Q2 2019 Earnings Call
Thank you for your patience.
Please stay on the line.
[laughter].
Available operator.
Thank you for calling which conference we will be attending today.
Interactive brokers group.
In Q I place of the spelling of your first and last name.
The first thing is Michael Am I see H.A.L.
Lastly, emeka Elovich am I see H.A. E. L E V I C H.
[noise].
And Kim ever company name.
Era.
Oh, it's a I eat or a.
Yeah.
And Kim ever email.
It's Michael.
That's my first name at era, the company name Dot Com.
Yeah.
Thank you so much placing on now.
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 business continues to grow and we again achieved new records in our electronic broker.
Our total accounts grew by 19% or more than 100000 net new accounts from last year.
While our client equity grew by more than $18 billion or 14% over the course of the year.
So the average VIX volatility index. This quarter was slightly below 2000, eighteens our darts grew by 4% since having more accounts and more clients on our platform leads to more trades.
We continue to focus on growing our customer base and all client segments.
This generates more activity from new customers coming onto our platform and takes advantage of all of our accounts trading more during periods of higher volatility.
Our brokerage business continues to be strong.
Brokerage revenues adjusted for Treasury marks were up 6% versus last year and our pre tax margin was 63%.
I will highlight some of the expanded range of offerings announced this quarter.
We constantly seek to improve our platform and to bring it to more potential clients.
First we added several new market centers this quarter, including the Moscow exchange and our clients now have the capability to invest seamlessly and securities and other products on over 125 markets centers in 31 countries.
As of May six our customers began trading CMV group micro even any futures.
The CMBS call. This the most successful product launch in their history.
And we were ready the first day these futures were available to trade.
This quarter also saw the introduction of our stock yield enhancement program in Canada.
Interactive brokers, Canada clients can now lend fully paid Canadian shares of stock to earn additional yield.
By enrolling easily online banking or an extra interest by lending shares to borrowers.
We are the first broker to offer this program in Canada.
Our bond us got a direct connection to trade with institutional which can be accessed on or trader workstation.
Interactive brokers currently supports high yield and emerging market bonds, and we anticipate adding other fixed income asset classes later this year.
Next our integrated cash management program continues to expand.
Our clients can now access the CH network for mobile payments directly from their I'd K. our accounts.
This along with our existing direct deposit and bill pay functions gives our clients a suite of desktop and mobile financial services capabilities, all easily accessible from one account.
Finally on June Thirtyth, we were proud to announce our new bed learn when simulated sports betting exchange.
This operates as a peer to peer market, where participants can buy sell and trade bets on actual sporting events in real time.
Players get a thousand dollars in virtual dollars euros pounds or Canadian dollars and use it to buy or sell simulated sports bets.
Their winnings can be converted to up to $1000 and free commissions. Once a participant has opened an interactive brokers account.
Our goal here is to attract customers more familiar with the probabilities of spectator sport spend with the financial markets and who are new to our brokerage platform.
We are committed to bringing our platform to the greatest number of people, sometimes we do this by working on projects for investors already experienced in the securities market.
Sometimes we do this by working on projects that introduce new potential investors to the markets.
We want to become the largest broker in the world.
That learn when is one way we can tap into a segment of the population that represents potentially millions of new individual customers.
Now for the breakdown by customer type of how our brokerage business is evolving.
We once again saw strong growth in accounts and client equity. However, we saw weaker commission revenue outside the U.S. at some markets fell as measured for example by the Nikkei Hangsang and flips the 100 indices.
For the second quarter individual customers were 49% of all accounts up 17% for the latest 12 months.
We'll individuals customer equity was 35% up 13% and commissions were 51% about flat with last year.
Customer equity growth was up double digits in all regions, while commissions were up in the U.S., but weaker outside it.
Hedge funds were 1% of our accounts up 7% for the 12 month period.
9% of our client equity of 3%.
And 10% of our commissions up 16%.
Our price execution, low overall cost and high cash interest continued to attract institutions, both large and small.
Growth in this area was strong in both developed and developing markets.
Proprietary trading accounts for 2% of accounts up 11%.
10% of client equity up, 9% and 14% of commissions down 13% due to weakness in international markets.
Registered investment advisors, who represented 16% of our customer accounts up 10% for the latest 12 months.
23% of our customer equity up 12% and 16% of our commissions down 3%.
Once again.
Overseas markets caused the overall decline in commissions.
The <unk> segment continues to benefit from our new products are easy to use mess up Lou capability low commission rates and high interest on cash balances as well as the important fact that we do not charge an ARIA multiple fees to allocate a trade among multiple among multiple customer accounts.
Finally, introducing brokers or 32% of our customer accounts up 29% over the last 12 months.
23% of our customer equity up 23% and 9% of our commission income up 7%.
The introducing broker segment continues to benefit from the tail end of two major trends, the increasing regulatory burden worldwide, which makes outsourcing your back office the best solution.
And the growth of a new investor class in developing countries, many of whom want to trade internationally.
Well, we look forward to a resolution of trade issues in Asia.
We have not yet seen any change in the ability of mainland China accounts to fund as they had in the past.
The continued growth we see in the segment shows that we have many opportunities.
And because we offer platform with access to global markets, we are necessary solution for brokers looking to outsource their back office.
We are well diversified in terms of the country's income the countries and companies we provide our introducing broker services to and are seeing growth worldwide. In every region we operate in.
And now Paul Brody will take you through the numbers Paul.
Hi, Nancy Thanks for everyone for joining the call today.
As usual I'll review, our results I'll put out numbers into context within the current environment.
And then we'll take some time for Q.
Operating metrics reflected reasonably active trading at a moderate volatility environment.
Guilty as measured by the average VIX.
Declined to 15.2, this quarter, a 2% drop from the year ago quarter.
Once again, the average masks some intra quarter weakness as the Bill VIX fell in April recovered in May and declined again in June .
This declining volatility trend led to year over year drops and cleared customer options and futures contract volumes and share volume and stocks.
Although the stock volume was also impacted by our cutback in micro cap stocks, which took place during the first half of 2018.
Foreign exchange dollar volume was down as well.
Total accounts reached 645000 up 19%, which contribute to contributed to customer equity growth of 14% to $153.1 billion at quarter end.
With the continued tailwind from new account growth.
Our quarterly total darts were 828000.
Up 4% over last year.
Our overall average cleared commission per dart fell 5% versus last year to $3.68.
On a product mix that featured smaller average trade sizes in most product segment.
Moving to our net interest margin table.
Our net interest margin widened to 1.66% from 1.61% in the second quarter of 2018.
The federal reserve held rates steady again this quarter after raising rates four times over the course.
As the yield curve has flattened and even inverted.
We have continued to shorten the duration of our fixed income portfolio.
We recorded a modest mark to market gain this quarter of $5 million on our holdings of Us treasuries.
As a reminder, we plan to hold these securities to maturity.
As brokers GAAP GAAP rules require us unlike banks to mark them to market in our financial reporting.
Greater customer cash balances combined with an average fed funds rate for the quarter 66 basis points higher than last year generated more net interest income on invested cash.
We believe our continued success and asset gathering can lead to larger contributions from interest sensitive assets going forward.
Our FDIC insured.
Bank deposits sweep program continues to grow reaching $2.1 billion.
Margin lending and segregated cash management.
Were the most significant contributors to our net interest margin.
Average margin loan balances this quarter decline from the stronger borrowing demand we observed in the market environment of last years second quarter.
However, the decline in balances was more than offset by higher benchmark fed funds rates.
Resulting in margin interest income growth of 15%.
Driven by higher customer cash balances and hikes in the fed funds rate.
Our segregated cash interest income more than doubled over the prior year quarter.
As a reminder, there are two factors that can cause the change in yield on our segregated cash to differ.
From a change in the fed funds rate.
First.
Currently about 25% of our customer credits are not in us dollars.
And second even with an average duration of our investment under 50 days.
There is some lag time in reinvesting in new rates.
These factors lead to an expectation that our effective interest rates would not follow a change in the fed funds rate immediately.
The increase in segregated cash.
Is a function of both the growth in our accounts and the decrease in margin.
Securities lending interest income.
Was down 9% from the year ago quarter as there were a few are hard to borrow names that investors were looking to short.
Note also that as benchmark rates rise.
As they did over 2018 greater portion of the interest income on securities lending.
Is classified as interest income earned on segregated funds.
Because the collateral received in securities lending is cash.
Now for our estimate of the impact of the next 25 basis point change in rates.
Market expectations of rate changes are typically built into the yields of instruments in which we invest.
Therefore in our calculation, we attempt to isolate the impact to our earnings of an unexpected rise or fall in rates.
Separate from the impact of rate hikes or cuts that have already been baked into the prices of these instruments.
We would therefore expect the next 25 basis point on an anticipated increase in rates. The result in $20 million or about 2% more in net interest income as a yearly run rate.
But 25 basis point on anticipated decrease in rates.
Similarly result in $20 million or about 2% less in net interest income is yearly run rate.
Turning to the segments.
Beginning with electronic brokerage turned in a solid performance in a modest volatility environment.
Net revenues were $473 million for the quarter up 7% over last year.
Pre tax income was $302 million also up 7%.
Excluding marks on our Treasury investment portfolio pre tax income was $297 million for a pre tax margin of 63%.
Fixed expenses in brokerage, we're at $107 million up 10%.
Given by higher compensation and benefits in line with our hiring to support the growing brokerage business.
With increased legal and compliance expenses a secondary factor.
Customer bad debt expense was $4 million within the zero to 5 million range than we typically have experienced in the past.
Market, making today consists of the customer facilitation business, we will retain.
As well as a small handful of profitable markets outside the U.S.
We continue to evaluate.
Net revenues were $20 million of which $6 million were trading gains in the bulk of the remainder was net interest income.
Market, making pretax income was $11 million.
The corporate segment reflects the results of our strategic investments and the effects of our currency diversification strategy.
For the second quarter we.
Recorded a mark to market loss from our investment in Tiger brokers of $74 million, which largely offsets the mark to market gain of $103 million recognized in the first quarter of 2019 after Tigers IPO in March.
Like to date on this investment we have recognized a net gain of $29 million.
We will continue to mark this investment to market each quarter.
Which may lead to further variability in our corporate segment earnings for as long as we hold this position.
As to currency diversification effects.
We carry our equity in proportion to a basket of 14 currencies, we call the global.
To best reflect the international scope of our business.
As the U.S. dollar weakened against most other major currencies this quarter.
We incurred a net gain from our strategy of about $10 million of which $6 million losses included in earnings in a $16 million gain is reported as other comprehensive income.
We estimate the total increase in comprehensive earnings per share from currency effects.
To be two cents.
With the two cents loss reported in other income and a four cents gain reported.
Turning to the income statement.
Net revenues were $413 million down 7% from a year ago.
Adjusted for non operating items.
Net revenues were $487 million up 5% over last year.
Non operating items include the 6 million loss on our currency strategy.
And the $74 million loss.
On marketing, our Tiger brokers investments in market.
Partially offset by the $5 million gain on our Treasury marks.
Commission revenue declined 4% on lower volumes of smaller trade sizes, primarily in futures.
As we noted earlier the decline of our overall average cleared commission for Dart to $3.68 reflected smaller trade sizes across most product segments.
Of our 259 million.
Net interest income brokerage produced 251 million market, making 9 million and corporate the remainder.
Other income, which includes our global currency strategy marks to market on our treasury and Tiger brokers investment.
And other fees and income we received was a loss of $30 million.
The global and the investment in Tiger brokers return losses, while other areas of other income primarily fees and Treasury marks showed offsetting revenues somewhat higher than a year ago quarter.
Non interest expenses were 188.
<unk> million dollars for the quarter up $14 million or 8% from last year.
The increase was spread across several categories.
Including employee compensation.
And gionee costs in support of our growing business, 5% drop in execution and clearing costs reflected light or trading volumes.
At quarter end, our total headcount stood at 1519, a 16% increase over the year ago total.
We have been hiring most aggressively in the areas of compliance.
Client services and software development.
Pre tax income of $225 million was down 17%.
And represented 54% pretax margin.
Adjusted for the non operating items I mentioned previously.
Pre tax income was $299 million.
Up 3% and represented a 61% pretax margin.
Diluted earnings per share were 43 cents for the quarter versus 57 cents for the same period in 2018.
Comprehensive diluted earnings per share, which includes all currency effects.
Were 46 cents for the quarter versus 39 cents last year.
Without the impact from the non operating items diluted earnings per share would have been 57 cents.
Versus 58 cents last year on the same basis.
To help investors better understand our earnings this split between public shareholders and the non controlling interest is as follows.
Starting with reported income before income taxes of $225 million.
We remove 1 million net expense attributable only to the public company to get pre tax income for the operating company.
We then deduct $9 million for income taxes paid by our operating companies, which are mostly foreign tax.
This leaves $217 million of which 82%.
For that 178 million recorded on our income statement is attributable to non controlling interest.
The remaining 18%.
For $39 million is available for the public company shareholders.
But as this is a non-GAAP measure it is not reported on our income statement.
After we add back the $1 million net expense attributable only to the public company.
But the duck taxes of $6 million owed on the remaining $38 million.
Net income available for common stockholders is the $32 million you see reported on our income statement.
The income tax expense you see on our income statement of $15 million consist of the $6 million paid by the public company.
Plus the $9 million paid by the operating company.
Turning to the balance sheet. It remains highly liquid with low leverage we are extremely well capitalized and continue to deploy our equity capital in the growing brokerage business.
We hold excess capital in order to take advantage of opportunities as well as to emphasize the strength and depth of our balance sheet.
We continue to carry no long term debt.
At June Thirtyth margin debits were $25.9 billion, a decrease of 11% from the more risk on environment, we saw last year.
As we have mentioned in the past this figure will likely show some swings due to our success in attracting institutional hedge fund customers, who are more opportunistic in taking on leverage.
Our conservative balance sheet management.
To support the growing worldwide margin lending business.
Our consolidated equity capital at June Thirtyth, 2019 was $7.6 billion.
6.4 billion was held in brokerage.
Point 9 billion in market, making and customer dilatation activities.
And the remainder in corporate.
Now I will turn the call back over to the moderator and.
Take some questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your touched on telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key again, that's star then one to ask a question to prevent any background noise. We ask that you. Please place your line on mute. Once your question has been stated.
Our first question comes from Rich Repetto with Sandler O'neill. Your line is now open.
Yes, good evening Thomas Good evening Paul.
I guess.
Tavis, you've done a lot more successful entrepreneurial than probably anybody on the call.
So I'm, just trying to understand and get your thinking behind.
The the transfer of the lead of the.
Bet learn when platform.
How you can take those sports betting and how they can make the connection to.
Trading on your platform what will be the things that.
We'll find similar and what gets you so excited about about.
The platform do you have any questions seems to indicate to me that you haven't thrive.
I haven't tried it yet.
Right.
So those will be on vehicle strategy.
Alright, thank no.
Good Lord wide use.
Cowen corruption is going to lead us through many many circles as well as you know we have five silos when business starts for you guys.
And.
So we are they individual traders the Robert grounds, the financial advisors Sharon's, Andrew introducing brokers.
So this.
Ah enterprise use only basically trying to extract their individual cost.
Bob I think you to do that in a very very big way because.
For example, our lives on it.
Reimbursable rumbles around.
For four hours.
Please refer extremely until today, especially under game goes wrong.
So.
If any of you have any.
All right guys showing is that I really would suggest that you try.
Let alone few thrived and you play a few games make a few beds.
You need to like the platform and.
We are very small just from from there to turn on their true bookers slow.
So that's that's the thinking behind it.
Okay, well I'll give it a shot Thomas I promise.
Hi, Helios could twoq fish shop.
[laughter].
I guess.
Another question, what do you mean, they still going to have two to three minutes.
Hi, James.
And I've watched sports so.
I will certainly give it a shot.
Another question would be you talked about the shares.
For you.
[laughter] per trade.
Our average shares traded.
Still going down and I guess, when we looked at it on a per day basis, it's lower than.
You've been re queue if at all all time low I mean.
Yes, I guess, we learned from the call is probably.
A result of the volatility as well as.
Sort of a macro or the other.
Headwinds for your patience bundle the bundle of the the.
Significant reasons for that is.
A low price stocks. So as you know we renewed sting older Hello, I stopped core mission to no more than half that loosen over the tradable.
So that made us very very lower scores broker.
Low priced stocks, even more than we are generally they are Louis Greer for all kinds of stuff.
Oh, no we had.
Boost back from the regulators about.
I'm, a little surprised Cogs Nichols low priced stocks are sometimes you use to.
Hopefully the market et cetera, So we just decided that.
You know if smeltz for thier expense.
Oh, Oh Oh.
HM.
Survey or or or monitor or low price stocks trading.
Oh.
To the extent that the regulators would like us to do so we would like we would be chaired chosen to to decline.
We'll slow for our stockholders.
Okay, I mean, when we looked at the old Tc equity the pink sheet bottoms their low two I imagine is reflecting the same more difficult.
Monitoring oversight.
Increased monitoring and oversight I would imagine.
Pitching barn.
I guess last question for me.
<unk> is for Paul on the interest rate sensitivity I believe just said it was all right. Thank you said 20 million.
Either way on our 20 million up for a high 20 million down and it differs a little bit I think from the last time, you said I thought it was 13 million.
And then it would switch after year too.
Hi, what it was 20 to 23 I think was 23 after <unk> per year as the full impact could you.
Explain why that.
Sort of exploration or guidance that has changed.
Absolutely.
In fact, we got some feedback that people want much paying attention to what we used to report as the immediately following four quarters.
I'd be happy to report to you now that the.
It's fairly symmetrical.
The full run rate being 20 million up and down and the first year being sort of 14 to 15 million effect up and down respectively.
If youd like we can continue to report it that way you know, we're just getting feedback that.
Most people are focused on what's the full year run rate.
Got it okay.
Alright, Thank you very much thomason and Paul.
Thank you and our next question comes from will Nance with Goldman Sachs. Your line is now open.
Hey, guys good afternoon.
Maybe one for Thomas I wanted to hit on the sports betting as well.
I think you mentioned that yeah.
Part of this is aimed at getting people, who are less familiar with financial markets onto the platform and get into more comfortable with.
Making trades.
Could you talk about what your expectations are for the type of customer.
That you were on track to that platform and how you kind of think about that the profitability one of those customers ultimately that platform.
Maybe I'd like a result.
Mark I started my career into securities business by going down to the American stock exchange user.
Margaret pretty good.
And I will have absolute loose stones.
With all these professional grade there is on the floor all they told their broad all day long right the games.
They didn't talk about the stocks.
They were talking about the games and bought the game. They are going to do and there are of course, Becca Indian there would be great.
Even though David.
Betting grew according to my book.
The stocks and options all the time.
But they really [laughter] come close to bets on the games so.
What type of customers.
I think if these use some bugs.
Acting too I mean people, who people tend to trade stocks tend to bet on games I don't know why that is because I'm super together.
Central Nicholas I never ever made that in my life when their game.
But.
All of these other people I was surrounded by high and Thats why I kind of like analog below because I wasn't like their line other bets on their game drew I didnt, even though at the time, but they are talking about but it it stuck with me that people, who route threed lite to back on the games. So.
You know I would be speculating if I told you about the I expect I know there.
I expect [laughter] at very very substantial take couple of days.
I'm I'm talking in the millions of customers.
Got it appreciate the color.
And then maybe just switching gears to the rate sensitivity I guess it sounds like you guys are shortening duration at the moment just given the shape of the yield curve I guess are there any other levers that we should think about about maybe the ability to mitigate some of the interest rate sensitivity just given the forward curves now pricing in rate cuts and just broadly how you're kind of.
Expecting to manage the business, if we do see kind of an interest rates, becoming a headwind over the next 12 months.
So generally the one thing that the grade clubs to be as deep as it is generally expected by the user growth.
Oh, Hi, this is not to understand right.
Sure two drugs, where you sorry.
Oh, there you didn't get to your third year. So is there anything that we're employing a some very soon.
Oh, Hi, Doug good really good there.
The fed's funds.
So as you know we are we are paying our costumers.
For.
Excess balances excess cash balances.
David accounts have present on there the fed fund rates and.
Oh, you are charging them some left over there. So we are not as exposed to do.
Changes in the rates as other brokers are so as long as the weak any best among the food Gary.
So somewhere near fed funds rate.
The dealer I spoke when you did the Detroit is only about $200 million per quarter.
Right, Okay with one person.
Per year.
Got it all right I appreciate you taking my questions.
Thank you and our next question comes from Chris Allen with Compass Point. Your line is now open.
[noise] evening everyone.
Thomas I was wondering if you could give us any metrics on the simulated sports betting in terms of how many customers have actually gone and entered betsen.
And then related conversion to accounts and then if there have been any size of accounts that have been open.
Well.
We just started this and we started to these and they're very low smaller enclosure swayed because we still have six says we have to make et cetera. So so the initial.
FFO numbers are basically meaningless am I right.
It would be misleading before.
So would you anything and I can tell you that the U.S. there have been some conversions, but that's all I can say.
Okay fair enough.
One thing I wanted to ask also was on it seemed like there was an additional disclosure on regulatory matters. This quarter, we know you're under constant.
Inquiries by regulators, but just wondering I didn't see this language in the <unk> and the 10-K. So just wondering what kind of prompted this disclosure in the earnings earnings release.
Well you know as well.
In the current environment, there is an increasing regulatory scrutiny.
To see surrounding yeah.
Uh huh.
Banks and brokers by regulators and other mental.
Celebrities and we just Uh huh.
There too.
To me again.
Disclose your specifically highlighting a car if in fact, the boost it may affect us to some extent.
[noise].
Understood Thats it from me thank you.
Thank you and our next question comes from Kyle Voigt with KBW. Your line is now open.
Hi, Good evening, and I guess, he is known as more and more on the simulated sports betting exchange.
And I guess, just most people who wanted data on these games I think also want to use real money to that and are increasingly able to do so at least in the U.S. as more states legalized sports betting and online sports very sorry, sorry to interrupt you. Please.
Right could you. Please start all over again and speak slowly on Laudably, because I have difficulty hearing you.
Sure.
Just on the simulated sports betting exchanges.
I was saying that most people would want to bet on games also.
Money use real monies and are increasingly able to do so in the U.S. as more states to legalize sports betting.
Just wondering if interactive brokers would be open to eventually opening alive online sports stuck in the U.S. as more states legalize that or is this or is this simulated offering simply just to drive new brokerage accounts in the long term.
Well driving new brokerage Occupancies, Steve is the primary.
So I don't want to speculate about what they may or may not.
Do we you sometime down the road.
Uh huh.
So you know that I can our focus is to.
Two.
But in fact, the platform and and Uh Huh.
There are few brokerage accounts.
Okay.
And one for Paul as well sorry, if I missed this Paul just regarding your yield on margin borrowings increasing by 13 basis points sequentially.
There wasn't any move in U.S. rates in the quarters Im just wondering if that was simply a mix of geography that caused the increase in blended rates or was it on different mix in pricing tiers or something else.
Oh right, yes, that's actually primarily the fact that not everything is in us dollars and some of the foreign.
It did in fact go up and we charge more accordingly, because it's a spread off benchmark.
Okay. Thanks.
Thank you and as a reminder, ladies and gentlemen that stars on wants to ask a question.
Our next question comes from Mac Sykes Gabelli. Your line is now open.
Hi, Good evening, everyone I had a few questions.
Thomas.
Is.
The advertising and branding strategy for this that et cetera are you thinking about just your traditional media or are you thinking about different outlet in terms of reaching game.
So we are using a banner ads.
On a.
On a sports sites.
And Jeff.
If you if you click on one of those bathers you come to her landing page.
Were they explained to you there.
The.
Well the lease.
Oh by the way, Matt and have you opened the betting their economy.
I'm I'm still waiting to do so.
Oh, you were trying to create the platform meant I was hoping that you would do that [laughter] well I will take care of it this way.
Thank you.
Oh, it's two other questions how much maybe like Costa supported on an annual basis outside of the <unk>. The marketing cost and then have you outline any internal goals for asset gathering.
Over the next year or two years.
Internal goals for asset gathering from this source you're asking.
Yes.
Well have utilities. So this does not gathered assets.
So your question, maybe that from people who come Bert.
They get back onto a brokerage account in order to cashing day.
Uh huh.
Commission credits or the answer is no we have not.
Beyond that.
Okay, and just the ongoing cost to support it.
The ongoing cost to support the throttle.
I I don't think that that's a lot coming here you know.
Single digit millions of dollars.
Okay.
Thank you always look forward to your entrepreneurial efforts.
Thank you and our next question comes from Chris Harris with Wells Fargo. Your line is now open.
Yeah, Thanks, Hey, guys the follow up on the earlier question about the.
Increase in margin yield sequentially, what non U.S. road rates rose in the quarter that helped to drive that up was it wasn't rates in benchmark rates in Asia.
It was yes.
Okay.
Certainly not in Europe .
Hi, Yes, right exactly.
Can you guys talk to us a little bit more about a your investment portfolio and I know you are investing in treasury securities, but what else is in that portfolio and and whats maybe the breakdown I know you gave us the duration, but but maybe the breakdown between treasuries versus versus perhaps non treasuries.
There are two degrees.
And Oh gosh in banks. These are the three components the margin loans you know how much they are the the.
The treasuries are.
Oh yeah.
19 billion.
And there is discussion.
Okay.
I guess last question for me you guys have been very competitive with the rate you're paying on cash balances and.
Partly as a result of that I think you've had very strong growth in your cash balances and the rest of the industry is seeing shrinkage.
If the fed does start cutting rates here.
In your required you're forced to I guess lower the pay rates.
You think some of that growth and balances could potentially be at risk.
Well the future growth, maybe opportunities, but I do not think that.
Got spike so you have good morning, Dan we know where buyers at that point I don't think that anybody's going to pull their money out can be done there was a mattress.
Okay fair enough. Thank you.
Thank you and our next question comes from Chris Allen with Compass Point. Your line is now open.
Thanks for taking another one from me.
Just had a quick question Im getting I've gotten a bunch of questions on some of the Japanese brokerage commission cuts to zero.
And I'm wondering like how do you think about that where there is a limit implications for your business.
I would imagine your do you have some offsets there in terms of competitive pricing on around margin lending or FX. So any commentary there would be helpful. If you could.
So.
This is zero commission basically through there.
Yeah, very interesting circumstance, so yes, I assume you're all familiar with the idea that.
Some companies like Rob renewed.
Kind of JP Morgan charge, their commissions and potentially others may and Uh huh.
They said the order flow to.
High frequency traders, who will give you a.
At reasonable execution.
Between you and us.
Some brokers don't have a choice because they do not have the technology to route orders. So they're just they're going to make choices they have to sell it to high frequency traders who.
Who Rob who will give them an execution because.
He nowadays to build their routing technology.
You wouldn't be enough to Iraq to run exchange you would have to route to market on X. Changer. Then you would have to have the the software to to distinguish within them and have.
Decision, making software as to.
Where to draw that reach moment, then on March so, but you know many of our customers, especially introducing brokers say.
So you know what we really don't care, what execution prices you'd give to our customers I mean, it's far more to say about that so they tell us.
So you know at this point, we have to stop and wonder.
If if.
We should.
Maybe offer that service due to a select group of.
Dumb clients.
Got it and just a similar implications for Japan was monex on some of those brokers is that basically the same case, you're right Scott, yes understood all right. Thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Nancy Stuebe for any closing remarks.
Thank you everyone for participating today as a reminder, this call will be available for replay on our web site. You 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.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program and you may all disconnect everyone have a wonderful day.
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