Interactive Brokers' profit rises on higher interest income, trading activity

Jan 20 (Reuters) - Trading platform Interactive Brokers IBKR.O posted a rise in fourth‑quarter profit on Tuesday, supported by stronger client margin borrowing and steady trading activity.

U.S. brokerages have benefited from margin lending and by earning interest on idle client cash, which they invest in short-term instruments.

Interest-rate cuts by the Federal Reserve could make it cheaper for clients to borrow, which in turn may encourage greater use of margin loans and help sustain trading volumes. Lower funding costs can also support risk taking across retail and professional accounts.

Net interest income rose 20% to $966 million for the quarter, owing to higher average customer margin loans and credit balances driven by lower interest rates.

Margin lending lets investors borrow money from their broker to buy securities, using their existing investments as collateral. Customer margin loans increased 40% to $90.2 billion.

Commission revenue surged 22% to $582 million, driven by a 27% jump in customer stock trading volumes in the three months ended December 31.

Customer accounts rose 32% to 4.40 million in the fourth quarter.

The company said its cleared daily average revenue trades, or DARTs - a key measure of trading activity for retail brokerage firms – increased 30% to 4.04 million.

Execution, clearing and distribution fees decreased 21% to $91 million, driven by lower regulatory fees and greater capture of liquidity rebates from certain exchanges due to higher trading volumes in stocks and options.

The Greenwich, Connecticut-based company allows customers to buy and sell stocks, options, futures, cryptocurrencies, bonds, mutual funds, ETFs and precious metals.

Interactive Brokers partners with third-party cryptocurrency service providers who handle the actual buying, selling and safekeeping of digital assets.

The company reported a profit of $1.2 billion, or 63 cents per share, in the three months ended December 31, compared to $969 million, or 50 cents per share, a year ago.