Q2 2020 Interactive Brokers Group Inc Earnings Call
Cokers group second quarter financial results conference call at this time, a participant lines are in listen only mode. After the speakers presentation. They want.
First question Chuck a question during the session you want me to press Star one on your telephone. Please be advised to today's conference is being recorded if you're acquiring other assistance. Please press star Zero I would now like down the conference or what your speaker today Nancy Stuebe. Thank you. Please go ahead now.
Good afternoon, and thank you for joining us for a second quarter 2020 earnings conference call.
Once again Thomas is on the call, but asked me to present his comments on the business he will handle the key Wednesday.
As a reminder, today's call may include forward looking statements, which represent the company's belief regarding future events, which by their nature or not certain or outside of the company's control.
Our actual results and financial condition may differ possibly materially from what it indicated in these forward looking statements.
We ask that you refer to the disclaimers in our press release you should also review a description of risk factors contained in our financial reports filed with the FCC.
We continue to see strength in our business as more people in more countries chose to invest in the markets.
Accounts was 36% year on year to 876000.
As we added 116 net new accounts in the quarter.
In the second quarter, you brought on more new accounts than we've ever added in a full year.
This quarter's growth implies annualized account growth rate 60%.
We saw group and all client segments in all geographic regions with areas outside the U.S., particularly strong.
Our gross outside the U.S. has become more evenly distributed among countries and regions over the past couple of years.
In an active markets environment. This diversification has contributed to our growth as increasing numbers of investors around the world seek to participate by using our platform.
[noise] fine equity raise above $200 billion for the first time and ended the quarter of 33% at $203 billion.
[noise] over the course of the quarter clients grew more comfortable with putting money into the markets and taking on leverage.
Oh.
Leading to client trading levels, increasing on a margin loan balances recovering.
As clients treated more actively during unusually high market volatility our total darts reached over 1.7 million more than doubling from last year and cleared average starts per account for 64% to 480.
Our platform is highly automated so adding an additional customer to it costs us very little.
And any activity they initiate as profitable for us.
That is why we focus on growing our customer base in all segments and regions. So we can take advantage of higher activity in any market scenario.
In addition, our platform offers world, what access and securities ranging from equities fixed income funds derivatives NFX among other products sort diversity means we can capture extra activity, regardless of the type of security or the geographic area, which occurs.
However, not everything was as we would've wanted it interactive brokers this quarter.
As we announced in April our systems did not perform as we would've wanted during the extreme price movements around the W.T.I. index on April Twentyth.
Both the see any an ice Europe.
Use the price of physically settled oil futures to determine the settlement price for their cash settled futures products.
Historically that mismatch between physical settlement and cash settlement had not been a problem.
However on April Twentyth worries over the lack of availability of oil storage drove the price of the physical oil futures deep into unprecedented negative territory.
So even though a cash settled contract would of course not have to face this issue.
You gave me an ice pricing mechanisms meant they were priced as if they did.
Several of our customers held long positions and the cash settled see any and ice contracts and as a result, they incurred losses some in excess of the equity in their accounts.
We fulfilled all the required settlements with the various clearinghouses and felt it right to compensate certain affected customers in connection with their losses.
All told our aggregate loss was 104 million.
Since then we've successfully programmed and tests that are systems to ensure such an event just does not impact us like this again.
Further we tightened some parameters around the trading of oil futures.
Aside from this event and despite extremely high market volatility this quarter, our bad debt expense was a modest 2 million.
On interest rates, the new zero and negative interest rate regimes in the U.S. and around the world have impacted our net interest income.
Higher margin loans.
An influx of cash into new and existing customer accounts and a strong securities finance performance led to $190 million a net interest income for the quarter, Despite our segregated cash and security, yielding only 34 basis points.
We have already seen in the bulk of the impact to the federal reserve's move to zero rates on the segregated cash and securities interest rate.
There was a rates hold steady there could be further declines as our longer term holdings mature.
Finally, total equity reached over $8.25 billion in the second quarter, our highest today.
With no debt our balance sheet remains strong.
As we continue to grow.
And and larger and as we continue to grow and add larger institutional accounts, our equity capital helps us to track. These investors these customers.
We saw growth in all five of the client types that we service I will now go over a five client segments.
Individual customers, which made up 55% of our accounts, 36% of our client equity and 52% of our conditions continue to be our fastest growing segment with 12 month account growth of 50% client equity growth of 35% and 30% growth and latest 12 months conditions.
All geographic regions, we serve saw growth over 30% with Europe, and Asia, continuing to grow faster than in the Americas for now.
Once again this demonstrates investor demand for a reliable platform with a wide choice of products in international markets.
And maximize investment opportunities.
Interactive brokers is a stay at home company. So individuals now that they have the time to do so.
I want to invest and manage their money.
Proprietary trading firms are 2% of our accounts, 11% of our client equity and 15% of commissions.
It's group grew accounts, 19% for the 12 month period, 40% in client equity and 20% in commissions.
As prop trading firms are sensitive to the direction of volatility this quarter's sustained high volatility offered them numerous opportunities.
Prop traders tend to have more active trading strategies, which benefit from our low cost platform that provides access to securities around the globe.
We continue to see growth and a hedge fund.
Hedge fund customer segment.
For the 12 months ended June Thirtyth, we saw 4% hedge fund to cap rose, 18% customer equity growth and 11% Commission growth.
This segment was particularly strong in the Americas and Asia this quarter.
Growing word of mouth, a reputation for best price execution in low margin rates and the quality of our platform are behind this growth.
Hedge funds represent 1% of our accounts, 8% of our client equity and 8% of our commissions.
Financial advisors or 13% of our accounts, 19% of our customer equity and 14% of our commissions.
This group grew accounts by 11% for the 12 month period, what customer equity rose, 11% and commission 6%.
As advisors tend to be more conservative in their activity There commission growth tends to grow more slowly in periods of high volatility.
A final segment is introducing brokers.
These represent 30% of our accounts, 26% of our client equity and 11% over 12 months conditions.
I broker segment account growth was 27% for the latest 12 months, the 54% fine equity growth and 44% in conditions.
Introducing brokers build their own businesses under their own name gather their own customers create their own marketing and provide their own client service interactive brokers does the back office clearing and processing at low cost.
Our ability to offer global markets and products along with seamless back office functionality has allowed us to grow in regions, where customers may not be large enough to draw the attention of head of bulge bracket banks or even if they did it would be charged extremely high prices for international access.
We've seen that as more people worldwide seek to trade on recent market volatility or to diversified assets they want to be able to access many markets and products.
Turning to new products new offerings. This quarter included our Securities class action recovery service and automated solution, we created to relieve our clients of the administrative burden of recovering amounts do them from a securities class action lawsuit.
Sure double instruments tool the clients can search for availability and rates for shoretel stocks and bonds directly from their client portal.
A redesign fundamentals explore tool, giving our clients access to Thomson Reuters fundamental data on over 30000 companies for free.
Attacks optimizer tools, so clients can both try a different lot matching methods to optimize the treats cost basis and analyze their long term and short term gains or losses.
And finally margin borrowing in Australia for both individual in corporate retail customers.
We continue to see better responses from our digital marketing efforts since yearend development, we hope will continue.
With that I will turn the call over to our CFO, Paul Brody, who will go through the numbers for the quarter.
Hi, good Nancy welcome everyone to the call thanks for joining.
As usual I'll first review our operating result.
Ah noncore items.
And my comments will follow the format of the earnings release and after that we'll open up the call for questions.
As a reminder, in the first quarter, we began reporting without separate business segments of our remaining market, making activity is no longer material to our overall results.
At that time, we also separated two line items other fees and services from other income.
Well the fees and services contains recurring items, such as market data fees and FDIC banks, we program income well other income consist of currency impacts U.S. treasury marks to market principal trading activities and other investment gains or losses that are less predictable in nature.
Operating metrics reflected [noise].
Continued record levels of trading in account openings in a persistent high volatility environment.
The continued global impacted the Corona virus was a likely contributor to the highly active markets worldwide volatility as measured by the average VIX more than doubled to 34.9 in the current quarter from 15.2 in the same quarter last year.
However, the current quarter was more consistently volatile in the first quarter first quarter of 2020.
When the VIX spiked to do over 82 for a short time in March this quarter Zix ranged from 24.5 to 57, reflecting consistently active market.
Quarterly total darts increased 111% to a record 1.75 million compared to the second quarter 29.
Our customer trade volumes continue to rise dramatically and every product class led by increases, 64%, 34% and 63%.
Options futures and stocks respectively.
FX dollar volumes were strong as well increasing 55%.
Total accounts reached 876000 up 36% over the prior year.
With quarterly net new accounts added at a pace five times higher than last year's second quarter.
This contributed to customer equity growth of 33% to $203.2 billion at quarter end.
Our average or overall average clear commission for Commissionable order fill 24% versus last year $2.81.
On a product mix that featured smaller average trade sizes in stocks futures and FX and slightly larger an option.
While our trade sizes are often seen in high volatility periods as traders choose to risk less per trade and fast moving market.
Moving to our net interest margin table, our net interest margin narrowed from 1.66%.
Two 0.99%.
In five separate actions since a year ago quarter.
The Federal reserve brought its benchmark target rate down to near zero. The average effective fed funds rate, which we used to price or margin loans and interest paid on customer cash fell from 2.4% in the second quarter of 20, 19% to 0.06% in second quarter of 2020.
Well this significantly lowered what we paid on our customer credit balances. It also reduced our earnings on segregated cash in margin loans.
Nevertheless, our net interest margin narrowed its just 67 basis points over this period supported by successful segregated cash management and strong securities lending.
Despite the fed lowering the overnight interest rate.
The yield curve remained flat as it has for several quarters. We have kept the duration of our portfolio relatively short and recorded a mark to market lost $13 million on our holdings of U.S. treasuries, making us roughly flat for the year to date.
As always we plan to hold these securities to maturity.
So any gains and losses on our marks to market each quarter should trend towards zero overtime, but as brokers. Unlike banks GAAP rules require that we mark our portfolio to market in our financial reporting.
Outside the U.S. benchmark interest rates remained near or below zero for many currencies a central banks continue to attempt to soften the impact from Cobiz 19 on their economy.
Despite a 29% increase.
Over the year ago quarter in customer credit balances.
The reduction in our expense of interest paid on these balances.
Was the largest contributor preventing our net interest margin from falling further.
We continue to have success in asset gathering and our FDIC insured banks Weve deposit the bank deposits. We program maintained its steady growth, reaching an average of $3 billion up nearly 1 billion from last year.
Margin lending and securities lending, we're the largest contributors to our net interest margin.
Average margin loan balances fell 13% from last year, however, due to significantly lower benchmark interest rates.
Margin loan interest income fell 65%.
Margin loans have shown a steady bounce back ending the quarter at 25.7 billion about 13% over the average for the quarter.
Securities lending interest income was up 67% this quarter versus a year ago as we successfully capitalized on more hard to borrow names that investors were looking to shore.
On segregated cash.
But 66% increase in segregated cash balances.
Lower investment rates led to a 73% decline and interest income.
Several factors caused the yields in our segregated cash to differ from the change in fed funds rate first a portion is held in other currencies.
And second given an average duration of investment in treasuries of about 35 days.
The investments take place overtime.
So some of our investments segregated cash.
Not to be expected.
To follow fed rate declines immediately.
The increase in segregated cash balances is a function of higher customer credit balances and lower margin lending.
While investors, we're more comfortable taking on leverage this quarter.
Over time the growth in our clients cash is consistent and outpaces the variable growth and contraction in margin loan.
No too that the FDIC sweep program remove fun that would otherwise be included in our segregated cash balances from our balance sheet for accounting purposes.
Now for our estimate of the impact of the next 25 basis point increase in rates.
When calculating the impact of rate changes, we understand that as a possibility of a future rate increase becomes more certain.
This expectation is typically already reflected in the yields of the instruments in which we invest.
Therefore, we attempt to isolate the impact of an unexpected rise or fall and rates separate from the impact of rate hikes or cuts that have already been big to the prices of these instruments.
Without assumption, we would expect the next 25 basis points on anticipated rise in rates.
To produce an additional $96 million and net interest income over the next four quarters and 110 million as the yearly run rate based on our current balance sheet.
These numbers are highly sensitive to benchmark rate changes due to the impact of low rates on the spread between what we earn on our segregated cash and what we pay to our customers.
As you as rates fell below 50 basis points, our spreads compressed as we earn less when investing our segregated cash.
However, the Congress is also true that as rates move back up towards 50 basis points are spread expand significantly.
The run rate includes the reinvestment of all of our present holdings at the new assumed rate, but does not take into account any change in how we manage our segregated cash.
If we're successful in continuing to grow our customer assets higher cash in margin lending balances will provide some offset to the loss of net interest income from low benchmark rates should they persist.
Turning to our income statement as I mentioned earlier in 2020, we began reporting our consolidated numbers only and no longer report segment.
We define noncore items as those not part of our fundamental operating results.
Noncore items include four items this quarter first.
Our currency diversification strategy produced a gain of $16 million versus the 6 million loss last year.
Second the Mark to market loss on U.S. government Securities a $13 million versus a gain of 5 million last year.
Third gain on our investments of $13 million versus a loss of 74 million last year and finally.
An unusual customer expense of 104 million on the W.G.I. event.
Versus no equivalent in the year ago quarter.
The net effect of these adjustments reduced pre tax income by $88 million this year.
This years quarter and by 75 million last years quarter.
Net revenues, where he reported 535 $539 million up for the quarter up 31% versus last year's second quarter, excluding noncore items net revenue was up 7% to 523 million.
Commission revenue rose, 55% on significantly higher volumes and all product categories.
Net interest income fell 24% to 196 million.
Largely due to the drop in average effective fed funds rate versus the year ago quarter.
Other fees in it and services revenues rose.
14% to $40 million.
These include market data exposure account activity and FDIC banks, we program fees.
As well as fees generated from facilitating customers participation and IPO.
Other income which include gains and losses on our investments.
Currency strategy as well as principal transaction.
$27 million versus a 59 million loss last year.
X noncore items other income decreased 31% to $11 million.
Non interest expenses were 317 million for the quarter up 69% from last year.
Adjusting this year for the cost of the unusual W.T.I. event noninterest expenses were up 13%.
Due primarily to higher execution and clearing costs in line with higher trade volumes.
And to higher.
Employee compensation and benefits costs.
At quarter end, our total head count stood at 1815, 19% increase over last year.
Due to the cobot 19 pandemic.
Most of our employees worldwide have been working remotely.
After a brief pause in the first quarter, we had been hiring again to keep up with the influx of new accounts.
To strengthen client services compliance and systems development for the future.
Fixed expenses were $238 million up 97%, primarily due to the unusual WT <unk> that without it fixed expenses were 135 million up 12% driven by higher compensation and benefits in line with the hiring that supports our growing business.
As well as some increase in occupancy and DNA expenses.
And in April we donated $5 million to assist efforts to provide food and support for people affected by the covert 19 pandemic in the United States as well as to advance medical solutions.
Exit W. T I lost customer bad debt expense was $2 million.
Down 50% from last year, and well contained despite the dramatic increase in activity and volatility.
Reported pretax income was 221 $222 million.
Down 1% for 41% margin.
Excluding non core items pretax income was $310 million up 3%.
For a 59% pre tax margin.
Diluted earnings per share were 40 cents for the quarter versus 43 cents for the same period and 29 team.
Ex noncore items diluted earnings per share were 57 cents unchanged from last year as adjusted.
To help investors better understand our earnings taxes, and the split between public shareholders in the non controlling interest.
The second quarter numbers are as follows.
Starting with our on adjusted pretax income of 222 million, we deduct 7 million for income taxes paid by our operating companies, which are mostly foreign taxes.
This leaves $215 million of which 81.4%.
For that 175 million reported on our income statement is attributable to non controlling interests.
The remaining 18.6% or $40 million.
It is available for the public company shareholders.
But as this is a non-GAAP measure it is not reported on our income statement.
After we expense remaining taxes of $8 million owed on that 40 million.
The public companies net income available for common stockholders is the $32 million you see reported on our income statement.
Our income tax expense of $15 million consist of this 8 million plus the 7 million of taxes paid by the operating company.
Turning to the balance sheet with $8.25 billion in consolidated equity, we are well capitalized from regulatory standpoint, we deploy our strong capital base toward opportunities to grow our brokerage business worldwide as well as to emphasize strength in depth of our balance sheet current and for.
Back to clients and partners.
We continue to carry no long term debt at June Thirtyth margin loans were $25.7 billion about even with last year, but up 28% from March 31st.
As clients increased leverage over the quarter.
We continue to expect swings in March and lending balances.
Reflecting both economic conditions, and our success in attracting institutional customers or more opportunistic and taking on leverage.
We offer the lowest margin lending rates of our competitors and as we expand our customer base, we remain well positioned to satisfy our customers risk appetite.
Now I'll turn the call back over to the moderator and we will take some question.
As a reminder, task of question what would need to press star one on your telephone to withdraw your question press the pound key please stand by watching football the Q1 a roster.
Our first question comes on the line a rich repetto from Piper Sandler Your line is now from.
Yeah. Good evening Thomas Good evening, good evening, Paul or not and Nancy.
I guess my question first question is really for Paul I think on the net interest income.
The customer credit a being a positive 6 million.
Ah that's historically been actually you know a negative number can you just walk through that and I guess also sort of the outlook.
For but do you talked about 150 million sort of floor last quarter.
Could you just talk about maybe the runoff radar outlook ER and IR JOLED border <unk> sure. So to your first question.
And that's a good observation so yes, the number was actually positive on the customer credit balances because the benchmark rates have fallen solo primarily in the U.S.
That.
Our standard.
<unk> retail customers, which is fed funds less 50 basis points ordinarily very tight spread is now zero.
So all of those.
Customer credits earn zero at the moment out these benchmark rates and there are some non U.S. dollar currencies such in particular euros, which are at negative rate and some of their customers get a pass through rate, which results in a small net income.
On all of the currency balanced.
Okay and anything on the outlook for net interest income you know the role Walker <unk> <unk>.
We're probably not far off from what Thomas a indicated in the first quarter. So the you know the second quarter.
201 million net interest income.
We have if if rates don't change at all we have a little ways to go in terms of the rollover at current investments.
That will roll over at somewhat lower rates.
And our our estimate is that could be another.
40 million or so reduction, but only if all the other factors stay the same and of course, what we've seen is pretty strong growth in a and.
In credit balances as Weve, taking on new customers and your deposits so forth, but also a quite a strong bounce back and the margin debit Oh. There is people are definitely taking on leverage again and if that continues.
Those numbers will will be better.
Okay and last question is for Tom as you know you had phenomenal account growth.
Great growth and margin balances and activity levels.
And I guess the question is you know has that really over every you know each month of the quarter.
Mr. Your comp growth again, just really off them out. So could you just talk about the momentum is the momentum still continuing so far in July.
Everything that we've heard about China has that helped in the growth of accounts are sort of didnt fit in Asia or Hong Kong.
In July today.
So you know historically, we have gone girl through April.
Hi, Billboard Colombia sort of sound.
The school with Korea be so 60%, we do not expect that to continue.
I think eventually we're going to go back to some bad in the low twentys.
And but that's we will be on an ever increasing base.
So you will remember about gone through.
There will be more a more at cons every quarter.
Moving to more additional there.
Right.
If you want to know what happened so far these bonds.
You, though only 20 days that Fas side.
I wouldn't want to speculate but then the expense [laughter].
So watch what's the mugs literally leads.
Okay, that's three years.
Understood. Thank you very much understood.
Thank you.
Our next question comes on the line of Craig Siegenthaler from Credit Suisse. Your line is now thing.
Thank you good evening everyone.
As we look at the impressive growth rates across both mine equity accounts can you provide perspective on the contribution by geography, including Asia beyond that 30% plus figure that you just gave us in the prepared commentary.
So as we said previously a geography has more around the dog in the sense that.
We had expedia is very Ivy its previously moderate good and bad we had experience it ought to be lower grades we increase the the thirtyth has increased so.
Our lowest Uh huh.
Great.
Geography buys.
Shine on them better long.
The U.S. members do Oh are higher city are.
The odds go so China.
And no Eastern Europe South America.
Got it though.
That's it there.
Thank you Thomas I have one follow up maybe for Paul how should we think about changes the share count over the next year as they look at the 2% inflation number for the quarter.
I'm, sorry did you say share count.
Yeah.
So historically our share count has.
Increased regularly every year as our employees stock incentive plan that.
And those shares become part of the public shares the primary reason.
And then also historically.
There has been a opportunity for the holders of the what's known as a non controlling interest in the financial statements.
To.
Effectively redeem that interest for public shares and that has also increased the float.
But as you can see.
We what we IPO in 2007 with 10% and it's at 18 and change now so that tells you something about the.
The pace at which that takes place generally.
Thank you.
Thank you. Our next question comes from the line a well Nance from Goldman Sachs. Your line is now thing.
Hey, guys. Good good afternoon.
Maybe I'll start with one for Tom US another one on the account growth. So can you just clearly something across the world is driving a massive increase an account growth regardless of geography. So can you just kind of talk about.
What does the biggest contributor to the growth when what are the customers that you're bringing on what do they look like compared to your average IB customer in terms of account size or activity just to get a sense for.
You know the types of people, who are kind of being brought into the market in.
From environments.
Showed me the strongest growth over you're experiencing bromine do we drilled costumers as you can see that oh or individual customers have on her but not constitute a.
Ladies.
[laughter].
Oh individual customers not calling sleep too I think we'd be 5% although were gone.
And abroad.
Two years ago, Dave Arrow troopers or so.
Oh.
<unk>.
As far as the size of their backgrounds.
They remain relatively the same so what happens is that you know when people all gone they opened its value.
And then they.
They can do add and had a that so while the average at current opens up say.
Probably $60000 by the gone down because word to use they are a great LP to London.
That's helpful and then maybe a follow up on it or something all set earlier on the the kind of.
Follow through from the impact of rates I, just a question on that $40 million like the search you said cash line burn at about 34 basis points this quarter I.
I guess, maybe a more straightforward question, where do you expect that to kind of land once we get through all of the repricing of some of your longer dated.
Assets and I guess is that the primary like do you print at 40 million of interest income from that line are you, suggesting that its going to go to zero next quarter or I'm, just trying to get to contextualize that number.
Right. So I mean again, depending on Oh, and a number of assumptions are primarily at the rates.
Either stay up there or go to zero, the U.S. rates aren't art art or not effectively at zero.
They have been in the.
15 basis points, plus or minus for awhile. So my number was based on all of that go into 15 basis point.
Got it so 15 basis points kind of very effective glad that's the that's stuff that's very helpful.
And then maybe just a big picture one on I think previously you had there been somebody out there about you guys applying for a U.S. bank charter can you just kind of update where you are in the process of that and I guess does the says the lower level of grades make you rethink the client cash strategy and maybe evaluating opportunities to find a better sources.
Some yield by using a bank subsidiary in the U.S.
So this is a long term game and.
We expect that eventually [laughter], we would go back up and a show on the long term, we would definitely be a long to lab back, but you know ordering immediate enthusiasm in view of the lower roots that that's <unk>.
Good. So we are still doing good but do not doing good read the same.
To wrap your desire as before.
So it's going forward workbooks floor.
Got it that's helpful. Thank you for taking my question.
Thank you all our next question comes in the lineup Chris Allen from Compass Point. Your line is now open.
[noise] evening everyone.
Well it to ask a little bit on the on the stock lending business, obviously very nice pick up I'm just wondering.
If there was a decent breadth to the business just in terms of award number of stocks. It was just focused on just a few and trying to think about how the trajectory is for that moving forward.
So it is very broad base for us we have lots of customers obviously in a lot of holdings and so there is a.
Theres a base of that income that.
Tends to rise and I say tends to because the market.
You know conditions often.
Determine how short customers want to be how much risk they want to take on et cetera, if they buy stocks on margin they become available to be a use the securities lending market. So there is a broad base that is generally increasing for us as <unk> as our customer base increases.
Having said that as I've said before.
That business is.
Sensitive to the opportunities that come up with.
Well known names that you I'm sure probably following that you that become hot stock from time to time, meaning that the short interest is enough and the availability is.
Yes.
I'm not prevalent and so the the cost of securities lending goes up and if.
Our customers, along and were able to lend those shares out into the marketplace.
They generate a lot more income and the than the you know the run of the mill.
Stocks. So we've spent lots of our development software development efforts over the years to be able to honed our skills and taking advantage when those rates present themselves and and so that's a lot of what you see from quarter to quarter in terms of.
The opportunities, but we have you know we've built our systems and and of course our team.
To take advantage of those when they arise.
And then just a quick one on expenses.
I mean, taking you when you saw the bad debt expense in the cobot donation seems like most areas were inline with expectations employee comp.
Rising a decent amount not from a year over year perspective, just like head counts on the raws, though and the typical drivers.
The counter and place.
Are you seeing any competitive pressure in terms of cost developers or any of the factors we need to talk to put in terms of the expense you got three moving forward.
I don't see I don't think we're seeing any particular competitive pressures as a matter of fact.
There's some evidence that since the.
Covert situation at work at home and the uncertainty in many industries in the layoffs and so forth I think we've actually seen an opening up of supply. If you will have highly qualified people and.
Somewhat taking advantage of that and then of course, we continue to build up our operations in India.
In client services and software development and we can we managed to find a quick qualified people there and of course, that's at a lower cost.
Thanks, that's it.
Thank you Sir our next question comes from the line Kyle Voigt from KBW. Your line is now open.
Hi, Thanks for taking my question, maybe just a follow up on a wills earlier question on the strong new account, a new account and the clients.
Just wondering if these new clients are more active traders or are a materially different age compared with your current client base.
When you compare to kind of declines that you had to start the year I'm just trying to get a sense of the clients are more or less profitable than your then you're kind of starting starting base a client.
So our average cry and age is Uh huh.
Good for you what are you seeks.
And Uh huh.
The <unk>.
May be they are a couple of years younger.
So they are slightly younger.
Huh.
But you know as far as they tendency to grade that.
Roughly the same.
Okay. That's helpful.
And then just another question on.
There's a large brokerage transaction, that's that's likely to close and any in the coming months and your sector. So just wondering if you see any opportunity there in terms of potentially capturing some active traders are advisors or other clients.
I just wonder if there's any interest in an increasing your marketing spend.
Or anything to try to go after that opportunity.
Well there are a number of.
Our is who are expressing getting better as to who most of that I'm used to have.
I had gone to reach Rob and we've been married.
And they are not Tuesday domain, and I will dags INBONE basket they are now.
But do you need to inquire about having some of their comments we have to us.
And the second and.
Called Blaine Hardgoods coal would that be spread.
Shum folks.
So im trop two I'm married so somebody from and they agreed to Schwab and they are saying no I feel a bit better [laughter] bad I've moved away through so and and there is lot more I'd them they choose that some believe that.
Sure, Yes, I'd be really competing against.
Our independent garnered a lot by data or good.
[laughter].
That's interesting. So do you think is there a general timeframe, where you think that it's going to take for these are I used to potentially start moving assets over.
That's already.
Opening oh accounts or.
It's sort of yet.
Understood. That's good color. Thank you Thomas last one for call. It just on execution and clearing fees I think they were down from the one Q levels, sorry, if I missed that just wondering what drove that despite.
The higher trading volumes.
Well, there's always a mix of you know the product mix and and that's it's highly variable in terms of you know in certain products. If I, if the customer orders happened to be providing liquidity, maybe that's a lower fee, maybe even a rebate and so forth I'm so higher volume.
Doesn't translate exactly into higher execution clearing costs.
Volumes were up costs were about the same this time.
Thanks, Paul.
Thank you as a reminder, task was question well, we'll need to press star one on your telephone withdraw your question pressed for banking.
Our next question comes in the line of Rich Repetto from Piper Sandler Your line is now open.
Yes, hi, guys just a follow up here.
Paul I just wanted to clarify this you know when you talked about <unk> net interest income you said the minus 40 million.
All of <unk> and <unk>.
<unk> said coming from say Gosh, I thought you said.
Holding all other things being equal.
So deadline.
I believe when we generated 40 million to begin with can you are saying that the rate you know from 34 basis points to <unk> 15, you know cut by a little bit more than half sorry, we incorporate any other things into could yet your number or just trying to get more what what you were pulling them to come up with that.
That number.
Well, it's primarily reinvestment at lower rates.
But there's some effect coming from say margin loans that are still would have some room to come down because they're not at our best here.
Right So our best.
Currently our best here is a minimum 75 basis points, but so to the extent that.
Loans are being charge more than that those would come down a bit you know so it's a combination of several factors.
[laughter].
Okay Alright.
Okay. That's all I have thank you.
Thank you I guess I'm I'm showing no further questions I would like to turn the call back over to Nancy Stuebe for closing remarks.
Thank you everyone for participating today as a reminder, this call will be available for replay on our website I'm really putting up a clean version of our transcript on the site tomorrow. Thank you again, we will talk to you next quarter end.
[noise] [noise], ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect [noise].
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