Q3 2023 Interactive Brokers Group Inc Earnings Call

Okay.

Good day and thank you for standing by welcome to the interactive brokers group third quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.

The speaker's 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 you.

You will then hear an automated message and advising your hand is right to.

So it's very a question. Please press star one again.

I would like to revise that todays conference call is being recorded I would now like to turn the conference over to your speaker for today, Matt just stupid. Please go ahead.

Thank you.

Good afternoon, and thank you for joining us for our third quarter 2023 earnings Conference call.

Once again Thomas is on the call, but asked me to present his comments on the 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.

Our robust operating metrics once again translated into strong financial results this quarter.

Our account growth remained strong at 21%, while our client equity was up 29%.

Net interest income reached a record as did our total adjusted net revenues, which were over $1 billion for the third consecutive quarter.

On the other hand markets were down in nearly every country in the quarter and trading volumes dropped.

Low market volatility customers moving to higher priced stocks of companies with greater capitalization and overwhelming competitive strengths.

And the geopolitical environment that is increasingly uncertain all led to lower darts.

This meant that while we were able to increase our commission revenue slightly reaching its fourth highest level in our history.

It is still the case that investors are holding onto the same seven equities and not trading others actively.

However options volumes continue to be strong and option commissions were up the most this quarter then came futures will stock Commission revenue dropped.

As I've said previously I do not expect the situation to reverse.

There are several competing crosscurrents in the markets if.

If you are a long term investor I'm looking 10 years out what you want most of the stability and not to lose a lot of money.

You want to put your assets in a politically currency and inflation wise stable place.

Well historically that has been the U S. The U S.

S will look less politically less stable politically as the election approaches and inflation will look worse because of wage increases and union issues as well as increasing cost of carrying U S government debt.

As a parent U S political stability weakens.

People are less likely to invest in equities.

On the other hand, there is the tax liability for U S. Taxpayers on substantially appreciated stock prices should that gain to be realized.

This background explains what we have been seeing lately in the markets.

Our customers top stock holdings, the magnificent seven haven't changed much.

Corresponding options activity has increased.

In addition, we are seeing more and more investors getting into U S treasuries.

Generally activity on our government and corporate bond platform has picked up appreciably.

We do not see inflation coming down substantially and still see interest rates staying at elevated levels for a long time, which will in turn increase spending to pay the interest on this debt adding to inflationary pressures.

It remains the case that investors globally are looking to the markets to stay ahead of inflation and uncertainty.

More people want to invest in securities markets hold their choice of currency in their accounts and gain exposure to different countries, particularly the U S. As a way to build wealth and security.

We continue to advertise and closely watch which outlets work the best for us.

We have built an automated advertising system, where we measure the yield and use an algorithm to adjust spending on each channel where we advertise.

Telling everyone about our 4.83% return on immediately available qualified cash may have prevented withdrawals, but it barely helped to increase customer cash, which grew only by a little more than 2% from the prior year.

In terms of our client segments, our strongest ones for account growth have been individuals' and proprietary traders, which are also showing the strongest growth in 12 months Commission revenue.

Well financial advisors individuals and introducing brokers I've seen the strongest growth in net interest income.

Geographically Europe has seen the fastest account growth.

All about Asia than the Americas.

I would like to talk about our introducing broker segment.

I spoke of two large accounts coming.

I regret that now because the timing of these accounts is out of our control and with the larger of the two it is difficult to put an exact time on it.

But we have so much else going on and I feel it is at the service to focus only on win win win for this one client when we have so many other promising items lined up.

First the smaller of the two I brokers successfully began onboarding there were approximately 52000 accounts.

So far more than half of them are with us and we expect the bulk of the rest by the end of the year.

Next a couple of other introducing brokers are joining us.

All of this is to say when that other eye brokers starts to onboard I will let you know.

Until then I cannot put a date on it I've been wrong on the date for a while now so it is unclear to me why you would want me to keep giving one.

But unfortunately it is not only the date I have been wrong on.

Also Ms estimated the size of these operations.

And now both appear to be smaller than I, originally expected and accordingly, I need to reduce my estimate of long term account growth from 30% to the low 20% area.

On the hedge fund side. The most recent <unk> statistics show us moving into the number five position in terms of number of hedge funds for which we serve as prime broker.

We were once again, the fastest growing of the top prime brokers this year.

We plan to be number for next year behind only Goldman Sachs Morgan Stanley and J P. Morgan.

Our developers have been extremely busy with new products and tools and have a full plate for the remainder of the year.

This quarter, we introduced fractional shares trading for Canadian stocks and Etfs.

Launched a securities lending dashboard for our more sophisticated clients to be able to assess short selling activity for specific securities and inform their decision making.

Introduced the next generation I became our desktop trading platform.

Launched the discover tool to help clients find opportunities based on their own customized settings and trading preferences.

Started our sense of security podcast designed to help improve financial literacy for newer investors and introduce long term investment accounts and Hungary.

We remain very optimistic about what our business model international market access strong and secure balance sheet and multiple features and tools all at low prices with high interest paid on cash balances.

First our clients and potential clients around the world.

In an increasingly uncertain world the greater degrees of freedom, our clients have to manage their portfolios as they wish the better their ability to educate themselves as events change in economy is increasingly fluctuate and diverge.

Better off they will be.

With that I will turn the call over to our CFO , Paul Brody, who will go through the numbers for the quarter Paul.

Thank you Nancy welcome everyone to the call as usual.

Starting with our revenue items on page three of the release.

We followed on our strong first and second quarter performances with net revenues, reaching over one 1 billion.

With ongoing customer account and balance sheet growth, we continue to build a strong base for our revenue and growth revenue growth in the future.

Commissions were $333 million up 4% from the year ago quarter, despite industry wide declines in equities volume.

Our options volumes in particular came in at a quarterly high doubling the pace of industry volume growth.

Stock share volumes declined from last year's quarter, once again, driven by a drop in trading of lower price stocks, but also reflective of lower industry volumes.

Net interest income was a quarterly record $733 million.

Selecting higher interest in margin loans and segregated cash.

These gains were partially offset by the higher interest paid on customer credit balances as our long standing policy has to pass through rate hikes above 50 basis points to our customers on their qualified fun.

Other fees and services generated $52 million with the biggest contributors being market data fee revenue at $17 million.

Risk exposure fee revenue of $13 million.

Options exchange liquidity payments of 8 million.

The 8 million overall increase in increase in risk exposure fees from the prior year quarter was driven by more risk on positioning of customers.

Other income was $27 million.

That 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 and without these excluded items other income was $20 million for the quarter.

Turning to expenses.

Execution, and clearing and distribution costs rose, 14% versus last year led by higher volumes in options, which carry higher fees than equities.

We measure the profitability of our commissions by looking at gross transactional profit.

Which is commission revenue less execution and clearing costs.

This measure excludes market data expense, which is a pass through.

In the third quarter execution, and clearing costs were 23% of commission revenue for gross transactional profit margin of 77%.

Compensation and benefits expense rose, 14% over the prior year quarter on a combination of a 5% increase in average head count.

And also on inflation.

Compensation and benefits expense was 11% of our adjusted net revenues versus 13% last year and below its historical level.

Count at quarter end was 2927.

G&A expenses returned to a more typical level. This quarter. After we recorded a reserve in the second quarter for regulatory matters, which have since been settled.

Versus the prior year quarter increases were related to advertising and legal expenses, partially offset by a reduction in consulting fees.

Our adjusted pre tax margin was 73% up from 68% in the year ago quarter.

Income tax expense of $68 million reflects some of the public companies $36 million and the operating companies $32 million.

[laughter].

Moving to our balance sheet on page five of the release.

Our total assets were $121 billion at the end of the quarter.

With growth over last year, driven primarily by increases in our margin lending and securities lending businesses.

We maintain a balance sheet aimed at supporting our growing businesses and providing ample financial resources during volatile markets with maximum flexibility in short term liquidity.

We have no long term debt.

And the duration of our U S investment portfolio at September 30th.

It was 26 days.

Our operating data on pages six and seven.

Contract volumes for all customers was strong with options, reaching their highest quarterly level up 18% from a year ago.

Futures contract volumes were down slightly in line with industry volumes and in stocks. The drop off of 22% was largely attributable to investors moving to higher quality stocks is trading in pink sheet and other very low priced stocks declined the most.

On page seven you can see that our account growth remains robust with over 140000 net account adds in the quarter.

Total accounts at $2 4 million up 21% over the prior year.

Total customer darts were $1 9 million trades per day down slightly from the prior year quarter.

Our cleared IV K, our pro customers paid an average of $3 11 Commission for cleared Commission will order up 5% from last year as our clients volume mix included higher per order contributions from options and futures.

Page eight presents our net interest margin numbers.

Total GAAP net interest income rose, 55% to $733 million from the year ago quarter.

Reflecting stronger earnings on segregated cash and margin loans, partially offset by higher interest expense on customer cash balances.

With one more 25 basis point hike in the latest quarter.

The average federal funds rate was over 300 basis points higher this year than last.

Many other central Bank also raise at this quarter. This group includes the U K, Canada, Hong Kong and the Eurozone.

Net interest earned on segregated cash was $728 million.

$500 million from last year, primarily from global rate hikes.

Maintaining a short duration on our invested funds continued to allow us to closely match asset and liability maturities.

Pickup benchmark rate increases quickly.

As I said at September 30th our U S portfolio duration was 26 days.

So the investments have rolled over into new higher rates with a fairly short lag time.

5% increase over the year ago quarter, and average segregated cash and securities balances also helped drive interest income higher.

Margin loan interest Rose 620.

$623 million.

Nearly doubling the prior year quarter, despite average margin loan balances rising only slightly.

Higher rates in the U S and internationally have driven higher margin interest income.

Securities lending net interest was $66 million.

Down from the year ago quarter due both to lighter overall demand for so called hard to borrow stocks.

And two a rate dynamic we have noticed previously, namely as benchmark rates rise a greater portion of the revenue generated by lending securities.

For which we received cash collateral that we invested segregated funds.

Is categorized as interest on segregated cash.

We estimate this impact to be about $28 million for the quarter versus last year.

In other words without this shift in reporting line item.

Net interest from securities lending would have been $94 million versus $114 million in the prior in the year ago quarter.

Interest on customer credit balances are the interest we pay our customers grew as higher rates in many currencies led to our paying interest in qualifying balances as we pass through rate increase.

We paid $832 million to our customers on their balances in the third quarter.

Fully rate sensitive balances were up about 5% from the second quarter.

$21 billion.

We consider our policy offering clients a full pass through of all rate hikes. After the first 50 basis points on their qualified cash.

Significant component in our success and one that continues to set us apart.

We believe this leaves the clients choosing to keep their cash with us.

Especially active clients, who do not want to use suite programs that prevent them from immediately accessing their cash to invest.

Now for our estimates of the impact of increases in rates increases and decreases.

Given market expectations of near term rate hikes and further outright reduction.

We estimate the effects of both increases and decreases in the fed funds rate on our net interest income.

We estimate increases in the fed funds rate to produce additional annual net interest income of approximately $56 million.

For each 25 basis point increase in the benchmark.

Symmetrically.

Decreases in the fed funds rates should reduce should reduce annual net interest income by approximately $56 million for each 25 basis point decrease in the benchmark.

Note that our starting point for these estimates is September 30th with the fed funds effective rate at 533% and based on balances at that date.

About 25% of our customer cash balances is not in U S dollars.

So estimates of U S.

Change effect.

Exclude those currencies.

We estimate increases in all of the relevant non USD benchmark rate to produce additional annual net interest income of approximately $20 million for each 25 basis point increase in the benchmarks.

In conclusion, the company performed well in the third quarter in a complex and uncertain environment, reflecting our continued ability to grow our customer base and deliver our core services to customers.

At low cost and competitive interest rates.

As we manage the business effectively with strong controls over risks and operating expenses.

And with that.

We will turn it over to our moderator and happy to take questions.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone.

Operator: Good day, and thank you for standing by.

Operator: Welcome to the Interactive Brokers Group 3rd quarter, 2023 earnings conference call. At this time, all participants will notice an only moment. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press someone on your telephone. You will be in here in automated message and advising your hand is raised. To answer your question, please press someone again. I would like to advise that today's conference call is being recorded.

Please wait for your name to be called before you proceed with your question one moment, while we prepare the Q&A roster for first question.

For today will be coming from Craig Hallum of Bank of America. Your line is open.

Yeah.

Thanks, Good afternoon, everyone.

With equity now over $13 billion, we wanted to get your updated thoughts the potential usage for deployment, either returning capital to shareholders via a dividend increase or special dividend or even through M&A and I think you just talked up the prospects of M&A at a competitor conference.

Operator: I would now like to turn the conference over to your speaker for today.

Operator: Nancy Stuebe, please go ahead. Thank you.

Nancy Stuebe: Good afternoon, and thank you for joining us for our 3rd quarter, 2023 earnings conference call.

Last month's maybe refresh us on that topic. Please.

Nancy Stuebe: Once again, Thomas is on the call, but ask me to present his comments on the business. Also joining us today are Milan Galik, our CEO and Paul Brody, our CFO.

So we have looked at.

Two specific opportunities.

Nancy Stuebe: 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, 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.

Neither one of them.

Are they.

Daiwa.

At higher price than.

I actually in one case.

The target wanted more that can be they're willing to pay and the other case.

We're not interested in.

Doing anything.

First day.

Very strong.

Looking forward there is nothing we can do.

Nancy Stuebe: Our robust operating metrics once again translated into strong financial results as quarter. Our account growth remains strong at 21%, while our client equity was up 29%. That interest income reached a record, as did our total adjusted net revenues, which were over $1 billion for the third consecutive quarter.

But we keep on looking.

Sure if anybody here so anything please let us know.

Okay.

And Thomas also on the the dividend too please.

Yes.

Looking to increase that maybe then we are looking to increase the volume.

Nancy Stuebe: On the other hand, markets were down in nearly every country in the quarter, and trading volumes dropped. Low market volatility, customers moving to higher price stocks of companies with greater capitalization and overwhelming competitive strengths, and a geopolitical environment that is increasingly uncertain, all led to lower darts. This meant that while we were able to increase our commission revenue slightly, reaching its fourth highest level in our history, it is still the case that investors are holding on to the same seven equities and not trading others actively. However, options volumes continue to be strong, and option commissions were up the most this quarter, then came futures, while stock commission revenue dropped.

Money because.

It gives us.

Great.

Clients, a greater sense of security and as you have heard we are open to get larger and larger investors to come with us.

Cushing is very important to them, especially since we are not.

Systematically important content park.

Great.

I think Thomas do I get a follow up or is it just one.

As far as I'm concerned go ahead.

Alright, great. Thank you. So my second one is on the expense side.

Nancy Stuebe: As I've said previously, I do not expect the situation to reverse. There are several competing cross-currents in the markets. If you are a long-term investor, I'm looking ten years out, what you want most is stability and not to lose a lot of money. You want to put your assets in a politically currency and inflation-wise stable place. While historically that has been the US, the US will look less politically, less stable politically, as the election approaches.

Employee comp and benefits.

Down about $9 million sequentially.

So any comment on that and is this a good run rate to work on for next quarter and I think you also consolidated some European offices in the quarter. So I don't know if that benefited this quarter or if that's going to benefit a future quarter.

Okay.

Alright, great.

We mentioned last quarter that there was.

Odd accounting.

Nancy Stuebe: An inflation will look worse because of wage increases in union issues, as well as the increasing cost of carrying US government debt. As a parent, US political stability weakens, people are less likely to invest in equities. On the other hand, there is the tax liability for US taxpayers on substantially appreciated stock prices.

<unk> requirement that we measure.

Vacation days taken by employees around the world every quarter.

And we accrue them at a certain rate and then we subtract these days taken.

And Ah.

We have to take an expense for the difference.

That tends to build up in the second quarter and then go back down in the third quarter as people take vacation over the summer it only seems obvious too.

Nancy Stuebe: Should that gain be realized. Police.

Nancy Stuebe: This background explains what we have been seeing lately in the markets. Our customers top stock holdings, the magnificent 7, haven't changed much. The corresponding options activity has increased. In addition, we are seeing more and more investors getting into U.S. Treasury. Generally, activity on our government and corporate bond platform has picked up appreciably.

Many of us.

We have so that unfortunately generates a little bit of quarter to quarter noise.

We've done some research into this and determine that.

We can measure.

Measure this annually instead of quarterly.

Sort of anticipating that.

Nancy Stuebe: We do not see inflation coming down substantially and still see interest rates staying at elevated levels for a long time, which will in turn increase spending to pay the interest on this debt, adding to inflationary pressures. It remains the case that investors globally are looking to the markets to stay ahead of inflation and uncertainty. More people want to invest in securities markets, hold their choice of currency in their accounts, and gain exposure to different countries, particularly the U.S, as a way to build wealth and security.

It does go up and down and employees do in fact take their vacations annually and by the end of the year, it's mostly even again.

So.

We're going to adopt that.

Next year.

Starting with the 2024.

And you should start seeing quarter to quarter variations and that accounted for.

Four 5 million of the James upside.

Upside and downside upside in the second quarter downside in the third quarter.

Nancy Stuebe: We continue to advertise and closely watch which outlets work the best for us. We have built an automated advertising system where we measure the yield and use an algorithm to adjust spending on each channel where we advertise.

As far as consolidating office.

Rather merging operations in Europe .

I would not expect that to have a material impact.

Primarily driven by our desire to simplify our regulatory environment by having one regulator instead of two.

Nancy Stuebe: Telling everyone about our 4.83% return on immediately available, qualified cash may have prevented withdrawals but it barely helped to increase customer cash, which grew only by little more than 2% from the prior year. In terms of our client segments, our strongest ones for account growth have been individuals and proprietary traders, which have also shown the strongest growth in 12-month commission revenue. While financial advisors, individuals, and introducing brokers have seen the strongest growth in that interest income.

Not driven by.

Rationalizing their staff as they say.

Let me, let me clarify that a little bit. So your question was whether we are already seeing the benefits in the numbers of the consolidation and the answer to that is no.

<unk>.

The migration of the accounts to our Irish entity as well as consolidation of the two entities into one is going to take anywhere between six and nine months.

Nancy Stuebe: Geographically, Europe has seen the fastest account growth, followed by Asia, then the Americas.

At first we are going to see.

Restructuring charge as we migrate the accounts to Ireland, we're going to be paying into Ami insurance fund, but after that we are expecting to see the benefit of $7 million or so dollars per year.

Nancy Stuebe: I would like to talk about our introducing broker segment. I spoke of two large accounts coming. I regret that now because the timing of these accounts is out of our control and with the larger of the two, it is difficult to put an exact time on it. But we have so much else going on that I feel it is a disservice to focus only on when, when, when for this one client when we have so many other promising items lined up.

There is direct.

Cost savings.

Side from <unk>.

Use this traction.

We have to see.

Suffer because we have to pay attention to to European entities as opposed to one so the $7 million.

Nancy Stuebe: First, the smaller of the two Ibrokers successfully began onboarding their approximately 52,000 accounts. So far more than half of them are with us and we expect the bulk of the rest by the end of the year. Next, a couple of other introducing brokers are joining us. All this is to say, when that other Ibroker starts to onboard, I will let you know. Until then, I cannot put a date on it. I've been wrong on the date for a while now.

Benefit plus there are significant benefits by reducing the distraction and being able to focus on fewer entities.

Thank you Mike.

Thank you for your question and one moment, while we prepare for the next question.

Nancy Stuebe: So it is unclear to me what you would want me to keep giving one. But unfortunately, it is not only the date I have been wrong on. I've also missestimated the size of these operations. They now both appear to be smaller than I originally expected and accordingly, I need to reduce my estimate of long-term account growth from 30% to below 20% area. On the head front side, the most recent preckin statistics show us moving into the number five position in terms of number of hedge funds for which we serve as prime broker.

And our next question will.

We will be coming from Benjamin British of Barclays. Your line is open.

Hi, there. Thanks, so much for taking the question Thomas.

Thomas I wanted to ask if you could maybe clarify the sort of long term account guidance you talked about I think earlier last month at our presentation, you talked about sort of moving away from the 30% target to look at 20% plus I'm. Just wondering how much is today's commentary is different from that is it sort of because you have less clarity around the timing of the broker accounts. If you talked about before or is it sort of.

Nancy Stuebe: We were once again the fastest growing of the top prime brokers this year. We plan to be number four next year behind only Goldman Sachs, Morgan Stanley, and JP Morgan. Our developers have been extremely busy with new products and tools and have a full plate for the remainder of the year. This quarter, we introduced fractional shares trading for Canadian stocks and ETFs, launched a securities lending dashboard for a more sophisticated clients to be able to assess short selling activity for specific securities and inform their decision making, introduced the next generation IBKR desktop trading platform, launched the Discover tool to help clients find opportunities based on their own customized settings and trading preferences, started our Census Security podcast designed to help improve financial literacy for newer investors, and introduce long-term investment accounts in Hungary.

A more of a material change in your longer term outlook.

Well no I mean, what happened, though is that initially when these two.

Introducing brokers came on the scene.

I filled that Dave.

Both having more customers that they in fact, bill and that lease.

Syed.

<unk> debt.

He is extremely cumbersome to.

Bank fee process to onboard.

The second one.

Generally.

So I went too far and guessing.

And saying yes.

Yes.

Boeing to be 30%.

I just have to come back and has up to that.

Nancy Stuebe: We remain very optimistic about what our business model, international market access, strong and secure balance sheet and multiple features and tools, all at low prices with high interest pay-in-on-cash balances, offers to clients and potential clients around the world.

Hi.

I really don't know.

I mean.

The fact is that we don't.

Into the future and there is no big clock on bad debt.

It's going to be right.

Remains I guess, but I think that I'd, rather give you more concerned about them.

Nancy Stuebe: In an increasingly uncertain world, the greater degrees of freedom our clients have to manage their portfolios as they wish, the better their ability to educate themselves as events change and economies increasingly fluctuate and diverge, the better off they will be.

First of all we try to target to 23%, 24%, maybe maybe anthony but somewhere in that 20% to 25% range I feel more comfortable.

Nancy Stuebe: With that, I will turn the call over to our CSO Paul Brody, who will go through the numbers to the quarter.

Got it really appreciate the candor there maybe a follow up on the options activity. Just curious if you can give any more color on like what the breakout of that is it.

Paul Brody: Paul? Thank you Nancy, welcome everyone to the call, as usual, starting with our revenue items on page 3 of the release. We followed on our strong first and second quarter performances with net revenues reaching over 1.1 billion. With ongoing customer account and balance sheet growth, we continue to build a strong base for revenue growth in the future. Commission is worth $333 million, up 4% from the year ago quarter, despite industry-wide declines in equity's volume.

More opportunity outside the U S is the shorter dated pieces is it your hedge fund clients or the retail clients. What are the key drivers of that and just thinking about as we kind of seen options activity grow over the last several years, how much more room do you think there is to go kind of based on all those pieces that you see.

So I think that option is that we have.

Tremendous future recoveries.

What has been going on in the United States. As you know is generally followed by other places around the world.

Paul Brody: Our options volumes in particular came in at a quarterly high, doubling the pace of industry volume growth. Stock share volumes declined for last year's quarter, once again driven by a drop in trading of lower-priced stocks, but also reflective of lower industry volumes. Net interest income was a quarterly record $733 million, reflecting higher interest in margin loans and segregated cash. These gains were partially offset by the higher interest we paid on customer credit balances, as our long-standing policy is to pass through rate hikes above 50 basis points to our customers on their qualified funds.

With a lag of 10 2030 years.

So.

We see more and more.

Interest.

The United States and.

Also.

Sure.

He has no options today and go overnight, so basically 24 hours a day and overnight.

Very.

Little volume, but it's catching up and ICF and five to 10 years from now.

Paul Brody: Other fees and services generated $52 million, with the biggest contributors being market data fee revenue of $17 million, risk exposure fee revenue of $13 million, and options exchanged liquidity payments of $8 million. The $8 million overall increased in risk exposure fees from the prior year quarter was driven by more risk on positioning of customers. Other income was $27 million, and includes gains and losses on our investments, our currency diversification strategy, and principal transactions.

Options volume will be the same talking for hours.

But kind of debate.

Sure.

Alright helpful. Thank you very much and it is at these also through that.

Yes short term short term dated options.

The larger.

The largest volume.

Pedro the adoptions.

<unk>.

Okay.

Yes.

Got it thank you so much.

Thank you one moment, while we prepare for the next question.

Paul Brody: Note that many of these non-core items are excluded in our adjusted earnings, and without these excluded items, other income was $20 million, for the quarter. Turning to expenses, execution, clearing, and distribution costs rose 14% versus last year, led by higher volumes and options, which carry higher fees than equities. We measure the profitability of our commissions by looking at gross transactional profit, which is commission revenue, less execution and clearing costs. This measure excludes market data expense, which is a pass-through.

And our next question will be coming from Patrick <unk> of Piper Sandler Your line is open.

Yeah. Thanks for taking my question and congrats on a strong quarter.

So maybe just diving back to Ben's question.

Can you maybe Henry.

Trends youre seeing in the <unk> piece and maybe the flow.

Okay.

Any forward, we do not understand you ever comes out growth very garbled.

Lisa.

Talking into further away from yourself.

Paul Brody: In the third quarter, execution and clearing costs were 23% of commission revenue for a gross transactional profit margin of 77%. Compensation and benefits expense rose 14% over the prior year quarter on a combination of a 5% increase in average head count and also on inflation. Compensation and benefits expense was 11% of our adjusted net revenues versus 13% last year and below its historical level. Our head count at quarter end was 2927.

Yes can you hear me better now.

Yes, it's better.

Slower please.

Yes, sure. So just was hoping we could maybe dive back into the <unk> piece.

Can you talk a little bit more about the breakout that you are seeing there the flow between institutional and retail and the sustainability, there and maybe what it means for growth going forward. Thanks.

No.

Between institutional and retail.

I never quite understood how to categorize.

Paul Brody: GNA expenses returned to a more typical level this quarter after we recorded a reserve in the second quarter for regulatory matters, which have since been settled. Versus the prior year quarter, increases were related to advertising and legal expenses, partially offset by a reduction in consulting fees. Our adjusted pre-tax margin was 73% up from 68% in the year ago quarter. Income tax expense of $68 million reflects the sum of the public company's 36 million and the operating company's 32 million.

Something into.

Institutional versus retail.

No.

Yes.

When the.

And then back on these opened in the name of an NPV.

That person.

All of that.

Recall that the institutional.

As you know introducing brokers are entities. So even though there are individuals at the other end of that.

The process so.

I cannot value debate between.

Institutional luxury retail.

But.

Paul Brody: Moving to our balance sheet on page 5 of the release, our total assets were $121 billion at the end of the quarter. It grossed over last year driven primarily by increases in our margin lending and securities lending businesses. We maintained a balance sheet aimed at supporting our growing businesses and providing ample financial resources during volatile markets with maximum flexibility and short-term liquidity. We had no long-term debt and the duration of our U.S, investment portfolio at September 30 was 26 days.

There are certainly.

Many many.

Trading shops.

Basically our institutional who trade a lot of options.

Maybe maybe I can I can give you a little bit of color, perhaps it's going to be helpful.

The way we participate in our customers participate in these zero day options expiring options is that we often send the customer orders into price improvement auctions now and that requires that we first find liquidity for the customer's order.

Paul Brody: In our operating data on page 6 and 7, our contract volumes for all customers were strong with options reaching their highest quarterly level up 18% from the year ago. Futures contract volumes were down slightly in line with industry volumes. And in stocks, the drop off of 22% was largely attributable to investors moving to higher quality stocks as trading and pinch sheet and other very low-price stocks declined the most. On page 7, you can see that our account growth remains robust with over 140,000 net account ads in the quarter and total accounts of 2.4 million of 21% over the prior year.

From one of the market makers one of the institutions that are connected to.

So a lot of the trading we do in this zero the options, we have an institution on one side and the customer on the auto side.

It's not obviously, a 100% of the volume, but it's quite a bit of it.

So in short it's mixed participation.

Great. That's very helpful. Thank you.

Thank you for your question.

One moment, while we prepare for the next question.

And our next questioner today will be coming from Brendan Hawken of UBS. Your line is open.

Paul Brody: Total customer darts were 1.9 million trades per day down slightly from the prior year quarter. Our cleared IBKR Pro Customers paid an average of $3.11 commission per cleared commissionable order, up 5% from last year, as our client's volume mix included higher per order contributions from...

Good afternoon. Thanks for taking my question I would actually like to follow up on that zero, DTE and try and get some color from a different perspective.

You mentioned that it was a material part of the option volume could you give.

Paul Brody: Questions and Futures. H-8 presents our net interest margin numbers. Total gap net interest income rose 55% to 733 million from the year ago quarter, reflecting stronger earnings on segregated cash and margin loans partially offset by higher interest expense on customer cash balances. With one more 25 basis point hike in the latest quarter, the average federal fund rate was over 300 basis points higher this year than last. Many other central banks also raised this quarter.

Some more specific color around what proportion zero DTE represents today versus maybe a year ago.

And when you think about doing a measure that.

Hey.

Well then that straightforward.

Maybe shifting to your perspective Thomas.

When you think about this product and its maturity what inning do you think we are in its emergence and.

And this growth.

Paul Brody: This group includes the UK, Canada, Hong Kong, and the Eurozone. Net interest earned on segregated cash was $728 million, up 500 million from last year, primarily from global rate hikes. Maintaining a short duration on our invested funds continue to allow us to closely match asset liability maturity and pick up benchmark rate increases quickly. As I said, September 30th, our U.S, portfolio duration was 26 days so the investments have rolled over into new higher rates with a fairly short lag time.

I think.

I would guess again I'm just guessing.

Anything more than anybody else does so I'm guessing that the.

The.

Portion of their audit them very shortly adoptions youre going to probably remain the same but overall option volume keep increasing.

I think that is probably going to increase.

By 5% to 10% a year going forward indefinitely.

That's overall auction volume.

Paul Brody: A 5% increase over the year ago quarter in average segregated cash and securities balances also help drive interest income higher. March and loan interest rose $623 million, nearly doubling the prior year quarter despite average margin loan balance is rising only slightly. Higher rates in the U.S, and internationally have driven higher margin interest income. Security lending net interest was $66 million down from the year ago quarter due both to lighter overall demand for so-called hard to borrow stock.

Yes.

Got it got it and then you said there is one of the interesting thing if I could add.

One interesting thing happening in Europe , the European exchanges, where obviously observing this phenomenon in the United States with envy and they are going to be at least think zero the options or five day options that are at least stay to everyday. So every day you will have an expiring option.

Cash settled index options and Thats, what they really aren't so we will see some of the same phenomenon over time outside of the United States.

Got it.

It's true, but euro yen option volume.

Paul Brody: To a rate dynamic, we have noticed previously, namely, as benchmark rates rise, the greater portion of the revenue generated by lending securities for which we received cash collateral that we invest as segregated funds is categorized as interest on segregated cash. We estimate this impact to be about $28 million for the quarter versus last year. In other words, without this shift in reporting line item, net interest from securities lending would have been $94 million versus $114 million in the year ago quarter.

Option volume in Europe again ex changes these are very very tiny percentage of vehicles.

Indeed.

We'll see what envy can get us on that front.

[laughter].

Like too.

And totally appreciate this this is generally sort of challenging to nail down but.

When you were answering the prior question about the introducing broker Thomas said.

A couple of other questions jump to mind, you mentioned that the your sense of the size.

Want to one of the introducing brokers has changed it's not as large as you thought.

Paul Brody: Interest on customer credit balances or the interest we pay our customers grew as higher rates than many currencies led to our paying interest on qualifying balances as we pass through rate increases. We paid $832 million to our customers on their balances in the quarter. Fully rate sensitive balances were up to about 5% from the second quarter at $21 billion. We consider our policy offering clients a full pass through of all rate hikes after the first 50 basis points on their qualified cash, a significant component in our success and one that continues to set us apart. We believe this leads to clients choosing to keep their cash with us, especially active clients who do not want to use sweet programs that prevent them from immediately accessing their cash to invest.

Was that I was just kind of curious about what might cause that was that because maybe.

There arent growing as fast as you had thought when you initially started to talk to them or that maybe the opportunity set to move a portion of their business over to interactive.

Is going to be just smaller than you had initially guessed.

Okay.

To be quite Frank.

I was so.

<unk>, yes.

That shows up on the C&I estimate that day, and we've had several mainly on that guidance.

Yes.

They're probably at hundreds of thousands on their cost.

Well, maybe maybe maybe a little different color.

What remains the same as the institution that we're talking about is one of the top multinational banks in the world by assets.

Paul Brody: Now for our estimates of the impact of increases in rates, increases and decreases. Given market expectations of near-term rate hikes and further out rate reduction, we estimate the effects of both increases and decreases in the Fed funds rate on our net interest income. We estimate increases in the Fed funds rate to produce additional annual net interest income of approximately $56 million for each 25 basis point increase in the benchmark. Symetically, decreases in the Fed funds rate should reduce annual net interest income by approximately 56 million for each 25 basis point decreased in the benchmark.

That remains the same.

Or do we have learned recently is that instead of them, bringing over a large chunk of the accounts that would be migrated from one broker to another.

I'll talk to are we going to see where you're going to see very little of that or the hope is is that a.

A lot of the banking clients of this global institutions are going to become.

Self directed investors on the platform.

This.

Paul Brody: Note that our starting points for these estimates is September 30th with the Fed funds effective rate at 5.33% and based on balance is at that date. About 25% of our customer cash balance is not in U.S, dollars, so estimates of U.S, rate change effect exclude those currencies. We estimate increases in all the relevant non-USB benchmark rates to produce additional annual net interest income of approximately $20 million for each 25 basis point increase in the benchmarks.

Bank.

Is integrating risks.

So that's what I figured he is changing they are they are having the hopes of turning their banking clients.

Into brokerage clients.

That's helpful color, thanks very much.

Thank you one moment to the next question.

Our next question will be coming from Daniel Fannon of Jefferies. Your line is open.

Hi, Thanks.

Another question just on the account growth I think Thomas you mentioned other.

Paul Brody: In conclusion, the company performed well in the third quarter in a complex and uncertain environment, reflecting our continued ability to grow our customer base and deliver our core services to customers at low cost and competitive interest rates as we manage the business effectively with strong controls over risk and operating expenses.

Other introducing brokers that have signed up could you maybe talk to the the discussions into where the backlog of what might be smaller or the pipeline of how youre thinking about the broader introducing broker.

Opportunity.

So there are there are several.

Operator: And with that, we will turn it over to our moderator and happy to take questions. Thank you. As a reminder, if you would like to ask the question, please press star 1-1 on your telephone. Please wait for your name to be called before you proceed with your question. One moment, while we prepare the Q&A roster for our first question.

Banks and brokerage firms around the world.

<unk>.

I'll add.

Relatively small customer base it doesn't pay for them to develop the technology necessary to compete in this today.

So.

It will be easy to get onto our platform.

And with our very automated platform.

Operator: Questions for today will be coming from Craig. Thank you, Harold. Oh, thanks for America. Your line is open. Thanks.

Dave you grow.

Very quickly.

And other firms on the similar.

Thomas Peterffy: Good afternoon, everyone. With equity now over 13 billion, we wanted to get your updated thoughts on the potential usage for deployments. Either returning capital to shareholders via a dividend increase or special dividend or even through M&A. And I think you just talked up the prospects of M&A at a competitor conference last last month. So maybe fresh us on that topic, please. So we have looked at two specific opportunities. Neither one of them has a dark.

Seeing daily situation will either.

Comment along also or is there a bulk of the business.

That's a dicey.

Okay.

Okay, and then I wanted to follow up on the conversation or a topic of M&A.

You have not been a.

On acquire previously so could you talk to what it is youre looking for how we should think about the return profile or accretion or economic kind of thresholds that you have for.

Thomas Peterffy: They wanted higher price than actually in one case, the target wanted more than we were willing to pay. And in the other case, they were not interested in doing anything. And since they had very strong voting power, there is nothing we can do. But we keep on looking. So if anybody here is of anything, please let us know, and Thomas also on the dividend, too, please? We are not looking to increase the dividend.

We're doing a transaction.

So we believe that by far we have there.

Most of that free.

Operation.

Our technology is by far the best so it makes sense.

Other firms.

Sure.

Our less automated than that.

Overall, a very good operation with benefits coming onto our platform.

That would be the basic idea.

One additional strength that we have compared to the other players in this space is that we are global in terms of accessing the markets. So when an Asian or European institution integrates with us they can serve not only access to the U S.

Thomas Peterffy: We are looking to increase the amount of money we have because it gives our clients a greater sense of security, and as you have heard, we are hoping to get larger and larger investors to come with us, and that security cushion is very important to them, especially since we are not systematically important counterparty. Great, and I think Thomas, do I get a follow-up or is it just one? As far as I'm concerned, go ahead. Great, thank you.

Markets, but to the local markets as well.

And just a follow up is there from a size or capacity I mean is there.

I think in terms of what Youre looking at are these small acquisitions small potential targets is just trying to get a sense of how we how big do you think about what type of M&A.

It would be contemplating.

It all depends right so.

What do we would obviously be looking at is what is the opportunity is it is it an institution that has relatively little automation and we can jump in.

Paul Brody: So my second one is on the expense side. Employee comp and benefits down about 9 million sequentially. So any comment on that, and is this a good run rate to work on for next quarter? And I think you also consolidated some European offices in the quarter, so I don't know if that benefited this quarter or if that's going to benefit a future quarter. Right, so Craig, we mentioned last quarter that there was an odd accounting requirement that we measure vacation days taken by employees around the world every quarter.

And generate a lot of cost savings by automating the operations.

Is it the large number of active accounts that they have it all depends so when we are presented with an opportunity if you look at.

The economics.

Usually a couple of ideas of how we would go about the integration what is it that we would be looking for in the final outcome.

Paul Brody: And we accrue them at a certain rate, and then we subtract the days taken, and we have to take an expense for the difference. That tends to build up in the second quarter, and then go back down in the third quarter as people take vacation over the summer. It only seems obvious to many of us. So that unfortunately generates a little bit of quarter to quarter of noise. We've done some research into this, and determined that we can measure this annually instead of quarterly.

And that determines the price we're willing to pay.

Unfortunately, one of the two cases that Tom has mentioned that we were short of the price the discounted with awards.

Demanding they.

They haven't sold yet.

May come back to us, but it's unclear whether they will.

Great. Thank you.

Thank you for your question one moment, while we prepare for the next question.

Our next question will be coming from Chris Allen of Citi. Your line is open.

Good afternoon, everyone.

One thing we've been watching as margin balances have been trending up nicely even in September when the markets were down and you noted the <unk>.

Paul Brody: Sort of anticipating that it does go up and down, and employees do in fact take their vacations annually, and by the end of the year, it's mostly even again. So we're going to adopt that next year, starting with the 2024, and you should stop seeing the quarter to quarter variations. And that accounted for $45 million of the change, you know, upside in the second quarter, down in the third quarter. As far as consolidating office or rather merging operations in Europe, we would not expect that to have a material impact.

Right.

Net interest income being driven by the financial advisors and hedge funds earlier.

On the financial adviser front are you seeing any benefit from the Schwab Ameritrade integrations going on right now on the hedge fund side are you.

Because the existing hedge fund client base expanding in size are you winning new hedge fund clients.

Well.

There are certainly all of our salespeople.

Speak.

A lot of thoughts.

On the happiness of especially Ameritrade.

Clients that ethical.

Paul Brody: It's primarily driven by our desire to simplify our regulatory environment by having one regulator instead of two, not driven by rationalizing the staff, as they say. Let me clarify that a little bit. So your question was whether we are already seeing the benefits in the numbers of the consolidation. And the answer to that is no. The migration of the accounts to our high reach entity, as well as consolidation of the two entities into one, is going to take anywhere between six and nine months.

Rob.

On the bottom hand on the other at Bot Ameritrade clients, who were <unk> clients. In addition to shop buyers because those clients wanted to have two independent brokerage firms.

That they are on the phone they are looking for a second so these are the two guidebooks.

Clients, we are getting.

From this merger.

Second question was about the hedge funds, but the directory.

Yes, I'm just wondering on the hedge fund side.

New hedge fund wins or the.

The existing customer base will definitely definitely definitely yes.

Paul Brody: At first, we are going to see a restructuring charge as we migrate the accounts to Ireland. We're going to be paying into an insurance fund. But after that, we are expecting to see the benefit of $7 million per year that is direct cost savings aside from reduced distraction that we have to suffer because we have to pay attention to two European entities, as opposed to one. So the $7 million is a direct benefit plus there are significant benefits by reducing the distraction and being able to focus on fewer entities.

We definitely see new edge fundings you guys.

Okay.

Balancing these smaller funds.

Yes.

Got it.

So $50 million range.

So.

We got them regularly and quite often.

And just a quick follow up on the M&A discussion are you looking at domestic opportunities overseas, both basically whatever what have you done.

Is that fair to us.

It should be going either way.

We don't care, whether it's U S sorry.

Thanks, that's it for me.

Thank you one moment for the next question.

Operator: Thank you, Ma'am. Thank you for your question.

Operator: And one moment while we prepare for the next question, we'll be coming from Benjamin Budish of Barclays.

Our next question will be coming from James <unk> of <unk>.

MS Sachs. Your line is open.

Thanks, James and thanks for taking my questions.

I think it's quite clear today.

The opportunity is in terms of retail trading.

In Asia, but I think retail trading remains somewhat more subdued in Europe .

Benjamin Budish: Your line is open. Hi there. Thanks so much for taking the question. Thomas, I wanted to ask if you could maybe clarify the sort of long-term account guidance you talked about. I think earlier last month at a presentation, you talked about sort of moving away from the 30% target to like a 20% plus. I'm just wondering how much of today's commentary is different from that? Is it sort of because you have less clarity around the timing of the eyebrow care accounts?

Our investing in Europe , clearly so maybe you could just speak to your outlook for whether retail trading in Europe will accelerate and potentially over time look more like what we see in the U S and what gives you that sort of confidence.

Generally I think.

As you know.

Benjamin Budish: Have you talked about before or is it sort of a more of a material change in your longer-term outlook? Well, no. I mean, what happened both initially and when these two introducing brokers came on the scene, I thought that they were both having more customers that they in fact do, and that is a side of the fact that it is extremely cumbersome to a lengthy process to onboard the second one. Generally, I thought I went too far in guessing and saying, yeah, I think that it's going to be 30%.

Right at this stage.

<unk>.

Hotseat of capitalism and has at least 200 years Europe has.

He is doing but much more subdued view story so.

In Europe .

Similarly.

We're investing in the stock market.

Very small.

Mayor of Society.

We expect that to really expand just like it has expanded in the United States.

On the other end.

The average U verse and has only about.

70% of the funds.

Okay.

Benjamin Budish: I just have to come back and pass up to that now I realize that I really don't know. I mean, the fact is that we don't see into the future, and there is no big clock out there that tells me what is going to be, right?

Okay. That's very clear. Thank you and then if we were to potentially see fed funds start to come down a lot.

Saying thats going to happen imminently, but just maybe if any.

Maybe you could just speak to the left.

Yeah.

Thomas Peterffy: So it remains a guess, but I think that I'd rather give you a more conservative guess and I'm comfortable with 20 to 20 to 23% 24%, maybe maybe then 25, but somewhere in the 20 to 25% range, I feel more comfortable. Got it. Well, I really appreciate the candor there. Maybe a follow-up on the options activity. Just curious if you can give any more color on like what the breakout of that is.

No I believe that fed funds.

5% AIG investor needs.

The battery value long term.

They may come may dip down to 4%.

Because there is nothing you can do above the ever increasing debt.

Matt.

Fed funds. If you go to 5678, 10, 2030 40, 50% until they go into the hole.

Thomas Peterffy: Is it, you know, more opportunity outside the US? Is it the shorter-dated pieces? Is it your hedge fund client or the retail clients? What are the key drivers of that? And just thinking about as we kind of seen options activity grow over the last several years, how much more room do you think there is to go, kind of based on all those pieces that you see? So I think that an option is activity as a tremendous future because what has been going on in the United States, as you well know is generally followed by other places around the world, with a lag of 10, 23 years.

Okay.

But the market forward curve, obviously have Scott. So just you obviously manage risks very well Thomas So I just wanted to understand how you think about let's say there is downside risk in rates do come down how do you think about hedging that if at all.

Yes, do you extend the securities duration or something else.

<unk>.

Furthermore, the AIDS go above nearby so we may go forward, but as long as nearby rates are higher.

Lucy.

Thank you very much.

Thank you as a reminder, if you like to ask a question. Please press star one on your telephone one moment for the next question.

Thomas Peterffy: And so, you know, we see more and more interest outside of the United States. And we also, you know, there is no options for anything overnight, so it's basically 24 hours a day, even though overnight is still very little volume, but it's catching on. And I see a world in five to ten years from when you know, options volume will be the same choice for hours no matter what time of the day you're looking at it.

Our next question will be coming from cow.

Of <unk> your line is open.

Hi.

Good evening sorry.

Thomas maybe the first one is for you just on your automatic share sale plan.

Thats been pause for most of 2023 can you just.

Kind of provide an update there on any plans to convert and sell shares and also just remind us so.

Thomas Peterffy: All right, helpful. Thank you very much. And it is, it is also true that, yeah, short term, short term data options, the larger, the largest volume is in zero data options. And that's just what happened. Got it. Thank you so much. Thank you. One moment while we prepare for the next question.

I had a number a large number of shares that I have converted.

I had a correspondent.

John Stumpf again always have SaaS program.

On file.

I have a target price increase funding.

Under what I believe.

The.

The fair price for their stock would be.

We have not reached that point, yet so Ben.

We will see.

Sales from me.

Patrick Moly: And our next question will be coming from Patrick Moly of Piper Sandler.

Understood and Thats all automatically set in the plan.

Operator: Your line is open. Yes, I think we're taking my question, and I can go out somewhere strong for it. So this is diving back into the Ben's question. Can you give me a hint on the kind you're seeing in the COD and maybe the flow both at it? Hold it. Please hold it. We do not understand your words. So it comes across very garbage. Could you please hold whatever you're talking into further away from yourself? Yeah, can you be better now? Yeah, it's better and slower, please. Yes, sure.

Glenn.

Understood.

The second question is just just on the expenses last quarter you spoke about some of the very recent challenges you were seeing in hiring technology talent I'm. Just wondering if you could provide an update there on the market for talent are you still seeing the same inflationary pressures that you spoke about last quarter.

And how has your hiring plan progressing in 2023, 5% head count growth versus where you expect it to be when this year started.

Patrick Moly: So just with hope, and we could maybe dive back into the zero DTPs. Can you talk a little bit more about the breakout that you're seeing there, the flow between institutional and retail? And the sustainability there, and what it means for growth going forward, thanks. Well, between institutional and retail, I never quite understood how to categorize something into institutional versus retail. So when the account is opened in the name of an entity rather than a person, we call that institutional.

Yes.

So we do not think about hiring in terms of budgeting in the number of people that you have to hire in a particular year.

It's much more short term than that we always know the.

And the projects that we are currently working on the projects that we have.

If you would like to work on with.

C.

How many people we need them various groups and there is obviously some amount of attrition that we have to deal with.

And these are the factors that determine when we approve a new position and we go to the market and try to hire them.

Recently, we have not had.

Great difficulty.

Finding people at the prices, we thought that we would we would find them. So there is a little bit less competition for talent compared to last year, but.

Patrick Moly: Now, as you know, introducing brokers are entities. So even though there are individuals at the other end of the process. So I cannot tell you the very card between what's institutional, what's retail. But there are certainly many, many trading shops that I assume basically are institutional, who trades a lot of up. Maybe I can give you a little bit of a call. Perhaps it's going to be helpful. The way we participate, and our customers participate in these zero-day options, expanding options, is that we often send the customer orders into price improvement options.

Good technologies, there really good technologies are still hard to find and you have to pay up for them.

Understood. Thank you for that and if I could just sneak one in at the end of the call here for Paul Other income I think on an adjusted basis was at $20 million is the highest in quite some time just wondering if you could provide any color on kind of what drove that that line and what that's a good run rate or what.

You would think about it kind of reverting lower from here.

Alright, so its always difficult to talk about run rate in other income.

Because the primary components.

Components are our currency diversification strategy.

At which obviously fluctuates with the dollar.

And we have some other.

Patrick Moly: Now, that requires that we first find liquidity for the customer's order from one of the market makers, one of the institutions that we are connected to. So, a lot of the trading we do in these zero-day options, we have an institution on one side and the customer on the other side. It's not obviously 100% of the volume, but it's quite a bit of it. So, in short, it's mixed participation.

Some investments substantial investments that.

Also produced some variability.

So in this quarter.

Thomas Peterffy: Great. Very helpful. Thank you. Thank you for your question. One moment while we prepare for the next question.

It's not that hard to do the math on our currency diversification.

We lost about $17 million.

We made back 20 something million on investments.

So the net of the whole thing.

Was together with other normal things.

We still have small trading activities and so forth.

So we looked at other income of $27 million, but mostly that was because we had a non repeat of last year's $40 million loss on the currency.

They produce a lot of noise, which is why we fit.

Brendan Hawken: Our next question today will be coming from Brendan Hawken of UBS, shall I?

Excluded them when we report our non-GAAP .

<unk>.

Operator: It's open.

Brendan Hawken: Good afternoon. Thanks for taking my question. I'd actually like to follow up on that zero-DTE and try and get some color from a different perspective. You mentioned that it was a material part of the option volume. Could you give some more specific color around what proportion zero-DTE represents today versus maybe a year ago? And when you think about... You do not measure it a bit. Okay. Well, then that's straightforward.

Thank you.

Thank you. This concludes today's Q&A session I would like to turn the call back over to Nancy Stuebe for closing remarks. Please go ahead.

Thank you everyone for participating today as a reminder, this call will be available for replay on our website. We will also be posting a clean version of our transcript on our site tomorrow.

You again, and we'll talk to you next quarter end.

Thank you all for joining today's conference call you may all disconnect and everyone enjoy the rest of your evening.

Thomas Peterffy: Maybe shifting to your perspective, Thomas. When you think about this product and its maturity, you know, what eating do you think we are in its emergence and its growth? Well, I think it takes... I would guess. Again, I'm just guessing. I don't have anything more than anybody else does. So, I'm guessing that it's the reality proportion of zero date and very short date options is going to probably remain the same, but overall option volume will keep increasing. And I think that is probably going to increase by five to ten percent that they use going forward indefinitely. That's overall option volume. Yes. Got it, got it.

Thats good to hear.

Thanks.

Why are you, saying that too.

So youre going to use.

Okay.

[music].

Okay.

[music].

Okay.

[music].

Thomas Peterffy: And there is one interesting thing if I could add. There is one interesting thing happening in Europe. The European exchanges were obviously observing this phenomenon in the United States with envy and they are going to be listing a zero-day options or five-day options that are listed every day. So every day you will have an expiring option in cash settled index options and that's what they really are. So, we will see some of the same phenomenon over time outside of the United States. That is true, but European option volume and European exchanges is a very, very tiny percentage of that also. Indeed. We'll see what envy can get us on that front.

Okay.

[music].

Thomas Peterffy: I'd like to totally appreciate this. This is really sort of challenging to nail down, but when you were answering the prior question about introducing Broker, Thomas said sort of, you know, a couple other questions jumped to mind. You mentioned that your sense of the size of one of the introducing Broker's has changed not as large as you thought. Was that, I was kind of curious about what might cause that. Was that because maybe they aren't growing as fast as you had thought when you initially started to talk to them, or that maybe the opportunity set to move a portion of their business over to Interactive is going to be just smaller than you had initially guessed?

Thomas Peterffy: To be quite frank, I was so enthusiastic when they first showed up on the scene, I estimated they would have several million accounts, and now it turns out that they probably have hundreds of thousands of accounts. Well, maybe a little different color, so what remains the same is the institution that we're talking about is one of the top multinational banks in the world by assets. So that remained the same. What we have learned recently is that instead of them bringing over a large chunk of the accounts that would be migrated from one Broker to another, that's not what we're going to see.

Thomas Peterffy: We're going to see very little of that. What the hope is is that a lot of the banking clients of these global institutions are going to become self-directed investors on the platform this bank is integrating with us. So that's what really is changing. They are having hopes of turning their banking clients into brokerage clients.

Operator: It's a full color, thanks very much.

Operator: Thank you, one moment for the next question.

Daniel Fallon: Our next question will be coming from Daniel Fallon of Graffrey, Jalana's open. Thanks. Another question just on the account growth. I think Thomas, you mentioned other introducing Brokers that have signed up. Could you maybe talk to the discussions or the backlog of what might be smaller or the pipeline of how you were thinking about the broader introducing Broker opportunity? So there are some little banks and brokerage firms around the world that have a relatively small customer basis.

Daniel Fallon: It doesn't pay for them to develop the technology that's necessary to compete in this world today. So they are relatively easy to get onto our platform and with our very automated platform we hope, that they will grow very quickly, and other firms on their similar firms seeing their situation. We'll either come along also, or we'll drop out of the business.

Thomas Peterffy: That's what I see. Okay.

Thomas Peterffy: And then I wanted to follow up on the conversation or topic of M&A. You have not been an acquirer previously, so could you talk to what it is you're looking for, how we should think about the return profile or accretion or economic kind of thresholds that you have for doing a transaction. So we believe that by far we have the most efficient operation and our technology is by far the best. So it would make sense that other firms that had less automated would benefit, I mean the overall day operation would benefit coming on to our platform.

Thomas Peterffy: So that would be the basic idea. One additional strength that we have compared to the other players in this space is that we're global in terms of accessing the markets. So when an Asian or European institution integrates with us, they can serve not only access to the U.S, markets but to their local markets as well.

Thomas Peterffy: In just a follow-up, is there from a size or capacity, is there a limit in terms of what you're looking at any small acquisitions, small potential targets, is it just trying to get a sense of how big to think about what type of M&A you would be contemplating. It all depends, right? So what we would obviously be looking at is what is the opportunity? Is it an institution that has a relatively little automation and we can jump in and generate a lot of cost savings by automating the operations?

Thomas Peterffy: Is it a large number of active accounts that they have? It all depends. So when we are presented with an opportunity, we look at the economics. We have usually a couple of ideas of how we would go about the integration. What is it that we would be looking for in the final outcome? And that determines the price we're willing to pay. Unfortunately, in the one of the two cases that Thomas mentioned, we were short of the price that the seller was demanding. They haven't sold yet. They may come back to us but it's unclear whether they will.

Operator: Great. Thank you. Thank you for your question. One moment, while we prepare for the next question.

Chris Allen: Our next question will be coming from Chris Allen of City.

Chris Allen: Your line is open.

Thomas Peterffy: Afternoon, everyone. One thing we've been watching is margin balances. They've been turning up nicely, even September when the markets were down. And you noted the strength and then shrink them being driven by financial advisors and hedge funds earlier. On the financial advisor front, do you see any benefit from the Schwab Ameritrade integration that's going on right now? On the hedge fund side, are you the existing hedge fund client base with the expanding massage?

Thomas Peterffy: Are you winning new hedge fund clients? Well, there are certainly, I would say, as people speak a lot about the unhappiness of especially Ameritrade clients that had to go over to Schwab, on the one hand, on the other about Ameritrade clients who were Ameritrade clients in addition to shop clients, because those clients wanted to have two independent brokerage firms and now that they are only one, they are looking for a second.

Thomas Peterffy: So these are the two types of clients we are getting from this now your second question goes about the hedge funds, but do you actually ask? Yeah, I just want to add the hedge fund side, you see new hedge fund wins or the existing customer base? Oh, definitely, definitely, definitely. Yeah, yeah, we definitely see new hedge fund liens, yes. They tend on balance to be smaller funds in the 10 to 50 million dollar range and so they get them regularly and quite often.

Thomas Peterffy: Just a quick follow up on the M&A discussion, are you looking at domestic opportunities overseas, both of these, whatever, what have you done? It's been going either way, we don't care whether it's US or Oxford. Thanks, it's a format. Thank you. One moment for the next question.

James Yaro: Our next question will be coming from James Jaro of Goldman Sachs, your line is open. Thanks, yeah, it's James Jaro and thanks for taking my questions. I think it's quite clear today what the opportunity is in terms of retail trading in Asia, but I think in a retail trading remains somewhat more subdued in Europe.

Thomas Peterffy: You are investing in Europe clearly, so maybe you can just speak to your outlook for whether retail trading in Europe will accelerate and potentially over time look more like what we see in the US and what gives you that sort of confidence. I generally think that as you know, the United States is basically the hot seat of capitalism and has a history of 200 years, right, in Europe. It has somewhat longer history, but much more subdued history.

Thomas Peterffy: So in Europe, the traditionally people who were investing in the stock market were a very small player of society and we expect that that will expand just like it has expanded in the United States. On the other hand, the average European person has only about 60 to 70% of the funds that the average American person has.

James Yaro: Okay, that's very clear. Thank you.

Thomas Peterffy: And then if we were to potentially see Fed funds start to come down, and I'm not saying that's going to happen imminently, but just maybe you could maybe just speak the head. No, I believe that Fed funds we remain in the 5% range indefinitely for the very long term. They may come, may they've done to 4% but then they will come up because there is nothing you can do about the ever-increasing death payments. So Fed funds will go to 5, 6, 7, 8, 10, 20, 30, 40, 50% until we go into the hole.

Thomas Peterffy: Okay, but you know, the market forward curve obviously has cuts. So just, you know, you obviously manage risk very well, Thomas. So, you know, I just want to understand how you think about let's say there's downside risk and rates do come down. How do you think about hedging that if at all? You know, do you extend security's duration or do you need something else? If forward rates go above nearby rates, they may go out forward, but as long as nearby rates are higher, we will not do so.

Operator: Thank you very much. Thank you.

Operator: As a reminder, if you would like to ask a question, please press star one on your telephone. One moment for the next question.

Kyle Voigt: Our next question will be coming from Kyle Yolt of KBW.

Kyle Voigt: Your line is open. Hi, good evening. Sorry.

Thomas Peterffy: Thomas, my first one is for you just on your automatic share sales plan. I think that's been paused for most of 2023. Can you just kind of provide an update there on any plans to convert and sell shares and also just remind us? I have a number of shares that I have converted. I have a constantly and always have a sales program on file and I have a target price, which is 20% under what I believe the fair price or their stock would be. We have not reached that point yet, so when we reveal, you will see sales from me. Understood, and that's all automatically set in the share plan.

Thomas Peterffy: The second question is just on the expenses. Last quarter, you spoke about some of the very recent challenges you were seeing in hiring technology talent. Just wondering if you could provide an update there on the market for talent. Are you still seeing the same inflationary pressures that you spoke about last quarter? How is your hiring plan progressing in 2023 at 5% headcount growth versus were you expected to be when this year started?

Paul Brody: So we do not think about hiring in terms of budgeting the number of people that we have to hire in a particular year. It's much more short term than that. We always know the projects that we are currently working on, the projects that we have. We would like to work on. We see how many people we need in various groups. There is obviously some amount of attrition that we have to deal with.

Paul Brody: And these are the factors that determine when we approve a new position and we go to the market and try to hire them. Recently we have not had a great difficulty finding people at the prices we thought that we would find them. So there is a little bit less competition for the talent compared to last year. But good technologies, the really good technologies are still hard to find and you have to pay up for them. Understood. Thank you for that.

Paul Brody: And if I could just sneak one in at the end of the call here for Paul. Other income I think on an adjusted basis was that 20 million is the highest in quite some time. I just wanted to provide any color on kind of what drove that line and what if that's a good run rate or what you think about it kind of reverting lower from here. Right. So it's always difficult to talk about run rate and other income because the primary components are our currency diversification strategy.

Paul Brody: At which obviously fluctuates with the dollar and we have some other, we have some investments. A few substantial investments that also produce some variability. So in this quarter it's not that hard to do the math on our currency diversification. We lost about 17 million and we made back 20 something million on investments. So the net of the whole thing was together with other normal things. We still have small trading activities and so forth.

Paul Brody: So we looked at other income of 27 million but mostly that was because we had a non-repeat of last year's 40 million loss on the currency. They produce a lot of noise which is why we exclude them when we report our non-gap numbers. Thank you.

Operator: This concludes today's Q&A session.

Nancy Stuebe: I would like to turn the call back over to Nancy Stubi for closing remarks. Please go ahead. Thank you everyone for participating today. As a reminder, this call will be available for replay on our website. We will also be posting a clean version of our transcript on our site tomorrow. Thank you again and we will talk to you next quarter end. Thank you all for joining today's conference call. You may all disconnect and everyone enjoy the rest of your evening.

Operator: Hello, Jess.

Operator: Can you hear me? Who are you saying that to? So your family is going to you call out? You