About Thomas Peterffy
Thomas Peterffy, founder and chairman of Interactive Brokers, has recently discussed the role of prediction markets and artificial intelligence in finance. In podcast appearances, he argued that prediction markets are "incredibly important" for gauging consensus on critical questions such as the rate of AI adoption and potential universal basic income. He stated that AI will change daily life "very very substantially and very very soon," and said that addressing investment questions "with less emotions and more reasoning is always advisable." Peterffy also said that advisors on Interactive Brokers' platform have outperformed the S&P 500 index by 267% over three years, attributing this partly to the firm's execution quality.
On the topic of insider trading, Peterffy expressed support for eliminating rules against it, stating, "I would like all the information out there as soon as it's available... as a society, we're better off knowing as soon as possible anything that is knowable." He also identified a regulatory challenge for prediction markets, noting that many questions about specific companies cannot be offered because it is unclear whether they would be classified as securities or commodities, and said "this quagmire would have to be cleaned up." Peterffy indicated that Interactive Brokers plans to consolidate prediction market feeds and structure contracts to be fungible across platforms where possible.
Source: AI-verified profile updated from Thomas Peterffy's recent appearances.
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✨ AI-enhanced transcript with speaker attribution
I
Interviewer0:00
Let's just start with a simple question: how close we were to this system breaking, something failing? How close were we, Thomas?
T
Thomas Peterffy0:07
We were frighteningly close. On January 28th, when we had 50 million registered shares at the same time, we had 70 million shares short and 150 million shares short via short call options. So if the call options had been exercised, the shorts would have had to deliver 270 million shares while only 50 million shares existed. So as the rules are today, the long broker has to, if he can't get the shares, he has to go into the market and buy the shares at whatever the price is. So that could have pushed the price further up into the thousands. When that happens, obviously the shorts cannot pay up, so the brokers default on the brokers, the brokers default on the clearinghouse, and the whole thing is a huge mess that's impossible to untangle. So there's a simple solution for this, the way I see it. Number one, we would have to get the short positions published once a day because we currently have it only twice a month. And second, the SEC would have to require brokers to charge an additional one percent of margin for every one percent of short interest. And that would then raise the margins progressively so high that people would stop shorting stocks. So margin requirements would have to increase as short interest increases.
I
Interviewer1:54
That seems to be the view from you, Thomas. I'm just wondering from your perspective, overseeing a broker, is there anything you can do to protect your clients before the SEC or the regulator has to tell you to do it?
T
Thomas Peterffy2:04
Of course we can. That's exactly what we did. We increased our margins.
I
Interviewer2:10
So why does the regulator need to make that decision on your behalf, Thomas? I'm just speaking out loud with you, thinking out loud, trying to work through this process with you. Why do you need the regulator to make that step?
T
Thomas Peterffy2:19
Right. So first of all, I do not know the short interest daily, and that would be important for me to be able to know how much to increase the margins by. So the regulators could require that the short interest be reported daily. That's very simple. Secondly, the regulators tell us the minimum margin we must charge, and we are free to charge more, and that's exactly what we did. But some brokers may not be able, may not know how to deal with this, and that's why I think it would be good if the SEC required more brokers to charge more insurance.
I
Interviewer2:59
Thomas, another issue that came up as well, conflict of interest issue as well. And I know for you that you have a different model, you're not reliant on payment for order flow in the same way other brokers are. But Thomas, can you speak to that? The explosion of commission-free trading that we've seen over the last several years, and in some parts dependent on the payment for order flow. Can we have one without the other? Can we have the explosion of interest in trading without payment for order? Can we have the explosion in commission-free trading, or at least the democratization of markets that we have seen over the last several years, without the payment for order flow factor in all of this?
T
Thomas Peterffy3:38
But look, I mean the commission between zero and, for example, we charge less than like 1.95 cents on the average trade. That difference is almost negligible, right? So every trade is probably about, you know, forty, fifty thousand dollars. So whether you pay zero or you pay two bucks, that's not much difference, right?
I
Interviewer4:08
So do you think the conflict of interest is not an issue?
T
Thomas Peterffy4:11
No, I don't think so.
I
Interviewer4:14
Thomas, what would you like to see asked today, and who would you like to see those questions aimed at?
T
Thomas Peterffy4:19
I would like, well, I basically would like to ask the SEC why they didn't act on the morning of January 28th, because I was so scared, I can't tell you how scared I was.
I
Interviewer4:37
Well, Thomas, what were you scared about? Just that. What does failure look like? You said we came close to breaking. What were you scared of? What did you think was going to happen?
T
Thomas Peterffy4:44
I was scared of a domino bankruptcy. I mean, I tell you, the rules require the long brokers to go into the market and buy the shares at whatever price. So that drove the shares up to $480, and then suddenly, I guess, it didn't go further, but it could have gone further. So if the shorts had known and if the longs had known that they had the right to ask for their shares, and they really wanted a short squeeze, that's what they would have done.
I
Interviewer5:24
You're not testifying today. Have you spoken to the House Financial Services Committee? Have you spoken to anyone in Washington about these issues?
T
Thomas Peterffy5:31
No, I did not.
I
Interviewer5:34
Are you looking at reaching out to them?
T
Thomas Peterffy5:37
Well, eventually they will. The SEC will have to look into the hole in the system, and they will have to stop it. And I assume that they will ask for comments, and we will send them a letter.
