Bgc Group Inc (BGC) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2009 BGC Partners Incorporated earnings conference call. My name is Heather, and I will be your operator for today.

At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I'd now like to turn the conference over to your host for today, Mr. Jason McGruder, Head of Investor Relations. Please proceed.

Good morning. Before we begin, I want to make sure that you know that our third-quarter 2009 financial results press release was issued yesterday. It can be found in either the News Center or Investor Relations section of our website at BGCPartners.com. We also have a PowerPoint summarizing results, which includes our monthly revenue figures going back to January 2007, also in the Investor Relations section of our website.

Throughout today's call, we will be referring to our results on a distributable earnings basis. Please see the section of yesterday's financial results release entitled "Distributable Earnings and Reconciliation of GAAP Income to Distributable Earnings" for a definition of this term and how, when and why management uses it.

I also refer you to the statement titled "Discussions of Forward-Looking Statements" contained in our press release. I remind you that the information in the release and on this call contains forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933, as amended, and Section 21-E of the Securities Exchange Act of 1934 as amended. Such forward-looking statements include statements about the outlook and prospects for BGC Partners and for its industry as well as statements about our future financial operating performance. Such statements are based upon current expectations and involve risks and uncertainties. Actual results, performance or achievements could differ materially from those contemplated expressed or implied because of a number of risks and uncertainties that include but are not limited to the risks and uncertainties identified in the earnings release and BGC Partners' filings with the US Securities And Exchange commission. We believe that all forward-looking statements are based upon reasonable assumptions when made.

However, we caution that it is impossible to predict actual results or outcomes, or the effects of risks, uncertainties or other factors on anticipated results or outcomes, and that accordingly you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made, and we undertake no obligation to update these statements in light of subsequent events or developments. Please refer to the complete disclaimer with respect to forward-looking statements set forth in yesterday's earnings release and the risk factors set forth in our earnings -- set forth in our public filings which we incorporate by reference.

I would now like to turn the call over to our host, Howard Lutnick, Chairman and CEO of BGC Partners Inc.

Good morning and thank you for joining us today for our third-quarter conference call. Also with me today is our Chief Operating officer, Sean Windeatt, under and our Chief Financial Officer, Graham Sadler. BGC's President, Shaun Lynn, it is pursuing company business and unfortunately unable to join us today.

BGC's distributable earnings revenues were $291.2 million in the third quarter of 2009. Pretax distributable earnings were $30 million or $0.14 per fully diluted share, and post-tax distributable earnings were $21.1 million or $0.10 per fully diluted share.

We had solid results in a number of areas during the quarter. Credit revenues were up 16.2% year-over-year. We also gained traction in foreign electronic trading of credit default swaps, foreign exchange derivatives, and spot foreign-exchange. As a result, BGC's fully electronic revenues for credit and FX products tripled year-over-year.

BGC continues to invest over $100 million per year in technology on top of the more than $1 billion we have invested since 1999. We are confident that we will maintain a leading position as electronic trading continues to become more widespread.

I would also like to discuss ELX, which demonstrated strong volume growth in October. Specifically, October's average daily volume exceeded 50,000 contracts, up 30% from September. In addition, ELX set new volume records four days last week with Friday coming in at over 76,000 contracts. Furthermore, each of ELX's four treasury products traded a record number of contracts last week, and overall the exchange achieved both its highest ever weekly market share and average daily number of contracts traded with the two-year and five-year contracts consistently achieving market share of over 5% and exceeding 6% market share just recently.

Our world-class proprietary technology platform, along with BGC's unique partnership structure, enabled us to attract and retain some of the industry's most experienced and talented brokers. Our brokers headcount as of September 30, 2009 was up by over 12% year-over-year. This positions us well for strong growth in 2010.

Finally I am pleased to report that our Board has declared a dividend of $0.08 per share for the third quarter, which is payable on December 1 to common stockholders of record as of November 16.

I would now like to hand the call over to Sean Windeatt, our Chief Operating Officer.

Thanks, Howard, and good morning, everyone. I hope I can measure up to Shaun Lynn's reputation for earnings call eloquence. Although Graham will provide more detail on our overall financial performance, I wanted to take a moment to talk a bit more about our recent successes in fully electronic trading.

We've continued to invest in hybrid and fully electronic initiatives in 2009. One example is our global success with BGC's Volume Match, which offers anonymous auctions and provides our customers with efficient price discovery, order management and execution in credit and FX derivative products.

Thanks in part to Volume Match, we've seen strong growth globally in fully electronic revenues and volumes in both credit and FX, both sequentially and year-over-year. We continue to expand the number of products tradable either by our brokers or directly by our customers using the BGC Trader platform.

To make our volumes easier for you to track, we've updated the metrics page we give you in the back of our earnings release. We now break out fully electronic trading into two categories -- rates and credits and FX. This was also the third quarter in a row in which we generated sequential improvements in fully electronic rates volumes and in overall rates revenues, thanks largely to growing deficits in the US and other governments.

As shorter-term debt issuance rolls over into longer data securities, we expect continued improvement for our rates businesses, both voice and electronic.

Overall, BGC's third-quarter 2009 revenues related to fully electronic trading once again increased year-over-year, both in absolute terms and as a percentage of revenue, up 8.7% to $25.9 million. This represented 8.9% of total revenues for distributable earnings, compared to 7.9% in the year-ago quarter. Based on preliminary October 2009 results, BGC also generated more fully electronic revenues for credit and FX products in one month than we produced during the entire fourth quarter of last year.

Turning now to broker statistics, as of September 30, 2009, BGC had 1423 brokers. This compares to 1262 brokers as of September 30, 2008. These figures do not include our new Moscow office, which is scheduled to open this month.

Average revenue per voice/hybrid broker for the third quarter of 2009 was approximately $175,000, compared with $202,000 a year ago.

Historically, the company's compensation ratio has increased and our average revenue per broker decreased in the period immediately following significant headcount increases. This is because our new brokers generally achieve appreciably higher productivity levels in their second year with the Company.

As a percentage of revenue from technology-based products is increasing, in order to give you a more complete picture of our front-office productivity, we expect to expand our broker productivity metrics next quarter. This would include all of our brokerage, market data and software sales revenues.

As of the end of the third quarter, we had 35 salespeople, up by 2 from the second quarter and 3 versus last year.

With that, I'd now like to turn the call over to Graham.

Thank you, Sean and good morning, everyone.

For the third quarter of 2009, BGC Partners generated revenues for distributable earnings of $291.2 million compared with $302.8 million in the third quarter of 2008. Our brokerage revenues were $265.8 million versus $274.3 million for the prior-year period. Our total revenues for distributable earnings were approximately $98 million in July of 2009, $82 million in August and $111 million in September. This compares to approximately $104 million in July of 2008, $81 million in August and $118 million in September. September of last year was unusually volatile due to the events surrounding Lehman Brothers and AIG.

Comparing the third quarter of 2009 to the third quarter of 2008, rates revenues were $138 million compared to $142.2 million. Credit revenues were $78.9 million versus $67.9 million, other asset classes was $25.3 million versus $25.8 million. Foreign exchange was $23.7 million compared with $38.4 million.

Comparing the third quarter of 2009 to the third quarter of 2008, as a percentage of distributable earnings revenues, rates represented 47.4% compared to 47%. Credit represented 27.1%, increasing from 22.4%. Other asset classes represented 8.7%, increasing from 8.5%. Foreign-exchange represented 8.1%, decreasing from 12.7%.

Third-quarter credit revenues increased by 16.2% year-over-year, driven by strong growth in cash corporate bonds on fully electronic credit default swap trading.

Revenues in rates and foreign-exchange declined year-over-year due primarily to lower industry-wide volumes, particularly for emerging markets FX derivatives. This was partially offset by year-over-year growth in fully electronic foreign exchange trading.

Fees from related parties declined by $4.5 million or 23% when compared to the third quarter of 2008. This was due primarily to a reduction in our costs of providing services to Cantor, offset partially by higher fees from ELX reflecting its July 2009 launch.

Interest income more than doubled to $2.2 million when compared with the third quarter of last year, due mainly to interest received on a nonrecurring value-added tax refund that we received in the third quarter of 2009. We expect interest income to return to a more normalized number in the fourth quarter.

Turning now to expenses, total expenses for distributable earnings decreased by 3% year-over-year to $261.1 million in the third quarter of 2009. Compensation and employee benefits represented 60.6% of distributable earnings revenues in the third quarter of 2009, compared with 57.7% in the third quarter of last year. The increase in our compensation ratio was due in part to lower overall revenues since our broker payouts vary with revenues while our back-office compensation expenses are relatively fixed. The compensation ratio also rose in part because the Company replaced some outside vendors and consultants with full-time employees, which also contributed to the year-over-year reduction in professional and consulting fees and to lower overall expenses. In addition, the compensation ratio has been impacted by the recent increase in broker headcount, as new brokers have historically taken several quarters to achieve expected productivity levels.

We continue to be disciplined about non-compensation expenses. For the third quarter of 2009, non-compensation expenses declined by 10.5% to $84.6 million or 29.1% of distributable earnings revenues. This compares with $94.6 million or 31.2% in the prior-year quarter. We expect non-compensation expenses to increase slightly from current levels due to our increased broker headcount.

Third-quarter 2009 non-compensation expenses for distributable earnings exclude a GAAP charge for an expected $10.1 million non-cash and non-diluted donation of equity held personally by partners with respect to BGC's Annual Charity Day. This amount was recorded as an expense, but is expected to be offset by a contribution to additional paid in capital for GAAP purposes and therefore will have no economic impact on BGC or its balance sheet.

Similarly, in the third quarter last year, non-compensation expenses for distributable earnings excluded a GAAP charge of $6.4 million relating to a similar personal donation of equity from our partners for charity day, at offset by contribution to additional paid in capital.

Third quarter of 2009 non-compensation expenses for distributable earnings also excluded $3.5 million non-cash, non-diluted and non-economic GAAP charge relating to BGC assuming liability of September 11, 2001 workers compensation policy during the quarter. We expect, over the next six to nine years, to book an offsetting amount into GAAP earnings, which we will also exclude from our distributable earnings.

In the third quarter of 2009, BGC Partners' pretax distributable earnings were $30 million, or $0.14 per fully diluted share, compared with $33.6 million or $0.17 per fully diluted share in the third quarter of 2008. The Company's pretax distributable earnings margin was 10.3% in the third quarter of 2009 versus 11.1% in the prior-year period.

BGC Partners produced post-tax distributable earnings of $21 million or $-.10 per fully diluted share in the third quarter 2009, compared with $25.3 million or $0.13 per fully diluted share in the third quarter of 2008. Our post-tax distributable earnings margin was 7.2% in the third quarter of 2009, versus 8.4% in the prior-year period.

Our effective tax rate for distributable earnings was 27.4% in the third quarter of 2009, compared with 21.7% in the prior-year quarter. We expect our effective tax rate for distributable earnings to be approximately 27% for full year 2009.

Our fully diluted weighted average share count was $215.6 million for the third quarter of 2009, compared to $196.6 million in the third quarter of last year. Our share count stood at approximately 217 million fully diluted shares as of September 30, 2009.

As we have stated, since they BGC/eSpeed merger, our policy is to return 100% post-tax distributable earnings to our shareholders in the form of either distributions to partnership units, dividend payments to common stockholders, or stock repurchases. As a result, with respect to our public shareholders, between the close of the merger on April 1, 2008 and our expected dividend payment on December 1, 2009, the Company anticipates having paid approximately $43 million in dividends to common stockholders and to have repurchased at least 8 million shares of common Class A stock for an aggregate purchase price of over $27 million.

Moving onto the balance sheet, as of September 30, 2009, the Company's cash position, which we define as cash and cash equivalents, cash segregated under regulatory requirements, and reverse repurchase agreements, was $475.8 million. Notes payable and collateralized borrowings were $169 million. Book value per share was $2.49, and total capital, which we define as redeemable partnership interest, non-controlling interest in subsidiaries, and total stockholders equity, was $445.2 million.

In comparison, as of December 31, 2008 the Company's cash position was $361.3 million. Notes payable were $150 million. Book value per share was $2.31, and BGC Partners' total capital was $443.8 million.

The increase in BGC Partners' cash position from December 31, 2008 was due in part to the $19 million the Company raised in the third quarter of 2009 through the issuance of a three-year loan secured by certain of the Company's fixed assets, as well as short-term variations in payables and receivables. We expect our cash position to most likely be between $350 million and $400 million at the end of 2009.

The Company has just received its public long-term debt ratings -- triple-B stable from Fitch, triple-B minus stable from S&P, and BA-1 stable from Moody's. These majority investment grade ratings show BGC's solid financial position and provide BGC with additional financing options, including the ability to more easily access the debt capital markets.

Now, I will turn the call back over to Howard, who will provide our outlook for the fourth quarter.

Thank you, Graham.

DGC generated distributable earnings revenues of approximately $109 million in October of 2009. That's down about 8% compared to $118 million in October of last year, which of course was the height of the financial crisis.

In 2008, distributable earnings revenues were $89 million in November and $81 million in December. We anticipate a return to typical seasonality in the last two months of this year. We expect to generate distributable earnings revenues of between $255 million and $275 million in the fourth quarter of 2009.

As Graham and Sean mentioned, our expenses will be a bit higher because we have recently increased our broker headcount. We expect fourth-quarter 2009 pre-tax distributable earnings of between $12 million and $20 million, and post-tax distributable earnings of between $9 million and $15 million.

Prior to the onset of the credit crisis, our October results guided our expectations for the first quarter of the following year. This October did not have market events out of the ordinary, although it did have 22 trading days. We are optimistic that our normal visibility metrics have returned. Therefore, with the first quarter having 62 trading days, we think it is reasonable to assume that BGC will generate revenues of at least $300 million in the first quarter. We will provide you with our usual detailed guidance on our next earnings call.

So with that, operator, we would like to open the call for questions, please.

Thank you. (Operator Instructions). Rich Repetto, Sandler O'Neill.

Good morning. Howard, I guess the first question is on broker productivity. I think the ramp in the broker headcount was from -- a good portion was from Liquidez. Could you just review again sort of your expectations on when they become more productive? I am just trying to understand why -- I understand where the comp rate might pop up a little bit but you've got non-comp expenses going up to if you use the midpoint of about $90 million in the fourth quarter.

Well, so, let's sort of go back to basics, which is, generally speaking, we use the internal metric that we think our brokers will hit our average revenue per head starting in their 24th month of the Company.

Now of course there is tremendous variability across the global spectrum, so we bought Liquidez and their average revenue per head for the Liquidez brokers initially is quite low compared to our average. But that was also the case when we acquired the brokerage companies in Paris, and we were able, by providing the technology and basically changing the business model to an import model which allows them to trade the global capital markets internally, the export model which allows them to export the local products across our global platform and then use our technology to do a much better job and use our capital to do a much better job brokering locally, we are able, over the next two years, to drive up their average revenue per head.

So we think, in the 24th month of an employee joining us, they will reach our average revenue per head, which means we think -- that's why I said I thought we were well-positioned for growth going forward, because obviously they don't just pop up there on the 24th month. It kind of takes them a couple of quarters to get settled in, and then they start to improve their productivity quarter by quarter until at the 24th month and our metric we think they will make the average.

With respect to the non-comp expenses, it's simply there are always infrastructure costs on which to build out both the infrastructure for instance in Brazil to do the installations, to do all the things necessary to put them onto our network, to install all of the things necessary to integrate them into our platform. That, for the initial phase, will somewhat raise our non-comp expense, but of course that will be easily overwhelmed in our business by the accretive nature of their revenues growing. So we do not see a modification of our comp ratio coming because all you're going to see is a short-term blip and then, as the revenues come in from these brokers, we think we are well within our model. Therefore, we are comfortable saying we still view our comp ratio remaining around 60%, as Graham said; that is what we see going forward. We do not see it changing because we think the brokerage revenues will exceed whatever short-term expense increase we have to support them.

We think we have hired and acquired accretively, and therefore we think it will make money. It may not be the first day but, as we said, it is clearly our expectation that the 60% comp ratio will remain.

Okay, that's helpful. Then the next question is just getting a little bit more color on the revenue by the different products. You know, your credit was down 13% less than -- I know it's a broader category as you (technical difficulty) a competitor but down less. I guess just a little bit more color on what you see there. Do you see this, the credit rebounding. You know, there's been other comments by exchange and things that is there still some pent-up demand, and it's still a good asset class over the long run?

Well, remember, so let's go back for a second, which is, historically, our business strength in credit has been in the corporate bond sector, both corporate bonds in the US and Euro bonds. Obviously, we have built and focused on our cash portion of her business. While we did CDS, we tended to, as compared to the other brokers, do it more in a packaged transaction where they would buy the underlying corporate bond and sell a CDS insured against it or buy CDS insurance against it as the case may be. That business is still chugging along quite nicely.

Certainly the froth came off the CDS business where people were just punting on CDS, generally and by the indices. That business declined and may not return to the levels it was that, but whether, fortunately or unfortunately, that really wasn't our business stable. Our business stable was in the corporate bond business. The opening of the credit markets has led to both superb business in corporate bonds generally and a very attractive visibility going forward. The corporate bond markets are open; companies are issuing; the pent-up demand for the markets being closed last year is strong. I think it will be superb corporate bond issuance going forward. Therefore, I like the credit markets.

With respect to CDS trading, as Sean mentioned, we've been doing quite well with our Volume Match product, which is a price discovery mechanism as well as a crossing mechanism. It is being used. We now are using it in Asia; we now are using it in America as well as where we started using it in Europe. So it has gone around the world; it is getting notoriety in local publications everywhere. I mean it is doing quite well, so I think the credit business for us, we think we should exceed the industry's numbers going forward because of both the fundamental foundation of our business, which is a very strong cash business, coupled with our technology.

Okay, and very last question -- I don't know (inaudible) bid/ask you this, but on ELX, we've seen the numbers, the volumes going up, too. If you could just give some color where that's coming from? Is it -- are we getting penetration 0beyond sort of the ownership so to speak? And any comment on this, the EFF, the exchange for future? I know that's been sort of an ongoing debate -- if you had any insight into that stuff.

well I have promised the partners of ELX that I will leave ELX commentary to themselves. I will, though, give you a couple of things.

Number one, I am very impressed with the breadth of utilization, meaning that the market continues to add, ELX continues to add participants and now has substantial participants outside the partners and continues to add new participants outside the partners, certainly more than I think most people expect, so there is a broad use of -- and the growing use of ELX. BGC's technology is able to add them quickly and easily. So I think that is going quite well for it.

With respect to EFF, I would say that it is a great opportunity. It is interesting. Neil and the people from ELX have done a superb job in addressing some of the inconsistencies that are out there but others, and we will see what happens. But it is an opportunity and nothing else. So I will leave it at that.

Okay, thank you very much, Howard.

Dan Harris, Goldman Sachs.

I just wanted to touch base on the FX business. You gave us some nice color, new disclosure, on that. It looked like the electronic volumes were up more than 200% sequentially. So can you give us some indication of what percentage of that is electronic overall in terms of FX? Does that mean that the profitability in FX went up because you are paying your brokers a lower rate at this point?

In part -- so to the last part, in part, yes. But when we first do electronic trading in a product, we tend to pay the brokers who have brought it to us. So the opportunity for the Company to eventually reduce its comp ratio is at the discretion of the Company. But we like to reward the brokers who are our salesman and who have brought us that electronic trading. So the initial phases come with a rather consistent granted probably slightly lower comp ratio with respect to the fully electronic trading, but not consequentially so in the first periods.

But in foreign exchange, it is electronic, it is fully electronic. It comes from both options and spot. We are doing better in spot and we are doing better in FX options, so I think FX is growing quite quickly for us.

Would you say that the percentage that is traded -- you said that it's not 100% electronic overall though, is it?

Well, we broke out, on the metric sheet for you, (technical difficulty) electronics rates and then credit and FX. So we literally -- the separate FX and credit is literally the same as like our U.S. Treasury business, which means there was no participation by an employee of ours inputting or executing the transaction. The transaction was input by the client and traded fully electronically by the client without assistance from a broker. If a broker assisted in the trade, we would put that in the hybrid category, right? So that the broker is participating.

So when we put in the fully electronic line item means, it is fully electronic. You could see the number for FX and credit this quarter was hugely higher, both -- any way you want to calculate. You can look at the transaction count; you can look at the volume. Clearly both of them have produced, as Graham and Sean said, decisively higher revenues, revenues from fully electronic trading trebling.

Okay, thank you. You guys have been all over the news the last couple of months with the hiring of some brokers from one of your major competitors. Can you give us a little bit of update? Are they in your offices and started? If not, when do you anticipate that they would be in their seats and starting to generate revenues for you guys?

Well, some employees have started. I don't think I can comment more than that. So, I think those who are here are here, so some have started in the business of US treasuries, mortgage-backed, and some in corporates. They have joined us already and others have not. I'm just going to leave it at that.

Okay, thanks. Then just lastly, on the other revenue lines, I think that's largely been equities and Radix in the past is in there as well. That number was growing very nicely. It seems like it stabilized. Is that largely just because the equity markets, specifically overseas and in some of the more -- some of the areas where you are charging on the value traded, is that down? And that would go back up with equity markets moving higher?

That's exactly correct. This is Sean here. That's exactly right. The growth in equities over the last year or that we've had in that asset class has been -- we've grown in commodities, which is why you've seen -- which is why that number will be fairly similar to the previous quarters. We've had down in equities, up in some of our other asset classes like commodities.

Okay, thanks a lot.

(Operator Instructions). Rob Rutschow, CLSA.

Good morning, everybody. I wanted to follow up a little bit more on the CDS. Thank you for the increased disclosure. Can you give us an idea of how much of the CDS business is being traded electronically, and if there is a difference in terms of the geographic distribution?

Well, it's comparatively small, so it is a small percentage of our credit business is trading electronically. However, that percentage is growing rapidly. That is consistent in both credit and foreign exchange.

So while I can't really say month by month, we look and it continues to grow. I think Sean said our October numbers show that we did more business in the month of October electronically than we did last year in the fourth quarter. So, it gave you a sense that the growth is continuing and not abating. I would not think it would abate. I think it is a good business model. It is very effective for the clients and it's very effective for us. We are putting significant resources to it.

But your question was geographic. I think we are now becoming more balanced than it was. So previously there was uptake of the fully electronic and credit in just Europe, and maybe we have mentioned on some of our other conference calls that it wasn't in the US yet, and we had said it was a matter of when, not if.

We have seen it uptake in Asia; we have seen it uptake in the United States. So now the clients are using it and it is growing. I think it will grow just as rapidly in Asia and in the United States as it has in Europe, and Europe's growth is not abating. So I think it is a good product. It is the right kind of technology for the time.

We can do other things, but as Sean pointed out, Volume Match is the product that has become most successful for us.

What you've seen with us, including our recent success in spot foreign exchange, which those of you who have covered the Company know that we've talked about for quite some time, the key to the Company is we have the capacity to do technology in all sorts of ways. You know, our technology is flexible, and our business models are flexible. If we are not successful doing it one way, we will try another way. If we don't do it that way, we will try it yet another way, because the marginal cost of us trying it a different way -- once the network is installed, once the connectivity is there -- is relatively low cost for us. We have achieved a different model for foreign exchange spot that's been successful. We achieved a different model than we set out to on CDS with Volume Match, which has been successful. We have a different model than we set out with FX options through Volume Match that we think is successful and is -- the clients like.

So what we've learned over the last couple of years is the method by which we do electronic trading may not be the one we initially set out for, but we are capable of modifying our technology. That's one of the benefits of having a proprietary technology base, which is when the client says "Why don't you try this?", we can actually go back and actually build it and try this and not have to wait a long time and then modify it and change it.

So I think we will continue to do well with fully electronic CDS. I think we will continue to do well in foreign exchange. Both of those products we think we will do well around the world. I do not think it is geographically constrained any longer. It is a global product base and a global roll out and I think our growth rates will be consistent around the world.

Okay. I also wanted to ask about CDS clearing. How are you guys accessing the ICE clearinghouse at this point? Does them opening up it to buy-side clients change it all for you? What is your appetite for a different model at this point?

We like centralized clearing and an open platform. I mean we are big fans of that, and who does it, as long as it is nonexclusive and open, is not particularly relevant to us.

Currently, the process is we are capable of course of putting in trades at the request of our clients. We have a trade capture system, obviously part of our technology base which can put in trades for clients. We do that of course for example in a variety of products like US treasuries as an example.

There are times like in SwapClear where we put it in where the clients put it in, meaning the clients will do a trade with us and then they will put in the trade directly and it will clear by a trade done with us that the clients will put it in and match themselves. So various clients will do it in various ways. It doesn't matter to us, so we are fans of central clearing, and it does not matter to us how it gets there. We offer our clients, which is a benefit of course to being one of the largest individual brokers in the world and having this technology base -- we offer clients, if they wish, for us to electronically, through an API, put it in for them once they've done a trade with us, but that is entirely at the client's discretion whether they'd like us to do that or they do it themselves. We don't care and it is irrelevant to us. I don't know of anybody else who [has it as] relevant.

Okay, thank you. the last question is just, on the balance sheet, we saw a little sharper contraction in the third quarter of this year than we did last year. I'm wondering if you can comment on that and whether or not that had any impact on the interest income and expense for the quarter, which was, I guess the interest income was up a little bit.

Yes, I mean the most -- the balance sheet there is primarily through the size of a broker payables and receivables. It's really a reflection of outstanding trades on any particular day.

Okay. And the interest income?

(inaudible)

No, I think he's interested just in the interest numbers. Why don't you talk about the one-time event?

So in interest income, I had a one-off receipt this quarter relating to the VAT receipt that I referred to in my opening remarks.

That was -- that related to a historical adjustment to -- actually relating to an industry-wide issue on VAT recovery in the UK going back to 1997. When that was settled we received a substantial interest income in this quarter.

Okay, I'm sorry.

All expected not to recur.

I'm sorry, I guess I missed that. Can you tell me again what the amount was?

$1 million.

Okay, thank you.

Es there are no further questions in the queue at this time, I'd like to turn the call back over to Howard for closing remarks.

Thanks very much, everyone. We appreciate you very much taking the time with us. I think we feel very good about our technology, we feel very good about our position in the markets. We think that the October has given us a very optimistic view of the first quarter. That's why we tried to explain it to you, how we look at it.

So, we look forward to speaking to you again next quarter. We hope you have a very good day today. So thanks, everyone, for joining us, and we will see you again next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.