Q3 2024 Interactive Brokers Group Inc Earnings Call

Speaker Change: Good day and thank you for standing by and welcome to interactive Brody's group 3Q24 earnings call at this time, all participants are in a listen only mode after the speaker's presentation they'll be a question and answer session.

Speaker Change: To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear and automate a message about it in your hand as rays. So, a joyous question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would not like to hand the conference over your speaker today. Nancy Stuebe, Director of Investor Relations, please go ahead.

Nancy Stuebe: Good afternoon and thank you for joining us for our third quarter 2024 earnings call.

Nancy Stuebe: Joining us today are Thomas Petterfee, our founder and chairman, Alan Gallagher, our president and CEO, and Paul Brody, our CFO. I will be presenting along's comments on the business, and all three will be available at our Q&A.

Nancy Stuebe: 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 in financial condition may differ, possibly materially, from what is indicated in these forward-looking statements.

Nancy Stuebe: We ask that you refer to the disclaimers in our press release.

Nancy Stuebe: We should also review a description of risk factors contained in alpha net and to report files with the SEC.

Speaker Change: This quarter, the long awaited interest rate cut in the U.S. finally happened.

Speaker Change: The Marks proceeded to rally on the news.

Speaker Change: The S&P 500 rose 5.5% this quarter, joining higher indices in nearly every global market saved Japan and following rate cuts in the UK, Canada, Europe and China.

Speaker Change: For the industry as a whole, options contract volumes are up 12% over last year, reaching a new record and surpassing even the strong first quarter.

Speaker Change: CME futures volumes were up 27% versus last year, also a record, as investors were eager to trade interest rate futures in particular in order to wager on rate changes.

Speaker Change: As for equities, overall U.S. industry volumes are up versus last year, though down slightly from last quarter, as the magnificent seven lost some of their grip on U.S. market performance.

Speaker Change: These stocks contributed just 12% of the S&P's gain this quarter, versus 95% last quarter, with more than half of them down.

Speaker Change: However, as in prior recent quarters, it appears so far that investors are holding on to these positions and have not made changes like selling them to buy new names.

Speaker Change: Against this industry backdrop, our options, futures, and stock volumes were all up versus last year.

Speaker Change: versus the second quarter. Our volumes are up in futures and options, so in equities they were down slightly as investors continue to gravitate towards higher price stocks, so the notional value of equities traded rose.

Speaker Change: We added 196,000 new accounts in the third quarter, behind only the main stock days of the first quarter of 2021.

Speaker Change: New Accounts meant more cash in those accounts, which helped raise our client credit balances 19% to a record 116.7 billion.

Speaker Change: Margin Loans are up 28% for last year, and our client equity was up 46% to 541.5 billion. The first time we ended a quarter with over half a trillion dollars.

Speaker Change: Rising markets and the anticipation of lower rates continue to lead clients to feel more comfortable taking on risk. So in addition to taking on more leverage using margin loans, they also took on more assertive positions, which increased our exposure fee revenue.

Speaker Change: Active Marketfield is strong financial results.

Speaker Change: Both Commission revenue and that interest income reach records as the total net revenues.

Speaker Change: We made our focus on expenses, meaning our pretext income also reached a record, and both are reported and adjusted pretext profit margins were an industry leading 72%.

Speaker Change: Broken down by geography, our accounts and client equity, once again grew fastest in Europe and Asia. As growing numbers of investors worldwide, one access to international and particularly US markets.

Speaker Change: of our five client segments, the fastest account growth was again seen with individuals with introducing brokers and proprietary traders not far behind.

Speaker Change: On the client equity side, financial advisors once again grew the fastest, followed by Ibrokers and individuals.

Speaker Change: Commissioned Growth was fastest for a proprietary traders. While that interest income growth was led by individuals, followed by financial advisors.

Speaker Change: At the company level, we experienced another productive quarter.

Speaker Change: On August 1st, the previously announced merger of ID Central Europe and ID Ireland was completed.

Speaker Change: As a result, all of our EEA clients can benefit equally from an expanded offering of products and services.

Speaker Change: The upfront cost of this consolidation was $12 million, which is reflected in our GNA expense.

Speaker Change: Going forward, assuming today's level of business and regulatory fees, we expect annual savings of $7 million from having only one European brokerage business and one regulator to report to.

Speaker Change: On September 1st, we opened a licensed office in Dubai, solidifying our presence in the Middle East region.

Speaker Change: We launch trading in both equities and futures on Burst's Malaysia at this quarter.

Speaker Change: We've expanded our offerings to include 22-hour day trading in U.S. treasuries, European government bonds, U.K. Gilles, and Swiss-Frinctinominated corporate and sovereign bonds.

Speaker Change: In addition to over 10,000 US stocks, each TF's inequity index options, non-US clients can now also trade contracts, or diffs, or CFD's, on more than 3,500 US stocks and ETFs during overnight hours.

Speaker Change: We upgraded our API functionality to provide new introducing broker clients with faster and easier integration.

Speaker Change: Rather than relying on multiple separate code libraries, our partners can now access our extensive range of services through a single unified interface.

Speaker Change: in our IBKRA T.S. for several years now, we have operated an options crossing session in which we seek opposite side liquidity for marketable orders in U.S. options.

Speaker Change: Providing customers the opportunity for price improvement.

Speaker Change: We have now added the same functionality for customer U.S. options orders, priced inside the NBBO.

Speaker Change: When we succeed in pairing these tweenor orders with liquidity in our ATS, the customer benefits by obtaining a guaranteed fill on their non-marketable order, as well as the opportunity for further price improvement in an on-exchange price improvement auction.

Speaker Change: We have seen excellent participation by our liquidity providers in this program, and our customers who placed non-marketable orders in U.S. listed options are seeing substantial, meaningful benefits as a result.

Speaker Change: We believe this further demonstrates and enhances a position as the premier broker for options trading.

Speaker Change: And finally, we launched ForecastX, our Forecast Contract Exchange on August 1st.

Speaker Change: After two and a half year approval process, we received the green light from the CFTC and are looking forward to seeing its performance.

Speaker Change: Investors can now buy yes and no contracts on the outcome of events that were previously unavailable for direct investment or hedging.

Speaker Change: Whether it's the release of key economic data, results of U.S. elections, or long-term developments like future global temperatures or the size of the U.S. national debt.

Speaker Change: Investors can manage exposure or hedge their existing positions.

Speaker Change: and to ensure it is easy for interested liquidity providers to connect with us. We have both fixed and restful API connectivity ready for them.

Speaker Change: Together with the Interactive Brokers team, I look forward to continuing the work on the many projects we have lined up.

Speaker Change: Much is planned for the quarters ahead.

Speaker Change: Our pipeline of new business and new initiatives remains healthy, and we look forward to sharing the results with you as we introduce them.

Speaker Change: With that, I will turn the call over to Paul Brody. Paul?

Paul Brody: Thank you, Nancy. Thanks everyone for joining us called today.

Paul Brody: We'll start with our revenue items, on page 3 of the release, we're pleased with our financial results this quarter, as you again produce record net revenues and pre-tax income.

Paul Brody: Commission's rose to a record $435 million. This quarter, both options and futures volumes reached new quarterly highs, as we saw active customers across global regions participate in the markets. Net interest income also reached a quarterly record of $82 million, despite rate cuts in several countries, including the full impact of second-quarter cuts.

Paul Brody: in Europe, Canada and Switzerland and partial quarter impact of third quarter cuts in those countries, as well as in the US, UK and Hong Kong.

Paul Brody: The continued risk on environment in the quarter led to a significant increase in margin borrowing and stronger count growth led to increases in our segregated cash portfolio.

Paul Brody: These increases were partially offset by the interest paid to our customers on their cash balances.

Paul Brody: Interactive Brokers takes clients holding US dollars, the benchmark Fed funds rate, less 50 basis points on their qualified funds, which makes us attractive compared to other brokers and banks and competitive with money market funds.

Paul Brody: and as a truly global broker, we pay similarly competitive rates on qualified balances in 20 other currencies.

Paul Brody: Other fees and services generated 72 million dollars up 38% from the prior year, driven by the continued risk on positioning of customers, which is reflected in an increase in risk exposure fees.

Paul Brody: Other income includes gains and losses on our investments, our currency diversification strategy and principal transactions.

Paul Brody: Note that several of these are non-core items, and therefore are excluded in our justed earnings.

Paul Brody: Without these excluded items, other income was an $18 million gain for the quarter.

Paul Brody: Turning to expenses.

Paul Brody: Execution Claring and Distribution Costs were $116 million in the quarter of 18% Over the year ago quarter predominantly from higher regulatory fees that were introduced by the SEC earlier this year.

Paul Brody: The SECC is a pass through to customers, so it does not impact our profitability.

Paul Brody: As a percent of commission revenues, execution and clearing costs were 21% in the third quarter for a gross transactional profit margin of 79%.

Paul Brody: We calculate this by excluding from execution, clearing, and distribution, $21 million of non-transaction based costs.

Paul Brody: Maintly market data fees, which do not have a direct commission revenue component.

Paul Brody: Compensation and Benefit's expense was $145 million for the quarter for a ratio of compensation expense to adjusted net revenues of 11 percent similar to last year's quarter.

Paul Brody: We remain focused on expense discipline while targeting specific functions to grow the business.

Paul Brody: Inside our year-over-year staffing increase of only 1%, we had good success in hiring talented software developers.

Paul Brody: and partially offsetting that we reduce compliance staff as we went into full operational mode with our in-house developed compliance system.

Paul Brody: Our head count at September 30 was 2009-69.

Paul Brody: GNA expenses were $75 million up from the year ago quarter led by a one-time expense to consolidate our European operations and expenses related to legal and regulatory matters.

Paul Brody: Excluding these items.

Paul Brody: G&A was up $9 million to 51 million, primarily on higher advertising expense.

Paul Brody: Our pretext margin was 72% for the quarter both as reported and as adjusted.

Paul Brody: Income Taxes of $80 million dollars reflects the sum of the public companies $45 million in the operating company's 35 million.

Paul Brody: The public company's effective tax rate was 18.4% within its usual range.

Paul Brody: Moving to our balance sheet on by a page 5 of the release.

Paul Brody: Our total assets end to the quarter 23% higher than the prior year quarter at $140,8 billion, driven by strong growth and margin lending.

Speaker: New account growth, also help propel our customer credit balances by 19% to a new record level. And we believe that our strong financial standing on competitive interest rates provides customers with an attractive place to hold their idle cash. We continue to have no long-term debt, and healthy profitability drove our 21% increase in firm equity over the prior year quarter.

Paul Brody: New Account Growth also help propel our customer credit balances by 19% to a new record level.

Paul Brody: and we believe that our strong financial standing on competitive interest rates provide customers with an attractive place to hold their idle cash.

Paul Brody: We continue to have no long-term debt.

Paul Brody: and Healthy Probability drove our 21% increase in firm equity over the prior year quarter and in recognition of this growth we allocated capital to a dividend increase left quarter.

Speaker: And in recognition of this growth, we allocated capital to a dividend increase last quarter. We maintain a balance sheet geared towards supporting growth in our existing business and helping us win new business by demonstrating our strength to prospective clients and partners.

Paul Brody: We maintain a balance sheet geared towards supporting growth in our existing business and helping us win new business by demonstrating our strength to prospective clients and partners.

Speaker: You know, operating data on pages 6 and 7, we had record customer contract volume in both options and futures. In options, our contract volumes rose 35% over the prior year quarter, well above industry growth, and futures contract volumes rose by 13%. Stock share volumes rose by 22%, also above industry growth. Stock share volume generally increased versus last year as clients in our largest markets gravitated to larger, higher quality names and trading relatively less in pink sheet and other very low price stocks. Growth in the notion of dollar value of shares traded well outpaced the growth in share volumes.

Paul Brody: You know, operating data on pages 6 and 7.

Paul Brody: We had record customer contract volume in both options and futures in options our contract volumes rose 35% over the prior year quarter well above industry growth.

Paul Brody: and Futures Contract volumes rose by 13%. Stock share volumes rose by 22% also above industry growth.

Paul Brody: Stock share volume generally increased versus last year as clients in our largest markets gravitated to larger higher quality names and trading relatively less in pink sheet and other very low priced stocks.

Paul Brody: Growth in an optional dollar value of shares traded, well outpaced the growth in share volumes.

Speaker: On page 7, you can see that total customer darts were 2.7 million trades per day, up 42% from the prior year. Commission per cleared commissionable order of $2.83 was down from last year primarily due to smaller average order sizes across all product classes, which is more than compensated by stronger volumes.

Paul Brody: On page 7, you can see that total customer darts were 2.7 million trades per day up 42% from the prior year.

Paul Brody: Commission for a cleared commissionable order of $2.83.

Paul Brody: was down from last year, primarily due to smaller average order sizes across all product classes, which was more than compensated by stronger volumes.

Speaker: Turning to net interest income on page 8, total gap net interest income was $802 million for the quarter, a 9% increase on the prior year, while our nim net interest income was $826 million, or $24 million higher.

Paul Brody: Turning to net interest income on page 8, total gap net interest income was $802 million for the quarter of 9% on the prior year, while our MIM net interest income was $826 million or 24 million higher.

Speaker: In the nim computation, we include some income that is classified as other fees or other income on our income statement, but we believe is more appropriately considered interest. Our net interest income reflects strength and margin loan and segregated cash interest, partially offset by higher interest expense on customer cash balances.

Paul Brody: In the name computation, we include some income that is classified as other fees or other income on our income statement, but we believe is more appropriately considered interest.

Paul Brody: On that interest income reflects strength and margin loan and segregated cash interest partially offset by higher interest expense on customer cash balances.

Speaker: Several central banks made cuts to their benchmark rates this quarter: the US, UK, and Hong Kong cuts for the first time since early 2020. While Europe, Switzerland, and Canada cut their rates both this quarter and last, reflecting relatively flat benchmark rates year on year, our segregated cash interest income rose 5% on a 6% increase in average balances. The average duration of our US Treasury portfolio remains at less than 30 days. With the US dollar yield curve continuing to be inverted, except in the very near term, we have been maximizing what we earn by focusing on higher short-term yields, rather than accept the significantly lower yields of longer maturity.

Speaker Change: Several central banks make cuts to their benchmark rates this quarter, the US, UK, and Hong Kong cuts for the first time since early 2020. All Europe, Switzerland and Canada cut their rates both this quarter and last.

Speaker Change: Reflecting relatively flat benchmark rates year on year, our segregated cash interest income rose 5% on a 6% increase in average balances while margin loan interest rose by 26% on a 28% increase in average balances.

Speaker Change: The average duration of our U.S. Treasury portfolio remains at less than 30 days. With the U.S. dollar yield curve continuing to be inverted, except in the very near term, we have been maximizing what we earn by focusing on higher short-term yields rather than accept the significantly lower yields of longer maturities.

Speaker: The Strategy allows us to maintain a relatively tight maturity match between our assets and liabilities and positions us to be nimble if the yield curve does revert.

Speaker: Securities lending net interest has not been as strong as in prior quarters for three main reasons. First, an extremely strong stock market with a backdrop of a falling rate environment coincides with a smaller proportion of clients looking to put on shorts. Second, there are fewer hard-to-borrow names in the street wide, not only because the overall market is rising sharply, but also due to the weakness in some of the drivers relevant to securities lending, including IPOs, low market volatility, and merger and acquisition activity.

Speaker Change: Securities lending net interest has not been as strong as in prior quarters for three main reasons. First.

Speaker Change: and extremely strong stock market with a backdrop of a falling rate environment coincides with a smaller proportion of clients looking to put on shorts.

Speaker Change: Back in, there are fewer hard-to-barrow names in the street wide, not only because the overall market is rising sharply, but also due to the weakness in some of the driver's relevant to securities lending, including IPOs, low market volatility, and merger and acquisition activity.

Speaker: So even though the notion of value of what we are lending was higher than last year's quarter, overall industry average lending rates are lower. Finally, as noted on previous calls, higher average interest rates versus prior year periods means more of what we earn from securities lending is classified as interest on segregated cash.

Speaker Change: So even though the notion of value of what we are lending was higher than last year's quarter, overall industry average lending rates are lower.

Speaker Change: Finally, as noted on previous calls, higher-avocentage straights versus prior-year periods.

Speaker Change: means more of what we earn from securities lending is classified as interest on segregated cash.

Speaker: To more accurately reflect all the income we earn from our securities lending business, we estimate that if the additional interest earned and paid on cash collateral were included under securities borrowed and loan, then total net revenue related to our securities lending business would have been about $156 million versus $181 million in the year-ago quarter. This additional revenue would be reclassified from the line items interest earned on segregated cash and interest paid on customer credit balances, so overall it would have no effect on our net interest margin. Interest on customer credit balances, the interest we paid to our customers on the cash in their accounts, rose on higher balances from new account growth.

Speaker Change: To more accurately reflect all the income we earn from our securities lending business.

Speaker Change: We estimate that if the additional interest earned and paid on cash collateral were included under security's borrowed loan, then total net revenue related to our security's lending business would have been about $156 million versus $181 million in the year ago quarter.

Speaker Change: This additional revenue would be reclassified from the line items interested in on segregated cash and interest paid on customer credit balances, so overall it would have no effect on our net interest margin.

Speaker Change: Interest on customer credit balances, the interest we paid to our customers on the cash in their accounts, rose on higher balances from new account growth.

Speaker: As we have noted in the past, the high interest rates we pay on customer cash, currently 4.33% on qualified US dollar balances, is a significant attraction to new customers. Fully rates sensitive customer balances were $19.5 billion this quarter versus $17.1 billion in the year-ago quarter. Together with firm equity, most of which consists of interest-earning assets, total fully rates sensitive balances were $33.6 billion.

Speaker Change: As we have noted in the past, the high interest rates we pay on customer cash.

Speaker Change: Currently, 4.33% on qualified US dollar balances is a significant attraction to new customers. Fully rates sensitive customer balances for $19.5 billion this quarter versus $17.1 billion in the year ago quarter.

Speaker Change: Together with Farm Equity, most of which consists of interesting assets.

Speaker Change: Total fully rates-insitive balances were 33.6 billion dollars.

Speaker: Now, for our estimates of the impact of changes in rates, given market expectations of further rate cuts in the future, we estimate the effect of a 25 basis point decrease in the benchmark Fed funds rate to be a $64 million reduction in annual net interest income. Note that our starting point for this estimate is September 30, with the Fed funds effective rate at 4.83% and balances as of that date. Any growth in our balance sheet and interest-earning assets would reduce this impact. About 24% of our customer cash balances is not in US dollars, so estimates of US rate change exclude those current.

Speaker Change: Now, for our estimates of the impact of changes in rates.

Speaker Change: Given market expectations of further rate cuts in the future, we estimate the effect of a 25-bases point decrease in the benchmark offset funds rate to be a $64 million reduction in annual net interest income.

Speaker Change: Note that our starting point for this estimate is September 30th with the Fed funds effective rate at 4.83% and balances as of that date.

Speaker Change: Any growth in our balance sheet in interesting assets would reduce the impact.

Speaker Change: is about 24% of our customer cash balances is not in US dollars, so estimates of the US rate change exclude those currencies.

Speaker Change: We estimate the effect of decreases in all of the relevant non-US benchmark rates, which reduce annual net interest income by $18 million for each 25 basis point decrease in those benchmarks.

Speaker Change: and a high level, a full 1% decrease in all benchmark rates, which decrease our annual net interest income by $328 million. This takes into account rates sensitive customer balances and firm equity.

Speaker Change: In conclusion, we posted another financially strong quarter in net revenues and pre-text margin reflecting our continued ability to grow our customer base and deliver on our core value proposition to customers while scaling the business.

Speaker Change: Our business strategy continues to be effective.

Speaker Change: Automating is much of a broker's business as possible, continuously improving and expanding what we offer while minimizing what we charge.

Speaker Change: With that we will open up the line for questions.

Speaker Change: and thank you.

Speaker Change: As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by what we compile the Q&A roster.

Speaker Change: and one moment five first question.

Speaker Change: i

Speaker Change: And our first question comes from Patrick Moli from Piper Sandler, he line is not open.

Patrick Moli: Yeah, good afternoon. Thanks for taking the question. I just had one on the US election forecast contracts that you mentioned in your prepared remarks. Launched on October 3rd, about four days after launch, you're pressurally saying you'd already done about a million contracts. So it's hoping you can maybe just provide some color on how these contracts are being utilized, where the volumes have come from up to this point, is it new accounts, is it existing accounts, and then if you can maybe just help us understand how you're thinking about the opportunity from a new account acquisition standpoint, given you're I think one of the only brokers out there that currently offers these contracts. Thanks.

Speaker Change: We launched four cast texts on August 1st.

Speaker Change: we added the political events on Fourth of October.

Speaker Change: We've seen around 8-bit clients trading so far.

Speaker Change: The volume is up to yesterday was around.

Speaker Change: 6 million dollars.

Speaker Change: Most of it is in the election contracts, so the election...

Speaker Change: It should be noted that the political contracts can only be traded by the U.S. clients. There is a regulation speaking to that.

Speaker Change: and generally the rest of the contracts.

Speaker Change: are offered by interactive brokers, LFC clients, T2 LFC clients and Hong Kong clients. In other words,

Speaker: The functionality is not yet fully available worldwide. There are some regulatory approvals that are needed, for example, in Europe.

Speaker Change: The functionality is not yet fully available worldwide, they are some regulatory.

Speaker Change: the approvals that are needed for example in Europe.

Speaker: As to who is trading these, we did not look at whether it's new accounts or the older accounts.

Speaker Change: has to who is trading these? We did not look at whether it's New York Council or the Old Accounts. We were very excited that the...

Speaker: We were very excited that the judge decided in favor of listing the political contracts on forecasts and similar platforms. We hope that the political contracts will attract new clients to our platform.

Speaker Change: Judge decided in favor of listing the political contracts on forecasts and similar platforms.

Speaker Change: We hope that...

Speaker Change: The political contracts will attract new clients to our platform.

Speaker: Okay, thanks. And just a follow-up on the competitive landscape in US retail trading, a large mobile-based competitor of yours plans to launch index options in the fourth quarter. They've said that they're planning to introduce those contracts at a lower price point than many of the incumbents. So understanding that nothing has been announced up to this point, specifically on where they're going to be priced.

Speaker Change: Okay, thanks. Just to follow up on the competitive landscape in U.S. retail trading, a large mobile base competitor of yours, plants to launch index options in the fourth quarter, they've said that they're planning to introduce those contracts at a lower price point than many of the incumbents. So understanding that nothing has been announced up to this point, specifically on where they're going to be priced, just wanted to get your thoughts on whether you are going to create any sort of pricing pressure on index options across the industry and how you think it might just impact the overall, I guess, competitive landscape for index options. Thanks.

Speaker: Just wanted to get your thoughts on whether you think this is going to create any sort of pricing pressure on index options across the street and how you think it might just impact the overall, I guess, competitive landscape for next options. Thanks. Well, we will have to see how they're going to be pricing the index options. Index options have in prior years be mostly traded by professionals and sophisticated traders. More recently, when large amount of volume was attracted to the zero-day options, more diverse clientele started trading these. It's difficult for me to estimate the impact, given that they haven't yet gone out, and they did not announce the pricing either.

Speaker Change: Well, we will have to see how they're going to be pricing the index options in the

Speaker Change: I have in prior years be mostly traded by professionals and sophisticated traders more recently.

Speaker Change: of the Wend Lodge among the volume was attracted to the zero-day options.

Speaker Change: Moore diverse clientele study trading these.

Speaker: Okay, thank you, and I'll hop back in cute. And thank you. And one moment for our next question.

Speaker Change: Thank you very much for coming to us.

Speaker Change: and thank you.

Speaker Change: and one moment for our next question.

James Yarrow: And our next question comes from James Yarrow from Goldman Sachs, whose line is now open. Good afternoon, and thanks for taking my questions. So I do think there's a lot of optimism among investors on the forecast ex-business. So maybe, Milan, if you could just speak to the timeframe over which you expect this to reach scale and actually have a material impact on your results, and I'll let you define materiality however you'd like. And then just in terms of whether there's any market risk to your balance sheet from these contracts, obviously they're different than, you know, actually there are options that we're all familiar with.

Speaker Change: And our next question comes from James Yoro from Goldman Sachs, who line is now open.

James Yoro: Good afternoon, and thanks for taking my questions. So I do think there's a lot of optimism among investors on the Forecast X business. So maybe, Milan, if you could just speak to the timeframe over which you expect this to reach scale and actually have a material impact on your results and I'll let you define materiality of whatever you'd like. And then just in terms of whether there's any market risk to your balance sheet from these contracts, obviously they're different than actually there are options that we're all familiar with. And then if so, how you might hedge them.

Speaker: And then it's so how you might add them. Thanks for your questions.

Speaker: Would it be okay? It's for Milan; would it be okay?

Speaker Change: Thanks for your grant.

Milan Galik: But of course, run in. So this has been my baby for a long time, this for a gas texting. And when it will reach scale, I think it will reach scale up later this year. Namely, you know, in the last few days of the election, we expect that it will really pick up. We have some other interest coming in to forecast ex. And so that's a car with it. We are extremely excited about it.

Speaker Change: Would it be okay, it's why Milan, would it be okay, right? Of course, right, right. So look, this has been my baby for a long time.

Speaker Change: this work as texting and uh...

Milan: When it will reach scale, I think it will reach scale.

Milan: Uh...

Milan: Later in the year.

Milan: Namely, you know, in the last few days of the election, we expect that it will really pick up. We have some other interest.

Speaker Change: Thanks for watching!

Speaker Change: Coming in.

Speaker Change: 2-4 gas tanks.

Speaker Change: and so that's a reality. We are extremely excited about it.

Milan Galik: And the Alexian, we look at the Alexian thing as a very lucky circumstance because there is so much interest on it that it will draw in other people who then will be customers for the economic and climate contracts. And that is what is really going to be our long-term focus on the four test decks, the economic indicators and the climate contracts. The elections are just developing interlude.

Speaker Change: The election, we look at the election thing as a very lucky circumstance, because there is so much interest on it that it will draw in other people who then will be customers for the economic and climate contracts. And that is what is really going to be our long-term focus, with the full test-ex, the economic indicators and the climate contracts. The elections are just...

Speaker: Okay, that is very close. Thank you so much, Thomas.

Speaker: Maybe just on the RA channel, which I do think is taking a like higher in terms of growth. And it appears you are adding larger RAs than historically.

Speaker Change: Okay, that's very clear. Thank you so much Thomas. Maybe just on the RA channel, which I do think is taking a leg higher in terms of growth and it appears you are adding larger RAs than historically.

Speaker: Could you just speak to the growth trajectory in that channel and whether the client base you are adding is different than the past? Now, what we were hoping to see is that more financial advisors would come to our platform as the platform is getting better and better. A lot of clients are currently on the shop platform, and as we all know, shop was not paying a lot of interest on invested cash. So we had a lot of hopes for the accounts to come in; some of them came over, others many as we would like. What I can tell you is that we are continuously working on the improvements to the RA platform. If everything goes well, we're going to be announcing something new in this quarter, it is coming quarter; things flow down maybe the following one. There is going to be a new and exciting functionality coming in the line, and we are hopeful that it is going to translate into more RAs on our platform. That's excellent, thanks a lot. And thank you, and one moment for our next question. And our next question comes from Dan Fanon from Jeffries LLC; you are not open. Thanks, I think one of the comments you mentioned was that new accounts were coming out with more cash than previously, so I was hoping you could talk about the makeup of those accounts today versus, say, a year ago and what might, you know, what some of the different characteristics might be. Well, would you like to take this one? I think this was your comment. Well, if it was more of a general comment that new accounts always bring more cash, I don't think that we're seeing there's a distinction in the character of those accounts. I think what, if there's something illuminating there, it's which client segment, you know, at what rate they're growing. And we said individuals are growing the fastest, you know, followed by the advisors and the introducing broker. So I don't property there's property there's the second most lucrative segment, and we do have more and more property there's coming in. And they are the ones that have more cash in their condon in their condon in the video, okay, they're certain and they certainly generate more volume.

Speaker Change: Could you just speak to the growth trajectory in that channel and whether the client base you are adding is different than the past.

Speaker Change: Melva.

Speaker Change: What we were hoping to see that more financial advisor would come to our platform, it's the platform.

Speaker Change: is getting better and better and...

Speaker Change: A lot of clients are currently on Shops platform and is we all know.

Speaker Change: Schwab was not paying a lot of.

Speaker Change: In Shakespeare's poem.

Speaker Change: on the Stuebe cash. So we had a lot of votes for the accounts to come in, some of them came over.

Speaker Change: Mothers many as we would like.

Speaker Change: What I can tell you is that we are continuously working on the improvements.

Speaker Change: To the RIA platform, if everything goes well.

Speaker Change: We're going to be announcing something new in beat.

Speaker Change: in this quarter, it is coming quarter, it seems slow down maybe the following one.

Speaker Change: There is going to be a new and exciting functionality coming online and we are hopeful that it is going to translate into more RIAs on our platform.

Speaker Change: That's excellent, thanks for the fun.

Speaker Change: and thank you.

Speaker Change: and one moment for our next question.

Speaker Change: And our next question comes from Dan Fanon from Jeffries L. L.C. You're not as not open.

Speaker Change: Ah, well.

Speaker Change: It was more of a general comment that New Accounts always bring more cash. I don't think that we're seeing there's a distinction in the character of those accounts.

Speaker Change: I think what's, if there's something illuminating there, it's which client segment? You know, at what rate they're growing and we said individuals are growing the fastest, you know, followed by the advisors and the introducing brokers. So, well, prop traders are the second most lucrative segment and we do have more and more prop traders coming in and they are the ones that have more cash in their account and in their account and individual traders certainly.

Speaker: Understood.

Speaker Change: and they certainly generate more volume.

Speaker: Okay, and then just as a follow-up, Paul may be just, as you think about expenses in some one-time items in G&A, but maybe into the fourth quarter, and as you think about next year in budgeting, given the strength and account growth, how should we think about the flow through from a marketing perspective or other more discretionary type expenses on a long-connected address the marketing and advertising perhaps. On the rest, you know, we try to point out the one-time expenses that they can be dropped out when giving you a better picture of the run rates, but nothing else extraordinary.

Speaker Change: Understood. Okay, and then just as a follow-up, Paul, maybe just as you think about expenses in some one-time items in G&A, but maybe into the fourth quarter, and as you think about next year in budgeting, given the strength and account growth, how should we think about the flow through from a marketing perspective or other more discretionary type expenses on a more annual basis?

Speaker Change: and I think the long-care address the marketing and advertising perhaps. On the rest, we try to point out the one-time expenses that they can be dropped out when giving you a better picture of the run rates. But nothing else, extraordinary.

Speaker: Well, for marketing, our aim is to be increasing the spent approximately 20 percent a year. We are continuously monitoring the various marketing channels we have been utilizing over time. When a particular ad on a particular channel does better, we spend more money with it; it does less well, we decrease the expenditure. But going forward, that is roughly the expectations: 20 percent annual increase on the marketing perspective. Great, thank you.

Speaker Change: Well, for marketing, our aim is to be increasing the spent approximately 20% a year. We are continuously monitoring the various marketing channels we have been utilizing over time. When a particular ad on a particular channel does better, we spend more money with it But going forward, that is roughly the expectation of 20% annual increase on the marketing spend.

Speaker: And thank you. And one moment by our next question, and our next question comes from Chris Allen from City; your line is not open. After you and everyone, wanted to talk a little bit about trading activity per account. When you look over the years, it's been consistently coming in, but this year's stabilized; now has improved a little bit. And I'm guessing some of us, due to mixed shift from a client perspective, as you alluded to, a proper account or seen positive inflows. However, that's a factor and/or increased hedge fund activity.

Speaker Change: Great, thank you.

Speaker Change: and thank you. And one moment by our next question.

Speaker Change: and our next question comes from Chris Allen from City, your line is not open.

Chris Allen: Afternoon everyone, wanted to talk a little bit about trading activity per account. When you look over the years, it's been consistently coming in, but this year it's stabilized and actually improved a little bit, and I'm guessing some of that's due to mixed shift from a client perspective, as you alluded to, prop accounts are seeing positive inflows. I wonder if that's a factor and or increased hedge fund activity and how you're thinking about that moving forward.

Speaker: And how you're thinking about that moving forward? Well, if we look at the operating account there, commissions, the commissions that they generate increased faster than any other segments generated, commission, either individual accounts, or even hedge funds. So that is a particular; that is a reason I think you see some of the other stabilization. Previously, as well, we've been seeing is as a lot of the accounts that I from, for example, I, but of course, they were trading really less than the professional and active traders we differ.

Speaker Change: Well, if we look at the perpetrating account.

Speaker Change: See you later.

Speaker Change: Commission, the Commission that they generate increased.

Speaker Change: Saster, then any other sequence generated conversion, either individual accounts, or even hedge funds.

Speaker Change: So that is...

Speaker Change: I think that is a reason I think you see some sort of a stabilisation. Previously as well we've been seeing this as a lot of the counts that I've drawn. For example, I broke her, they were trading really less than the...

Speaker: And then we're thinking about just the revenue outlook moving forward. The big pushback on the stock is that, and I will be declining in a lower environment. How are you thinking about the offset here in terms of increased margin balance, the trading activity, anything else that we should be conceptualizing, and a lower rate environment moving forward? Well, there is a predictable hit. The net interest income is going to take on the interest that we earned on the university cash. We alluded to the size of that effect. What we can though expect is the offset that we're going to receive from new accounts that continue to arrive to our platform and the new free cash that is coming in as well.

Speaker Change: And then we're thinking about just the revenue outlook moving forward, the big pushback on the stock is that, and I will be declining in a low rate environment. How are you thinking about the offsets here in terms of increased margin balance, and the trading activity, anything else that we should be conceptualizing in a low rate environment moving forward?

Speaker Change: Well there is a predictable hit the net interest income is going to take on the

Speaker Change: Interest that we earned on the uninvested cash. We alluded to the size of that effect.

Speaker Change: What we can do expect is the offset that we're going to receive from new accounts that continue to arrive to our platform and the new free cash that is coming in as well. So they're going to be a toggle warning if you will between these two effects if we see further decreases in the interest rates, but we are optimistic going forward about the account growth.

Speaker: So, today's going to be a talk of what if you will between these two effects if we see further decreases in the interest rates. But we are optimistic going forward about the account growth. So, we are not too worried about that as far as the commissions are concerned. That obviously, to an extent, depends on how busy the markets are, whether there is volatility present or not.

Speaker Change: So we are not too worried about that. As far as the commissions are concerned that obviously to an extent depends on how busy the markets are, whether there is volatility present or not. But given that we have been over years attracting accounts from various segments, including the hedge funds, including the plot traders who trade for living, we expect continued a healthy commission outcome.

Speaker: But given that we have been over years attracting accounts from various segments, including the edge trends, including the operators who trade for living, we expect continued healthy commission income. Thank you.

Speaker: And thank you. And one moment by our next question.

Speaker Change: Thank you.

Brennan Hawken: And our next question comes from Brennan Hawken from UBS. Your line is not open. Good afternoon. Thanks for taking my question.

Speaker Change: And our next question comes from Brennan Hawkins from UBS, your line is not open.

Speaker: During the quarter, we saw a Chinese stimulus announced. Curious to hear what impacts you've seen on customers either within China or whether or not there's been a broader impact across the region of Asia. Well, the stimulus that was announced by the Chinese government is a relatively recent phenomenon. I think it happened towards the end of September, maybe last week of September. We then all witnessed the very sudden run up in the prices of the Chinese securities and Chinese indexes, which seems then somewhat subsided. So I do not have information as to what exactly it meant in terms of the incoming accounts.

Brennan Hawkins: Good afternoon. Thanks for taking my question. In the quarter we saw Chinese stimulus announced curious to hear what impacts you've seen on customers either within China or whether or not there's been a broader impact across the region of Asia.

Speaker Change: Well, the stimulus that was announced by the Chinese government is relatively recent.

Speaker Change: and I think it happened towards the end of the end of the end.

Speaker Change: September , maybe last week of September , we then all witnessed the very sudden run-up in the prices of the Chinese securities and Chinese indexes, which seems then somewhat subsided. So I do not have information as to what exactly it meant in terms of the incoming accounts. We can comment on that next time we meet three months from now.

Speaker: We can comment on that next time.

Speaker: We need students, three months from now.

Speaker: Okay. And then the legal and regulatory charges. Is there any color that you can give on what that was related to? Are we sorry? Which regulatory charges? The nine million dollar we go and regulate our charges. Open GNA. My million. Well, we do. Yeah.

Speaker Change: Okay, and then the, the wheel and regulatory charge is, is there any color that you can give on what that was related to?

Speaker Change: Are we sorry, which regulatory charter? The $9 million dollar we go on regulatory charges, so can GNA.

Speaker: So that's, every quarter we make an evaluation of, you know, open, open cases and so forth. And we have to make, you know, we, we make reserves accordingly when we can determine that they're, uh, probable and estimable. So it's not out of the ordinary, um, but it was large enough to make an impact on the overall GNA. Just like any other financial company that is regulated by multiple regulators, is continuously scrutinized by regulators. There are constant sweeps. There are specific investigations of individual companies. We are dealing with those on it. Prequent basis, our legal department advises us if they feel that an increase in the reserve, legal reserve, is appropriate; that is what they did this quarter, so we have increased the reserve.

Speaker Change: 9 billion.

Speaker Change: Well, so that's, every quarter we make an evaluation of, you know, open cases and so forth and we have to make, you know, we, we make reserves accordingly when we can determine that they're probable on estimate.

Speaker Change: So it's not out of the ordinary, but it was large enough to make an impact on the overall junior.

Speaker Change: Just like any other financial company that is regulated by multiple regulators is continuously scrutinized by regulators. There are constant sweeps, there are specific investigations of individual companies. We are dealing with those on air.

Speaker Change: Prequent basis, our legal department advises us if they feel that an increase in the reserve legal reserve is appropriate that is what they did this course so we have increased the reserve.

Speaker: Thanks for taking my questions.

Speaker: And thank you, and one moment for our next question, please.

Speaker Change: Thanks for taking my questions.

Speaker Change: and thank you.

Benjamin Budish: And our next question comes from Benjamin Budish from Barclays; your line is now open. Hi, good afternoon. Thank you for taking the question. I wanted to follow up on one of your earlier comments on the forecast deck. You mentioned that largely available in the U.S. Right now is maybe a two-quarter, because what is the path to making contracts like the election contracts available outside the U.S. And then I'm curious, what are your thoughts on providing a similar type of product locally in many of the countries that you offered? I know that kind of value proposition when you talk about the ability to access the U.S.

Speaker Change: and one moment for our next question, please?

Speaker Change: and our next question comes from Benjamin Boudrish, from Barclays, you line is now open.

Benjamin Boudrish: Hi, good afternoon. Thanks for taking a question. I wanted to follow up on one of your earlier comments on forecast decks. You mentioned that it's largely available in the U.S. right now. It's maybe a two-parter because what would the tax be to make contracts like the election contracts available outside the U.S.? And then I'm curious, what are your thoughts on providing a similar type of product locally in many of the countries that you offer? I know the value proposition that you talk about is the ability to access the U.S. markets in particular. But I imagine this is the sort of thing that a lot of investors would be potentially interested in for the local market. So curious what, you know, that path could look like if you see a line as one that might be visible.

Speaker: markets in particular, but I imagine this is the sort of thing that a lot of investors would be potentially interested in for the local market, so curious what that path could look like if you see it as one that might be feasible. So we are not currently able to activate this for European or British customers, and we're also not able to onboard Canadian customers at this time, but we are with the regulators in all these places, and we're trying to get them, not necessarily for the election contracts, but for the regular economic indicator and climate indicator contracts.

Speaker Change: So we are not currently able to activate this for Euro, Piano, British customers and we're also not able to.

Speaker Change: Um, onboard Canadian customers.

Speaker Change: of this time, but we are...

Speaker Change: with the regulators in all these places and we're trying to get them not necessary for the election context, but for the regular economic indicator and climate indicator the context.

Speaker: And we are, of course, hoping to eventually expand that to sort of social trends. The issue here with these contracts is that we need an arbiter that is an uncorruptable arbiter, so namely it has to be a state regulated agency that publishes the results, so nobody can claim that there is also a manipulator or something like that. I understand very helpful.

Speaker Change: and we are, of course, hoping to eventually expand that to sort of social trends. The issue here with this contract is that we need an arbiter that is an uncorruptible arbiter, so namely it has to be a state regulated agency that publishes the results, so nobody can claim that the results are manipulated or something like that.

Speaker: Maybe one other follow-up on an earlier comment you mentioned that you're opening up a new office in Dubai. I'm going to maybe talk a little bit about your plans for the region. Is this perhaps related to going after broader interest and growth, or opportunity is about speaking out in a large wealthy traders hedge funds in the region.

Speaker Change: and I'm very helpful. Maybe one other follow up on an earlier comment you mentioned that you're opening up the new office in Dubai. You may be talking a little bit about your plans for the region. This is perhaps related to going after a broader introduction. Brody Brody opportunity is about seeking out large wealthy traders, hedge funds in the region. What are your sort of plans?

Speaker: What are your sort of plans? Well, we're trying to attract the more sophisticated accounts, maybe hedge funds, maybe investors, with accounts or significant size, device as we can read in the news. Very often nowadays, a lot of expats come in from various countries in the world, so we have some optimistic expectations as to how we're going to do with that office.

Speaker Change: Well, we're trying to attract the more sophisticated accounts, maybe hedge funds, maybe investors with accounts of significant size. Dubai's, as we can read in the news, a very odd place nowadays, a lot of expats coming in from various countries in the world.

Speaker Change: So we have some...

Speaker Change: Optimistic Expectations as to how we're going to do with that office.

Macrae Sykes: Okay, thanks for thinking. Regretals, and thank you, and one moment for our next question. And our next question comes from Macrae Sykes, some of the game go. You line is now open. Great, thank you for taking my questions. I actually had just two, but I'll lump them together. We've been through a few selection cycles with the platform.

Speaker Change: Okay, thanks for taking my questions.

Speaker Change: and thank you.

Speaker Change: and one moment for our next question.

Speaker Change: And our next question comes from a crazy cycle from the game girl, your line is not open.

Speaker Change: Okay, thank for taking my questions. I actually had just two, but I'll lump them together.

Speaker: Let's curious if you can talk about some of the dynamics and trading before and after major general elections. Would you expect to need to be different to cycle? And then, assuming after a four-year drought of IPOs, we do start to get a little more constructive capital market activity in 25, how would that impact some of the segments in trading dynamics on the platform? Thank you. I think we can expect increased volatility, especially as we approach the election day. I don't know whether you must remember the volatility that we've seen in the previous elections. I think very similar circumstances will be observed this time around, so high volumes, high volatility; that is what I would expect.

Speaker Change: We've been through a few selection cycles with the platform. Let's hear if you talk about some of the dynamics in trading before and after major general elections.

Speaker Change: would you expect anything different this cycle? And then assuming after four-year drought of IPOs we do start to get a little more constructive capital market activity in 25, how would that impact some of the segments in trading dynamics on the platform? Thank you.

Speaker Change: I think we can expect increased volatility especially as we approach.

Speaker Change: The election day, I don't know whether you're must remember the volatility that we've seen in the previous elections, I think very similar.

Speaker Change: Circumstances will be observed this time at home so I values.

Speaker: I'm sorry, what was the second question? Assuming we get a more constructive IPO market next year, how does that affect some of the trading dynamics with some of the different segments? It's two-shelverses retail. Well, what it means for us is we participate in the IPO market in Asia just today. I write some news that a Chinese company is applying for a listing on the Hong Kong market. So, as that IPO activity that we expect to earn some fees result in from these new listings, that's going to be impact on our results. Now IPOs are always hot.

Speaker Change: A higher volatility, that is what I will expect [inaudible]

Speaker Change: and I'm sorry, what was your second question?

Speaker Change: Um, assuming we get a more constructive IPO market next year, how does that affect some of the trading dynamics with some of the different segments?

Speaker Change: If Tue Stuebe vs Retail

Speaker Change: Well, what it means for us is we participate in the ITIP of Market in Asia, just today I read some news that played.

Speaker Change: Chinese company is applying for a listing on the Hong Kong market. So as that IPRT is a big thought, we expect to earn some fees result in from.

Speaker: When they get listed, investors are interested in participating in trading them on the one that is wearing our platform is ready for trading them on the one, so that is going to generate some volumes and some increased interest as well. We also usually see securities lending opportunities go up around those IPOs, and we make those available as well. Thank you.

Thomas Pechy Peterffy: And thank you. And one moment for our next question. And our next question comes from James Yarrow from Goldman Sachs. Your line is now open. Thanks for taking the follow-up. Thomas, the stock has appreciated very substantially this year, but I don't believe that you have returned to selling stock. Maybe you could just speak to the key considerations as you think about whether you might return to selling.

Thomas Peterffy: Well, you know, to the extent if I get some large bidders, I may offer them stock, but I'm not about to go and sell into the market because, you know, when the new system market stock tanks, I'm not getting the price I'd like to get. Thank you.

Speaker: And thank you. And I'm showing no further questions.

Nancy Stuebe: I would not like to turn the call back over to Nancy Stuebe for closing remarks. Thank you, everyone, for participating today. As a reminder, this call will be available for replay on our website, and we will also be posting a clean version of our transcript on the site tomorrow. Thanks again. And we will talk to you next quarter end.

Speaker: This concludes today's conference call. Thank you for participating.

Speaker: You may now disconnect.