Interactive Brokers Group Inc (IBKR) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to the Interactive Brokers first quarter 2013 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.

Thank you, operator, and welcome, everyone. Hopefully by now, you've seen our first quarter press release, which was released today after the close of the market, which is also available on our website. Our speakers today are Thomas Peterffy, our Chairman and CEO, and Paul Brody, our Group's CFO. They will begin with some prepared remarks about the quarter and then we'll take some questions. Today's call may include forward-looking statements, which represent the Company's beliefs regarding future events and by their nature are not certain and outside of the Company's control.

Our actual results and financial condition may differ possibly materially from what's indicated in these forward-looking statements. And we ask that you refer to disclaimers in our press release. You should also review a description of the risk factors contained in our financial reports filed with the SEC. I would now like to turn the call over to Thomas Peterffy.

Thank you for joining us on the earnings announcement afternoon. The most important thing to know about our first quarter is that the earnings number gives a misleading picture about the current state of our business and our future prospects which has become ever brighter. This has been a fantastic quarter for our brokerage business in which we've passed almost every one of our previous records, earnings of $111 million. This is great performance, even if it is overshadowed by our full showing in Market Making, returned only $32 million and our current hedging position, which was $92 million. So this $92 million loss, $61 million is applied against Market Making profits, resulting in a net loss of $29 million in Market Making, and the remaining $31 million is reported below the line as other comprehensive income.

As you know, we maintain our net capital of nearly $5 billion in a basket of 16 currencies we call the GLOBAL. The GLOBAL is a diversified enterprise doing business in 27 countries. We have found this to be a proven approach to reduce our currency risk in the long term. It is too that quarter-to-quarter, this approach continues to gain the volatility the earnings as it was to the US dollar. But we believe that it is [spread out] over the long term. We feel more secure that we will be ordering something of volume, even if some of these currencies in the basket are debased to zero.

This quarter, the Japanese Yen, the Euro, and the British Pound wreaked havoc in our currency basket, but let's not lose sight of the fact that the US is printing more money than all of the others combined. The GLOBAL was 1.9% against the US dollar during the quarter. At the end of the quarter, [31%] of the GLOBAL was comprised of US dollars and Hong Kong Dollars, which has a fixed ratio.

Now returning to our favorite topic, our Brokerage business, which used the [income] of $111 million, a 33% increase from the year-ago quarter and a profit margin of 57%. Our long-term strategy is validated, and by long term, I do mean long term. We entered into the Brokerage business as a sideline to Market Making, exactly 20 years ago. The idea was that we would make available to others our order of existing GLOBAL automated network to exchanges, and we had existing systems to exit this year and [schedule] to borrow our [lent] shares and to pay and receive funds in different currencies to combat daily business at very low additional costs. If we could pass on to our customers the bulk of these savings and a couple of our expertise in getting the best prices would be a compelling offering to professional traders and investors.

We also warned you in going our IPO six years ago that while our Market Making business was striving at that time, there was no barrier to entry to that business, while an efficient brokerage platform required a great deal of system resources and automation that takes a long time to develop. So it is with great satisfaction that we see our brokerage business finally taking off in a big way, just as our Market Making business is saving. The previous sound number though is that created customer accounts increased by 12% year-over-year, institutional customers growth comprised 40% of our accounts and nearly 60% of our customer equity. This is reflected in the growth of customer equity, which has increased at the rate of 23% year-on-year to $35.6 billion while our market balance has increased 32%, lose the next net-in currency by [27%].

Equity in the average customer account grew by 10% year-on-year to $164,000. DARTs for the quarter were 465,000, up 9% on the year, but they are larger trades, resulting in average commissions of $0.0461 per trade, up 15%. Our average stock trade contains 1,400 shares of the commission of $2.36. Average [contracts] trade contained 11 contracts of $7.44 commission and 3.6 [contracts] to the average future trade of $6.30 commission. Please keep in mind that these numbers include exchange fees and our average over some 100 exchanges, many of which have very different fee structures.

Equity capital in our Brokerage subsidiaries increased by 21% year-on-year and (inaudible) of $2.1 billion. Our Standard & Poor's rating of A-minus with a stable outlook is better than that of Goldman or that of Morgan Stanley, which both have negative outlooks and much better than other non-bank brokers, like Jefferies or Raymond James. I think with this quarter, we entered into a new growth spurt for our business and we will continue to see faster growth in customer accounts, equity DARTs, and margin models. Our plan is to continue to develop our systems and to provide better execution prices and generally better services in more products and market centers of the lowest cost and we are committed to doing that.

Market Making continues to underperform. Besides the usual complaints about low volatility, with an average mix of 13.5, and a low actual versus historical volatility ratio, and tight competition in bid/offer spreads, we must admit to an other area increasing disadvantage. As more and more institutional traders come into the option market, we find ourselves making [dumb] two-sided markets to people who are acting up on [care only the difference] and timely predictions. They know when users are going to peg and set up the positions for quick bounces in volatilities and having been successful, they react even faster and more correctly than we could adjust our markets.

In other words, we provide two-sided close to anyone who comes to market with the idea that we are straddling the most powerful equity we have priced and are likely to have part of the difference between our bid and offer. However, the unfortunate fact is that we find ourselves accumulating positions on the wrong side of the market more and more often than we used to. This means that our estimate of the equity in price is off and our trading counterparts has had a better one than we did. While markets are more volatile and spreads there are wider and our counterparts is less sophisticated, we could make up for these disadvantages, but it's not saying that we are holding the wrong end of the stick ever more often.

In response, we have widened our biddings spreads in several products and decreased our trading volumes. We think that other market makers must be in similar position so that in the near future, we expect to see a rise in make of spreads, either as a result of others following suit or leaving the business all together. You may remember that we paid out our special dividend last year and that we continue to pay $0.10 regularly, quarterly, and both of these come out of our Market Making capital, diminishing it substantially as we follow along with periods in which Market Making does not earn sufficient profit to make up for the dividend expense. And the results are our Market Making capital is now down to $2.7 billion.

Should these circumstances continue along the same lines, you will see a gradual transformation of Interactive Brokers into a pure brokerage firm. I know that you would like a transformation -- that you do like the transformation and you would like it to happen faster, but we are still not convinced. So please do not rush us. Let us take our time. Thank you. Paul Brody will give you the financials.

Thank you, Tom. Thanks, everyone, for joining the call this quarter. As usual, I'll review the summary results first and then talk about some segment highlights before we take questions. In the first quarter, we saw a continuing trend of robust growth in our Brokerage business and weakness in the Market Making segment. That revenue this quarter were driven by rising brokerage commissions and net interest income, partially offset by declines in trading gains, which were exacerbated by translation losses on the strength of the US dollar relative to other currencies.

For those of you who may not be familiar with our financial presentations, our financial statements include the GAAP accounting presentation, known as comprehensive income. Comprehensive income reports all currency translation gains and losses, including those that reflect changes in the US dollar value of the Company's non-US subsidiaries, which is known as other comprehensive income, or OCI, in the reported in the statement of comprehensive income. In light of the strengthening of the US dollar against a number of other currencies, adding OCI to net income decreased our reported earnings per share by $0.08 for the quarter.

Overall operating metrics for the latest quarter were mixed. Volumes were up and futures and stocks and down in options versus the year-ago quarter. Average overall daily trade volume was just over one million trades per day, up 9% from the first quarter of 2012. Electronic Brokerage metrics shows healthy increases in a number of customer accounts and customer equity. Total and cleared customer DARTs were both up from the year-ago quarter and sequentially. Quarters from cleared customer who clear and carry their positions in cash with us and contribute more revenue, accounted for 91% of total DARTs, holding fairly steady with recent quarters.

Market Making trade volume was up 10% from the prior-year quarter, mixed across the product types, options, contract volume. It was down 10% while futures contract volume and stock share volume were up 54% and 40%, respectively. Net revenues were $216 million for the first quarter, down 29% from the year-ago quarter. Trading gains were $19 million for the quarter, negatively impacted by currency translation effects. While trading gains compared to the year-ago quarter decreased by 86%, excluding the currency translation, the trading gains would have dropped 42% from the year-ago results.

Commissions and execution fees were $120 million, up 19%. Net interest income was $58 million, up 22% from the first quarter of 2012, and the brokerage produced $54 million and Market Making $4 million of the net interest income. Other income was $20 million, up 9%. Non-interest expenses were $134 million, down 13% from the year-ago quarter. Within the non-interest expense category, execution and clearing expenses totaled $60 million, down 8% from the year-ago quarter, as significantly lower Market Making fees largely offset increases in brokerage fees. Compensation expenses were $46 million, a 26% decrease from the year-ago quarter.

With these, these reflects two factors. First, reduced accrual for bonus compensation in the Market Making segment. And the second, the 2012 comparative period, included special one-time stock incentive plan grant to employees. At March 31, our total headcount was 888, an increase of less than 1% over the year-ago quarter, and a slight decrease from the prior-year end count. As a percentage of net revenues, total non-interest expenses were 62% and out of this number, execution and clearing expense accounted for 28% and compensation expense accounted for 21%. Our fixed expenses were 34% of net revenues.

Pre-tax income was $82 million, down 45% from the same quarter last year. For the quarter, brokerage accounted for all of the income, partially offset by the loss in Market Making. Ex currency effects, Brokerage represented 78%, and Market Making represented 22% of pre-tax income from the two segments. For the first quarter, our overall pre-tax profit margin was 38% as compared to 49% in the first quarter of 2012.

Brokerage pre-tax profit margin was 57%, up from 52% in the year-ago quarter. Market Making pre-tax profit margin was negative 123%, including the translation effect, and 38% without translation effect. Comprehensive diluted earnings per share were $0.06 for the quarter as compared to $0.33 for the first quarter of 2012. On a non-comprehensive basis, which excludes OCI, diluted earnings per share on net income were $0.14 for the quarter as compared to $0.27 for the same period in 2012.

Turning to the balance sheet. As a result of the growth of our Brokerage business, and the withdrawal of capital from our Market Making operations through a regular and special dividends, Brokerage continues to account for over two-thirds of our balance sheet assets. From the year-ago quarter, cash and securities segregated for customers rose 13%. Secured margin lending to customers rose 32%, while positions and securities held by our Market Maker units were pared back by 27%.

As Thomas mentioned, our regularly quarterly dividends will continue to reduce the capital employed in the Market Making segment unless higher profitability returns. Nonetheless, our balance sheet remains highly liquid with low leverage. We actively manage our access to liquidity and we maintain significant borrowing facilities through the securities lending markets and with banks. As a general practice, we hold an amount of cash on hand. It provides us with a buffer should we need immediately available funds for any reason. We also continue to maintain over $2 billion in excess regulatory capital in our broker/dealer companies around the world. Long-term debt at March 31 remained at $0, and our consolidated equity capital at March 31 was $4.83 billion.

The segment operating results are summarized in the earnings release and will be more fully detailed in our quarterly 10-Q report. So I'll just highlight the noteworthy items. Starting with Electronic Brokerage, customer trade volumes were up across all product types. Cleared customer options and futures contract volumes were up 25% and 27%, respectively, and stock share volume was up 18% from the year-ago quarter. Customer accounts grew by 11% over the total of March 31, 2012, and by 3% in the latest quarter. Total customer DARTs were 465,000, up 9% from the year-ago quarter and 14% from the fourth quarter of 2012.

Our cleared customer DARTs, which generates direct revenues for the brokerage business were 422,000, up 8% on the year-ago quarter, at 12% sequentially. The average number of DARTs per account on an annualized basis was [496,000], down 3% from the 2012 period, but up 9% sequentially. Commission revenue grew on a product mix that featured larger average trade sizes, across options, futures, and stocks, which resulted in an overall average clear commission per DART of [$12.61] for the quarter, 15% higher than the year-ago quarter, 11% higher sequentially. These numbers reflect our success in attracting institutional customers who trade in larger size.

Customer equity grew to $35.6 billion, up 23% from March 31, 2012, and up 8% sequentially. These changes took place during periods in which the S&P 500 Index was 11% over the past year and 10% over the last quarter. The source of this growth continues to be steady inflow of new accounts and customer deposits. In addition, our favorable financing rates allowed us to attract customer margin borrowings. After falling to lows in the fourth quarter of 2011, margin debits have been building steadily to $11.1 billion, 32% over the quarter-end level a year ago.

Customer credit balances, which increased 20% over the year-ago quarter, also continued to grow progressively, so expect compression, especially in certain foreign currencies persists in restraining interest income. Higher options and futures trade volumes resulted in top line revenue from commissions and execution fees of $120 million, an increase of 19% from the year-ago quarter, and 16% sequentially. These revenues are spread mainly across options, futures, stocks, foreign exchange. Net interest income rose to $54 million, up 26% from the first quarter of 2012, and 11% sequentially.

Low benchmark interest rates, which continue to compress the spreads earned by our brokerage unit has been offset by steadily higher customer credit balances in each successive period, and our aggressive lending rates have boosted customer margin borrowing. Our fully paid stock yield enhancement program continues to provide an additional source of interest revenue that is shared with our participating customers. As a result, our net interest income, as a percentage of net revenue, rose slightly to 27%.

Execution and clearing fees expenses increased to $36 million for the quarter, up 19% from the year-ago quarter, and 5% sequentially, in line with the volume increases. These expenses increased to $48 million, up 6% on the year-ago quarter, primarily due to higher employee compensation-related expenses. And pre-tax income from Electronic Brokerage was $111 million for the first quarter, up 33% on the year-ago quarter, and 27% sequentially.

Now, turning to Market Making, trading gains from Market Making for the first quarter of 2013 were $19 million, down 86% on the year-ago quarter. Currency translation effects negatively impacted the first quarter's reported earnings by $61 million, while the year-ago quarter's reported earnings were reduced by only about $1 million. Our overall equity, as measured in US dollars, was reduced by the strengthening of the US dollar against certain currencies.

More specifically, we measure the overall lump from our strategy of carrying equity in proportion to the basket of currencies we call the GLOBAL to be about $92 million for the quarter. Because the $31 million translation loss is reported as other comprehensive income, this leaves a loss of $61 million to be included in reported earnings. To summarize this, if we eliminated all currency effects, pre-tax income from Market Making for the first quarter of 2013 would be about $32 million.

Execution and clearing fees expenses decreased to $23 million for the quarter, down 33% on the year-ago quarter, driven by lower trading volumes and options. Fixed expenses decreased to $29 million, down 30% from the year-ago quarter, primarily due to lower accruals for bonus compensation, commensurate with the lack of profitability. And pre-tax loss from Market Making was $29 million for the quarter without adjusting for OCI. Taking into account the $60 million shift and the currency effects, the year-over-year decrease in pre-tax income from Market Making would be about 52%. Now I'll turn the call back over to the moderator and we will take some questions.

(Operator Instructions)

Chris Harris. Please go ahead, Chris.

So first question I want to get at is the topic of gradually morphing into a pure play broker. And just curious if you guys have ever thought about or entered into any discussions with any other parties about potentially selling the Market Maker? And the reason I ask that, even if you had to take a substantial discount on that sale, it seems like you could unlock a lot of value. So curious to see what you guys thought about that, if it's anything you've ever explored.

By discount, you mean discount to the cash we have in the business?

Discount to book value.

I would just wind it down.

Well, why not -- yes, why not just do that then? Because it --

I told you -- I tried to make it very, very sure that you -- that you're all paying attention to the -- I know that you want me to close this down. But I'm not so sure that this is finished, so I would like to take my time and do it slowly, because maybe it will reawaken.

Okay. That's fair enough. The other question relates to the dividend. Thomas, you had mentioned the dividend is based on what happens with the Market Maker. Does that mean if conditions continue to deteriorate, could you possibly be looking to cut the dividends, or could you just base it or allocate capital from the broker to pay the dividend?

We will not cut the dividend. We will continue to pay the dividend from the Market Maker.

Right, but if the Market Maker goes away, then I guess you don't have anything to pay the dividend with unless you --

Well, then we'll have $2.7 billion. (laughter)

All right. All right. So you could use the broker for that. All right. So last question --

No, no, no. We will have the broker and after the Market Maker has gone away, we'll have $2.7 billion of the Market Maker.

Got it. All right.

That is left behind, yes?

Yes, okay. I got it. Real quick. Last question then for the brokerage business, you guys are definitely getting momentum there, but I'm just curious as to why growth isn't even better. I know that's an unfair question to ask because you guys are growing faster than anybody else, but it just seems like your value proposition is so much stronger. I would think that you guys would be taking even more share than you really are. So as you talk to clients or prospective clients, what are the objections to moving more accounts or capital to your broker?

The objections are always the same. Some people do not believe the value proposition. Some people who manage money for others say their customers do not know Interactive Brokers and they are -- would be worried to be exposed to us, even though we explain to them that our credit is -- seems to be or at least seems to be valued higher than that of Goldman or Morgan Stanley. They say that some people say that they never heard of us. It's a slow push, but as you see, we are catching on. The growth is quickening, and I think that this, as I said, I think it's going to quicken even further. So our growth is [closing] up.

Thank you. Rich Repetto from Sandler O'Neill. One moment while we open Rich's line. Taking just a minute. There we go. Rich, your line is open.

Well, so the broker's setting all new records here. I guess there -- I'm assuming it's come from incrementally more from institutional; would that be correct? Any of these tools that you talked about last quarter, like the Money Manager Marketplace or anything else helping you with the record growth there, or the growth?

It's hard to tell what exactly that's helping, but as Chris said before, our value proposition is definitely better than anybody else's in this business and slowly, but surely, people begin to accept it.

Is it fair to say that it has come in incrementally more from the institutional side?

That is correct, yes. The institutional accounts are growing at a higher rate and money in institutional accounts is growing as a percentage of total money and commissions derived from institutional accounts are also growing higher than the overall commissions.

Have you grown the sales force at all, or anything or -- is it still just plainly the value, the product -- the value proposition rather than the --

The sales force has grown some, not a great deal. But maybe, we added -- we grew another 10%, so we added about three sales people in the course of the last year, so we are up around 33, if I am correct.

Okay. My last question, Thomas, is so when you say the gradual transformation, can you -- we know you have the mechanism of the dividend, and I fully understand it. I respect the idea that this thing did earn the $1.2 billion not too long ago. The gradual mechanism, the gradual process that you're talking about, is it the same process as that we are aware of, where the dividend eats into the capital, or is there something else that you have in mind?

The dividend eats into the capital, all other things being equal. It's -- we could have another special dividend, I'm not saying that I'm thinking about it, but the -- it would be a possibility and I'm not planning it. So yes, if we completely stop the Market Making business, which I don't think we'll do, at least not in the near future, but if we did, then we would pay a [big] special dividend.

And then just the capital at the Market Maker, the $2.73, I think it was, or seven-something, how did -- Paul, how did that change quarter-to-quarter?

Well, in the end of the year, we paid about $400 million out and then it didn't change much over the quarter other than the fact that we paid the regular, about $40 million in the regular quarterly dividend and lost a little bit of money.

Got it. Okay. So very last -- I promise this is the last one, Thomas, is that the -- when the timeframe when you say gradual. And, again, respecting the profitability prior to this unit, so is this something that's a year or two-year process, or am I thinking about correctly in that -- or what timeframe is gradual to you?

Well, it all depends on what is going to happen in the next quarter and the next quarter, and the next quarter. We remain flexible and see how it goes. We are not masochists. If it really doesn't work at all, then we'll have to think about shutting it down. But I don't think the chances are that, that will happen.

Understood. That's all I have. Thank you.

Thank you. Chris Allen from Evercore.

Excuse me. Just following up on that, and Thomas, your statements that this may not happen and it could reawaken, are you thinking about this, somewhat like the cycle that we saw post the financial crisis when new capital came in, volatility came over, and had to be flushed out and people went out -- pulled out of the Market Making businesses? Are these the sign posts that you're thinking about moving forward?

No. It -- what I'm thinking about is that there are a bunch of us in this business and nobody is making a living. I think that we are a little bit better than probably most of our competitors. So I think that they will have to throw in the towel before we would and as long as a few of them leave, then the rest of us still have acceptable returns. Of course, if the return goes very high, then people will come back, but I think that it's a business where we should be able to make about 10% pre-tax return and that would be sufficient for us to stay in the business.

Got it. In terms of -- one of the ways thinking about this, the capital and the Market Making business, if you had a chance to bolster the brokerage business and utilize that capital, or would you -- within the Market Making business, would you consider that to maybe accelerate some of the shift?

I was considering, but it's hard for me to imagine what big acquisition we could make that would bolster our brokerage business, because most other brokers' businesses are very different than ours.

Got it. All right. Thanks a lot, guys.

Thank you. Mac Sykes from Gabelli & Company. Mac, please go ahead.

Thomas, I have certainly seen a little bit of volatility in the commodities arena recently. I was wondering if you could give us some of your wisdom about what may be driving that volatility? Secondarily, are you seeing any particular stress with some of your commodities-focused traders? And then if there is fallout from this downdraft, what might be some of those negatives?

Well, I do not know. I've accepted the same comment that you do, so I don't have anything special to say as to what would cause it, except that I have -- I started my business career in the growth business and always saw that growth has no intrinsic value. So it could grow to $1, I don't know if it could grow to $1 million [an ounce]. I don't know. As to the impact of these last few days on customers, it hasn't been good. Customers have lost a lot of money, our customers have, and I assume everybody else's has.

We have taken some very small losses on certain accounts whose -- who are not, who didn't have sufficient funds in the account to make up for the losses, but of course, as you know, we have automated close-outs when the markets are open. So we have liquidated many accounts and as I say, our losses there -- actually, in the automated are in the $100,000 range but I assume that other brokers who have -- who do not have automated close-out policies must have taken much more substantial losses.

So we basically have two fallouts from this. One is that the -- many of our customers have lost a substantial amount and that our customer deposits have diminished by the losses. But secondly, our competitors, brokers, who are less automated than we are, maybe have suffered more and are therefore less likely to compete with us as vehemently as they otherwise would.

Thank you. I've asked this before, but I'm going to try again. You continue the actual [cue] well -- certainly on the brokerage, you've highlighted that with [defense] and visibility on the interest revenue. Given the trajectory of the business and the visibility and the firm's discount to intrinsic value, wouldn't it make sense now to use cash flow to shrink the cap despite the slight premium to book that you've talked about in the past?

I don't understand what you mean. Use cash flow to shrink the capitalization?

Right, to decrease share repurchases or --

You see that we cannot do that because of our tax circumstance that we are in. And we have very small [float] out there. We only have 4% of the Company's floatings, so if we put back half of it, it would be -- it doesn't make much sense.

Then my last question is on -- how much is Market Making profitability affect brokerage? In other words, assuming that Market Making did cease operations, what would be the impacts on brokerage?

Well, as you know, we have systems costs, exchange connections, back office functions that are shared between the two segments, so obviously, the expenses on the brokerage side would go up and the Market Making activity would go down. So that's one reason why one would go about this in that slow manner.

Is there any way to quantify that in terms of the margin with the two, just looking at the last quarter?

Modify what? Quantify. Quantify. We know where we are and what the expenses are in each segment and they are roughly 60% brokerage and 40% Market Making.

Thank you, sir. Sean Brown from Teton Capital. Sean, your line is now open.

Congratulations on the great brokerage performance. I just got a quick question on the non-brokerage equity, or the Market Maker equities, as you guys referred to it, returns on that, low and declining. So what do we need to see to accelerate the process of winding down or repatriating some of the capital? I know this is a sensitive topic, but is it X number of quarters or years of low pre-tax returns and low spreads? I know that it could always come back at some point, but we're -- where do we draw the line in terms of accelerating the process versus going at the current pace? Thanks a lot.

Well, I think this is the third or fourth time I got this question in the last half an hour. I cannot say anything more than to repeat what I said before. I cannot see into the future. You are telling me, okay, so what would we do if the next quarter, the return would be in low single digits and then the following quarter in low single digits and three quarters from now, low single digits? Yes, as long as the returns are in the low single digits, we will try to work on transferring more and more of our resources and expenses into the brokerage side.

All right --

If we have a fantastic quarter, that will slow the process. So you should root for bad quarters in my case. (laughter)

All right. Is there any maximum pace where you would say, we don't want to load up brokerage with expenses too quickly?

No, this is, I said, a secondary consideration. No, it's not -- that's not a serious issue. It's -- even if it were so that everybody would be better off closing down the Market Making, we would just close it down. But we do not think that, I keep repeating. We believe that although it will never return to those high-flying days that we used to have, we do believe that there is a very good chance that we will be able to enjoy (inaudible) pre-tax return on our Market Making capital in the coming years.

Got it. Well, you definitely know that business better than us, Thomas. So thanks for being a good steward of the businesses. Thanks a lot, guys.

Thank you.

Thank you. Niamh Alexander from KBW.

I just have one at this point. If you could -- Thomas, what can you share with us about the gold in the brokerage business? You've seen outsized activity, maybe in FX, it seems like you're really sending the message that the marketing to the institution now is really getting some traction and bringing up the commissions, as well as the activity. But what about international? What can you share in terms of what's coming from the international? Like some -- any particular markets that are stronger than the others where you might see more growth or more of a ramp-up from here?

Yes, more than 50% of our new accounts are outside of the United States and the fastest growing region for both for new account growth and customer deposits and commission revenues is Asia. Asia is growing faster. Europe is holding steady. And America, including Canada and South America, are shrinking as far as the relative percentage of the [aiding port] in the total mix.

That's helpful. Thanks, Thomas. Then just lastly, on that, what's the mix of, say, retail versus institutional? So in the Asia market, which is the biggest growth markets here right now, is that mostly institutional, or is it more retail?

I'm sorry. We haven't analyzed it carefully enough. So I cannot tell you.

Okay. Thanks for taking my questions.

Thank you. [Sumit Malhotra], Macquarie. My apologies. Sumit, your line is now open.

I had a question regarding employee compensation which came in below my expectations and it seems like the lowest level since, like, 2010. I was expecting a slight increase based on maybe bonus payments and just increasing the payroll tax. Is this a new normal run rate that we should be expecting going forward, assuming the Market Maker continues to remain sluggish?

We have adopted a new accrual policy to bring up bonus expense in the Market Making unit in line with this profitability. So if it remains sluggish, then the accruals for bonus expense will remain low.

Got it. Thank you.

Thank you. Justin Hughes from Philadelphia Financial. Justin, please go ahead.

I just wanted to ask, how do you arrive at the 10% targeted return in the Market Maker? You've even said 10% pre-tax because for us public investors that actually have to pay tax, it's only 6% after-tax return and that's just not adequate return for the risk and the volatility that we see and that's not even what we're targeting now. You're saying someday maybe we can get back to a 6% after-tax return on equity. That's just not enough for us public investors.

I understand. That's why public investors value the Market Maker at book.

But we're valuing it at book because it's not a good use of capital.

That's right.

I know people are asking -- some people are saying, just shut it down, but why not just increase your payout out of that business and return capital rather than just having to say we're in it or we're not in it, maybe just increase the payout ratio to more like 15% or 20%? Maybe if you rightsize the capital, it's still an attractive business.

What you're telling me to do it faster? I hear you.

Okay, but don't you think it would be fair to weigh public investors' return requirements over time, not just this quarter or next quarter or the quarter after that, but over time to target higher returns for public shareholders?

I'm going to agree with you that our -- if the Market Maker were making 10% and the broker were making 25%, then the total mix would be not acceptable.

Okay. Thanks.

Okay, thank you. I'm showing no further questions in the queue. I would like to turn the conference back to your host for any concluding remarks.

Thanks, everyone, for participating today. Just a reminder, this call can be available for replay on our website shortly. Thanks again for your time, and have a great evening.

Ladies and gentlemen, this does conclude your conference. You may now disconnect, and have a great day.