Interactive Brokers Group, Inc. (IBKR)

Q2 2012 Results Earnings Call

July 17, 2012 4:30 PM ET


Deborah Liston – Director, Investor Relations

Thomas Peterffy – Chairman and CEO

Paul Brody – Group CFO


Chris Harris – Wells Fargo

Rich Repetto – Sandler O’Neill

Chris Allen – Evercore Partners

Ed Ditmire – Macquarie

Justin Hughes – Philadelphia Financial

Niamh Alexander – KBW

Matthew Heinz – Stifel Nicolaus

Mac Sykes – Gabelli & Company



Good day, everyone. And welcome to the Interactive Brokers Second Quarter 2012 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

Welcome everyone and thanks for joining us today. Just after the close of regular trading, we released our second quarter financial results. We’re going to begin the call today with some prepared remarks on our performance that complements the material included in our press release and allocate 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 everyone that today’s discussion may 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 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 for joining us this afternoon. Our performance in the second quarter reflects a combination of positive trends in brokerage growth and slightly better market making conditions that were weighed down by unfavorable currency movements and diminishing investor participation.

In our Brokerage business, we continue to attract accounts and grow customer equity at a faster rate than our peers and our customer trading activity is outperforming the industry. Trading volumes on global exchanges have been sluggish for several quarters now punctuated by some big but unsustainable rebounds. Our customers remain fairly active and their trading volumes are growing.

This quarter total customer DARTs, on Daily Average Revenue Trades grew 5% compared to the year ago quarter, where it is 4% decline in OCC volumes.

Customer equity is up 11% year-over-year exceeding the growth rate of other E-Brokers that we compare ourselves to. And while not exceeded, the SMP climbed nearly 6% during the same period.

We must point out though that trading volumes are not growing at as higher rate as number of accounts or customer equity. So that the annualized DARTs per account are now down to 507.

This is largely due to the greater inroads we are making in the registered financial advisors space, where accounts do not change positions as often as road traders or hedge funds or even individual investors.

While our Brokerage business is weathering the current environment quite well, we continue to witness events that further grow investors trust in the capital markets and their faith in long-term investing.

This growth alone we has had its share of issues, including high profile overpriced IPO and technical trading which is of NASDAQ. And as the trading loss at JP Morgan, the LIBOR rate rigging scandal on top banks and delay the future broker bankruptcy and misappropriation of customary assets. These are just the recent hits the financial sector reputation has taken.

As to these, the SEC’s recent approval to a loss up on the pricing by the exchanges which will further reduce displayed liquidity as well as ever growing conviction by the public that the markets are rigged and unfair to individual investors and you can see the troubles our industry is facing.

However, we do see some clear opportunities ahead. Not more than other investors are looking for a secure place to put their money, even if they are uncertain for the time being where to invest. We achieved this especially in Europe, where we have started an advertising campaign in certain countries encouraging investors to place their money with Interactive Brokers.

With this recent downgrade of 15 major banks has also helped our case. We continue to emphasize our A minus credit rating from S&P in highlighting our strengths in security relative to other brokers, as well as our strong capital position, conservative balance sheet and aversion to risk.

This later future broker collapse is unfortunate and yet another reminder of the importance of selecting a well capitalized broker with sound practices for protecting customer assets and automated risk controls. I highly recommend you take a look at our Strength & Security page on our website, which discusses this in further detail.

We are also seeing an increasing awareness by investors over the conflicts of interest that exist between online brokers and their clients with respect to further routing practices. We have always been very outspoken about the importance of understanding where your orders are sent when it comes to choosing the right broker.

We pride ourselves in offering to our customers the best site execution and stand behind the statement with third-party audit results which show that IB consistently exceeds the industry in sites improvement.

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