Interactive Brokers Group, Inc. ( IBKR)

Q3 2011 Earnings Call

October 20, 2011 4:30 am ET


Deborah Liston – Director of Investor Relations

Thomas Peterffy – Chairman, President and Chief Executive Officer

Paul J. Brody – Chief Financial Officer, Treasurer and Secretary


Christopher Allen – Evercore Partners

Richard Repetto – Sandler O'Neill & Partners

Ed Ditmire – Macquarie Research Equities

Macrae Sykes – Gabelli & Company

Niamh Alexander – Keefe, Bruyette & Woods

Rob Rutschow – CLSA



Good day, everyone, and welcome to the Interactive Brokers Third Quarter 2011 Earnings Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Ms. Deborah Liston, Director of Investor Relations. Please go ahead.

Deborah Liston

Thank you. Welcome, everyone, and thanks for joining us today. Just after the close of regular trading, we released our third quarter financial results. We’ll begin the call today with some prepared remarks on our performance that complements the material that is included in our press release and allocate the remaining time to questions. Our speakers’ today are Thomas Peterffy, our Chairman and CEO, and Paul Brody, our Group’s CFO.

I just like to remind everyone that today’s discussion might include forward-looking statements. These statements represent the company’s belief regarding future events that by the nature are not certain and outside the company’s control. The company’s actual results and financial condition may differ possibly materially from what’s indicated in these forward-looking statements. For a discussion of some of the risks and factors that could affect the company’s future results, please see the description of risk factors in our filings made with the SEC. I’d also direct you to read the forward-looking disclaimers in our quarterly earnings release.

With that, I’ll turn the call over to Thomas Peterffy.

Thomas Peterffy

Thank you and welcome. As you all know in the third quarter trading volumes were at their highest levels since the (inaudible) and for two thirds of the quarter, they’re all up in the index state, north of 30 and spend some of (inaudible) inventory. The outlook for the global economy is troubling, this environment has been positive for our brokerage business, as sophisticated investors need to rehash their portfolios and take those books to profit from choppy markets.

New customers are taking lower commissions and financing rate, better executions in a more sophisticated saving platform to maximize their returns. Market conditions have also been favorable for our market making segment. We experienced a boost in trading gains this quarter although this was partially offset by unfavorable currency movements due to the decline in the value of the global our self defined basket of currencies in which we hold our equity capital.

During the quarter, the volume of the global export in U.S. dollars declined by 2.5% driven primarily by the strengthening of the U.S. dollar. The decline of the global had a negative impact on our income, and net growth by roughly $109 million. This was mostly offset by the effects of the OCI or other comprehensive income that added $86 million back to our reported regular earnings whilst we’re subtracting the same from comprehensive income.

This is exactly the opposite of what happened in the previous quarter in our regular earnings less than our comprehensive income

We know that this is complicated, so I’d like to call your attention to the fact, that year-to-date for the first nine months, all these currency effects happen to largely cancel each other, and our regular and comprehensive income come fairly close to each other, and reflect the change in our network and dividend payments.

Now, to complicate that a little further, we have reassessed the composition of our global currency basket into which our capital is distributed and hedged. We periodically reassess the composition of the basket of currencies that makes up the global base on the relative importance of these currencies in the world markets, and to our business.

We’re recently determined to expand this basket from 6 currencies to 16 in order to increase the global diversification of our equity. This change took effect of the global business on September 30. Prior to this change, about one half of our equity was denominated in U.S. dollar, and one third in the euros. With the addition of 10 currencies to the basket, the concentration now has been to reduce to 37% for the U.S. dollar and 20% for the euro.

Before I review the performance of each segment, I’d like to emphasis that our firm executed an average of over $1.1 million trades per day this quarter. At the same time, our overall pre-tax profit margin rose to 56% from 50% in the previous quarter and as we are able to leverage our highly automated business model and low fixed costs operating structure to benefit from greater economies of scale and handle the surge in volume with ease.

Now, I view the performance of our Electronic Brokerage business, which continues to produce steady growth and maintain its position as the largest electronic broker as measured by the number of trades.

Our cleared customer DARTs reached record levels of 457,000 for the quarter, an increase of 43% over the prior year and 21% sequentially.

Commissions and execution fees increased 45% year-over-year as a result of the boost in customer activity this quarter, which increased in all asset classes. Options, futures, and equity volumes were 49%, 36% and 17% respectively over the prior-year quarter. I’m sorry, that was the increase in these volumes.

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