Interactive Brokers Group, Inc. (IBKR) Q2 2012 Results Earnings Call July 17, 2012 4:30 PM ET Executives Deborah Liston – Director, Investor Relations Thomas Peterffy – Chairman and CEO Paul Brody – Group CFO Analysts 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 Presentation Operator Good day, everyone. And welcome to the Interactive Brokers Second Quarter 2012 Earnings Results Conference Call. This call is being recorded.
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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. Read the rest of this transcript for free on seekingalpha.com