Interactive Brokers Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Interactive Brokers Group, Inc. (IBKR)

Q1 2012 Earnings Call

April 19, 2012 4:30 pm ET

Executives

Deborah Liston – Director, Investor Relations

Thomas Peterffy – Chairman, President and Chief Executive Officer

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

Analysts

Richard Repetto – Sandler O'Neill & Partners L.P.

Niamh Alexander – Keefe, Bruyette & Woods, Inc.

Matthew Heinz – Stifel, Nicolaus & Co.

Ed Ditmire – Macquarie Research Equities

Presentation

Operator

Good day, everyone, and welcome to the Interactive Brokers’ First Quarter 2012 Earnings Results Conference Call. This call is being recorded. At this time for opening remarks and introductions, I’d like to turn the call over to Ms. Deborah Liston, Director of Investor Relations. Please go ahead.

Deborah Liston

Thanks operator. Welcome everyone and thanks for joining us today. Just after the close of regular trading, we released our first quarter financial results. We’ll begin the call today with some prepared remarks on our performance that compliments the material included in the press release and I’ll keep the remaining time to Q&A.

Our speakers are Thomas Peterffy, our Chairman and CEO; and Paul Brody, Group CFO. I just want to remind everybody, the discussion might include forward-looking statements. These statements represent the company’s beliefs regarding future events that by their nature are not certain and outside of the company’s control.

The company’s actual results and financial conditions may differ possibly materially from what’s indicated in these statements. For a discussion of some of the risks and factors that can affect our future results, please see a description of the risk factors in our filings made with the SEC and 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

Good afternoon, everyone. 2012 is off to a slow start compared to the results we posted last year. Exchange-traded stock and option volumes continued to decrease well into the first quarter and stabilized…

Operator

(Operator Instructions) We can hear you now. Yes, we can hear you again. Thank you.

Thomas Peterffy

Okay. I’ll start from the very beginning.

Deborah Liston

Yeah. We’ll start from the beginning.

Thomas Peterffy

Good afternoon everyone. 2012 is off to a slow start compared to the results we posted last year. Exchange-traded stock and options volumes continued to decrease well into the first quarter and stabilized only towards the end of the period. This affected our customer saving activities along with market making, which also became subject to other pressures that I will elaborate during the segment discussion.

Despite these cyclical factors, our brokerage business continues to dominate the competition in areas of customer account growth and trading technology. As a testament to the later Interactive Brokers has been rated number one in several categories by the Wall Street Letter and Barron’s, for a best options broker, best use of technology in the industry, best for international investors, best for portfolio analysis and a report and best for trading experience and technology. Most importantly, we remain recognized as the least expensive broker.

I’m still waiting for a reviewer who would rank brokers by what I think should be the most important criteria, which is execution quality. Traders and investors often pay more in inferior execution prices than in commissions, but this remains a hidden charge that is often overlooked, even by some of the most sophisticated market participants.

Our distinction as being the broker of choice for a financial professionals, is driving strong growth in this business with the number of customer accounts approaching 200,000 and the equity they hold just shy of $30 billion. We also maintain our position as the largest e-broker by a number of trades. thanks to our highly active base of customer traders and base of sophisticated traders and investors.

Before I review the performance of our business segment, I’ll briefly mention the results of our currency hedging strategy. As you know, we maintain our equity in a self-defined basket of 16 currencies that we call the GLOBAL in order to minimize our exposure to currency fluctuations.

As a globally diversified company doing business in 27 countries, we have fundings to be a prudent approach to reducing our currency risk. The value of the GLOBAL as expressed in U.S. dollar ticked up slightly during the quarter by nearly 1%. This had a positive impact on our comprehensive earnings to the [$34 million]. Paul will describe in detail, how this flowed through to our financials.

Market volumes on exchange-traded options have remained flat in the U.S. and decreased 1% globally from the fourth quarter. This compares to our firms total option volume, which decreased 11% during the same period. As a result, our market share during the first quarter decreased from 10.6% to 9.5% globally and from 14.8% to 13.3% in the U.S.

In the market making segment, our option volume decreased 13% during the first quarter driving our market share in that segment from 7.1% to 6.2% globally and from 8.7% to 7.7% in the U.S. The diminution in market share is also due to exchange volumes concentrating in certain underlings, such as apple and spider EPS. We are generally unable to maintain significant share in very high-volume products.

As a reminder, market share is not directly correlated to our profit. We provided as an illustration as to how our performance in the exchange traded options markets move over time.

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