Two Sigma to buy Interactive Brokers’ Timber Hill options arm

The market-making arm of Two Sigma, a giant computer-powered hedge fund, has swooped in for Interactive Brokers’ Timber Hill options unit, hoping to reinvigorate the pioneering but faded derivatives business founded by billionaire Thomas Peterffy.

Mr Peterffy was one of the first people to start using computers to trade options back in the late 1970s, when he worked at the American Stock Exchange. He later went on to found Timber Hill, an electronic market-maker in options, and Interactive Brokers, one of America’s biggest brokerages.

Interactive Brokers announced in March that it wanted to pull out of options market-making, following in the wake of UBS, Credit Suisse and JPMorgan pulling out of a high-octane part of the multi-trillion dollar derivatives market. But Two Sigma is betting that it can reinvigorate a business that was once one of the world’s biggest options traders.

When Timber Hill is integrated into Two Sigma Securities, the hedge fund’s electronic trading arm would encompass more than 7,000 stocks; options on 1,300 securities; and trade over 300m shares and 1m option contracts a day, Two Sigma said in a statement. 

Simon Yates, the chief executive of Two Sigma securities, said: “Through this transaction, TSS will integrate Timber Hill’s highly complementary platform to form a full-service, large-scale market-maker across equities and options on exchanges and for wholesale retail clients.”

Two Sigma is one of the world’s biggest quantitative hedge funds, which use high-powered computers and vast amounts of data to trade financial markets, and was founded by computer scientist David Siegel and mathematician John Overdeck in 2001.

While Mr Peterffy earlier this year blamed the planned exit from options market-making on electronic “sharp-shooters”, he said in Tuesday’s statement that he was “gratified” to hand over the keys of Timber Hill to Two Sigma, as he aims to focus Interactive Brokers on its core brokerage business. 

Two Sigma expects the deal to close in September once regulatory approvals are received, and plans to open a new office in Connecticut to accommodate Timber Hill staffers, with its securities arm based in New York. The terms of the deal were not disclosed. 

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