Q4 2021 Interactive Brokers Group Inc Earnings Call
Thank you for standing by and welcome to the Interactive Brokers Group fourth-quarter financial results conference call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session you will need to press star one on your telephone. Please be advised that
today's conference may be recorded. Should you require any further assistance, please press star zero.
Now I'd like to hand, the call over to your host Director of Investor Relations Nancy Stuebe. Please go ahead.
Thank you.
Good afternoon, and thank you for joining us for our fourth quarter 2021 earnings call.
Once again, Thomas is on the call, but asked me to present his comments on the business. He will handle the Q&A.
As a reminder, today's call may include forward-looking statements, which represent the company's belief regarding future events, which by their nature are not certain and are outside of the company's control.
Our actual results and financial condition may differ possibly materially from what is indicated in these forward-looking statements.
We ask that you refer to disclaimers in our press release.
You should also review a description of risk factors contained in our financial statements filed with the SEC.
2021 was a good year for Interactive Brokers.
Adjusted revenues were $2.78 billion up 26% for the year and expenses were well controlled.
Resulting in a pre-tax profit margin that improved from 61% to 67% by far the highest in the industry.
Adjusted diluted earnings per share for the year were $3.37.
And that was 35% higher than the previous year.
We look back at 2021 as one with unprecedented global investor engagement with the market.
The only better year we can see.
Is 2022.
Let me explain why.
In 2021, we added more customers over 600,000 and did more trades over $2.5 million darts per day than we ever have before.
We introduce more products and more tools, while also expanding many existing ones.
And to assist with our continuing growth, we hired and trained nearly 450 new employees around the world.
Our year on year account growth was 56% this year.
I've been saying for some time that after this unusually active period we have been experiencing, a period that seems to keep growing longer.
We will see account growth closer to between 30% and 40% a year.
But that does not mean that we will not do almost anything we can think of to try to keep it above those levels.
We introduced more new products and expanded the capabilities of existing ones.
Recognizing our global customer reach, we introduced global analyst, which allows our clients to discover undervalued companies from a wide database of global stocks.
We introduced our crypto offering. US individuals, RIAs, hedge funds and introducing brokers as well as individuals in over 100 different countries can now all trade crypto through our partner Paxos.
U S individuals' ria's hedge funds and introducing brokers as well as individuals and over 100 different countries can now all trade crypto through our partner <unk>.
Very shortly we will be offering crypto for our international financial advisors, brokers and hedge funds in those countries and we will add more countries continually.
We charged a 0.12% to 0.18% of trade value with the minimum $1.75 per trade.
We rolled out our ESG focused impact app.
Which brings transparency and a streamlined simplified platform to help clients find and invest in companies that share their values.
Impact also allows them to make cash donations to thousands of different US charities directly from the app.
We also introduced US spot gold trading.
And these are just a few of the items we have been working on. And we have other exciting products and improvements in various stages in advance of being rolled out.
As 2021 drew to a close, IBKR was able to produce the second-best quarter of the year.
After the hyperactive mean stock events of the first quarter.
But the story of the NIM stocks will fade in the minds of investors, while the most remarkable story of the year the huge rise in popularity of options and more specifically option spreads will remain.
As someone who has spent the last 50 years trying to automate the options industry.
I very much welcome this development.
For a long time, Interactive Brokers was alone trying to stir up industry interest to computerize these markets.
But now finally, people are beginning to understand what fantastic personal instruments options are.
I am predicting further growth, especially internationally.
Option spreads give traders the opportunity to assume very specific and limited risk-reward profiles for specific periods of time.
Please visit our probability lab on the IBKR website for a fun way to think about, learn about and play with options.
As the year wore on, listed options on average daily volume of nearly 40 million contracts, an interactive brokers customers who are responsible for roughly 10% of daily options volume.
This is even more than in equities where we are only about 7%.
Execution quality is most important for options traders, especially for option spread traders.
[Where profits] and losses tend to be limited and every penny matters.
Even the minimum price difference of one cent to one dollar a contract.
And bid offer spreads in the market regularly get as wide as 5 to 10 cents.
Interactive Brokers does not accept payment for order flow for IBKR pro customer orders.
We auction off each option order among 16 top market makers, we are always happy to welcome more to this group.
These auctions last something on the order of 100 milliseconds, and the winner chooses which exchange it wants to use to trade with the order.
IBKR, then post the order for an exchange option and if nobody improves on the agreed upon price, the original winner of the auction trades the contract at that price.
This may sound like a rather involved process.
But in practice it all happens in a fraction of a second.
All participants these automated processes and the automatically feed the amount of price improvement they're interested in competing on for any specific option contract they trade with at that specific point in time.
In this way, our customers can take advantage of a leading-edge system designed to get them the best available price.
Having been the largest market makers and options for over 30 years IBKR is very well versed in these processes.
Many of which we have retained from a market maker days.
And we've been keeping them up to date over the years.
As new exchanges and new rules are continuously introduced, this is not an easy task. And we have a team of programmers regularly engaged in this activity.
Imagine if payment for order flow were prohibited and all brokers are forced to execute their own customer orders.
Sophisticated mechanisms like the ones we developed and use.
It would be expensive and take a long time for others to create.
While the idea is interesting to think about.
I do not think that is about to happen anytime soon.
Another notable development for IBKR in 2021 was the 40% increase in margin loans over the course of the year.
I think this growth will also continue into the future.
With 7% inflation as a background, stock prices will have to rise by 7% just to retain the relative values.
I believe inflation will continue at a high rate.
There is very little the fed can do about it.
They may raise interest rates to 1 or 2%, who would not borrow at that rate and invest in leveraged assets.
Even if the fed funds rate rises to 3%, Interactive Brokers will end at 3.75% to people who want to buy stock whether or not they combine that with option strategies.
The 3% is not likely.
A slightly over 3% interest rate would add a trillion dollars to annual US debt service and to deficit spending.
Which would just further increase inflationary pressures.
Inflation is here to stay. We will have to learn to live with it.
And margin lending will continue to grow along with it.
We aim to grow our businesses by growing our customer base.
We will continue to introduce new platforms, products and research and trading tools to attract new customers of the type that fit our target.
Serious, hardworking and educated investors who come to us to succeed with the help of our execution quality and products and services.
With that, I will turn the call over to our CFO, Paul Brody.
Thank you Nancy. Hi, everyone.
Hi, everyone.
Yes.
[inaudible] our fourth-quarter results and then we'll open it up for questions.
Questions.
Starting with our revenue items.
Our revenue items.
On page 3 of the [inaudible].
We're pleased with our record results.
This quarter, we believe in robust growth [inaudible].
The robust growth.
Positions us well on both our transactional [inaudible].
Our transactional.
The division continued to be strong.
Turning to our second highest ever. Yeah.
Turning to our second highest ever. Yeah.
Yeah.
Full year correct. $5 million. 'twenty one.
$5 million.
'twenty one.
[inaudible]
We saw substantially higher trading volumes.
[inaudible]
Sure.
Coming from our large base.
[at traders, investors and advisors] [inaudible]
Yes.
Flat.
Net interest income was strong generating a $295 million of revenue.
Also our second highest quarterly performance. It leads to a record [inaudible].
Also our second highest quarterly performance. It leads to a record [inaudible].
It leads to a record.
[inaudible] 32% to $1.5 billion.
2% to one.
$1 5 billion.
Margin lending [inaudible].
All the best.
[investors confidence] [inaudible].
Securities lending.
Brian. The demand for.
The demand for.
Rod range here Tomorrow.
Hi, Brian.
Good morning.
We generated $58 million in revenue from other fees.
<unk> $58 million in revenue from other fees.
$218 million a year.
0.5%
Despite the mid year [inaudible]
Thank you.
Strong client activity drove revenue higher market data fees.
[inaudible]
Thank you so from options.
[inaudible]. Market data fees reached
Market data fees.
$20 million. up 15%.
Yes.
[inaudible]
Okay.
3 million dollars.
And higher volume.
43% higher liquidity.
Okay.
Other income includes gains and losses on our investments.
Our currencies location strategy.
Yes.
If any of these noncore items are included in our debt.
God knows items other income $10 million per quarter.
Sure.
Turning to expenses.
Sorry.
Costs were down.
Trading volume.
At $53 million.
Costs were down 20%.
At quarter end down 19.
Full year.
As a percent of physician groups.
Clarity.
Are driven by trading.
<unk> declined 2%.
Morning.
13%.
In 'twenty one.
Our customers continue to benefit.
From the execution fee reduction achieved by our partner.
This quarter.
the costs
Were reduced by lower regulatory fees.
Alright.
Alright.
Okay.
Okay.
I've transferred to headset. I'm hoping that.
Maybe my audio comes over a little bit better.
So this quarter the costs were also reduced by lower regulatory fees.
As the SEC lowered the rate on US stocks.
And by a temporary fee holiday.
On US options by the OCC.
Because these benefits are largely passed through to our customers both cost and commission revenue decrease accordingly.
As a result of our order routing improvements.
Which include utilizing our low-cost IBKR ATS for stock execution, a greater portion of our commission revenue goes to the bottom line.
Our ratio of compensation and benefits expense.
To adjusted net revenues was 18% for the quarter and 15% for the year relatively unchanged from last year, despite a 26% increase in headcount.
We continue to focus on expense discipline.
While improving our strong top line.
Our head count at year end was 2,571.
G&A expenses were up 27% from the year ago quarter.
7% from the year ago quarter.
Though down 25% for the full year, reflecting lower legal expenses and litigation, partially offset by higher spending on advertising and required fees.
Our adjusted pre tax margin remained a robust 66%.
By practicing expense control, while also hiring and investing in the business for accelerated growth. We continue to maintain the operating leverage in our business.
Yes.
Finally on the income tax line
of the $35 million shown, the operating companies portion was $19 million the public company's portion was $16 million.
Moving to our balance sheet on page five of the release.
Our total assets ended the year at $109 billion.
With growth driven by margin lending to customers.
Our consolidated equity capital was $10.2 billion, having reached the 10 billion mark for the first time last quarter.
We have no long-term debt.
We continue to deploy our balance sheet to support our growing client business in particular.
More and larger customers want access to margin lending, which our capital base gives us the ability to provide.
We opened two offices in Europe in response to Brexit.
For those in our other rapidly growing international locations. Our capital base provides the foundation needed for today's operations and for future growth.
Our capital is also used for numerous other growth and investment opportunities we see worldwide.
And finally, an ample capital base.
Helps us win business by showing the strength and depth of our balance sheet to current and prospective clients and partners.
Let's now look briefly at our operating data on pages six and seven of the release.
Page six shows contract and share volumes for all customers rose 46% in options well above industry growth and 19% in futures.
While our stock share volume fell 3%, the product mix produced a 1% increase in commissions.
Activity is strong across client types and geographies. And most securities products, our volumes are well above the high average activity level of 2020.
2020.
Turning to page seven.
Account growth remains robust with over 600,000 net new account adds for the year.
Total accounts reached $1.68 million up 56% over the prior year and 9% over the prior quarter.
Customer equity growth reflected strength in new accounts solid additions to existing accounts.
And a generally supportive market environment.
Total customer darts reached their second-highest quarterly level at over 2.4 million trades per day.
This reflected investor confidence in rising markets, the ongoing global search for yield.
In zero and negative interest rate environment.
And more customers on our trading platform.
Commission for cleared commissionable order continues to show our success in capturing rebates paid by exchanges for our clients.
When we route IBKR pro orders directly to exchanges, we realized these exchange rebates and pass those savings onto our clients by lowering their commissions.
Our cleared IBKR pro customers paid $2.38.
3% less per order than they did last year as our order routing system found opportunities to maximize rebates while achieving best price execution.
Our clients benefit with lower commission costs, as we pass our lower execution and clearing costs onto them.
Profitability per order to us remains the same.
Turning to net interest margin, we break down our net interest margin on page eight.
Total GAAP net interest income was $295 million for the quarter and $1.15 billion for the year, both up over 30% from a year ago, reflecting in particular increases in margin lending and securities lending.
Average margin loan balances were up 58% for both the quarter and the full year, leading to increases in margin loan interest income of 60% and 41% for the fourth quarter and full-year respectively.
Investors remain comfortable taking on leverage in the current rising market environment.
Securities lending net interest was up 17% driven by strong client participation in the markets.
As our customer base grows, our opportunities to lend customers shares to other customers who've short those stocks also grow.
Together with increasing our profitable securities lending to other broker dealers.
The model generates expanding revenues. We believe our proprietary system developed in house for securities lending and operated by our team of specialists.
It is proficient identifying and lending out securities and high demand, which drives our revenue from this activity.
Moving to net interest from segregated cash and from customer credit balances. This continues to reflect the impact of negative benchmark rates in certain countries.
When benchmark rates are very low as they are in the US.
We take no interest to customers on their cash.
But in currencies where rates are negative, we earn interest by passing through these negative rates to customers. We earned $8 million on these balances.
When benchmark rates are positive.
We earn interest on deposits investing our segregated cash balances.
But because of negative rates in some currencies, we had a net cost of $5 million on these balances.
Taken together.
The net interest income from these balances was $3 million for the quarter.
Now our estimate of the impact of an increase in US interest rates, we expect the next 25
basis point rise in rates to produce an additional $165 million annually.
The increase from past estimates is driven by higher margin loan balances and also follows our introduction of new interest rate tiers and spreads on January 3rd of this year.
Is driven by higher margin loan balances and also follows our introduction of new interest rate tiers and spreads on January <unk> of this year.
This does not take into account any change in how we may adjust our investment strategy to take advantage of newly higher rates or any change in our assets.
About 24% of our customer cash balances are not in US dollars.
So estimates of the impact of US rate changes exclude those currencies.
As forecasted.
Federal reserve rate consensus for 2022 centers around more than one hike.
We can add that a second hike would produce a similar although somewhat lower annual benefit to the first.
A similar although somewhat lower annual benefit to the first.
In conclusion, we had a strong quarter to close out a record year, reflecting our ability to grow our customer base and product set and that shows the attractiveness of our strategy to automate for growth expanding what we offer.
While minimizing what we charge.
Given our progress and performance, we are confident in our ability to grow accounts, as Thomas has indicated, maintain our expense discipline.
And to capture future opportunities as they arise.
With that, I'll turn it back over to the moderator and we will field some questions.
As a reminder, to ask a question you will need to press star one on your telephone. To withdraw your question press the pound key. Again that's star one on your rouchtone telephone to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Rich Repetto of Piper Sandler. Your line is open.
Comes from the line of Rich Repetto of Piper Sandler Your line is open.
Mr. Repetto, please make sure your line is unmuted speaker phone.
Handset.
Sorry, good evening, Thomas. Good evening, Paul, can you hear me now?
Yes. We can.
So the stock shares traded.
Quarter to quarter, we're down I know only 3% year over year, but I think it was 32% quarter to quarter.
Only 3% year over year, but I think it was 32% quarter to quarter.
I suspect that was a lot of low priced stock trading in 3Q, but could you sort of verify that Thomas? And also [Jamie.]
Okay.
You're absolutely right. So.
Many years ago we put in
<unk>.
Putin.
a commission limit.
So that we would never charge more than 50 basis points on our stock trade.
50 basis points stock.
And that debt slowly brought more and more low priced stock traders to us.
And that debt slowly brought more and more low priced stock traders to us.
Slowly.
brought more and more low priced stock traders to us.
Low priced upgrade is to us.
Eventually. [inaudible] that there are some regulatory concerns about.
You bet.
There are some regulatory concerns about.
That stock trading.
We have successfully reduced it.
We reduced it.
It's got no income impact whatsoever.
Impact whatsoever.
Those are very tiny numbers.
Got it. Understood.
Okay, and then, Paul you sort of
Touched on this question, but not just 3 rate hikes in 2022 price, and three more in 2023.
Not just.
Three rate hikes in 2022 price, Dan and three more in 2023.
I guess the question is.
You said it would be the second rate hike would be similar but I thought you said.
Similar but lower.
Any way you could sort of give us a feel for incremental hikes, that's four our to six out there.
Incremental hikes.
Four to six out there.
Yes.
Sure. So the way we model it. The one hike was an increase of an expected $165 million for the year, we would model two hikes and by that, I mean over the first two quarters and then it remains there.
Sure. So the way we model it. The one hike was an increase of an expected $165 million for the year, we would model two hikes and by that, I mean over the first two quarters and then it remains there.
An increase of.
<unk> $165 million for the year, we would model two hikes and by that I mean over the first two quarters and then it remains there.
Each 25 basis points.
That should add about another an additional $120 million annually.
<unk>.
And three hikes.
In consecutive quarters.
Would add about another $45 million.
And so you have to understand what happened, the dynamic here is that at two hikes, so then fed funds would be around.
57, or eight let's say basis points.
We start to pay interest to our customers.
To our customers.
Fed funds less 50 basis points, whereas right now that number is zero.
So therefore after three hikes.
We then ratchet up the rates that we pay along with fed funds and the same thing happens on margin lending.
So [net then] we have a built in spread which is what we all used to have before rates.
Dissolved down to close to zero.
That's why incrementally benefits us, but less and less. And of course.
Benefits us, but less and less and of course.
This is keeping all other things equal meaning.
The current balances and margin lending.
And deposits and so forth.
Okay.
And the numbers [inaudible].
And you can correct me. I'm sure one of them is wrong. It was 165, the first 120 the second.
Incrementally and then the third 45.
Yes, those are just estimates, but yes.
Each one is incremental.
To the previous.
And beyond three incrementally 45 as well.
Beyond three incrementally 45 as well.
We haven't modeled it.
So don't hold me to it but.
It would be a number no more than that.
A number no more than that.
It depends on where the deposits fall in terms of the tiers.
The tears.
Are they small account side the medium-sized accounts are there large accounts? And that will dictate.
What happens as the rates change.
Got it. Thank you. Some are more interest rate sensitive than others.
Got it. Thank you very much.
Hmm.
Thank you. Our next question comes from the line of Will Nance of Goldman Sachs. Your question, please.
Yes.
Hey, guys good afternoon.
Yes.
Hi, Will. Maybe I could start with a question on the [inaudible].
Maybe I could start with a question on the <unk>.
I think last quarter, you talked a little bit about some of the introducing broker accounts that were on a fully disclose basis on where we are going to move over to an omnibus structure.
I was just wondering if that impacted some of the numbers recently.
And some of the metrics you guys have put out maybe you could just put a number or ballpark.
How many have moved over and how much of a loss?
Yes. I think in December and introducing broker went to omni bus with 2800 accounts.
I think in December.
And introducing broker went to omni bus.
The 2800 aircraft.
Got it, appreciate it. That's super helpful. And then I appreciate all the color.
On Richard's questions around interest-rate sensitivity, you mentioned that that didn't contemplate any changes in the reinvestment strategy. I was wondering if you could talk kind of more theoretically about what kind of steepness in the yield curve would you guys look to
before you would consider taking a little bit more duration risk in the segregated cash portfolio? Are we anywhere near where that's something you are even thinking about or is that still off far way off [inaudible]?
No, we're not.
I'm extremely worried about much higher interest rate.
Not because we are moving that but.
People do realize that they have to borrow money [inaudible].
In order to keep up with inflation.
And so I think that the fed will lose control.
So I think that the fed will lose control.
I appreciate you taking all my questions today.
Thank you. Our next question comes from Dan Fannon of Jefferies. Please go ahead.
Thanks, I was hoping you could expand upon your confidence around options activity and the sustainability of it or actually the growth I think you highlighted that you think we will still continue.
Maybe to put it, it's the profile of customer that is using that are different than others across your complex or.
It's the profile of customer that is using that are different than others across your complex ore.
Is it education or other factors that you think that are, that gives you confidence around the sustainability there?
So I think the greatest factor here is that these developments that occurred in the United States tend to be followed by other countries.
These developments that occurred in the United States tend to be followed by other countries.
With some lag and that lag is sometimes quite long.
Like five to 10 years.
And so this huge increase in the US recently.
So this huge increase in the U S. So recently.
It's certainly going to be followed by customers outside of the US.
By customers outside of the U S.
And it is specifically the discovery by more and more people.
That option come combined option combination positions.
Can give you very interesting risk profiles.
Can give you very interesting risk profiles.
Profiles.
And.
And there is more and more of debt.
Debt.
Based on fundamental analysis of people tend to figure out.
To figure out.
That they stuck with their eyes between two and $5, but not likely more in these type of forecast can be really high risk.
That they stuck with their eyes between two and $5, but not likely more in these type of forecast can be really high risk.
They stuck with their eyes between two and $5, but not likely more in these type of.
can be really high risk.
In the options market, then we get to see.
A very big increase in these kinds of grade.
And as I've said, I expect that will be followed by foreign investors and we are going to be
very large beneficiaries of that.
Okay. That's helpful. And then last quarter, when you reiterated confidence around the account growth and the outlook.
You stated some marketing new marketing programs and targeted.
Some marketing new marketing programs and targeted.
I think campaigns [inaudible].
We're.
Part of that confidence I guess. Could you expand a bit upon that if that's expanded if you are allocating more dollars towards it or the returns [inaudible]?
Allocating more dollars towards it or the.
We're allocating more dollars more resources more brainpower, yes.
Yes, allocating more dollars more resources more brainpower, yes.
Yes.
That's where our future lies.
And we're pushing that very very hard.
Okay.
A budget perspective, as we think about 2022 or beyond in terms of the spend. Is that something that will be noticeable in the income statement?
As you as you spend those dollars.
Well, unfortunately.
Unfortunately.
I am really at.
We are willing to spend any amount that makes sense, but we find it very difficult.
We find it very difficult to find.
<unk>.
Fine.
Places that we can throw a lot of money at.
Because anytime we find a new channel.
And it works great.
For say $1 million, but if you if you double it.
Your return only goes up by say, 5 or 10%.
<unk>.
Return only goes up by say, 510%.
[inaudible]
So we continuously have to look for new channels.
A put little bits of money in there.
And that is what we are doing so far.
And w hope for a breakthrough, but it hasn't happened yet.
Okay. Thank you.
Thank you. Our next question comes from Craig Siegenthaler of Bank of America. Your question, please.
Good evening, Thomas, hope you're doing well.
Hi, I'm doing well, how are you?
I'm doing well too.
So I wanted to come back to margin loan balances.
I think there were some pricing adjustments.
In the quarter, especially in your on your two highest tiers 1 to $50 million and over $50 million.
I wanted to see if you could help us quantify any impact.
From a revenue or earnings standpoint that could actually drive and when we could see that results? [inaudible]
Hello all.
Or you [inaudible].
Sure, absolutely so we talked it firstly about.
Freight rises but based on the new policy alone, our estimates where would add annually about $24 million.
<unk>.
Some of that is from putting money into different rate tiers.
Putting money into different rate tiers.
Some of it is treatment of negative rate currencies and there's.
Treatment of negative rate currencies and theirs.
Yes.
Pass through of some of those costs, but that's our that's our overall estimate.
Thank you.
I have to ask one on China, just because.
It's been a big source of Investor inbound, but.
Can you update us in terms of the four key revenue contribution from mainland China or the two largest introducing broker clients that are there? And then based on the evolving stands for the Chinese government.
Around data and foreign firms.
How do you expect the size of these relationships to trend over the next year?
So as you know the two largest customers flew to end tied there.
As you know the two largest customers flew to end tied there.
And they are leading us. [inaudible] practically left us.
<unk> practically left us.
They [inaudible] very few accounts still with us.
Accounts.
Still with us.
Tied there is in the process of doing that.
As far as the Chinese.
<unk>.
As the Chinese.
Yes.
I don't have a view on that.
I am very very confused.
Inside the company they are not in total agreement.
Two.
As to how to attack that. So I can't really tell you.
So.
I can't really tell you.
Some of my colleagues are looking more favorably on the
Looking more favorably on that.
Chinese situations than I do.
Got it, Thomas. Thank you for taking the question.
Thank you again. To ask a question, please press star one on your touch-tone telephone. Again that's star one on your touchtone telephone to ask a question. Our next question comes from the line of Kyle Voigt of [KVW]. Your line is open.
Hi, good evening.
Maybe I can ask first question about the impact
the mobile App launch. I'm just wondering if you could help us quantify kind of the uptake or
Launch I'm, just wondering if you could help us quantify kind of the uptake or.
Maybe new account growth of that contributed in the quarter and the fourth quarter.
The growth of that contributed in the quarter and the fourth quarter.
And then also just wondering if you could speak to.
How we should start to expect revenues related to that out to kind of show up.
I notice that in App.
You are advertising a bit more the interactive advisors sustainable portfolios that are kind of pre built in there. So should we think about some asset based fees as being maybe a bigger driver of revenues as this grows over a longer period of time?
You are advertising a bit more the interactive advisors sustainable portfolios that are kind of pre built in there. So should we think about some asset based fees as being maybe a bigger driver of revenues as this grows over a longer period of time?
interactive advisors sustainable portfolios that are kind of pre built in there. So should we think about some asset based fees as being maybe a bigger driver of revenues as this grows over a longer period of time?
Well, no.
I mean our asset base see the only charging eight basis points so.
Only charging eight basis points so.
That way will not create. That's more like [abate] to get people to come in.
Create.
Slower like.
Abate.
To get people to come in.
No.
As far as the impact that. We had 40,000 downloads.
We had we had 40000 downloads.
Of the impact that.
We are not, we do not break out the revenues.
But I wouldn't think they would be substantial.
Substantial.
Understood. Thanks for that, Thomas.
And then I just had I just wanted to go back to the interest rate sensitivity discussion. I believe in the second quarter and you had previously disclosed that roughly 14% of the customer credit balances, which was about $11 billion at the time were fully rate-sensitive or I guess noninterest-bearing.
So I'm assuming that's really the cash and the small accounts or below that $10000
threshold and total cash balances. I guess is that still the right percentage to think about that 14% of total credit balances? Or maybe you could provide an update to that 11 billion number.
Just as we think about modeling again, those kind of capturing the right benefit pass those first two hikes.
Two hikes.
Yes sure.
So it's still in the 14% to 15% range.
It's still in the 40% to 15% range.
Yes.
That's not right. So the 14% to 15% range are the monies that they account as let's say $100,000, right?
Well they are in a number of categories.
Under $10,000 for example.
Under $10,000 for example.
But that's only one of them.
Yes, we have a number of categories that total up to about 14.5%.
<unk>, 5%.
Yes, but so the bulk of those folks.
That have the money gets have interest.
It's only on the one cat one category of under 100,000.
In the amount between 10,000 and 100,000 gets a proportionate amount of interest that we would pay.
The bulk of the 11 billion is there.
No. The bulk is in the very smallest accounts under 10000 and commodity accounts where we don't pay interest actually contribute.
Okay.
Non trivial amount.
Yes.
So you said that we have $11 billion accounts under $10000.
That number is about 7 billion.
Out of a total of total fully interest rate sensitive balances of about 12 billion.
Well.
Okay.
I won't argue with [inaudible].
Commodity balances are almost $3 billion so between the two of them. It's most of it.
Okay. Thanks.
Thanks for that.
Sure. Maybe I can just turn to, if I can just turn to expenses and then I'll jump back in the queue.
Can you just help us think about the level of fixed expense growth as we're looking out into 2022? You mentioned that there is.
Fixed expense growth as we're looking out into 2022, you mentioned that there is.
You are only going to invest obviously if there's positive ROI on the marketing spend so I hear you there, but I guess when you're thinking about that fixed expense base as a whole.
And just hiring and everything else that goes into that. Can you just talk about the pace of growth into '22?
Thank you. Our next question comes from Rich Repetto of Piper Sandler Your line is open.
Yes. My follow up I guess has to do with the.
My follow up I guess has to do with.
The.
The holiday the OCC holiday, where they didn't charge you and I think it was for two months, but.
I guess Paul, could you tell us how long the holiday was at for the entire quarter?
And how much was it? I know it doesn't impact your profitability at all and then.
Any way to estimate how it might impact weighed on your average commission?
Weighed on your average commission.
Right. So it wasn't a very big number. It was last two months of the year OCC overtime has taken various approaches to their fee-charging.
Right. So it wasn't a very big number. It was last two months of the year OCC overtime has taken various approaches to their fee-charging.
Two there.
Fee charging.
They used to do is charge.
Even more about five, five and a half since contract and a rebate at the next year. What they did this past year was they started high and then they cut it in the middle of the year and then they looked at their financials and kind of to zero for the last two months.
The number it's $2 million-plus for us somewhere in that range. So it's not extensive.
You're right to point out that most of that savings is passed through to customers. However, some of it is not because for customers who, to fixed as opposed to tiered pricing.
Most of that savings is passed through to customers. However, some of it is not because for customers who.
To fixed as opposed to tiered pricing.
We would get the benefit of that but probably most of it is pass through.
Got it. Thank you.
Thank you. Our next question comes from Chris Allen of Compass Point. Please go ahead.
Evening, everyone. Thanks for taking my question.
I wanted to ask on execution and clearing.
The fee impact is helpful there.
You talked about the impact of the smaller router internalization on your [ETFs].
And then obviously, there's been the competitive dynamic among exchanges.
I'm wondering if you could just talk through maybe over the last two years, what has had the biggest impact in terms of lowering execution and clearing fees as a percentage of commissions?
Any thoughts in terms of maybe on the exchange side, what the impact would be if some of these [ianudible] pricing we've seen now goes way moving forward.
Yes. I am.
I am.
I can't answer you there, but maybe, Paul, can you?
Yes, I can give a little bit of color.
One aspect is that our smart routers.
Our smart routers.
The smart router has become better and better at routing orders to places that will still give us the best price to the exchange, but gives a better rebate.
The smart router has become better and better at routing orders to places that will still give us the best price to the exchange, but gives a better rebate.
And when we talk about the spread.
The spread.
Between our commission revenue in our direct costs. These execution and clearing costs.
Going up that's because a dollar saved.
Or rebated, and then pass through to the customer.
Has a smaller percentage impact on the commission revenue than it does on the expense line, which is smaller to begin with.
So each dollar we get even if we pass the full thing through to the customer.
The percentage spread would continue to increase.
Of course, the other thing is that as we attract more and more orders to our ATS. There's no external costs to executing those at all and that simply reduces the cost line.
Of course, the other thing is that as we attract more and more orders to our ATS. There's no external costs to executing those at all and that simply reduces the cost line.
executing those at all and that simply reduces the cost line.
Got it. And maybe.
Just one quick one on other fees and services. I know you talked to it but we'd really hard time understanding some of the details there.
Maybe you can just repeat that real quick.
And what the key growth drivers [inaudible] from a year over year perspective.
One from a year over year perspective.
Yes.
Well over the current period the drivers were market data. Market data is also offset by an expense and we earn some profit on it but it's.
Well over the current period the drivers were market data. Market data is also offset by an expense and we earn some profit on it but it's.
Market data.
Market data.
Is also offset by an expense and we earn some profit on it but it's.
When we talk about the other fees and services. That's the revenue side of it.
Exposure fees that we charge as we've talked about in the past. We run stress scenarios.
Run.
Stress scenarios.
On every client account.
And when the stress scenario, which is a more conservative measure of risk than the margin system would impose.
More conservative measure of risk than the margin.
System would impose.
When they reach a certain level.
The system begins to charge fees, which is intended to encourage the customer to reduce their own risk.
Or carry it a proportionate.
Hopefully proportionately higher.
Fee to us and we collect those fees over time, so those happened to have gone up.
And then the options exchange payments.
<unk>.
Options exchange payments.
The payments programs mandated by the options exchanges go up with volume.
Payments programs mandated by the options exchanges.
Go up with volume.
And.
So that's the third component.
The major component of what's been driving up the other fees and services.
Thank you.
Thank you. We have a follow-up question from Craig Siegenthaler of Bank of America. Your line is open.
Thanks, guys. I have a follow on your crypto trading and the partnership with taxes.
Can you just update us on your progress to add more coins? And if I think about your 1.7 million accounts.
How many of them are active in trading cryptocurrencies today? And have you seen how your crypto offering accelerated organic growth?
So we are going to add.
Most probably two currencies and possibly two more within a month.
Within a months.
The probable ones either be [inaudible].
And the possible [inaudible] and AAVE.
<unk> unique and.
<unk>.
We are also working on [so,] but that's really not be added on towards the end of the quarter.
We're getting done so, but that's really not.
Not to be.
Added on.
Towards the end of the quarter.
Your question about.
<unk>.
And my second question was out of your 1.7 million accounts.
How many are active in trading crypto today, and then also are you seeing crypto drive new clients to Interactive Brokers?
We are seeing a small number of new clients coming to us because of crypto.
And.
The take-up among our existing clients is kind of disappointing.
The take-up among our existing clients is kind of disappointing.
The take-up among our existing clients is kind of disappointing.
<unk>.
Got it.
Disappointing.
So I think that.
We have not been successful in driving home the message that our commission rates are two thirds lower than than that lowest provider.
Our commission rates.
Two thirds lower than than that slower lowest provider.
And or the problem is that we do not have the popular currencies and people cannot.
Or the.
The popular.
Currencies and people cannot.
trade them against each other on our platform.
Sure.
Thomas. Can I just had one follow up here.
And this one may be even better for Paul because it's more of a financial question.
We've seen your clearing and execution costs really decline on a long term basis relative to trading activity and commissions that stripping some operating leverage and some efficiencies.
What is your thoughts on the future of that trend will that benefit continue into the future?
Well, we certainly hope so.
We hope that the marketplace will give us more and better opportunities to have our smart router be better.
Be better.
And we always look for those opportunities and we look to improve on the software.
And as I said before the more volume we can attract into our own ETFs that will there is no associated external cost with those executions and so we hope to be very successful with that.
Great. Thanks for taking all my questions.
Thank you. Our next question comes from Mac Sykes of Gabelli. Your line is open.
Good afternoon, I have two questions.
I mean your capital generation continues to be amazing and then hopefully the uptick with the interest revenue.
And I assume that you've not changed your stance on wanting to bolster your balance sheet, but you had talked in the past about having some more capital for funding foreign margin. Is that still the case? Are you still seeing demand kind of outside the US to be able to fund those margin balances?
Yeah, basically the answer is yes.
And then on crypto.
Those adopters, what are the policies related to using margin and are you seeing
some customers
We are not allying margin on crypto.
Allying margin on those.
Uh huh.
I have heard Mr Gensler say that if you leverage crypto.
Mr Gensler.
Say that.
Yes.
If you leverage.
Crypto.
I think it's certainly [the security.]
Yeah.
Are you going to be able to offer short abilities for that and financing [inaudible] currency of holdings in the future?
Courtesy of holdings.
In the future.
As I said, we cannot finance crypto.
[We do not plan.] Okay.
Alright, thank you.
Thank you. Our next question comes from Dan Fannon of Jefferies. Your question, please.
Hi. Thanks for taking the follow-up. I just Tom, just wanted to ask about your confidence around the account growth of 30% to 40% as we look at the Fed future's outlook for the level of heights that are currently being contemplated. How do you think
Fed futures outlook for the level of heights that are currently.
Currently being contemplated how do you think that.
That could change your account growth trajectory or as I said earlier, our confidence around that?
I think it as markets remain at the current levels or go lower by less than 10%.
No.
We remain.
At the current levels or go lower by less than 10%.
And if there is not huge international catastrophe like some war.
Huge international.
Catastrophe like some more.
Then I think that the [freight] of increase will continue.
The rate of increase to continue.
Okay.
Okay. Thank you.
Thank you. Our next question comes from Kyle Voigt of [KBW]. Your line is open.
Hey. Thanks for taking my follow up. I just wanted to circle back I don't know if my audio is coming through previously.
I'm just wondering if you could help us think about the level of fixed expense growth heading into 2022. I don't know if that's better for Paul or.
That's better for Paul or.
I think an assumption of.
Okay.
So we are basically talking about.
Communications.
Computers. Salaries and wages.
Salaries and wages.
Alright, I think of a vehicle they assume that 15% growth rate.
Okay.
Paul, you have a different opinion?
I have no other opinion than yours.
Yes.
Yeah.
On that topic.
Got it, thank you.
Just a clarity question on the fourth quarter margin yields. They compressed.
About 114 basis points. I think last quarter, there were 120 basis points.
I'm assuming that was just mix in terms of the balanced tiers.
The balanced tiers.
In the fourth quarter. Is that right, Paul?
Actually Kyle last quarter, you do you mean in the third quarter? As a comparator.
As a comparator.
Yes in the third quarter was 120 basis points. This quarter was 114. Got 113 in the third quarter and 114 in the fourth quarter, maybe we should both go back and check.
Okay.
Okay.
Alright. Thank you. At this time 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. And we will also be posting a clean version of our transcript on the site tomorrow.
Thanks again and we will talk to you next quarter-end. This concludes today's conference call. Thank you for participating. You may now disconnect.
This concludes today's conference call. Thank you for participating you may now disconnect.
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