Q4 2022 Interactive Brokers Group Inc Earnings Call
Yeah.
Thank you for standing by and welcome to interactive brokers groups fourth quarter 2022 earnings 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 one on your telephone.
I would now like to hand, the call over to director of Investor Relations Nancy Stuebe. Please go ahead.
Thank you.
Good afternoon, happy new year, and thank you for joining us for our fourth quarter 2022 earnings call Thomas.
Thomas is on the call and asked me to present his comments on our business.
Also joining us today are Milan, Galik, our CEO and Paul Brody our CFO .
After prepared remarks, we will have a 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 the disclaimers in our press release.
You should also review a description of risk factors contained in our financial reports filed with the SEC.
The good news about 2022 can be seen in our numbers.
Now have over 2 million customers around the world.
Current $3 billion of net revenues for the first time.
In the fourth quarter, our pre tax margin reached 71%.
By far the highest in the industry.
After two years of unprecedented investor interest in the markets overall, we now see some retrenchment and more localized engagement in particular product segments like futures and options rather than across the board.
Rising inflation and interest rates as well as geopolitical uncertainty in places around the globe.
It helps commodity interest rate and stock index futures become more popular all options were increasingly used to manage risk.
Equity markets grew weaker as inflation and the impact of Central Bank policies took hold.
After years of persistent deficit spending with zero and negative interest rate policies around the world.
I believe inflation is going to stay with us.
It is likely to stay above 4% and the federal reserve will keep rates at this level or higher.
And eventually we will have to give up on getting inflation down to the current 2% target.
We believe that the target will be raised.
Higher inflation and lower equities markets impacted our industry.
For us our year on year account growth was 25% in 2022.
Well for many companies this would be good news, we want to do better.
Our natural account growth by word of mouth is 10% to 20%.
When markets go down as they are now that growth is closer to 10%.
And when the market goes up that growth is more like 20%.
Our sales efforts also add another 10% to 20% on top of that.
So in the short term that growth can be very lumpy.
We still see the bulk of the Onboarding of the two new introducing broker clients. We have mentioned happening in the second and third quarters of this year.
Yeah.
There's a lot of discussion today around market structure and interactive brokers auction model for options offers customers a path to best execution.
In a volatile market options have continued to be a security of choice for investors.
Both to take on exposure to a security at a lower cost than buying the stock outright and as a way to mitigate risk.
Industry listed U S options average daily volume was over 41 million contracts in 2022 up.
Up from under 40 million in the prior year.
We do not accept payment for order flow for IV K, our pro customer orders.
Rather we invite pegged to the mid price orders by institutions and market makers to our Ats to trade with a retail orders.
Somewhat similarly, we auction off each option order among 22 top market makers and other professional traders who give their best bids and offers for every order our customers enter.
These auctions last something on the order of 100 milliseconds, and the winter chooses which exchange wants to use to trade with the order.
We then post the order for a second auction at the exchange and if nobody improves on the price. The original winner of the auction trades the contract at the previously agreed upon price.
This all happens in a fraction of a second.
All participants use automated processes and they automatically feed the amount of price improvement. They are interested in competing on for any specific option contract at that specific time to trade with.
This competition to win the auction means our customers can take advantage of our leading edge system designed to get them the best available price.
We are now going to enhance the system by enabling our own customers, who are so inclined to participate in this process on the market maker side.
We're going to give them, an order type with which they can signify the option or options they want to buy yourself.
And then when we receive an opposing order, we will bid or offer on their behalf along with the market makers.
They will also tell us the price relative to the floating mid price the middle of the bid offer spread that they're willing to pay up to and our software will do the bidding for them.
We still have some minor details we must work out what this project, but we are hoping to be able to introduce this capability to our customers by the end of this month.
We are at the cutting edge of this best execution through auction process.
We were the largest market makers and options for over 30 years. So we are very well versed in these processes and we have been keeping them up to date over the years.
With the potential for a new regulatory process. In addition to new exchanges and continuously evolving new rule.
We have a team of programmers regularly engaged in this activity.
If some similar method becomes required sophisticated mechanisms like the ones, we used could take a long time and great expense for others to create.
There's a lot of debate on this but we will be good with whatever ends up being the outcome.
By the way, we are always happy to welcome more market makers to our platform. We added another four this past year. So please get in touch if you'd like to join us.
We introduced more new products and expanded the capabilities of existing ones recognizing.
Recognizing our global customer reach we introduced global trader streamlined version of our platform for mobile devices, which allows our clients to trade in over 90 stock markets worldwide.
We continue to enhance our options trading tools for mobile options trading to a rollover options tool strategy builder and probability lab.
We will be upgrading our platform with more features and capabilities.
We are introducing new tools for financial advisors, once they've been asking for and that will set or offering apart as the best in its class.
As well as being among the lowest cost for an adviser to us.
We are also adding new countries, where our clients can trade.
We were pleased to receive our bank license in Hungary and plan to make it operational in 2023.
Unlike in the U S customer funds on deposit with an EU broker may not be used to finance margin borrowings by other customers of the broker.
Only banks can lend their customers' funds to other customers no matter, what kind of collateral is involved.
Our primary purpose with this EU bank is to facilitate such financing.
There is much to look forward to the interactive brokers platform is built with the purpose of bringing investors in marketplaces together all over the world optimizing the allocation of capital and resources.
It is our job to develop the best tools and capabilities to facilitate that.
We were as busy programming as we've ever been.
This and our much lower cost structure is what sets us apart and will continue to do so in the years ahead.
Paul.
Yeah.
Thank you Nancy and welcome everyone to the call.
To review, our fourth quarter results and then we'll open it up for questions.
Starting with our revenue items on page three of the release.
The record financial results, we achieved this quarter.
Commissions rose versus last year, despite decline in global market indices, reaching $331 million, our third highest quarter ever.
For the full year commissions were one $3 billion down only slightly from 2021 mean stock spike in trading.
We saw higher trading volumes in futures and options in 2022 coming from our larger base that statistic hated and active traders investors and advisors.
Net interest income of $565 million for the quarter and $1 7 billion for the year reflected increases in benchmark rates worldwide.
U S rates have moved from an average effective rate point O 8% in the fourth quarter of 'twenty, one to $3 six 5% in the fourth quarter of 'twenty two.
This led to higher interest earned on margin loans, and our segregated cash portfolio.
These were partially offset by the higher interest paid to our customers on their cash balances as.
As interactive brokers passes through to them all rate hikes above the first 50 basis points on their qualified fun.
Other fees and services generated $43 million for the quarter and $184 million for the year.
The drop from the prior year quarter was driven primarily by the risk off positioning of customers, which led to a reduction in risk exposure fees from 18 million to $6 million.
FDIC sweeps fees rose to $3 million this quarter.
Market data fees of $18 million and exchange liquidity payments of $9 million were both off 10%.
Other income includes gains and losses on our investments our currency diversification strategy and principal transactions.
Note that many of these noncore items are excluded in our adjusted earnings without these excluded items other income was $19 million for the quarter and $39 million for the year.
Turning to expenses.
Execution clearing and distribution costs were $90 million in the quarter and $324 million for the year.
The increases were led by lower liquidity rebates and non recurrence of 2020 ones options fee reductions and fee holidays from unusually high volumes throughout the industry.
Hi, futures volumes, which carry higher fees.
An increase in the SEC fee rate on U S stocks and options.
As a percent of commission revenues execution and clearing costs.
21% in the fourth quarter.
Note that we report market data expense a pass through item.
Execution clearing and distribution fees.
The corresponding revenue item market data revenue is included in other fees and services.
To align the volume based costs with commission.
We look at execution and clearing costs ex market data expense.
Compensation and benefits expense was $119 million for the quarter for a ratio of comp expense to adjusted net revenues of 12%.
For the year. This ratio was 14% unchanged from last year, Despite a 10% increase in head count.
We continue to focus on expense discipline, while improving our strong top line, our head count at year end 2000 and 820.
G&A expenses were up from the year ago quarter, primarily on higher legal expenses from relatively low numbers last year.
Full year, they were down 6%.
And the non recurrence of Brexit related costs, and a reduction in consulting expenses and bank.
Our pre tax margin was a record 71%.
Automation and expense control, along with prudent management of our balance sheet.
R. R. T means of maintaining high margins, while we continue to hire talented people and invest in the future of our business.
Income taxes of 56 million reflects the some of the public companies $31 million and the operating companies $25 million.
For the year taxes of $156 million or the some of the public companies $87 million.
The operating companies and 69 million.
Moving to the balance sheet on page five of the release.
Our total assets ended the year at $115 billion with growth driven by higher customer cash balances, partially offset by lower customer margin lending.
We maintain a balance sheet geared towards supporting our growing business and providing sufficient financial resources during volatile market, we have no long term debt.
Our ample capital base is not only deployed in running our current business.
It helps us win new business by showing the strength and depth of our balance sheet.
Current and prospective clients and partners.
And it positions us to capture numerous growth and investment opportunities we see worldwide.
In our operating data on pages six and seven.
Contract volumes for all customers rose, 23% over the prior year quarter and futures.
Above the industry growth.
Options contract and stock share volumes declined versus the unusually high volumes last year.
For the full year options and futures contract volumes rose, 3% and 33% respectively.
The decrease in stock share volume was largely attributable to lower trading and pink sheet and other very low priced stocks.
On page seven you can see that account growth remains robust.
With 415000 net new account adds for the year.
Total accounts broke through the 2 million Mark in 2022 closing the year at $2 1 million up 25% over the prior year.
Total customer darts were $1 9 million trades per day.
<unk>, a risk off period for investors and down from last year's stronger market environment.
Commission per cleared commission of the order of $3 15.
It was up 32% from last year.
Our client volume mix.
Fewer low priced stock trades and larger average trade sizes in options.
Page eight shows our net interest margin numbers.
Total GAAP net interest income was $565 million for the quarter of 92% and $1 7 billion for the year.
5%.
These reflected strength in margin loan and segregated cash interest, partially offset by higher interest expense and customer cash balances.
The Federal reserve raised interest rates twice in the quarter by 75 basis points in November and a further 50 basis points in mid December .
These increases had a partial positive impact and a 12 week quarter, but we will have a full impact in the first quarter of 'twenty three.
Other central banks also raise rates this quarter, including the U K.
Canada, Australia, the Eurozone and Switzerland.
Higher interest rates led to margin loan interest income up 32% over the third quarter and 182% over the prior year quarter.
More than compensating for lower average balances in both periods.
Securities lending net interest was not as strong as in the prior year for a few reasons.
<unk>.
Well overall customer demand for shorting stocks and borrowing shares rose.
Fewer hard to borrow names throughout the industry.
Second.
Benchmark rates are rising.
The interest we earned on cash collateral received in exchange for lending stock is also rising that's good news.
Because of this cash collateral is invested as segregated funds.
Interest earned on it falls under the heading net interest income on segregated cash in our net interest margin table.
Rather than securities borrowed a lot.
We estimate that the incremental interest earned on this stock loan cash collateral from rate increases was.
It was $42 million for the quarter.
Interest on customer credit balances or the interest we pay to our customers increase.
Higher rates in nearly all currencies led to our paying interest on qualifying balances as we pass through these rate right.
As to our customers.
We paid 400 seats.
$487 million to our customers on these balances in the fourth quarter.
And a total of $763 million for the year.
Fully rate sensitive balances were.
$20 billion this quarter.
Now for our estimates of the impact of increases in rates given.
Given market expectations of more rate hikes to come.
We estimate the effects of increases in the fed funds rate.
To produce additional annual net interest income as follows.
At 25 basis points, an increase of $49 million.
Basis points, an increase of $97 million.
75 basis points, an increase of $146 million.
And then 100 basis points, an increase of $195 million.
Note that our starting point for these estimates at December 31.
With the fed funds effective rate at 433%.
And our balances at that date.
About 25% of our customer segregated cash is not in U S. Dollars. So estimates of U S rate change impacts exclude those currencies.
We estimate a 25 basis point increase in all the relevant non USD benchmark rate.
Would produce additional annual net interest income of $25 million and rising to about $100 million yet.
100 basis point rate increase.
In conclusion, we had a strong quarter closed out a record year of net revenues and pre tax margin, reflecting our continued ability to grow our customer base and deliver on our core value proposition to customers.
Done this while highlighting the.
The attractiveness of our strategy to automate for growth.
Expanding what we offer while minimizing what we charge we do this at low cost managing our growing business effectively and with strong expense control.
With that I'll turn it over to the moderator and we will have to take some questions.
Yeah.
As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.
Our first question.
It comes from the line of Richard Repetto of Piper Sandler.
Your question please Richard.
Yeah, Good evening, Thomas and Paul.
In Milan sorry.
I guess my question Thomas had to do with the introduction and how how you talked about interactive brokers technology.
So adept I guess in the auctions auctions and I guess the question is okay. It looks like well we could.
Have auctions implemented.
Into equities.
<unk>.
Could you just talked about.
Theres any first impressions of what the SEC has rolled out.
As.
As Akshay, what do you think is the impact and.
Would you have that same I guess you are saying you have that same advantage in the experience of the auctions.
From auctions.
You can apply it to equities is that what the message was.
Yes, so so I don't I haven't heard anything and I do expect that the SEC require an auction process or options, but.
To the extent that they will do so for securities I think that gives us a great leg up in marketing our auction process for options because obviously.
Auctions are good for us at <unk> as a matter of fact, the fact that it is better for options because an option is the bid offer spread is developing new either WPZ in securities. So.
Three the option that really could save $300.
We're construct.
The spread the bid offer spread as often as a either five 6%.
Or or five to $6.
Great.
So so.
Ed.
Philippe thereby.
The participants can meet somewhere in the mid low and there is no Bradley saved through our two customers on each side of the trade I think it's a huge leg up as we market the hell out of it that's the idea.
I guess, just a quick follow up on that but you don't consider the price of the options price improvement.
I thought those called auctions, but.
Consider them equivalent to what the FCC.
And sort of outline.
At this point.
It is equity lines in the in the stock space, but they didn't.
Haven't heard them talking about the options, but we are basically.
Proposing to do the same thing in options as they may require for stocks.
Okay.
Alright, Thanks Mark.
The financial.
Dialysis core financial question can you give us sort of expectations for expenses.
The coming year.
It looks like the adjusted.
Our numbers right somewhere about 15% year over year increase this year is that something to sort of.
That a good number just sort of users.
Benchmark our rule of thumb for 2023.
Obviously, you have a view.
I mean, we have been I'm sorry.
Okay.
Okay.
The.
Increase in overall expenses I mean, we do continue to hire along with the growth in our business.
Yes.
I think our I think we are going to increase expenses around <unk> 15.
15%.
As we have done in the past we continue to grow we continue to come up with new things and we continue to pay to attract new talent.
But as long as our expenses increase in the Io than our revenues.
<unk>.
Continue to look at on this Atlantic Basin profit margin.
That for us.
<unk> just under 70% argued.
That's all I had thank you.
Thank you.
Our next question comes from the line of Craig Siegenthaler of Bank of America.
Please go ahead Craig.
Hey, good evening Thomas.
Good evening.
So if we exclude the two large introducing broker wins that are going to start funding into Q.
How does the future high broker pipeline look.
And could you announce additional large high broker wins over the course of the next year.
Could be.
So sure we could the question is really a lot.
Hey, Bill.
I mean, obviously we.
Hello people out there who are drag to a REIT.
Crude.
I brokers and the more we get on the platform the more we will.
Variability about it and the more of them will come to us.
Basically is that we'll divide it is very difficult to create as a spin.
Is compliant with all the regulations all over the world.
<unk>.
So we have a huge leg up in having done so and I think we've done that.
Have any basically I don't think we have.
Any serious competitors in this space.
Got it. Thank you Thomas and then just for my follow up I heard past comments on higher legal expenses and G&A.
Should we assume part of that is one time as we work and I'm. Just thinking is there is there a good number for us to work off of.
<unk> 'twenty three relative to the $48 million in <unk>.
Legal expenses get they go up they go down cases come by regulatory things come by.
Maybe the best the most.
Most the most realistic thing you can look at it is on the year as opposed to on a quarter.
Okay, great guys. Thanks for taking the questions.
Thank you. Our next question comes from the line.
Benjamin Bowdish Barclays. Please go ahead Benjamin.
Hi, Thanks, so much for taking my questions I kind of wanted to follow up on the spending, but maybe kind of a higher level question could you maybe talk about some of your strategic priorities for this year I think in the past you've kind of indicated the more geographic expansion digging deeper into the hedge fund business, where are you kind of focus in terms of spending.
Your top priorities.
Hi, Thanks for the question.
We are focusing on.
Making our system more robust.
Hi, brokers, where you get on the platform some of them being large multinational banks may require a very high level of reliability parity numbers.
We have hand backup and data centers.
Online and available to us for a long time, but we are not able to turn them on.
In the matter of seconds or minutes.
That is when significant expenditures coming to go.
As far as growing the staff.
We are going to be flexible <unk>.
In the area of compliance and customer service and we will respond to the increase.
And the number of accounts in the trading activity.
As far as technology is concerned we will continue hiring the talent.
We have in the past.
Great. That's super helpful. And then if I can follow up on a kind of a comment you guys made earlier on.
You said that the account growth theres kind of a mix between natural world word of mouth and sales, which can be quite lumpy I'm just wondering kind of in the most recent months what has been the mix has it been sort of even or more geared one way or another.
Okay.
Half of that for our fleet.
Okay, great. Thanks, so much for taking my questions.
Okay.
Yeah.
Thank you our next question.
Comes from the line of Daniel Fannon of Jefferies. Your question. Please Daniel.
Thanks, Tom I was wondering just your thoughts on just the elevated use of options as well as futures and maybe the sustainability of that as you think about 2023 and whether were above average below or do you think we can still grow from here.
So as you know.
I started my career in this business.
As an options today they are on the floor of the Amex and all I have seen over the past six years as a continuous increase in options trading.
<unk>.
What what we see now is is in addition to the U S growth growth is beginning to pick up in Asia and Europe in the option space because.
They basically go into the options business about 20 or 30 years ago and then it's.
Slowly dwindle down to nothing over there and now it's finally picking up again so.
Extremely optimistic about the growth in options trading obviously.
If you just look at the idea, where we're doing vertical spreads.
When you have when you when you are.
Most of these are very limited.
You can have some very I think you can put down some terrific positions in vertical spreads.
It's much better than trading stocks.
Great. Thank you.
Thank you. Our next question comes from the line of Kyle Voigt of <unk>. Please go ahead Kyle.
Hey, good evening.
Maybe just a follow up on the commentary earlier regarding the sales effort, adding 10% to 20% to account growth per year.
I'm just wondering is that with the current sales team and marketing budget and when we think about that 15% expense growth in sales and marketing an area Youre prioritizing and I'm just wondering like.
Picture are there larger changes in advertising strategy that youre contemplating I guess as you look out to next year.
Or is it or.
Got it.
So we are working DCF growth across the board.
Continuously trying to train new salespeople basically come to begin working on our on our professional help desk.
After that.
That for about two or three years, they are mature enough to to bring into the sales team and.
Again it yourself.
Florida is also advising weird guy as you know.
I would say.
Digital advertising.
Yes.
Very often.
Uh huh.
<unk>.
Situations there.
So.
I'm sorry.
It is.
Thanks, a lot guys in space is influx could be extended.
Got it.
Bob.
So.
Basically what I'm, saying is reflecting electrical and gone back and they may I say so.
Continuously working that.
We are.
We do not have budget constraints anywhere, but we are trying to get a good return on the investment. So we are not going to throw a lot of money on various campaigns on SBC.
Prunes itself, so we drive more people to actually keep.
To get bigger and bigger and bigger, but usually as you find data that when you start something gets started severity again as we keep growing it exerts less and less iron ore Ida do so but that's how it is so.
We have a lot more we would love to spend a lot more money advertising, but we won't do it without having a reasonable return.
Yeah.
Okay.
Understood.
Maybe I shift over to to NII, just curious strategically speaking if we start to see the central banks.
Cut overnight rates.
Potentially by later this year does that change your strategy on the duration of the segregated cash portfolio at all.
Well, if you believe that they will cut case good luck.
I guess, if we do start to see that move I guess does that change your viewpoint or is what you said earlier.
There is it is there is we cannot take because.
So it makes that extra money, but if we're wrong, we can lose that fortune because.
As rates go up we have to raise their game that we pay to our clients.
<unk> jewelry don't want a situation where we are.
<unk>.
And the loan.
On the loan.
And we are.
Borrowings under the short end from our customers so.
We can get creamed Fas.
Understood.
And last question for me is just the yield on customer credit balances that youre paying out the clients came in a bit lower than we expected. Paul I know you said 20 billion is the fully rate sensitive cash figure I just wanted to confirm that $20 billion figure does that also include balances that are partially rate sensitive within there.
I wanted to confirm that alright.
Alright.
It includes the equivalent.
The fully sensitive balance right.
Alright, so we pay a pro rata portion of our full rate on accounts that have between 10000 and $100000 in equity.
We've calculated the equivalent effective principle on which.
The full amount default rate would have been paid.
Alright that makes sense. So it's a good number to assume theyre fully sensitive.
And the interest rate sensitivity that you gave earlier Paul I, just wanted to confirm as well.
That does not include.
You mean the.
Interest additional interest that you would also earn on corporate cash balances is that correct.
No. It does assume that both the customer side and the investment side move together.
Right.
And we have quite a short duration and so those are.
Fully absorbed run rates, but it wouldn't take us that long to get there as rates move around.
Our duration is short.
Okay. Thank you.
Thank you.
Our next question comes from the line.
Chris Allen of Citi.
Please go ahead Chris.
Evening guys I was wondering if maybe you could give some color just in terms of the account growth.
Or there was any strength in any particular customer segments or regions relative to any others. This quarter.
Well look.
Our positive comp growth.
Sure.
As these individuals followed by <unk>, followed by a hedge funds followed by.
I brokers and lastly financial advisors, so that's that.
The rate of growth.
Uh huh.
That is for the last 12 months, so I have not broken this out towards the last quarter.
So Luke basically.
Really the last quarter hedge funds growth.
Probably.
Yes.
That is unusually high.
Okay.
And.
We don't do as financial advisors as you do with hedge funds.
Okay.
The.
The software development.
Milan mentioned, having to do with financial advisors.
And then too.
That growth rate.
Got it any specific regions growing faster than others at the moment.
Yes, I think so.
So that large extent this is the model right.
And it just so happens that we are doing very well among excellent people.
And.
Financial advisors are more of them.
Locked up.
To the extent that they are associated.
Morgan Stanley and you'll be as they are locked up there to the extent they are independent they are the RV Chubb and Ameritrade and.
So.
I am not as easy Lee.
So many new of them that start right. So so.
A more difficult task.
Got five new financial adviser that is because debt hedge funds.
Got it.
Is there any way you guys can frame out the Hungary Bank license.
That may mean in just in terms of.
The inability to fund margin loans.
In Europe right now what the what the demand would theoretically be any way to think about that.
Margin accounts current.
Lately, we cannot use customer or monies to do lend out to other customers in the EU and in the.
We have they're all pretty similar demand in the U S.
Thanks for that.
And.
So.
Currently using our own money in.
In the future.
Are they able to use other customers money.
Okay. Thanks, a lot guys.
Thank you again to ask a question. Please press star one one on your telephone again Thats Star one one on your telephone to ask a question.
Our next question comes from the line.
Richard Repetto Piper Sandler. Please go ahead Richard.
Yes, sorry.
First just a couple of quick accounting follow up.
Paul.
You said that I thought you said that the market data expense went into execution and clearing I didn't get the number.
Right and can you give us the amount that went into it.
Execution and clearing expense.
Alright, so the line item is called execution clearing and distribution.
The distribution Israeli distribution of market data, what I was pointing out is that.
When we talk about.
The expense portion of executing a trade.
21%.
Cost versus the commission that we earned.
And in order to get a reasonable number there an accurate number you have to pull out from the line item market data, which is which doesn't go into.
Commission it goes into the.
The other income line, that's how it's paired up.
Alright.
No alright calculated marginally marginally.
Marginally profitable every year, because there's a little bit of a markup in some estimates on how we have to.
Estimate our costs and pass through.
But in other words, what I was pointing out is to get rid of the noise when youre thinking about the.
Marginal.
Gross profit that we get when we execute a trade it and earn a commission.
Okay.
Was there any one timers this quarter.
G&A expenses.
Not especially other than as I said legal fees go up and down they were up a bit higher this year, but they were especially low last year. So.
As I said.
Nothing else of note and.
It's better to look at probably the whole year to understand something more a better run rate.
Okay.
And then the last question.
As.
I believe the sensitivity to interest rate sensitivity for the 25 basis point rate hike.
Yes.
<unk> is smaller than it was.
You said it was last quarter I believe it was 54 going down to 49.
If I do have that correct can you I know margin balances are down but is that just the prime culprit.
Cash balances.
Yes, I'm just trying to get the Watson Wyatt move down.
Alright, so there.
There is a few different scenarios that we talk about if we assume that all currencies I understand its a hypothetical case, if all currencies raised rates together.
They are actually up.
From last quarter, the projected numbers are up.
When we assume that the U S. The only only the fed funds will increase in other currencies will not.
What happens is that.
There is an overlay.
Of.
Currency swaps because we.
In order to protect.
Our money for.
In the U S customers when we receive other currencies, we swap them into us dollars and put them into segregation is the cost of that and then when the USD rates go up that cost goes up.
And so as you project out a higher.
Interest rate increase only in the U S dollars.
There is some offsetting effect.
That would tend to dampen.
The.
The incremental number at any given increased 25 basis points 100 basis points.
Got it got it thank you.
Clarify that thank you.
Thank you our next question and comment from the line.
Oh Macrae Sykes of Gamco. Your line is open mccray.
Oh.
Congratulations on the quarter and the year very strong progress.
My question is around.
Providing an update on your efforts to attract larger institutional customers to interact with your order flow and I was wondering if some of the talk about the changes in potential market structure is that helping to drive some further discussions with other clients as well.
Yeah.
Yes, we continue to attract institutional traders into our Ats.
And there the exposal they have.
And number of order times, they can trade against declined 4% to rehab.
And you expect to meet orders that can you expect best orders.
We will continue.
To get more onto the platform, we are approaching various algorithmic trading firms and algo providers, we believe that they would enjoy the quality of.
Of the flow do they get to interact with.
As far as the upcoming changes to the ACC announced.
To put them into perspective.
The.
Comments time period ends at the end of March.
They're going to be a lot of.
Industry participants are responding to the proposals.
We will submit our own comment letter.
After that it's going to be decided what we will finally get.
Accepted and adopted and I think you're just going to take approximately two years put any change to take place.
As to what exactly is going to happen.
In the area of auctions, it's somewhat depends because the details we're not.
Really specify what do we do know is that some percentage of the retail flow will have to be exposed to the exchange auctions. This is typically flow of clients the trade area.
240 times in six months or.
So these are not frequently trading accounts, and therefore always going to be subjected to auctions.
But there is a way around that.
Broker holding these order does not on the order to go into an auction.
He can feel it at the mid price.
Amit the prize that he can find somewhere to then open market or at an Ats honing the dark pool or he can fill it against his own inventory.
Now exactly what the limitations are going to be is unclear.
Sir you may have a preference for a very large portion of these orders to go into the auctions and limit the number of orders that the brokers can feel outside of the auctions. We don't know the details and I think <unk>.
All of this is going to be cleared up after the industry had time and opportunity to respond and the ACC.
Carefully evaluate the responses.
That's great color. Thank you.
Thank you at this time I would like to turn the call back over to Nancy Stuebe for closing remarks Madam.
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 our site tomorrow.
You again, and we will talk to you next quarter end.
This concludes today's conference call. Thank you for participating you may now disconnect.
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