp. | Net Equity (in USD millions) |  |
| USD . . . . | 0.72 | 1.0000 | 0.720 | 74.4% | $7,605 | 1.0000 | 0.720 | 75.8% | $8,803 | 1.4% |
| EUR . . . . | 0.09 | 1.1372 | 0.102 | 10.6% | 1,081 | 1.0704 | 0.096 | 10.1% | 1,178 | -0.4% |
| JPY . . . . | 3.91 | 0.0087 | 0.034 | 3.5% | 359 | 0.0076 | 0.030 | 3.1% | 365 | -0.4% |
| GBP . . . . | 0.02 | 1.3527 | 0.027 | 2.8% | 286 | 1.2099 | 0.024 | 2.5% | 296 | -0.2% |
| CHF . . . . | 0.02 | 1.0963 | 0.022 | 2.3% | 232 | 1.0816 | 0.022 | 2.3% | 265 | 0.0% |
| CNH . . . . | 0.13 | 0.1572 | 0.020 | 2.1% | 216 | 0.1445 | 0.019 | 2.0% | 230 | -0.1% |
| INR . . . . | 1.10 | 0.0134 | 0.015 | 1.5% | 156 | 0.0121 | 0.013 | 1.4% | 163 | -0.1% |
| CAD . . . . | 0.02 | 0.7912 | 0.012 | 1.2% | 125 | 0.7385 | 0.011 | 1.2% | 135 | -0.1% |
| AUD . . . . | 0.02 | 0.7266 | 0.011 | 1.1% | 115 | 0.6816 | 0.010 | 1.1% | 125 | 0.0% |
| HKD . . . . | 0.04 | 0.1283 | 0.004 | 0.5% | 47 | 0.1281 | 0.004 | 0.5% | 55 | 0.0% |
|  |  |  | 0.968 | 100.0% | $10,222 |  | 0.950 | 100.0% | $11,615 | 0.0% |

The effects of our currency diversification strategy appear in two places in the consolidated financial statements: (1) as a component of other income in the consolidated statements of comprehensive income and (2) as OCI in the consolidated statements of financial condition and the consolidated statements of comprehensive income. The full effect of the GLOBAL is captured in the consolidated statements of comprehensive income.

Reported results on a comprehensive basis reflect the U.S. GAAP convention that requires the reporting of currency translation results contained in OCI as part of reportable earnings.

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### ***Interest Rate Risk***

We had no variable-rate debt outstanding as of December 31, 2022.

We pay our customers interest based on benchmark overnight interest rates in various currencies, when interest rates are above a benchmark rate plus a small spread, on cash balances above $10 thousand (or equivalent) in securities accounts holding more than $100 thousand and at lower, tiered rates for accounts holding less than $100 thousand (or equivalent) net asset value. In currencies with negative rates, we pass through the cost of holding certain cash balances to our customers; therefore, we charge our customers interest on these cash balances. In a normal rate environment, we typically invest a portion of these funds in U.S. government securities with maturities of up to two years. If interest rates were to increase rapidly and substantially, our net interest income would not increase proportionally with the interest rates for the portion of the funds invested at fixed yields. In addition, the mark-to-market changes in the value of these fixed rate securities will be reflected in other income, instead of net interest income. Our margin balances are priced to a benchmark rate plus a spread, with a minimum charge of 0.75% in U.S. dollars and most foreign currencies. At negative or near-zero benchmark rates, our interest sensitivity to rate increases is limited to the extent that a higher benchmark rate plus a spread may still be below the minimum charge.

Based on customer balances and investments outstanding as of December 31, 2022, and assuming reinvestment of maturing instruments in instruments of short-term duration, an unexpected increase of 0.25% over current U.S. dollar interest rate levels would increase our net interest income by approximately $49 million on an annualized basis, assuming the full effect of reinvestment at higher rates. A 0.25% increase in all the relevant non-U.S. dollar benchmark rates would increase our net interest income by $25 million on an annualized basis. Our interest rate sensitivity estimate contains separate assumptions for U.S. dollar rates from other currencies' rates and it isolates the effects of a rate increase on reinvestments. We do not approximate mark-to-market impact from interest rate changes; if U.S. government securities whose prices were to fall under these scenarios were held to maturity, as intended, then the reduction in other income would be temporary, as the securities would mature at par value.

We also face the potential for reduced net interest income from customer deposits and margin loans if benchmark rates were to fall. Based on customer balances and investments outstanding as of December 31, 2022, and assuming reinvestment of maturing instruments in instruments of short-term duration, an unexpected decrease in U.S. dollar interest rates of 0.25% would decrease our net interest income by approximately $49 million on an annualized basis, assuming the full effect of reinvestment at lower rates. A 0.25% decrease in all the relevant non-U.S. dollar benchmark rates would decrease our net interest income by $25 million on an annualized basis.

We also face interest rate risk due to positions carried for our remaining market making activities to the extent that long or short stock positions may have been established for future or forward dates on options or futures contracts and the value of such positions is impacted by interest rates. The amount of such risk cannot be quantified, however, the current low level of market making positions does not indicate a material potential exposure.

### ***Dividend Risk***

We face dividend risk in our remaining market making activities as we derive revenues and incur expenses in the form of dividend income and expense, respectively, from our inventory of equity securities, and must make payments in lieu of dividends on short positions in equity securities within our portfolio. Projected future dividends are an important component of pricing equity options and other derivatives, and incorrect projections may lead to trading losses. The amount of such risk cannot be quantified, however, the current low level of market making positions does not indicate a material potential exposure.

### ***Margin Loans***

We extend margin loans to our customers, which are subject to various regulatory requirements. Margin loans are collateralized by cash and securities in the customers' accounts. The risks associated with margin credit increase during periods of fast market movements or in cases where collateral is concentrated and market movements occur. During such times, customers who utilize margin loans and who have collateralized their obligations with securities may find that the securities have a rapidly depreciating value and may not be sufficient to cover their obligations in the event of a liquidation. We are also exposed to credit risk when our customers execute transactions, such as short sales of options and equities that can expose them to risk beyond their invested capital.

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We expect this kind of exposure to increase with the growth of our overall business. Because we indemnify and hold harmless our clearing houses and counterparties from certain liabilities or claims, the use of margin loans and short sales may expose us to significant off-balance-sheet risk if collateral requirements are not sufficient to fully cover losses that customers may incur and those customers fail to satisfy their obligations. As of December 31, 2022, we had $38.8 billion in margin loans extended to our customers. The amount of risk to which we are exposed from the margin loans we extend to our customers and from short sale transactions by our customers is unlimited and not quantifiable as the risk is dependent upon analysis of a potentially significant and undeterminable rise or fall in stock prices. Our account level margin requirements meet or exceed those required by Regulation T of the Board of Governors of the Federal Reserve and FINRA portfolio margin rules, as applicable. As a matter of practice, we enforce real-time margin compliance monitoring and liquidate customers' positions if their equity falls below required margin requirements.

We have a comprehensive policy implemented in accordance with regulatory standards to assess and monitor the suitability of investors to engage in various trading activities. To mitigate our risk, we also continuously monitor customer accounts to detect excessive concentration, large orders or positions, patterns of day trading and other activities that indicate increased risk to us.

Our credit exposure is to a great extent mitigated by our real-time margining system, which automatically evaluates each account throughout the trading day and closes 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 where no liquid market exists for the relevant securities or commodities or where, for any reason, automatic liquidation for certain accounts has been disabled. Our Risk Management Committee continually monitors and evaluates our risk management policies, including the implementation of policies and procedures to enhance the detection and prevention of potential events to mitigate margin loan losses.

### *Value-at-Risk*

We estimate VaR using a historical approach, which uses the historical daily price returns of underlying assets as well as estimates of the end of day implied volatility for options. Our one-day VaR is defined as the unrealized loss in portfolio value that, based on historically observed market risk factors, would have been exceeded with a frequency of one percent, based on a calculation with a confidence interval of 99%.

Our VaR model generally takes into account exposures to equity and commodity price risk and foreign exchange rates.

We use VaR as one of a range of risk management tools. Among their benefits, VaR models permit the estimation of a portfolio's aggregate market risk exposure, incorporating a range of varied market risks and portfolio assets. One key element of the VaR model is that it reflects risk reduction due to portfolio diversification or hedging activities. However, VaR has various strengths and limitations, which include, but are not limited to: use of historical changes in market risk factors, which may not be accurate predictors of future market conditions, and may not fully incorporate the risk of extreme market events that are outsized relative to observed historical market behavior or reflect the historical distribution of results beyond the confidence interval; and reporting of losses in a single day, which does not reflect the risk of positions that cannot be liquidated or hedged in one day. A small proportion of market risk generated by trading positions is not included in VaR. The modeling of the risk characteristics of some positions relies on approximations that, under certain circumstances, could produce significantly different results from those produced using more precise measures. VaR is most appropriate as a risk measure for trading positions in liquid financial markets and will understate the risk associated with severe events, such as periods of extreme illiquidity.

The VaR calculation simulates the performance of the portfolio based on several years of daily price changes of the underlying assets and determines the VaR as the calculated loss that occurs at the 99th percentile.

Since the reported VaR statistics are estimates based on historical data, VaR should not be viewed as predictive of our future revenues or financial performance or of our ability to monitor and manage risk. There can be no assurance that our actual losses on a particular day will not exceed the indicated VaR or that such losses will not occur more than one time in 100 trading days. VaR does not predict the magnitude of losses which, should they occur, may be significantly greater than the VaR amount.

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## Stress Test

We estimate the market risk of our fixed income portfolio using a risk analysis model provided by a leading external vendor. For corporate bonds, this stress test is configured to calculate the change in value of each fixed income security in the portfolio over one day in five scenarios each of which represents a parallel shift of the U.S. Treasury yield curve. The scenarios are shifts of +/- 100 and +/- 200 basis points. For U.S. government securities, the stress test is configured to calculate the change in value of each fixed income security in the portfolio over one day in three scenarios each of which represents a parallel shift of the U.S. Treasury yield curve. The scenarios are shifts of +/-50 basis points.

## VaR and Stress Test Measures

| Market Risk Category | At December 31, 2022 | At December 31, 2021 | Average 2022 | High 2022 |
| --- | --- | --- | --- | --- |
|  | (in millions) |  |  |  |
| Trading (1) |  |  |  |  |
| Equities and Currencies (2) | $8 | $8 | $7 | $8 |
| Trading Total | $8 | $8 | $7 | $8 |
| Non-Trading (1) |  |  |  |  |
| Equities and Currencies | $26 | $18 | $20 | $26 |
| Fixed Income, Other (3),(4) | 9 | 14 | 12 | 16 |
| Non-Trading Total | $35 | $32 | $32 | $42 |

(1) The product categories displayed in the table as “Trading” reflect activities undertaken in the Company’s market making activities.

The “Non-trading” category reflects investment activities and foreign currency exposures of the Company’s non-market making subsidiaries (i.e., its brokerage subsidiaries and information technology subsidiaries). This category also includes corporate activities in foreign exchange designed to achieve the Company’s currency diversification strategy.

The average and high VaR amounts for equities and currencies are based on end of day calculations performed in 2022. The fixed income stress amounts are based on the four quarter ending calculations performed in 2022.

(2) Equities and currencies held for market making purposes are combined because these products are part of an integrated, hedged market making portfolio, on which the risk is measured using VaR.
(3) The Non-Trading - Fixed Income, Other category contains primarily U.S. government securities held in segregated safekeeping accounts for the exclusive benefit of our brokerage customers, on which the risk is measured using a stress test analysis.
(4) As a result of the active rising interest rate environment, in 2022, we changed our methodology for risk computed under a stress test. Prior period amounts have been updated to conform to the current period presentation.

62

# **ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

# **Index to Consolidated Financial Statements**

| Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) | 64 |
| --- | --- |
| Consolidated Statements of Financial Condition as of December 31, 2022 and 2021 | 66 |
| Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021, and 2020 | 67 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020 | 68 |
| Consolidated Statements of Change in Equity for the years ended December 31, 2022, 2021, and 2020 | 69 |
| Notes to Consolidated Financial Statements | 70 |

63

# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of

## Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of Interactive Brokers Group, Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income, cash flows and changes in equity, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in *Internal Control - Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting.

## Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

## Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

### *Income taxes - Refer to Notes 2 and 11 to the consolidated financial statements*

#### *Critical Audit Matter Description*

The Company’s income tax expense, deferred tax assets and liabilities (net of valuation allowance, if any), and reserves for unrecognized tax benefits are based on enacted tax laws and reflects management’s best assessment of estimated future taxes to be paid. The Company is subject to income taxes in both the U.S. and various foreign jurisdictions. The Company has deferred tax assets resulting from the tax basis step-up received in connection with the Company’s public equity offerings. Determining income tax expense requires significant management judgments and estimates.

64

We identified management’s calculation of income tax expense, deferred tax assets and liabilities (net of valuation allowance, if any), and reserves for unrecognized tax benefits as a critical audit matter because of the significant judgments and estimates management makes to determine these amounts. Performing audit procedures to evaluate the reasonableness of management’s interpretation of tax law in various foreign jurisdictions, and its estimate of the associated provisions, tax charges, and uncertain tax positions required a high degree of auditor judgment and increased effort, including the need to involve our income tax specialists.

# *How the Critical Audit Matter Was Addressed in the Audit*

Our audit procedures related to income taxes included, among others, the following:

- • We tested the operating effectiveness of controls over income tax balances and disclosures, including the provision for income taxes, deferred tax assets and liabilities (including valuation allowance) and unrecognized tax benefits.
- • With the assistance of our income tax specialists, we assessed the Company's income tax expense by:
  - - Evaluating the Company's income tax provision calculation, including testing the appropriateness of income tax rates applied and of income allocations among the taxing jurisdictions, and the mathematical accuracy of the calculation.
  - - Evaluating the Company's analyses supporting its conclusions as to the recognition and measurement of deferred tax assets and liabilities, including the calculation of the deferred tax asset related to the tax basis step-up received in connection with the Company's public equity offering.
  - - Evaluating management's assessment of the Company's ability to utilize the net deferred tax assets in future years.
  - - Evaluating the appropriateness of the Company having no significant unrecognized tax benefits.
  - - Evaluating the Company's disclosures related to the provision for income taxes, deferred tax assets and liabilities (including valuation allowance) and unrecognized tax benefits.

/s/ Deloitte & Touche LLP

New York, New York

February 24, 2023

We have served as the Company’s auditor since 1990.

65

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Consolidated Statements of Financial Condition**

| (in millions, except share amounts) | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Assets |  |  |
| Cash and cash equivalents | $3,436 | $2,395 |
| Cash - segregated for regulatory purposes | 25,167 | 22,888 |
| Securities - segregated for regulatory purposes | 31,781 | 15,121 |
| Securities borrowed | 4,749 | 3,912 |
| Securities purchased under agreements to resell | 6,029 | 4,380 |
| Financial instruments owned, at fair value |  |  |
| Financial instruments owned | 396 | 559 |
| Financial instruments owned and pledged as collateral | 89 | 114 |
| Total financial instruments owned, at fair value | 485 | 673 |
| Receivables |  |  |
| Customers, less allowance for credit losses of $10 and $8 as of December 31, 2022 and 2021 | 38,760 | 54,935 |
| Brokers, dealers and clearing organizations | 3,469 | 3,771 |
| Interest | 341 | 127 |
| Total receivables | 42,570 | 58,833 |
| Other assets | 926 | 911 |
| Total assets | $115,143 | $109,113 |
| Liabilities and equity |  |  |
| Short-term borrowings | $18 | $27 |
| Securities loaned | 8,940 | 11,769 |
| Financial instruments sold, but not yet purchased, at fair value | 146 | 182 |
| Payables |  |  |
| Customers | 93,195 | 85,634 |
| Brokers, dealers and clearing organizations | 291 | 557 |
| Affiliate | 214 | 222 |
| Accounts payable, accrued expenses and other liabilities | 531 | 492 |
| Interest | 193 | 8 |
| Total payables | 94,424 | 86,913 |
| Total liabilities | 103,528 | 98,891 |
| Commitments, contingencies and guarantees (see Note 14) |  |  |
| Equity |  |  |
| Stockholders' equity |  |  |
| Common stock, $0.01 par value per share |  |  |
| Class A - Authorized - 1,000,000,000, Issued - 103,057,148 and 98,359,572 shares, Outstanding - 102,887,728 and 98,204,658 shares as of December 31, 2022 and 2021 | 1 | 1 |
| Class B - Authorized, Issued and Outstanding - 100 shares as of December 31, 2022 and 2021 | - | - |
| Additional paid-in capital | 1,581 | 1,442 |
| Retained earnings | 1,294 | 953 |
| Accumulated other comprehensive income, net of income taxes of $0 and $0 as of December 31, 2022 and 2021 | (22) | 4 |
| Treasury stock, at cost, 169,420 and 154,914 shares as of December 31, 2022 and 2021 | (6) | (5) |
| Total stockholders' equity | 2,848 | 2,395 |
| Noncontrolling interests | 8,767 | 7,827 |
| Total equity | 11,615 | 10,222 |
| Total liabilities and equity | $115,143 | $109,113 |

See accompanying notes to the consolidated financial statements.

66

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Consolidated Statements of Comprehensive Income**

| (in millions, except share or per share amounts) | Year-Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Revenues |  |  |  |
| Commissions | $1,322 | $1,350 | $1,112 |
| Other fees and services | 184 | 218 | 175 |
| Other income (loss) | (107) | (2) | 59 |
| Total non-interest income | 1,399 | 1,566 | 1,346 |
| Interest income | 2,686 | 1,372 | 1,133 |
| Interest expense | (1,018) | (224) | (261) |
| Total net interest income | 1,668 | 1,148 | 872 |
| Total net revenues | 3,067 | 2,714 | 2,218 |
| Non-interest expenses |  |  |  |
| Execution, clearing and distribution fees | 324 | 236 | 293 |
| Employee compensation and benefits | 454 | 399 | 325 |
| Occupancy, depreciation and amortization | 90 | 80 | 69 |
| Communications | 33 | 33 | 26 |
| General and administrative | 165 | 176 | 236 |
| Customer bad debt | 3 | 3 | 13 |
| Total non-interest expenses | 1,069 | 927 | 962 |
| Income before income taxes | 1,998 | 1,787 | 1,256 |
| Income tax expense | 156 | 151 | 77 |
| Net income | 1,842 | 1,636 | 1,179 |
| Less net income attributable to noncontrolling interests | 1,462 | 1,328 | 984 |
| Net income available for common stockholders | $380 | $308 | $195 |
| Earnings per share |  |  |  |
| Basic | $3.78 | $3.27 | $2.44 |
| Diluted | $3.75 | $3.24 | $2.42 |
| Weighted average common shares outstanding |  |  |  |
| Basic | 100,460,016 | 94,167,572 | 79,939,289 |
| Diluted | 101,299,609 | 95,009,880 | 80,638,908 |
| Comprehensive income |  |  |  |
| Net income available for common stockholders | $380 | $308 | $195 |
| Other comprehensive income |  |  |  |
| Cumulative translation adjustment, before income taxes | (26) | (22) | 26 |
| Income taxes related to items of other comprehensive income | - | - | - |
| Other comprehensive income (loss), net of tax | (26) | (22) | 26 |
| Comprehensive income available for common stockholders | $354 | $286 | $221 |
| Comprehensive income attributable to noncontrolling interests |  |  |  |
| Net income attributable to noncontrolling interests | $1,462 | $1,328 | $984 |
| Other comprehensive income - cumulative translation adjustment | (85) | (75) | 98 |
| Comprehensive income attributable to noncontrolling interests | $1,377 | $1,253 | $1,082 |

See accompanying notes to the consolidated financial statements.

67

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Consolidated Statements of Cash Flows**

| (in millions) | Year-Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Cash flows from operating activities |  |  |  |
| Net income | $1,842 | $1,636 | $1,179 |
| Adjustments to reconcile net income to net cash from operating activities |  |  |  |
| Deferred income taxes | 20 | 23 | 9 |
| Depreciation and amortization | 58 | 50 | 42 |
| Amortization of right-of-use assets | 26 | 24 | 20 |
| Employee stock plan compensation | 92 | 80 | 65 |
| Unrealized (gain) loss on other investments, net | 8 | 9 | (50) |
| (Gain) loss on remeasurement of Tax Receivable Agreement liability | (6) | (1) | 3 |
| Bad debt expense | 3 | 3 | 13 |
| Impairment loss | 1 | - | 14 |
| Shares distributed to customers under IBKR Promotions | 9 | 9 | - |
| Change in operating assets and liabilities |  |  |  |
| Securities - segregated for regulatory purposes | (16,660) | 12,700 | (9,997) |
| Securities borrowed | (837) | 1,044 | (1,040) |
| Securities purchased under agreements to resell | (1,649) | (3,588) | 2,319 |
| Financial instruments owned, at fair value | 189 | (32) | 1,286 |
| Receivables from customers | 16,172 | (15,605) | (8,041) |
| Other receivables | 88 | (2,540) | (515) |
| Other assets | 35 | (198) | (11) |
| Securities loaned | (2,829) | 1,931 | 5,428 |
| Securities sold under agreements to repurchase | - | - | (1,909) |
| Financial instruments sold, but not yet purchased, at fair value | (36) | 29 | (304) |
| Payable to customers | 7,561 | 9,754 | 19,634 |
| Other payables | (119) | 568 | (77) |
| Net cash provided by operating activities | 3,968 | 5,896 | 8,068 |
| Cash flows from investing activities |  |  |  |
| Purchases of other investments | (5) | (116) | (5) |
| Distributions received and proceeds from sales of other investments | 7 | 5 | 5 |
| Purchase of property, equipment and intangible assets | (69) | (77) | (50) |
| Net cash used in investing activities | (67) | (188) | (50) |
| Cash flows from financing activities |  |  |  |
| Short-term borrowings, net | (9) | 4 | 6 |
| Dividends paid to stockholders | (40) | (38) | (32) |
| Distributions from IBG LLC to noncontrolling interests | (404) | (374) | (283) |
| Repurchases of common stock for employee tax withholdings under stock incentive plans | (20) | (27) | (17) |
| Proceeds from the sale of treasury stock | 23 | 26 | 18 |
| Issuances of senior notes | - | 1,428 | 116 |
| Redemptions of senior notes | - | (1,524) | (20) |
| Payments made under the Tax Receivable Agreement | (20) | (18) | (17) |
| Net cash used in financing activities | (470) | (523) | (229) |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (111) | (97) | 124 |
| Net increase in cash, cash equivalents and restricted cash | 3,320 | 5,088 | 7,913 |
| Cash, cash equivalents and restricted cash at beginning of period | 25,283 | 20,195 | 12,282 |
| Cash, cash equivalents and restricted cash at end of period | $28,603 | $25,283 | $20,195 |
| Cash, cash equivalents and restricted cash |  |  |  |
| Cash and cash equivalents | 3,436 | 2,395 | 4,292 |
| Cash segregated for regulatory purposes | 25,167 | 22,888 | 15,903 |
| Cash, cash equivalents and restricted cash at end of period | $28,603 | $25,283 | $20,195 |
| Supplemental disclosures of cash flow information |  |  |  |
| Cash paid for interest | $833 | $222 | $284 |
| Cash paid for taxes, net | $148 | $114 | $64 |
| Cash paid for amounts included in lease liabilities | $32 | $24 | $21 |
| Non-cash financing activities |  |  |  |
| Issuance of common stock in exchange of member interests in IBG LLC | $192 | $376 | $609 |
| Redemption of member interests from IBG Holdings LLC | $(192) | $(376) | $(609) |
| Adjustments to additional paid-in capital for changes in proportionate ownership in IBG LLC | $27 | $25 | $21 |
| Adjustments to noncontrolling interests for changes in proportionate ownership in IBG LLC | $(27) | $(25) | $(21) |
| Non-cash distributions to noncontrolling interests | $(1) | $(3) | $(5) |

See accompanying notes to the consolidated financial statements.

68

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Consolidated Statements of Changes in Equity**  
 **Three Years Ended December 31, 2022, 2021, and 2020**

| (in millions, except share amounts) | Class A Common Stock |  | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income | Total Stockholders’ Equity | Non- controlling Interests | Total Equity |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Issued Shares | Par Value |  |  |  |  |  |  |  |
| Balance, December 31, 2019 | 76,889,040 | $1 | $934 | $(3) | $520 | $ - | $1,452 | $6,488 | $7,940 |
| Issuance of common stock in follow-on offering | 12,710,608 |  | 264 |  |  |  | 264 | (264) | - |
| Common stock distributed pursuant to stock incentive plans | 1,300,241 |  |  |  |  |  | - |  | - |
| Issuance of common stock - IBKR Promotion | 10,000 |  |  | (1) |  |  | (1) | 1 | - |
| Net distribution of common stock - IBKR Promotion |  |  |  | 1 |  |  | 1 |  | 1 |
| Compensation for stock grants vesting in the future |  |  | 12 |  |  |  | 12 | 53 | 65 |
| Deferred tax benefit retained - follow-on offering |  |  | 13 |  |  |  | 13 |  | 13 |
| Repurchases of common stock for employee tax withholdings under stock incentive plans |  |  |  | (17) |  |  | (17) |  | (17) |
| Sales of treasury stock |  |  |  | 17 |  |  | 17 | 1 | 18 |
| Dividends paid to stockholders - $0.10 per share |  |  |  |  | (32) |  | (32) |  | (32) |
| Distributions from IBG LLC to noncontrolling interests |  |  |  |  |  |  | - | (288) | (288) |
| Adjustments for changes in proportionate ownership in IBG LLC |  |  | 21 |  |  |  | 21 | (21) | - |
| Comprehensive income |  |  |  |  | 195 | 26 | 221 | 1,082 | 1,303 |
| Balance, December 31, 2020 | 90,909,889 | $1 | $1,244 | $(3) | $683 | $26 | $1,951 | $7,052 | $9,003 |
| Issuance of common stock in follow-on offering | 6,079,542 |  | 145 |  |  |  | 145 | (145) | - |
| Common stock distributed pursuant to stock incentive plans | 1,220,141 |  |  |  |  |  | - |  | - |
| Issuance of common stock - IBKR Promotion | 150,000 |  | 3 | (11) |  |  | (8) | 8 | - |
| Net distribution of common stock - IBKR Promotion |  |  |  | 9 |  |  | 9 |  | 9 |
| Compensation for stock grants vesting in the future |  |  | 18 |  |  |  | 18 | 62 | 80 |
| Deferred tax benefit retained - follow-on offering |  |  | 7 |  |  |  | 7 |  | 7 |
| Repurchases of common stock for employee tax withholdings under stock incentive plans |  |  |  | (27) |  |  | (27) |  | (27) |
| Sales of treasury stock |  |  |  | 27 |  |  | 27 | (1) | 26 |
| Dividends paid to stockholders - $0.10 per share |  |  |  |  | (38) |  | (38) |  | (38) |
| Distributions from IBG LLC to noncontrolling interests |  |  |  |  |  |  | - | (377) | (377) |
| Adjustments for changes in proportionate ownership in IBG LLC |  |  | 25 |  |  |  | 25 | (25) | - |
| Comprehensive income |  |  |  |  | 308 | (22) | 286 | 1,253 | 1,539 |
| Balance, December 31, 2021 | 98,359,572 | $1 | $1,442 | $(5) | $953 | $4 | $2,395 | $7,827 | $10,222 |
| Issuance of common stock in follow-on offering | 3,271,390 |  | 84 |  |  |  | 84 | (84) | - |
| Common stock distributed pursuant to stock incentive plans | 1,276,186 |  |  |  |  |  | - |  | - |
| Issuance of common stock - IBKR Promotion | 150,000 |  | 2 | (10) |  |  | (8) | 8 | - |
| Net distribution of common stock - IBKR Promotion |  |  |  | 9 |  |  | 9 |  | 9 |
| Compensation for stock grants vesting in the future |  |  | 23 |  |  |  | 23 | 69 | 92 |
| Deferred tax benefit retained - follow-on offering |  |  | 3 |  |  |  | 3 |  | 3 |
| Repurchases of common stock for employee tax withholdings under stock incentive plans |  |  |  | (20) |  |  | (20) |  | (20) |
| Sales of treasury stock |  |  |  | 20 | 1 |  | 21 | 2 | 23 |
| Dividends paid to stockholders - $0.10 per share |  |  |  |  | (40) |  | (40) |  | (40) |
| Distributions from IBG LLC to noncontrolling interests |  |  |  |  |  |  | - | (405) | (405) |
| Adjustments for changes in proportionate ownership in IBG LLC |  |  | 27 |  |  |  | 27 | (27) | - |
| Comprehensive income |  |  |  |  | 380 | (26) | 354 | 1,377 | 1,731 |
| Balance, December 31, 2022 | 103,057,148 | $1 | $1,581 | $(6) | $1,294 | $(22) | $2,848 | $8,767 | $11,615 |

See accompanying notes to the consolidated financial statements.

69

# Interactive Brokers Group, Inc. and Subsidiaries

### 1. Organization of Business

Interactive Brokers Group, Inc. (“IBG, Inc.”) is a Delaware holding company whose primary asset is its ownership of approximately 24.5% of the membership interests of IBG LLC, which, in turn, owns operating subsidiaries (collectively, “IBG LLC”). IBG, Inc. together with IBG LLC and its consolidated subsidiaries (collectively, “the Company”), is an automated global electronic broker specializing in executing and clearing trades in stocks, options, futures, foreign exchange instruments, bonds, mutual funds, exchange-traded funds (“ETFs”) and precious metals on more than 150 electronic exchanges and market centers around the world and offering custody, prime brokerage, securities and margin lending services to customers. In addition, our customers can use our trading platform to trade certain cryptocurrencies through a third-party cryptocurrency service provider that executes, clears and custodies the cryptocurrencies. In the United States of America (“U.S.”), the Company conducts its business primarily from its headquarters in Greenwich, Connecticut and from Chicago, Illinois. Abroad, the Company conducts its business through offices located in Canada, the United Kingdom, Ireland, Switzerland, Hungary, India, China (Hong Kong and Shanghai), Japan, Singapore, and Australia. As of December 31, 2022, the Company had 2,820 employees worldwide.

IBG LLC is a Connecticut limited liability company that conducts its business through its significant operating subsidiaries: Interactive Brokers LLC (“IB LLC”); IBKR Securities Services LLC (“IBKRSS”); Interactive Brokers Canada Inc. (“IBC”); Interactive Brokers (U.K.) Limited (“IBUK”); Interactive Brokers Ireland Limited (“IBIE”); IBKR Financial Services AG (“IBKRFS”); Interactive Brokers Central Europe Zrt. (“IBCE”); Interactive Brokers (India) Private Limited (“IBI”); Interactive Brokers Hong Kong Limited (“IBHK”); Interactive Brokers Securities Japan, Inc. (“IBSJ”); Interactive Brokers Singapore Private Limited (“IBSG”); and Interactive Brokers Australia Pty Limited (“IBA”).

Certain operating subsidiaries are members of various securities and commodities exchanges in North America, Europe and the Asia/Pacific region and are subject to regulatory capital and other requirements (see Note 16). IB LLC, IBKRSS, IBC, IBUK, IBIE, IBCE, IBI, IBHK, IBSJ, IBSG and IBA carry securities accounts for customers or perform custodial functions relating to customer securities.

### 2. Significant Accounting Policies

#### *Basis of Presentation*

These consolidated financial statements are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding financial reporting with respect to Form 10-K.

These consolidated financial statements include the accounts of the Company and its consolidated subsidiaries and reflect all adjustments of a normal and recurring nature that are, in the opinion of management, necessary for the fair presentation of the results for the periods presented.

#### *Principles of Consolidation, including Noncontrolling Interests*

These 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 IBG LLC’s operations. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” the Company consolidates IBG LLC’s financial statements and records the interests in IBG LLC that it does not own as noncontrolling interests.

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.

#### *Use of Estimates*

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in these consolidated financial statements and accompanying notes. These estimates and assumptions are based on judgment and the best available information at the time. Therefore, actual results could differ materially from those estimates. Such estimates include the allowance for credit losses, valuation of certain investments, compensation accruals, current and deferred income taxes, and contingency reserves.

70

# **Interactive Brokers Group, Inc. and Subsidiaries**
**Notes to Consolidated Financial Statements**

# **2. Significant Accounting Policies (Continued)**

# *Fair Value*

Substantially all of the Company's assets and liabilities, including financial instruments, are carried at fair value based on published market prices and are marked to market, or are assets and liabilities which are short-term in nature and are carried at amounts that approximate fair value.

The Company applies the fair value hierarchy in accordance with FASB ASC Topic 820, "Fair Value Measurement" ("ASC Topic 820"), to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy are:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Quoted prices for similar assets in an active market, quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3 Prices or valuations that require inputs that are both significant to fair value measurement and unobservable.

Financial instruments owned, at fair value, and financial instruments sold, but not yet purchased, at fair value are generally classified as Level 1 of the fair value hierarchy. The Company's Level 1 financial instruments, which are valued using quoted market prices as published by exchanges and clearing houses or otherwise broadly distributed in active markets, include active listed stocks, options, warrants and U.S. and foreign government securities. The Company does not adjust quoted prices for financial instruments classified as Level 1 of the fair value hierarchy, even if the Company may hold a large position whereby a purchase or sale could reasonably be expected to impact quoted prices.

Currency forward contracts are valued using broadly distributed bank and broker prices and are classified as Level 2 of the fair value hierarchy since inputs to their valuation can generally be corroborated by market data. Precious metals are valued using an internal model, which incorporates the exchange-traded futures price of the underlying instruments, benchmark interest rates and estimated storage costs, and are classified as Level 2 of the fair value hierarchy since the significant inputs to their valuation are observable. Other securities that are not traded in active markets are also classified as Level 2 of the fair value hierarchy. Level 3 financial instruments are comprised of securities that have been delisted or otherwise are no longer tradable in active markets and have been valued by the Company based on internal estimates.

# *Earnings per Share*

Earnings per share ("EPS") is computed in accordance with FASB ASC Topic 260, "Earnings per Share." Basic EPS is computed by dividing the net income available for common stockholders by the weighted average number of shares outstanding for that period. Diluted EPS is calculated by dividing the net income available for common stockholders by the diluted weighted average shares outstanding for that period. Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect of shares of common stock estimated to be distributed in the future under the Company's stock-based compensation plans, with no adjustments to net income available for common stockholders for potentially dilutive common shares.

# *Current Expected Credit Losses*

The Company follows FASB ASC Topic 326 - "Financial Instruments - Credit Losses" ("ASC Topic 326") which applies to financial assets measured at amortized cost, held-to-maturity debt securities and off-balance sheet credit exposures. For on-balance sheet assets, an allowance must be recognized at the origination or purchase of in-scope assets and represents the expected credit losses over the contractual life of those assets.

71

# **Interactive Brokers Group, Inc. and Subsidiaries**  
**Notes to Consolidated Financial Statements**

# **2. Significant Accounting Policies (Continued)**

Expected credit losses on off-balance sheet credit exposures must be estimated over the contractual period the Company is exposed to credit risk as a result of a present obligation to extend credit. The impact to the current period is not material since the Company's in-scope assets are primarily subject to collateral maintenance provisions for which the Company elected to apply the practical expedient of reporting the difference between the fair value of the collateral and the amortized cost for the in-scope assets as the allowance for current expected credit losses.

# ***Cash and Cash Equivalents***

Cash and cash equivalents consist of deposits with banks and all highly liquid investments, with maturities of three months or less, that are not segregated and deposited for regulatory purposes or to meet margin requirements at clearing houses and clearing banks.

# ***Cash and Securities - Segregated for Regulatory Purposes***

As a result of customer activities, certain operating subsidiaries are obligated by rules mandated by their primary regulators to segregate or set aside cash or qualified securities to satisfy such regulations, which have been promulgated to protect customer assets. Restricted cash represents cash and cash equivalents that are subject to withdrawal or usage restrictions. Cash segregated for regulatory purposes meets the definition of restricted cash and is included in 'cash, cash equivalents and restricted cash' in the consolidated statements of cash flows.

The table below presents the composition of the Company's securities segregated for regulatory purposes for the periods indicated.

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
|  | (in millions) |  |
| U.S. and foreign government securities | $4,641 | $4,729 |
| Municipal securities | 82 | - |
| Securities purchased under agreements to resell 1 | 27,058 | 10,392 |
|  | $31,781 | $15,121 |

(1) These balances are collateralized by U.S. government securities.

# ***Securities Borrowed and Securities Loaned***

Securities borrowed and securities loaned are recorded at the amount of the cash collateral advanced or received. Securities borrowed transactions require the Company to provide counterparties with collateral, which may be in the form of cash, letters of credit or other securities. With respect to securities loaned, the Company receives collateral, which may be in the form of cash or other securities in an amount generally in excess of the fair value of the securities loaned. The Company monitors the market value of securities borrowed and loaned daily, with additional collateral obtained or refunded as permitted contractually. The Company's policy is to net, in the consolidated statements of financial condition, securities borrowed and securities loaned contracts entered into with the same counterparty that meet the offsetting requirements prescribed in FASB ASC Topic 210-20, 'Balance Sheet - Offsetting' ('ASC Topic 210-20').

Securities lending fees received and paid by the Company are included in interest income and interest expense, respectively, in the consolidated statements of comprehensive income.

72

# **Interactive Brokers Group, Inc. and Subsidiaries**
**Notes to Consolidated Financial Statements**

# **2. Significant Accounting Policies (Continued)**

# ***Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase***

Securities purchased under agreements to resell and securities sold under agreements to repurchase, which are reported as collateralized financing transactions, are recorded at contract value, which approximates fair value. To ensure that the fair value of the underlying collateral remains sufficient, the collateral is valued daily with additional collateral obtained or excess collateral returned, as permitted under contractual provisions. The Company's policy is to net, in the consolidated statements of financial condition, securities purchased under agreements to resell transactions and securities sold under agreements to repurchase transactions entered into with the same counterparty that meet the offsetting requirements prescribed in ASC Topic 210-20.

# ***Financial Instruments Owned and Financial Instruments Sold, But Not Yet Purchased, at Fair Value***

Financial instrument transactions are accounted for on a trade date basis. Financial instruments owned and financial instruments sold, but not yet purchased are stated at fair value based upon quoted market prices, or if not available, are valued by the Company based on internal estimates (see Fair Value above). The Company's financial instruments pledged to counterparties where the counterparty has the right, by contract or custom, to sell or repledge the financial instruments are reported as financial instruments owned and pledged as collateral in the consolidated statements of financial condition.

# ***Customer Receivables and Payables***

Receivables from and payables to customers include amounts due on cash and margin transactions, including futures contracts transacted on behalf of customers. Securities owned by customers, including those that collateralize margin loans or other similar transactions, are not reported in the consolidated statements of financial condition. Amounts receivable from customers that are determined by management to be uncollectible are recorded as customer bad debt expense in the consolidated statements of comprehensive income.

# ***Receivables from and Payables to Brokers, Dealers and Clearing Organizations***

Receivables from and payables to brokers, dealers and clearing organizations include net receivables and payables from unsettled trades, including amounts related to futures and options on futures contracts executed on behalf of customers, amounts receivable for securities not delivered by the Company to the purchaser by the settlement date ("fails to deliver") and cash deposits. Payables to brokers, dealers and clearing organizations also include amounts payable for securities not received by the Company from a seller by the settlement date ("fails to receive").

# ***Investments***

The Company makes certain strategic investments related to its business which are included in other assets in the consolidated statements of financial condition. The Company accounts for these investments as follows:

- Under the equity method of accounting as required under FASB ASC Topic 323, "Investments - Equity Method and Joint Ventures." These investments, including where the investee is a limited partnership or limited liability company, are recorded at the fair value amount of the Company's initial investment and are adjusted each period for the Company's share of the investee's income or loss. Contributions paid to and distributions received from equity method investees are recorded as additions or reductions, respectively, to the respective investment balance.
- At fair value, if the investment in equity securities has a readily determinable fair value.
- At adjusted cost, if the investment does not have a readily determinable fair value. Adjusted cost represents the historical cost, less impairment if any. If the Company identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer, the Company measures the equity security at fair value as of the date that the observable transaction occurred in accordance with FASB ASC Topic 321, "Investments in Equity Securities."

73

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Notes to Consolidated Financial Statements**

# **2. Significant Accounting Policies (Continued)**

A judgmental aspect of accounting for investments is evaluating whether a decline in the value of an investment has occurred. The evaluation of impairment is dependent on specific quantitative and qualitative factors and circumstances surrounding an investment, including recurring operating losses, credit defaults and subsequent rounds of financing. Most of the Company's equity investments do not have readily determinable market values. All investments are reviewed for changes in circumstances or occurrence of events that suggest the Company's investment may not be recoverable. An impairment loss, if any, is recognized in the period the determination is made.

The table below presents the composition of the Company's investments for the periods indicated.

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
|  | (in millions) |  |
| Equity method investments 1 | $121 | $123 |
| Investments in equity securities at adjusted cost 2 | 16 | 17 |
| Investments in equity securities at fair value 2 | 34 | 49 |
| Investments in exchange memberships and equity securities of certain exchanges 2 | 2 | 3 |
|  | $173 | $192 |

(1) The Company's share of income or losses is included in other income in the consolidated statements of comprehensive income.

(2) These investments do not qualify for the equity method of accounting. Dividends received are included in other income in the consolidated statements of comprehensive income.

# ***Property, Equipment and Intangible Assets***

Property, equipment and intangible assets, which are included in other assets in the consolidated statements of financial condition, consist of leasehold improvements, computer equipment, software developed for the Company's internal use, office furniture and equipment.

Property and equipment are recorded at historical cost, less accumulated depreciation and amortization. Additions and improvements that extend the lives of assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred. Depreciation and amortization are computed using the straight-line method. Equipment is depreciated over the estimated useful lives of the assets, while leasehold improvements are amortized over the lesser of the estimated economic useful life of the asset or the term of the lease. Computer equipment is depreciated over three to five years and office furniture and equipment are depreciated over five to seven years. Intangible assets with a finite life are amortized on a straight-line basis over their estimated useful lives of three to five years, and tested for recoverability whenever events indicate that the carrying amounts may not be recoverable. Qualifying costs for internally developed software are capitalized and amortized over the expected useful life of the developed software, not to exceed three years. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the consolidated statements of financial condition and any resulting gain or loss is recorded in other income in the consolidated statements of comprehensive income. Fully depreciated (or amortized) assets are retired periodically throughout the year.

# ***Leases***

The Company reviews all relevant contracts to determine if the contract contains a lease at its inception date. A contract contains a lease if the contract conveys to the company the right to control the use of an underlying asset for a period of time in exchange for consideration. If the Company determines that a contract contains a lease, it recognizes, in the consolidated statements of financial condition, a lease liability and a corresponding right-of-use asset on the commencement date of the lease. The lease liability is initially measured at the present value of the future lease payments over the lease term using the rate implicit in the lease or, if not readily determinable, the Company's secured incremental borrowing rate. An operating lease right-of-use asset is initially measured at the value of the lease liability minus any lease incentives and initial direct costs incurred plus any prepaid rent.

74

# **Interactive Brokers Group, Inc. and Subsidiaries**  
**Notes to Consolidated Financial Statements**

# **2. Significant Accounting Policies (Continued)**

The Company’s leases are classified as operating leases and consist of real estate leases for office space, data centers and other facilities. Each lease liability is measured using the Company’s secured incremental borrowing rate, which is based on an internally developed yield curve using interest rates of third parties’ corporate debt issued with a similar risk profile as the Company and a duration similar to the lease term. The Company’s leases have remaining terms of less than one year to fourteen years, some of which include options to extend the lease term, and some of which include options to terminate the lease upon notice. The Company considers these options when determining the lease term used to calculate the right-of-use asset and the lease liability when the Company is reasonably certain it will exercise such option.

The Company’s operating leases contain both lease components and non-lease components. Non-lease components are distinct elements of a contract that are not related to securing the use of the underlying assets, such as common area maintenance and other management costs. The Company elected to measure the lease liability by combining the lease and non-lease components as a single lease component. As such, the Company includes the fixed payments and any payments that depend on a rate or index that relate to the lease and non-lease components in the measurement of the lease liability. Some of the non-lease components are variable and not based on an index or rate, and as a result, are not included in the measurement of the right-of-use asset or lease liability.

Operating lease expense is recognized on a straight-line basis over the lease term and is included in occupancy, depreciation and amortization expense in the Company’s consolidated statements of comprehensive income.

# ***Crypto-assets safeguarding liability and corresponding safeguarding asset***

In March 2022, the SEC published Staff Accounting Bulletin No. 121 (“SAB 121”), which provides interpretive accounting and disclosure guidance to entities that have obligations to safeguard crypto-assets held for their platform users, whether directly or through an agent or another third party acting on its behalf. SAB 121 requires an entity to recognize a liability to reflect its obligation to safeguard the crypto-assets held for its platform users and a corresponding safeguarding asset on its balance sheet, even when the Company does not control the crypto-assets. Both the crypto-asset safeguarding liability and the corresponding safeguarding asset shall be measured at the fair value of the crypto-assets held for the platform users with the measurement of the safeguarding asset taking into account any potential loss events. SAB 121 is effective for interim or annual periods ending after June 15, 2022, with retrospective application as of the beginning of the fiscal year. The Company adopted SAB 121 as of June 30, 2022, with retrospective application as of January 1, 2022.

The Company operates a trading platform that allows its customers to access a digital asset exchange and custody services provided by a third-party Cryptocurrency Service Provider (“CSP”) to buy, sell and hold crypto-assets in an account in the customer’s name at the CSP. The Company does not provide execution, custody or safeguarding services for the customers’ crypto-assets and does not maintain (or have access to) the cryptographic key information and wallets necessary to access the crypto-assets, nor does the Company have any legal title or claim to those crypto-assets. The CSP is responsible for securing the customers’ crypto-assets and protecting them from loss or theft. The agreement the customer signs with IB LLC before the customer is permitted to access the CSP’s services through IB LLC’s platform provides that:

[Customer] acknowledges and agrees that [IB LLC] is not responsible for any trading or other losses (including, without limitation, losses due to theft, fraud, cybersecurity breach, loss of control of private keys, or any other loss arising from trading or holding digital assets with [the CSP]) resulting directly or indirectly from or in connection with [Customer’s] relationship with [the CSP] and/or [Customer’s] trading or holding of digital assets, including activity or holdings in the [CSP] Account.

Even though the Company is not responsible for the custody or safeguarding of crypto-assets, the Company is deemed to be in scope of SAB 121.

75

# **Interactive Brokers Group, Inc. and Subsidiaries**  
**Notes to Consolidated Financial Statements**

# **2. Significant Accounting Policies (Continued)**

As of December 31, 2022, the fair value of the crypto-assets held in the customers’ names at the CSP that the Company recognized on its balance sheet for both the crypto-asset safeguarding liability and the corresponding safeguarding asset, which are included in “accounts payable, accrued expenses and other liabilities” and “other assets,” respectively, in the consolidated statements of financial condition, was $80 million ($134 million as of January 1, 2022), which consisted of $44 million of Bitcoin, $34 million of Ethereum and $2 million of other crypto-assets. Changes in the fair value of crypto-assets, held by our customers at the CSP, do not impact our consolidated statements of comprehensive income unless a loss event is identified. As of December 31, 2022, the CSP did not identify any loss events.

# ***Comprehensive Income and Foreign Currency Translation***

The Company’s operating results are reported in the consolidated statements of comprehensive income pursuant to FASB ASC Topic 220, “Comprehensive Income.”

Comprehensive income consists of two components: net income and other comprehensive income (“OCI”). The Company’s OCI is comprised of gains and losses resulting from translating foreign currency financial statements of non-U.S. subsidiaries, net of related income taxes, where applicable. In general, the practice and intention of the Company is to reinvest the earnings of its non-U.S. subsidiaries in those operations; therefore, tax is usually not accrued on OCI.

The Company’s non-U.S. domiciled subsidiaries have a functional currency that is other than the U.S. dollar. Such subsidiaries’ assets and liabilities are translated into U.S. dollars at period-end exchange rates, and revenues and expenses are translated at average exchange rates prevailing during the period. Adjustments that result from translating amounts from a subsidiary’s functional currency to the U.S. dollar (as described above) are reported net of tax, where applicable, in accumulated OCI in the consolidated statements of financial condition. In December of 2020, the Company liquidated its Canadian subsidiary, Timber Hill Canada Company, and accordingly reclassified the accumulated OCI loss of $34 million to other income in the consolidated statements of comprehensive income.

# ***Revenue Recognition***

# ***Commissions***

Commissions earned for executing and/or clearing transactions are accrued on a trade date basis and are reported as commissions in the consolidated statements of comprehensive income. Commissions also include payments for order flow income received from IBKR Lite$^{SM}$ liquidity providers. The Company’s IBKR Lite$^{SM}$ offering provides commission-free trades on U.S. exchange-listed stocks and ETFs and generates no commission revenues from customers on these trades. See Note 8 for further information on revenue from contracts with customers.

# ***Other Fees and Services***

The Company earns fee income on services provided to customers, which includes market data fees, risk exposure fees, payments for order flow from exchange-mandated programs, minimum activity fees, and other fees and services charged to customers. Fee income is recognized either daily or monthly. See Note 8 for further information on revenue from contracts with customers.

# ***Interest Income and Expense***

The Company earns interest income and incurs interest expense primarily in connection with its electronic brokerage customer business and its securities lending activities, which are recorded on an accrual basis and are included in interest income and interest expense, respectively, in the consolidated statements of comprehensive income.

76

# **Interactive Brokers Group, Inc. and Subsidiaries**  
**Notes to Consolidated Financial Statements**

# **2. Significant Accounting Policies (Continued)**

# *Principal Transactions*

Principal transactions include gains and losses as a result of changes in the fair value of financial instruments owned, at fair value, financial instruments sold, but not yet purchased, at fair value, and other investments measured at fair value (i.e., unrealized gains and losses) and realized gains and losses related to the Company’s principal transactions. Included are net gains and losses on stocks, options, U.S. and foreign government securities, municipal securities, futures, foreign exchange, precious metals and other derivative instruments, which are reported on a net basis in other income in the consolidated statements of comprehensive income. Dividends are integral to the valuation of stocks. Accordingly, dividend income and expense attributable to financial instruments owned, at fair value and financial instruments sold, but not yet purchased, at fair value, are reported on a net basis in other income in the consolidated statements of comprehensive income.

# *Foreign Currency Gains and Losses*

Foreign currency balances are assets and liabilities in currencies other than the Company’s functional currency. At every reporting date, the Company revalues its foreign currency balances to its functional currency at the spot exchange rate and records the associated foreign currency gains and losses. These foreign currency gains and losses are reported in the consolidated statements of comprehensive income, as follows: (a) foreign currency gains and losses related to the Company’s currency diversification strategy are reported in other income; (b) foreign currency gains and losses arising from currency swap transactions are reported in interest income or interest expense; and (c) all other foreign currency gains and losses are reported in other income.

# *Rebates*

Rebates consist of volume discounts, credits, or payments received from exchanges or other market centers related to the placement and/or removal of liquidity from the marketplace and are recorded on an accrual basis. Rebates are recorded net within execution, clearing and distribution fees in the consolidated statements of comprehensive income. Rebates received for trades executed on behalf of customers that elect tiered pricing are passed, in whole or part, to these customers, and such pass-through amounts are recorded net within commissions in the consolidated statements of comprehensive income.

# *Stock-Based Compensation*

The Company 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 the 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 the plans’ post-employment provisions (as 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 stock-based compensation plans are subject to the plans’ post-employment provisions 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 be eligible to earn 50% of previously granted but not yet earned awards, unless the employee is over the age of 59, in which case the employee would be eligible to receive 100% of previously granted but not yet earned awards.

77

# **Interactive Brokers Group, Inc. and Subsidiaries**  
**Notes to Consolidated Financial Statements**

# **2. Significant Accounting Policies (Continued)**

# ***Income Taxes***

The Company accounts for income taxes in accordance with FASB ASC Topic 740, “Income Taxes” (“ASC Topic 740”). The Company’s income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits are based on enacted tax laws (see Note 11) and reflect management’s best assessment of estimated future taxes to be paid. The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Determining income tax expense requires significant judgment and estimates. Deferred income tax assets and liabilities arise from temporary differences between the tax and financial statement recognition of underlying assets and liabilities. In evaluating the ability to recover deferred tax assets within the jurisdictions from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of recent operations. In projecting future taxable income, historical results are adjusted for changes in accounting policies and incorporate assumptions including the amount of future state, federal and foreign pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company is using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, three years of cumulative operating income (loss) are considered. Deferred income taxes have not been provided for U.S. tax liabilities or for additional foreign taxes on the unremitted earnings of foreign subsidiaries that have been indefinitely reinvested.

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across the Company’s global operations. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future.

The Company records tax liabilities in accordance with ASC Topic 740 and adjusts these liabilities when management’s judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in payments that are different from the current estimates of these tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information becomes available.

The Company recognizes a tax benefit from an uncertain tax position only when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. A tax position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement.

The Company recognizes interest related to income tax matters as interest income or interest expense and penalties related to income tax matters as income tax expense in the consolidated statements of comprehensive income.

78

# **Interactive Brokers Group, Inc. and Subsidiaries**
**Notes to Consolidated Financial Statements**

# **2. Significant Accounting Policies (Continued)**

# *Standards Adopted During 2022*

| Standard | Summary of guidance | Effect on financial statements |
| --- | --- | --- |
| Accounting for the Obligations to Safeguard Crypto-assets (SAB 121) Issued March 2022 | Requires companies that have obligations to safeguard crypto-assets held for their platform users to recognize a liability to reflect such obligation and a corresponding asset in the balance sheet, both measured at the fair value of the crypto-assets. | Effective date: Effective for interim or annual periods ending after June 15, 2022, with retrospective application as of the beginning of the fiscal year. The Company adopted SAB 121 as of June 30, 2022, which resulted in the recognition a crypto-asset safeguarding liability and the corresponding safeguarding asset on its consolidated statements of financial condition. |

# *FASB Standards issued but not adopted as of December 31, 2022*

| Standard | Summary of guidance | Effect on financial statements |
| --- | --- | --- |
| Business Combinations (Topic 805) Issued October 2021 | Requires companies to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, “Revenue from Contracts with Customers”. At the acquisition date, the acquirer should account for the related revenue contracts as if it had originated the contracts. | Effective date: January 1, 2023. The changes are not expected to have a material impact on the Company’s consolidated financial statements. |

# **3. Trading Activities and Related Risks**

Trading activities expose the Company to market and credit risks. These risks are managed in accordance with established risk management policies and procedures. To accomplish this, management has established a risk management process that includes:

- a regular review of the risk management process by executive management as part of its oversight role;
- defined risk management policies and procedures supported by a rigorous analytic framework; and
- articulated risk tolerance levels as defined by executive management that are regularly reviewed to ensure that the Company’s risk-taking is consistent with its business strategy, its capital structure, and current and anticipated market conditions.

79

# **Interactive Brokers Group, Inc. and Subsidiaries**  
**Notes to Consolidated Financial Statements**

# **3. Trading Activities and Related Risks (Continued)**

# ***Market Risk***

The Company is exposed to various market risks. Exposures to market risks arise from equity price risk, foreign currency exchange rate fluctuations and changes in interest rates. The Company seeks to mitigate market risk associated with trading inventories by employing hedging strategies that correlate rate, price and spread movements of trading inventories and related financing and hedging activities. The Company uses a combination of cash instruments and exchange-traded derivatives to hedge its market exposures. The Company does not apply hedge accounting. The following discussion describes the types of market risk faced:

# ***Equity Price Risk***

Equity price risk arises from the possibility that equity security prices will fluctuate, affecting the value of equity securities and other instruments that derive their value from a particular stock, a defined basket of stocks, or a stock index. The Company is subject to equity price risk primarily in financial instruments owned, at fair value and financial instruments sold, but not yet purchased, at fair value. The Company attempts to limit such risks by continuously reevaluating prices and by diversifying its portfolio across many different options, futures and underlying securities and avoiding concentrations of positions based on the same underlying security.

# ***Interest Rate Risk***

Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments. The Company is exposed to interest rate risk on cash and margin balances, positions carried in equity and fixed income securities, options, futures and on its borrowings. These risks are managed through investment policies and by entering into interest rate futures contracts.

# ***Currency Risk***

Currency risk arises from the possibility that fluctuations in foreign exchange rates will impact the value of financial instruments. The Company manages this risk using spot (i.e., cash) currency transactions, currency futures contracts and currency forward contracts. The Company actively manages its currency exposure using a currency diversification strategy that is based on a defined basket of ten currencies internally referred to as the “GLOBAL.” These strategies minimize the fluctuation of the Company’s equity as expressed in GLOBALs, thereby diversifying its risk in alignment with these global currencies, weighted by the Company’s view of their importance. As the Company’s financial results are reported in U.S. dollars, the change in the value of the GLOBAL as expressed in U.S. dollars affects the Company’s earnings. The impact of this currency diversification strategy in the Company’s earnings is included in other income in the consolidated statements of comprehensive income.

# ***Credit Risk***

The Company is exposed to the risk of loss if a customer, counterparty or issuer fails to perform its obligations under contractual terms (“default risk”). Both cash instruments and derivatives expose the Company to default risk. The Company has established policies and procedures for mitigating credit risk on principal transactions, including reviewing and establishing limits for credit exposure, maintaining collateral and continually assessing the creditworthiness of counterparties.

The Company’s credit risk is limited as contracts entered into are settled directly at securities and commodities clearing houses or are settled through member firms and banks with substantial financial and operational resources. Over-the-counter transactions, such as securities lending and contracts for differences (“CFDs”), are marked to market daily and are conducted with counterparties that have undergone a thorough credit review. The Company seeks to control the risks associated with its customer margin activities by requiring customers to maintain collateral in compliance with regulatory and internal guidelines.

80

# **Interactive Brokers Group, Inc. and Subsidiaries**  
**Notes to Consolidated Financial Statements**

# **3. Trading Activities and Related Risks (Continued)**

In the normal course of business, the Company executes, settles and finances various customer securities transactions. Execution of these transactions includes the purchase and sale of securities which exposes the Company to default risk arising from the potential that customers or counterparties may fail to satisfy their obligations. In these situations, the Company may be required to purchase or sell financial instruments at unfavorable market prices to satisfy obligations to customers or counterparties. Liabilities to other brokers and dealers related to unsettled transactions (i.e., securities fails to receive) are recorded at the amount for which the securities were purchased, and are paid upon receipt of the securities from other brokers or dealers. In the case of aged securities fails to receive, the Company may purchase the underlying security in the market and seek reimbursement for any losses from the counterparty.

For cash management purposes, the Company enters into short-term securities purchased under agreements to resell and securities sold under agreements to repurchase transactions (“repos”) in addition to securities borrowing and lending arrangements, all of which may result in credit exposure in the event the counterparty to a transaction is unable to fulfill its contractual obligations. Repos are collateralized by securities with a market value in excess of the obligation under the contract. Similarly, securities lending agreements are collateralized by deposits of cash or securities. The Company attempts to minimize credit risk associated with these activities by monitoring collateral values daily and requiring additional collateral to be deposited with or returned to the Company as permitted under contractual provisions.

# ***Concentrations of Credit Risk***

The Company’s exposure to credit risk associated with its trading and other activities is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. Concentrations of credit risk can be affected by changes in political, industry, or economic factors. To reduce the potential for risk concentration, credit limits are established and exposure is monitored in light of changing counterparty and market conditions. As of December 31, 2022, the Company did not have any material concentrations of credit risk outside the ordinary course of business.

# ***Off-Balance Sheet Risks***

The Company may be exposed to a risk of loss not reflected in the consolidated financial statements to settle futures and certain over-the-counter contracts at contracted prices, which may require repurchase or sale of the underlying products in the market at prevailing prices. Accordingly, these transactions result in off-balance sheet risk as the Company’s cost to liquidate such contracts may exceed the amounts reported in the Company’s consolidated statements of financial condition.

# **4. Equity and Earnings per Share**

In connection with IBG, Inc.’s initial public offering of Class A common stock (“IPO”) in May 2007, it purchased 10.0% of the membership interests in IBG LLC from IBG Holdings LLC (“Holdings”), became the sole managing member of IBG LLC and began to consolidate IBG LLC’s financial results into its financial statements. Holdings owns all of IBG, Inc.’s Class B common stock, which has voting rights in proportion to its ownership interests in IBG LLC. The table below presents the amount of IBG LLC membership interests held by IBG, Inc. and Holdings as of December 31, 2022.

|  | IBG, Inc. | Holdings | Total |
| --- | --- | --- | --- |
| Ownership % | 24.5% | 75.5% | 100.0% |
| Membership interests | 102,927,703 | 316,609,102 | 419,536,805 |

These consolidated financial statements reflect the results of operations and financial position of IBG, Inc., including consolidation of its investment in IBG LLC and its subsidiaries. The noncontrolling interests in IBG LLC attributable to Holdings are reported as a component of total equity in the consolidated statements of financial condition.

81

# **Interactive Brokers Group, Inc. and Subsidiaries**  
**Notes to Consolidated Financial Statements**

# **4. Equity and Earnings per Share (Continued)**

# ***Recapitalization and Post-IPO Capital Structure***

Immediately before and immediately following the consummation of the IPO, IBG, Inc., Holdings, IBG LLC and the members of IBG LLC consummated a series of transactions collectively referred to herein as the “Recapitalization.” In connection with the Recapitalization, IBG, Inc., Holdings and the historical members of IBG LLC entered into an exchange agreement, dated as of May 3, 2007 (the “Exchange Agreement”), under which the historical members of IBG LLC received membership interests in Holdings in exchange for their membership interests in IBG LLC. Additionally, IBG, Inc. became the sole managing member of IBG LLC.

In connection with the consummation of the IPO, Holdings used the net proceeds to redeem 10.0% of members’ interests in Holdings in proportion to their interests. Immediately following the Recapitalization and IPO, Holdings owned approximately 90% of IBG LLC and 100% of IBG, Inc.’s Class B common stock.

Since the consummation of the IPO and Recapitalization, IBG, Inc.’s equity capital structure has been comprised of Class A and Class B common stock. All shares of common stock have a par value of $0.01 per share and have identical rights to earnings and dividends and in liquidation. As of December 31, 2022 and 2021, 1,000,000,000 shares of Class A common stock were authorized, of which 103,057,148 and 98,359,572 shares have been issued; and 102,887,728 and 98,204,658 shares were outstanding, respectively. Class B common stock is comprised of 100 authorized shares, of which 100 shares were issued and outstanding as of December 31, 2022 and 2021. In addition, 10,000 shares of preferred stock have been authorized, of which no shares are issued or outstanding as of December 31, 2022 and 2021.

As a result of a federal income tax election made by IBG LLC applicable to the acquisition of IBG LLC member interests by IBG, Inc., the income tax basis of the assets of IBG LLC acquired by IBG, Inc. have been adjusted based on the amount paid for such interests. Deferred tax assets were recorded as of the IPO date and in connection with subsequent redemptions of Holdings member interests in exchange for common stock. These deferred tax assets are included in other assets in the Company’s consolidated statements of financial condition and are being amortized as additional deferred income tax expense over 15 years from the IPO date and from the additional redemption dates, respectively, as allowable under current tax law. As of December 31, 2022 and 2021, the unamortized balance of these deferred tax assets was $193 million and $209 million, respectively.

IBG, Inc. also entered into an agreement (the “Tax Receivable Agreement”) with Holdings to pay Holdings (for the benefit of the former members of IBG LLC) 85% of the tax savings that IBG, Inc. actually realizes as the result of tax basis increases. These payables to Holdings are reported as payable to affiliate in the Company’s consolidated statements of financial condition. The remaining 15% is accounted for as a permanent increase to additional paid-in capital in the Company’s consolidated statements of financial condition.

The cumulative amounts of deferred tax assets, payables to Holdings and additional paid-in capital arising from stock offerings from the date of the IPO through December 31, 2022 were $654 million, $556 million and $98 million, respectively. Amounts payable under the Tax Receivable Agreement are payable to Holdings annually following the filing of IBG, Inc.’s federal income tax return. The Company has paid Holdings a cumulative total of $243 million through December 31, 2022 under the terms of the Tax Receivable Agreement.

The Exchange Agreement, as amended, provides for future redemptions of member interests and for the purchase of member interests in IBG LLC by IBG, Inc. from Holdings, which could result in IBG, Inc. acquiring the remaining member interests in IBG LLC that it does not own. On an annual basis, members of Holdings can request redemption of their interests.

82

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Notes to Consolidated Financial Statements**

# **4. Equity and Earnings per Share (Continued)**

At the time of IBG, Inc.'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 interests with a total value of $114 million, which redemptions were funded using cash on hand at IBG LLC. Upon cash redemption, these IBG LLC interests were retired. From 2011 through 2021, IBG, Inc. issued 34,207,307 shares of common stock (with a fair value of $1.5 billion) directly to Holdings in exchange for an equivalent number of member interests in IBG LLC. On August 1, 2022, the Company filed a Prospectus Supplement on Form 424B5 (File Number 333-240121) with the SEC to issue 3,271,390 shares of common stock (with a fair value of $192 million) in exchange for an equivalent number of shares of member interests in IBG LLC.

On July 27, 2020, the Company filed a Prospectus Supplement on Form 424B (File Number 333-240121) with the SEC to re-register up to 990,000 shares of common stock, offering the opportunity for eligible persons to receive awards in the form of an offer to receive such shares by participating in one or more promotions that are designed to attract new customers to the Company's brokerage platform, increase assets held with the Company's brokerage business and enhance customer loyalty. From 2019 through 2022, the Company issued 320,000 shares to IBG LLC for distribution to eligible customers of certain of its subsidiaries.

As a consequence of these redemption transactions and distribution of shares to employees (see Note 10), IBG, Inc.'s interest in IBG LLC has increased to approximately 24.5%, with Holdings owning the remaining 75.5% as of December 31, 2022. The redemptions also increased the Holdings interest held by Mr. Thomas Peterffy and his affiliates from approximately 84.6% at the IPO to approximately 90.5% as of December 31, 2022.

# ***Earnings per Share***

Basic earnings per share is 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.

|  | Year-Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
|  | (in millions, except share or per share amounts) |  |  |
| Basic earnings per share |  |  |  |
| Net income available for common stockholders | $380 | $308 | $195 |
| Weighted average shares of common stock outstanding |  |  |  |
| Class A | 100,459,916 | 94,167,472 | 79,939,189 |
| Class B | 100 | 100 | 100 |
|  | 100,460,016 | 94,167,572 | 79,939,289 |
| Basic earnings per share | $3.78 | $3.27 | $2.44 |

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 potentially dilutive common shares.

|  | Year-Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
|  | (in millions, except share or per share amounts) |  |  |
| Diluted earnings per share |  |  |  |
| Net income available for common stockholders | $380 | $308 | $195 |
| Weighted average shares of common stock outstanding |  |  |  |
| Class A |  |  |  |
| Issued and outstanding | 100,459,916 | 94,167,472 | 79,939,189 |
| Potentially dilutive common shares |  |  |  |
| Issuable pursuant to employee stock incentive plans | 839,593 | 842,308 | 699,619 |
| Class B | 100 | 100 | 100 |
|  | 101,299,609 | 95,009,880 | 80,638,908 |
| Diluted earnings per share | $3.75 | $3.24 | $2.42 |

83

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Notes to Consolidated Financial Statements**

# **4. Equity and Earnings per Share (Continued)**

# ***Member Distributions and Stockholder Dividends***

During the three years ended December 31, 2022, 2021, and 2020, IBG LLC made distributions totaling $533 million, $489 million and $356 million to its members, of which IBG, Inc.'s proportionate share was $128 million, $112 million and $68 million, respectively. The Company paid quarterly cash dividends of $0.10 per share of common stock, totaling $40 million, $38 million and $32 million during 2022, 2021, and 2020, respectively.

On January 17, 2023, the Company declared a cash dividend of $0.10 per common share, payable on March 14, 2023 to stockholders of record as of March 1, 2023.

# **5. Comprehensive Income**

The table below presents comprehensive income and earnings per share on comprehensive income for the periods indicated.

|  | Year-Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
|  | (in millions, except share or per share amounts) |  |  |
| Comprehensive income available for common stockholders . . . . . | $354 | $286 | $221 |
| Earnings per share on comprehensive income |  |  |  |
| Basic . . . . . | $3.53 | $3.04 | $2.77 |
| Diluted . . . . . | $3.50 | $3.01 | $2.74 |
| Weighted average common shares outstanding |  |  |  |
| Basic . . . . . | 100,460,016 | 94,167,572 | 79,939,289 |
| Diluted . . . . . | 101,299,609 | 95,009,880 | 80,638,908 |

# **6. Financial Assets and Financial Liabilities**

# ***Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis***

The tables below present, by level within the fair value hierarchy (see Note 2), financial assets and liabilities, measured at fair value on a recurring basis for the periods indicated. As required by ASC Topic 820, financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the respective fair value measurement.

|  | Financial Assets at Fair Value as of December 31, 2022 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Level 1 | Level 2 | Level 3 | Total |
|  | (in millions) |  |  |  |
| Securities segregated for regulatory purposes |  |  |  |  |
| U.S. and foreign government securities . . . . . | $4,641 | - | - | 4,641 |
| Municipal securities . . . . . | - | 82 | - | 82 |
| Total securities segregated for regulatory purposes . . . . . | 4,641 | 82 | - | 4,723 |
| Financial instruments owned, at fair value |  |  |  |  |
| Stocks . . . . . | 380 | - | - | 380 |
| Options . . . . . | 31 | - | - | 31 |
| U.S. and foreign government securities . . . . . | 35 | - | - | 35 |
| Precious metals . . . . . | - | 9 | - | 9 |
| Currency forward contracts . . . . . | - | 30 | - | 30 |
| Total financial instruments owned, at fair value . . . . . | 446 | 39 | - | 485 |

84

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Notes to Consolidated Financial Statements**

# **6. Financial Assets and Financial Liabilities (Continued)**

|  | Financial Assets at Fair Value as of December 31, 2022 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Level 1 | Level 2 | Level 3 | Total |
|  | (in millions) |  |  |  |
| Other assets |  |  |  |  |
| Customer-held fractional shares | 91 | - | - | 91 |
| Crypto-asset safeguarding asset | - | 80 | - | 80 |
| Other investments in equity securities | 34 | - | - | 34 |
| Total other assets | 125 | 80 | - | 205 |
| Total financial assets at fair value | $5,212 | $201 | $- | $5,413 |
|  | Financial Liabilities at Fair Value as of December 31, 2022 |  |  |  |
|  | Level 1 | Level 2 | Level 3 | Total |
|  | (in millions) |  |  |  |
| Financial instruments sold, but not yet purchased, at fair value |  |  |  |  |
| Stocks | $121 | $- | $- | $121 |
| Options | 16 | - | - | 16 |
| Precious metals | - | 7 | - | 7 |
| Currency forward contracts | - | 2 | - | 2 |
| Total financial instruments sold, but not yet purchased, at fair value | 137 | 9 | - | 146 |
| Accounts payable, accrued expenses and other liabilities |  |  |  |  |
| Fractional shares repurchase obligation | 91 | - | - | 91 |
| Crypto-asset safeguarding liability | - | 80 | - | 80 |
| Total accounts payable, accrued expenses and other liabilities | 91 | 80 | - | 171 |
| Total financial liabilities at fair value | $228 | $89 | $- | $317 |
|  | Financial Assets at Fair Value as of December 31, 2021 |  |  |  |
|  | Level 1 | Level 2 | Level 3 | Total |
|  | (in millions) |  |  |  |
| Securities segregated for regulatory purposes |  |  |  |  |
| U.S. government securities | $4,729 | $- | $- | $4,729 |
| Total securities segregated for regulatory purposes | 4,729 | - | - | 4,729 |
| Financial instruments owned, at fair value |  |  |  |  |
| Stocks | 548 | - | - | 548 |
| Options | 22 | - | - | 22 |
| U.S. and foreign government securities | 54 | - | - | 54 |
| Precious metals | - | 10 | - | 10 |
| Currency forward contracts | - | 39 | - | 39 |
| Total financial instruments owned, at fair value | 624 | 49 | - | 673 |
| Other assets |  |  |  |  |
| Customer-held fractional shares | 166 | - | - | 166 |
| Other investments in equity securities | 49 | 49 | - | - |
| Total other assets | 215 | - | - | 215 |
| Total financial assets at fair value | $5,568 | $49 | $- | $5,617 |

85

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Notes to Consolidated Financial Statements**

# **6. Financial Assets and Financial Liabilities (Continued)**

|  | Financial Liabilities at Fair Value as of December 31, 2021 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Level 1 | Level 2 | Level 3 | Total |
|  | (in millions) |  |  |  |
| Financial instruments sold, but not yet purchased, at fair value |  |  |  |  |
| Stocks | $144 | $- | $- | $144 |
| Options | 22 | - | - | 22 |
| Precious metals | - | 6 | - | 6 |
| Currency forward contracts | - | 10 | - | 10 |
| Total financial instruments sold, but not yet purchased, at fair value | 166 | 16 | - | 182 |
| Accounts payable, accrued expenses and other liabilities |  |  |  |  |
| Fractional shares repurchase obligation | 166 | - | - | 166 |
| Total accounts payable, accrued expenses and other liabilities | 166 | - | - | 166 |
| Total financial liabilities at fair value | $332 | $16 | $- | $348 |

# ***Level 3 Financial Assets and Financial Liabilities***

There were no transfers in or out of level 3 for the year ended December 31, 2022.

# ***Financial Assets and Liabilities Not Measured at Fair Value***

The tables below represent the carrying value, fair value and fair value hierarchy category of certain financial assets and liabilities that are not recorded at fair value in the Company's consolidated statements of financial condition for the periods indicated. The tables below exclude certain financial instruments such as equity method investments and all non-financial assets and liabilities.

|  | December 31, 2022 |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 |
|  | (in millions) |  |  |  |  |
| Financial assets, not measured at fair value |  |  |  |  |  |
| Cash and cash equivalents | $3,436 | $3,436 | $3,436 | $ - | $- |
| Cash - segregated for regulatory purposes | 25,167 | 25,167 | 25,167 | - | - |
| Securities - segregated for regulatory purposes | 27,058 | 27,058 | - | 27,058 | - |
| Securities borrowed | 4,749 | 4,749 | - | 4,749 | - |
| Securities purchased under agreements to resell | 6,029 | 6,029 | - | 6,029 | - |
| Receivables from customers | 38,760 | 38,760 | - | 38,760 | - |
| Receivables from brokers, dealers and clearing organizations | 3,469 | 3,469 | - | 3,469 | - |
| Interest receivable | 341 | 341 | - | 341 | - |
| Other assets | 17 | 18 | - | 2 | 16 |
| Total financial assets, not measured at fair value | $109,026 | $109,027 | $28,603 | $80,408 | $16 |
| Financial liabilities, not measured at fair value |  |  |  |  |  |
| Short-term borrowings | $18 | $18 | $ - | $18 | $- |
| Securities loaned | 8,940 | 8,940 | - | 8,940 | - |
| Payables to customers | 93,195 | 93,195 | - | 93,195 | - |
| Payables to brokers, dealers and clearing organizations | 291 | 291 | - | 291 | - |
| Interest payable | 193 | 193 | - | 193 | - |
| Total financial liabilities, not measured at fair value | $102,637 | $102,637 | $ - | $102,637 | $- |

86

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Notes to Consolidated Financial Statements**

# **6. Financial Assets and Financial Liabilities (Continued)**

|  | December 31, 2021 |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 |
|  | (in millions) |  |  |  |  |
| Financial assets, not measured at fair value |  |  |  |  |  |
| Cash and cash equivalents | $2,395 | $2,395 | $2,395 | $ - | $ - |
| Cash - segregated for regulatory purposes | 22,888 | 22,888 | 22,888 | - | - |
| Securities - segregated for regulatory purposes | 10,392 | 10,392 | - | 10,392 | - |
| Securities borrowed | 3,912 | 3,912 | - | 3,912 | - |
| Securities purchased under agreements to resell | 4,380 | 4,380 | - | 4,380 | - |
| Receivables from customers | 54,935 | 54,935 | - | 54,935 | - |
| Receivables from brokers, dealers and clearing organizations | 3,771 | 3,771 | - | 3,771 | - |
| Interest receivable | 127 | 127 | - | 127 | - |
| Other assets | 20 | 20 | - | 2 | 18 |
| Total financial assets, not measured at fair value | $102,820 | $102,820 | $25,283 | $77,519 | $18 |
| Financial liabilities, not measured at fair value |  |  |  |  |  |
| Short-term borrowings | $27 | $27 | $ - | $27 | $ - |
| Securities loaned | 11,769 | 11,769 | - | 11,769 | - |
| Payables to customers | 85,634 | 85,634 | - | 85,634 | - |
| Payables to brokers, dealers and clearing organizations | 557 | 557 | - | 557 | - |
| Interest payable | 8 | 8 | - | 8 | - |
| Total financial liabilities, not measured at fair value | $97,995 | $97,995 | $ - | $97,995 | $ - |

# ***Netting of Financial Assets and Financial Liabilities***

The Company's policy is to net securities borrowed and securities loaned, and securities purchased under agreements to resell and securities sold under agreements to repurchase that meet the offsetting requirements prescribed in ASC Topic 210-20. In the tables below, the amounts of financial instruments that are not offset in the consolidated statements of financial condition, but could be netted against cash or financial instruments with specific counterparties under master netting agreements, according to the terms of the agreements, including clearing houses (exchange-traded options, warrants and discount certificates) or over the counter currency forward contract counterparties, are presented to provide financial statement readers with the Company's net payable or receivable with counterparties for these financial instruments.

87

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Notes to Consolidated Financial Statements**

# **6. Financial Assets and Financial Liabilities (Continued)**

The tables below present the netting of financial assets and financial liabilities for the periods indicated.

|  | December 31, 2022 |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | Gross Amounts of Financial Assets and Liabilities Recognized | Amounts Offset in the Consolidated Statement of Financial Condition 2 | Net Amounts Presented in the Consolidated Statement of Financial Condition (in millions) | Amounts Not Offset in the Consolidated of Financial Condition Cash or Financial Instruments | Net Amount |
| Offsetting of financial assets |  |  |  |  |  |
| Securities segregated for regulatory purposes - purchased under agreements to resell. . . . | $27,058 1 | $- | $27,058 | $(27,058) | $ - |
| Securities borrowed. . . . . | 4,749 | - | 4,749 | (4,597) | 152 |
| Securities purchased under agreements to resell. . . . | 6,029 | - | 6,029 | (6,029) | - |
| Financial instruments owned, at fair value. . . . |  |  |  |  |  |
| Options. . . . . . . . . . . . . . . | 31 | - | 31 | (16) | 15 |
| Currency forward contracts. . . . . . . . . . . . . | 30 | - | 30 | - | 30 |
| Total. . . . . . . . . . . . . . . . . . . . . | $37,897 | $- | $37,897 | $(37,700) | $197 |
| Offsetting of financial liabilities |  |  |  |  |  |
| Securities loaned . . . . . . . . | $8,940 | $- | $8,940 | $(8,260) | $680 |
| Financial instruments sold, but not yet purchased, at fair value . . . . . . . . . . |  |  |  |  |  |
| Options. . . . . . . . . . . . . . . | 16 | - | 16 | (16) | - |
| Currency forward contracts. . . . . . . . . . . . . | 2 | - | 2 | - | 2 |
| Total. . . . . . . . . . . . . . . . . . . . . | $8,958 | $- | $8,958 | $(8,276) | $682 |

88

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Notes to Consolidated Financial Statements**

# **6. Financial Assets and Financial Liabilities (Continued)**

|  | December 31, 2021 |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | Gross Amounts of Financial Assets and Liabilities Recognized | Amounts Offset in the Consolidated Statement of Financial Condition 2 | Net Amounts Presented in the Consolidated Statement of Financial Condition (in millions) | Amounts Not Offset in the Consolidated Statement of Financial Condition Cash or Financial Instruments | Net Amount |
| Offsetting of financial assets |  |  |  |  |  |
| Securities segregated for regulatory purposes - purchased under agreements to resell. . . . | $10,392 1 | $- | $10,392 | $(10,392) | $ - |
| Securities borrowed. . . . . | 3,912 | - | 3,912 | (3,642) | 270 |
| Securities purchased under agreements to resell. . . . | 4,380 | - | 4,380 | (4,380) | - |
| Financial instruments owned, at fair value. . . . |  |  |  |  | - |
| Options. . . . . . . . . . . . . | 22 | - | 22 | (19) | 3 |
| Currency forward contracts. . . . . . . . . . . | 39 | - | 39 | - | 39 |
| Total. . . . . . . . . . . . . . . . . . | $18,745 | $- | $18,745 | $(18,433) | $312 |
| Offsetting of financial liabilities |  |  |  |  |  |
| Securities loaned . . . . . . . | $11,769 | $- | $11,769 | $(10,992) | $777 |
| Financial instruments sold, but not yet purchased, at fair value |  |  |  |  |  |
| Options. . . . . . . . . . . . . | 22 | - | 22 | (19) | 3 |
| Currency forward contracts. . . . . . . . . . . | 10 | - | 10 | - | 10 |
| Total. . . . . . . . . . . . . . . . . . | $11,801 | $- | $11,801 | $(11,011) | $790 |

(1) As of December 31, 2022 and 2021, the Company had $27.1 billion and $10.4 billion, respectively, of securities purchased under agreements to resell that were segregated to satisfy regulatory requirements. These securities are included in “Securities - segregated for regulatory purposes” in the consolidated statements of financial condition.

(2) The Company did not have any balances eligible for netting in accordance with ASC Topic 210-20 at December 31, 2022 and 2021.

89

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Notes to Consolidated Financial Statements**

# **6. Financial Assets and Financial Liabilities (Continued)**

# ***Secured Financing Transactions - Maturities and Collateral Pledged***

The tables below present gross obligations for securities loaned transactions by remaining contractual maturity and class of collateral pledged for the periods indicated.

|  | December 31, 2022 |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | Remaining Contractual Maturity |  |  |  |  |
|  | Overnight and Open | Less than 30 days | 30 - 90 days | Over 90 days | Total |
|  | (in millions) |  |  |  |  |
| Securities loaned |  |  |  |  |  |
| Stocks | $8,837 | $- | $- | $- | $8,837 |
| Corporate bonds | 101 | - | - | - | 101 |
| Foreign government securities | 2 | - | - | - | 2 |
| Total securities loaned | $8,940 | $- | $- | $- | $8,940 |
|  | December 31, 2021 |  |  |  |  |
|  | Remaining Contractual Maturity |  |  |  |  |
|  | Overnight and Open | Less than 30 days | 30 - 90 days | Over 90 days | Total |
|  | (in millions) |  |  |  |  |
| Securities loaned |  |  |  |  |  |
| Stocks | $11,715 | $- | $- | $- | $11,715 |
| Corporate bonds | 51 | - | - | - | 51 |
| Foreign government securities | 3 | - | - | - | 3 |
| Total securities loaned | $11,769 | $- | $- | $- | $11,769 |

# **7. Collateralized Transactions**

The Company enters into securities borrowing and lending transactions and agreements to repurchase and resell securities to finance trading inventory, to obtain securities for settlement and to earn residual interest rate spreads. In addition, the Company’s customers pledge their securities owned to collateralize margin loans. Under these transactions, the Company either receives or provides collateral, including equity, corporate debt and U.S. government securities. Under typical agreements, the Company is permitted to sell or repledge securities received as collateral and use these securities to secure securities purchased under agreements to resell, enter into securities lending transactions or deliver these securities to counterparties to cover short positions.

The Company also engages in securities financing transactions with and for customers through margin lending. Customer receivables generated from margin lending activity are collateralized by customer-owned securities held by the Company. Customers’ required margin levels and established credit limits are monitored continuously by risk management staff using automated systems. Pursuant to the Company’s policy and as enforced by such systems, customers are required to deposit additional collateral or reduce positions, when necessary, to avoid automatic liquidation of their positions.

90

# **Interactive Brokers Group, Inc. and Subsidiaries**  
 **Notes to Consolidated Financial Statements**

# **7. Collateralized Transactions (Continued)**

Margin loans are extended to customers on a demand basis and are not committed facilities. Factors considered in the acceptance or rejection of margin loans are the amount of the loan, the degree of leverage being employed in the customer account and an overall evaluation of the customer’s portfolio to ensure proper diversification or, in the case of concentrated positions, appropriate liquidity of the underlying collateral. Additionally, transactions relating to concentrated or restricted positions are limited or prohibited by raising the level of required margin collateral (to 100% in the extreme case). The underlying collateral for margin loans is evaluated with respect to the liquidity of the collateral positions, valuation of securities, volatility analysis and an evaluation of industry concentrations. Adherence to the Company’s collateral policies significantly limits the Company’s credit exposure to margin loans in the event of a customer’s default. Under margin lending agreements, the Company may request additional margin collateral from customers and may sell securities that have not been paid for or purchase securities sold but not delivered from customers, if necessary. As of December 31, 2022 and 2021, approximately $38.8 billion and $54.9 billion, respectively, of customer margin loans were outstanding.

The table below presents a summary of the amounts related to collateralized transactions for the periods indicated.

|  | December 31, 2022 |  | December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Permitted to Repledge | Sold or Repledged | Permitted to Repledge | Sold or Repledged |
|  | (in millions) |  |  |  |
| Securities lending transactions | $62,689 | $7,055 | $69,582 | $6,192 |
| Securities purchased under agreements to resell transactions 1 | 33,208 | 31,108 | 14,715 | 13,956 |
| Customer margin assets | 42,222 | 17,008 | 65,899 | 15,936 |
|  | $138,119 | $55,171 | $150,196 | $36,084 |

(1) As of December 31, 2022, $27.1 billion or 87% (as of December 31, 2021, $10.4 billion or 74%) of securities acquired through agreements to resell that are shown as repledged have been deposited in a separate bank account for the exclusive benefit of customers in accordance with SEC Rule 15c3-3.

In the normal course of business, the Company pledges qualified securities with clearing organizations to satisfy daily margin and clearing fund requirements. As of December 31, 2022 and 2021, the majority of the Company’s U.S. and foreign government securities owned were pledged to clearing organizations.

The table below presents financial instruments owned and pledged as collateral, including amounts pledged to affiliates, where the counterparty has the right to repledge, for the periods indicated.

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
|  | (in millions) |  |
| Stocks | $54 | $60 |
| U.S. and foreign government securities | 35 | 54 |
|  | $89 | $114 |

# **8. Revenues from Contracts with Customers**

Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance obligations by transferring the promised services to the customers. A service is transferred to a customer when, or as, the customer obtains control of that service. A performance obligation may be satisfied at a point in time or over time. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that the Company determines the customer obtains control over the promised service. Revenue from a performance obligation satisfied over time is recognized by measuring the Company’s progress in satisfying the performance obligation in a manner that depicts the transfer of the services to the customer. The amount of revenue recognized reflects the consideration the Company expects to receive in exchange for those promised services (i.e., the “transaction price”). In determining the transaction price, the Company considers multiple factors, including the effects of variable consideration, if any.

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# **Interactive Brokers Group, Inc. and Subsidiaries**
**Notes to Consolidated Financial Statements**

# **8. Revenues from Contracts with Customers (Continued)**

The Company's revenues from contracts with customers are recognized when the performance obligations are satisfied at an amount that reflects the consideration expected to be received in exchange for such services. The majority of the Company's performance obligations are satisfied at a point in time and are typically collected from customers by debiting their brokerage account with the Company.

# *Nature of Services*

The Company's main sources of revenues from contracts with customers are as follows:

- *Commissions* are charged to customers for order execution services and trade clearing and settlement services. These services represent a single performance obligation as the services are not separately identifiable in the context of the contract. The Company recognizes revenue at a point in time at the execution of the order (i.e., trade date). Commissions are generally collected from cleared customers on trade date and from non-cleared customers monthly. Commissions also include payments for order flow received from IBKR Lite$^{SM}$ liquidity providers.
- *Market data fees* are charged to customers for market data services to which they subscribe that the Company delivers. The Company recognizes revenue monthly as the performance obligation is satisfied over time by continually providing market data for the period. Market data fees are collected monthly, generally in advance.
- *Risk exposure fees* are charged to customers who carry positions with a market risk that exceeds defined thresholds. The Company recognizes revenue daily as the performance obligation is satisfied at a point in time by the Company taking on the additional risk of account liquidation and potential losses due to insufficient margin. Risk exposure fees are collected daily.
- *Payments for order flow* are earned from various options exchanges based upon options trading volume originated by the Company that meets certain criteria. The Company recognizes revenue daily as the performance obligation is satisfied at a point in time on customer orders that qualify for payments subject to exchange-mandated programs. Payments for order flow are collected monthly, in arrears.
- *Minimum activity fees* are charged to customers that do not generate the required minimum monthly commission. The Company recognizes revenue monthly as the performance obligation is satisfied at a point in time by servicing customer accounts that do not generate the required minimum monthly commissions. Minimum activity fees are collected monthly, in arrears. Effective July 1, 2021, the Company eliminated minimum activity fees for most account types.

The Company also earns revenues from other services, including order cancellation or modification fees, position transfer fees, telecommunications fees, withdrawal fees and bank sweep program fees, among others.

# *Disaggregation of Revenue*

The tables below present revenue from contracts with customers by geographic location and major types of services for the periods indicated.

|  | Year-Ended December 31 |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
|  | (in millions) |  |  |
| Geographic location 1 |  |  |  |
| United States | $931 | $951 | $806 |
| International | 575 | 617 | 481 |
|  | $1,506 | $1,568 | $1,287 |

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