Interactive Brokers Group Inc (IBKR) 2015 Q1 法說會逐字稿

Good day, everyone, and welcome to the Interactive Brokers first-quarter 2015 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 Bill Cavagnaro, Investor Relations.

Please go ahead.

Thank you, operator.

Welcome, everyone.

Hopefully by now you've seen our first-quarter earnings release, which was released today after the market closed, and which is also available on our website.

Our speakers today are Thomas Peterffy, our Chairman and CEO; and Paul Brody, our Group CFO.

We'll start the call with prepared remarks about the quarter, and then we'll take questions.

Today's call may include forward-looking statements which represent the Company's belief regarding future events, and by their nature, are not certain and outside the Company's control.

Our actual results and financial condition may differ, possibly materially, from what's indicated in the forward-looking statements.

We ask that you refer to disclaimers in our press release.

You should also review a description of risk factors contained in our financial report filed with the SEC.

And now I'd like to turn the call over to Thomas Peterffy.

Good afternoon, everyone.

Thank you for joining our first-quarter 2015 earnings call.

Our first quarter was an eventful period, full of good and bad news.

On January 15, around 4 AM New York Time, the Swiss National Bank announced the immediate removal of the fact at which it was willing to sell an unlimited amount of Swiss francs against the euro.

In the following second, all sizable offers of Swiss franc against any other currency were withdrawn from the markets, until they were re-established later with the currency fluctuating wildly, 15% to 30% higher.

We were in the unenviable position that brokers have found is a very large price move usually find themselves in, of having customers on both sides of this event, and having to pay the winners, while being unable to collect all the losses from the losers.

The bulk of our losing customers' positions were in futures contracts listed on the CME, and some in the cash markets.

As we announced at the time, we estimated our difficult-to-collect-customer losses of around $120 million.

This loss turns out to be closer to $121 million, and that is the amount that we have written down for the quarter.

We are rigorously pursuing our claims, but sizable collections, if any, will likely come a long time from now, and at a high legal cost.

Aside from the violent moves in the Swiss franc, other currencies also traded in very volatile markets.

By the end of the quarter, the dollar ended at historic highs against many of them.

As you know, being a global Company, we service customers all over the world, loan them money and execute, settle and clear trades for them in many different currencies.

Throughout the day, we keep our assets and liabilities hedged to the GLOBAL, which is an international basket of currencies.

As the value of the GLOBAL declines relative to the US dollar, our nightmare diminishes in dollar terms, and that is reported as a loss in our earnings.

This loss for the past quarter amounted to $197 million.

On the brighter side, in the past quarter, we saw not only new highs in a number of customer accounts, deposits, margin loans and credits, but the rate of increasing new accounts and deposits has accelerated from the previous quarter and the previous year.

Our business is growing faster now than it did in the past several years, and I believe that it will continue to grow faster.

Why?

Well, let's look at the following developments during the quarter.

Scottrade chose to use our platform to service their more sophisticated option trading customers.

These are customers who maintain a complex set of option positions and want to trade several different series on the same underlying in one order.

The broker realized that it is less expensive for them to use our platform than to develop and maintain their own.

We may obtain each of the customers' accounts separately in the customer's name, and they get the same technology as our [dealer] customers get.

Why don't I worry that the customers will come to us directly?

Because our commissions are based on volume, and we charge Scottrade as though all their customers came to us from one account.

This set-up allows them -- or for that matter, any of our introducing brokers -- to charge their customers the same lower rate we would charge them if they came to us directly, and yet keep the bulk of that commission for themselves.

And pay us less than it would cost them to maintain their own technology to run those accounts.

The broker also provides live customer assistance, as Scottrade does so well.

They may even charge a service premium that many customers are happy to pay.

This is a milestone event for us because it is the first big household name to decide to use our technology.

The fact that Scottrade chose us to provide this service is a vote of confidence in our platform that we are proud of.

We think it is an example that other brokers will follow, and that eventually will become the industry utility, providing exceptional technology to brokers and advisors at a very low cost, cheaper and better than they could do it themselves.

Quite coincidentally, JPMorgan recently decided to stop servicing their correspondent broker accounts, and asked them to transfer their business to a different prime broker or carrying broker, within the next 180 days.

These JPMorgan customers include many of the well-known mini-primes and other brokerage firms that do not clear our [customer] their customers pay themselves.

In response, other banks in the correspondence clearing business are raising their rates or [if they took] a higher minimum revenue requirement for account, or simply asking smaller clients to go elsewhere.

The small- and medium-sized brokers and hedge funds have clearly been underserved, and they are even more underserved now.

Needless to say, these are fantastic developments for us.

Even if our platform is largely automated, and is becoming even more automated as the days go by, our expenses associated with any additional accounts are so small that we are happy to service relatively small accounts at our variable rates, as long as they are at least minimally active.

Our primary objective is to keep growing our customer base, and it is to that end that we continue to emphasize the technological development of our platform.

However, we find that being by far the least expensive broker, providing much better executions and much better financing rates, displaying our optimal and [short volume] inventory with applicable rates.

Offering the most globally diversified product base, coupled with the ability to seamlessly move with different currencies, may not be enough to maintain a 20% growth rate that we need to have.

And our stocks are more than that.

We need to offer more ease-of-use, navigating through the complexity that inevitably comes with our feature-rich platform.

We need to offer risk analytics and [votty] scenarios in more dimensions.

We need to offer more online research tools and services with interacting research and back-testing capability.

Our clients need more choices of advisors and hedge funds to invest with, and our advisors and hedge funds clients need a greater pool of investors to appeal to.

We need to offer more choices of strategies, methodologies and ideas to our individual investors, registered advisors and hedge fund clients.

This is all evolving within our Interactive Brokers investor marketplace.

I should also mention here that I am pleased to announce that just yesterday we signed an agreement to purchase Covestor, a unique global advisor.

Covestor recruits registered financial advisers, vests them, analyzes their investment records, and groups them by their risk profile.

Similarly, retail investors who are interested in having their individual accounts globally traded are grouped by their risk return preferences, and members of matching groups are electronically introduced to each other.

Retail advisors can assign their accounts to be traded -- sorry -- retail investors can assign their accounts to be traded by one or more advisors, who in turn charge their signers a fee with a limit, and Covestor shares in receipts.

Now compare this to investing with a registered investment advisor or a hedge fund.

The customer investing with Covestor maintains his or her individual account in his or her name, with Interactive Brokers.

And we'll pay a maximum of 1.5% management fee, plus up to 12% performance fee, of which 0.25% of the AUM and 2% of the performance will go to Covestor.

It is clearly better and safer deal for the customer.

The manager, on the other hand, who has just trade his own account, and we will never have to worry about the market and the customer contact bookkeeping [in that new space].

Up to 1.25% of a AUM and 10% of the performance fee will be automatically paid into the manager's account periodically, Covestor technology will take care of everything else.

For example, assume that the manager is running a $1 million account, has built a satisfactory track record on the Interactive Brokers platform, and about 200 Interactive Brokers customers assigned a total of $50 million of their account activity to be traded by the manager.

When the manager transmits an order to buy 1,000 shares of Microsoft for his account, for his own account, Covestor will send the buyer there for 51,000 shares of Microsoft to Interactive Brokers.

[IBB] will buy their stock and Covestor will allocate the shares, 1,000 to the manager and the remaining 50,000 shares among the 200 accounts, all at the same average price.

Assuming that the manager chose the maximum allowed rate of compensation and he produced a return of 10% for the year, he or she will receive 0.25% management fee of $625,000.

And on the $50 million AUM and $500,000 of performance fee, our Covestor will receive $125,000 and $100,000, respectively.

Being that Covestor has already been operating on the Interactive Brokers platform, integration is not going to be very difficult.

If you are mostly convinced of modifying some of the charges and practices, and marketing the service to our account holders, and marketing the Interactive Brokers platform by offering along with many of our features, now also Covestor capabilities.

We do not expect this acquisition to be immediately accretive to earnings, but we hope to build this over time as existing component of our brokerage services.

But Covestor is just one item on a list of things that we have been working on, and will continue to be working on in the coming quarters.

We have released several new features, and we will continue to do so as we go along, including a new website and a new mobile content application later this week.

And a new desktop application soon after that.

The versatility of investment tools and the markets with the connections any of our individual or institutional clients will be able to make on our platform a year from now in order to maximize their return, will take your breath away.

It's always the same idea.

We must build technology to enable our customers to generate significantly better returns than our competitors' customers can.

Now to just briefly touch upon the numbers, our pre-tax losses for the quarter were $111 million.

The free franc event cost $121 million, and a decline in the GLOBAL reduced income by $187 million.

Adjusting for these two events, our profits for the first quarter would have been $197 million.

The same quarter in 2014, adjusted for GLOBAL, showed $196 million, yielding a modest improvement of 0.5% for the year-to-year comparison.

So why am I still happy with this quarter, when the year-to-year increase is negligible?

I'm happy because our Brokerage income was $34 million higher than a year ago, but that was counterbalanced by Market Making being $33 million lower.

In other words, adjusting for the Swiss franc year-over-year, our Brokerage income grew by 27%.

Now I'll turn the call over to our CFO, Paul Brody, who will go deeper into these numbers.

Thank you, Thomas.

And welcome, everyone, to the call.

Thanks for joining.

As usual, I'll review the summary results, and then give segment highlights before we take questions.

Results of the first quarter were driven by an outstanding performance in Brokerage, tempered by the setback on the Swiss franc event and by significant headwinds from the currency movements.

Core Brokerage results benefited from higher commission revenue, and especially net interest income.

And Market Making results were in line with the average quarter for 2014.

As we've stated before, financial statements include the GAAP accounting presentation known as comprehensive income.

Which 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 are known as other comprehensive income or OCI.

And these are reported in the statement of comprehensive income.

US dollar strengthened relative to all major currencies except the Swiss franc during the first quarter of 2015.

And as a result, the currency basket in which we keep our equity, which we call the GLOBAL, weakened against US dollar by an unusually large 3.8%.

OCI is a component of the total GLOBAL effect, and the rest is contained in other income.

We estimate the total negative effect from the GLOBAL on our reported earnings per share for the quarter to be $0.36, with $0.02 reported as OCI and $0.34 as other income.

In addition, we estimate the negative affect from the Swiss franc event on reported earnings per share for the quarter to be $0.19.

Excluding the effects from both the GLOBAL and the Swiss franc event, diluted earnings per share for the quarter is estimated at $0.31.

Before I begin on the operating results, I'd like to provide some updates on our risk management efforts in light of the Swiss franc event.

The actions of the Swiss National Bank in January were unprecedented.

We did not adequately guard against the risk of such an unlikely event.

Once the SNB made the announcement that they would no longer support the exchange rate pegged with the euro, the market reaction was too swift to liquidate customer futures and spot positions before large losses were incurred.

While other market participants were crippled by losses from this event, our losses of $121 million were less than 2.5% of our equity capital, and our operations were unaffected.

Nevertheless, the event prompted us to further tighten our risk management practices.

In particular, we formed a committee of senior executives to focus on event-driven risks.

We produced models for potentially loss-producing events that might stem from economic, political, regulatory or other actions.

We have also prioritized our efforts to build more risk factors, such as market liquidity and foreign currency exposure, into our margin software.

As a result, we have been able to reduce our aggregate risk to customers in extreme market move scenarios.

Overall operating metrics for the latest quarter were mixed across the product types versus the year-ago quarter, though brokerage customer metrics continued upward.

Average overall daily trade volume was 1.28 million trades per day, up 10% from the first quarter of 2014.

Electronic Brokerage metrics continued to show solid increases in the number of customer accounts and customer equity.

Total and cleared customer DARTs were up 11% and 12%, respectively, from the year-ago quarter, and up 5% each from the prior quarter.

Orders from cleared customers who clear and carry their positions and then cash with us and contribute more revenue, accounted for 91% of total DARTs, holding steady with recent quarters.

Market Making trade volume was down 2% from the prior-year quarter.

And other metrics were mixed as volatility levels and the actual-to-implied volatility ratio were up this quarter.

Net revenues were $172 million the first quarter, down 52% from the year-ago quarter.

Trading gains were $62 million for the quarter, down 41%.

Commissions and execution fees were at $149 million, up 9%.

Net interest income was $93 million, up 27% from the first quarter of 2014.

And Brokerage produced $89 million, and Market Making $3 million, with the remainder in Corporate.

Other income was a loss of $132 million, down from a gain of $40 million in the year-ago quarter, and this was driven primarily by the currency translation losses, which are reported in the Corporate segment.

Non-interest expenses were $283 million, up 107% from the year-ago quarter.

Within the non-interest expense category, the largest impact came from the loss recorded on the Swiss franc event.

These unsecured receivables from customers are reflected in general and administrative expenses.

Execution and clearing expenses totaled $55 million, up 2% from the year-ago quarter.

Compensation expenses were $57 million, a 6% increase from the year-ago quarter.

At March 31, our total headcount was 962, an increase of 7% from the year-ago quarter, and little-changed from the prior year-end.

Within the operating segments, we continue to add staff in Brokerage and cut back in Market Making.

As a percentage of net revenues, execution and clearing expense accounted for 32%, and compensation expense accounted for 33%.

Our fixed expenses were 133% of net revenues, reflecting the Swiss franc-related customer loss.

Of course, all of these measures were inflated by the negative currency translation impact on net revenues.

Pre-tax income was a loss of $111 million, down from a gain of $218 million in the same quarter last year.

Comprehensive diluted earnings per share were a loss of $0.24 for the quarter, as compared to earnings of $0.35 for the first quarter of 2014.

And excluding OCI, diluted earnings per share on the net loss were a loss of $0.22 for the quarter, as compared to earnings of $0.34 for the same period in 2014.

Now, to get a better understanding of the progression of our business, it may be helpful to isolate the core operating results.

For the quarter, excluding special items -- that is, the currency effects and the Swiss franc-related customer losses -- our core results were as follows.

Net revenues were $341 million, up 2% from the year-ago quarter.

Non-interest expenses were $144 million, up 5% from the year-ago quarter.

Pre-tax income was $197 million, up 0.5% from the same quarter last year.

And of that, Brokerage accounted for 86% and Market Making accounted for 14% of the combined pre-tax income.

Overall, pre-tax profit margin was 58%, down from 59% in the year-ago quarter.

And diluted earnings per share were $0.31 for the quarter, even with $0.31 on the same basis for the first quarter of 2014.

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 regular and special dividends, Brokerage now accounts for about 80% of our combined balance sheet assets from the two segments.

From the year-ago quarter, cash and securities segregated for customers rose 7%, and secured margin lending to customers rose 22%, while positions in securities held by our market maker units were pared back by 17%.

According to our announced policy, regular quarterly dividends will continue to temper the capital employed in the Market Making segment.

In the first quarter, our Market Making earnings fell short of the amount needed to fund the dividend.

Our balance sheet remains highly liquid, with low leverage.

We actively manage our excess 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 that provides us with a buffer should we need immediately available funds for any reason.

At March 31, we maintained over $3 billion in excess regulatory capital in our broker dealer companies around the world, of which about 70% is in the Brokerage segment.

We continue to carry no long-term debt.

And our consolidated equity capital at March 31, 2015, was $5.04 billion, of which approximately $3.1 billion was held in Brokerage, $1.7 million in Market Making, and the remainder in the Corporate segment.

Turning now to the segment operating results.

These will be more fully detailed in the 10-Q, so I will highlight the noteworthy items, starting with Electronic Brokerage.

Customer trade volumes were mixed across product types.

Cleared customer contract and share volume was up 8% in options, up 16% in futures, and down 23% in stocks.

Much of the stock volume decrease came from trading in low-priced stocks.

And foreign exchange volume also increased from the year-ago quarter.

Customer accounts grew by 17% over the total as of March 31, 2014, and by 5% in the latest quarter.

Total customer DARTs reached a new record level of 648,000, up 11% from the year-ago quarter, and 5% from the fourth quarter of 2014.

Our cleared customer DARTs also reached a new record of 590,000, up 12% on the year-ago quarter, and 5% from the prior quarter.

The average number of DARTs per account on an annualized basis was 500 and -- down 5% from the 2014 period, and unchanged sequentially.

Commission revenue rose on a product mix that featured smaller average trade sizes in stocks, and larger in options and futures.

This resulted in an overall average cleared commission per DART of $4.05 for the quarter, lower by 2% from the year-ago quarter, and 5% sequentially.

Large volume executed in low-priced stocks on which our commission is capped can skew these numbers somewhat.

And also note that the commissions include exchange fees, which can vary widely.

Customer equity grew to $61.2 billion, up 25% from March 31, 2014, and up 8% sequentially, well-outpacing the S&P 500 Index, which rose 10% over the past year, and was relatively unchanged over the latest quarter.

Sources of growth continues to be a steady inflow of new accounts, and customer assets, and to some extent, customer profit.

Margin debits continued to build steadily, increasing 22% over the year-ago quarter.

Customer credit balances also continued to grow progressively, increasing 19% over the year-ago quarter, though spread compression persists in restraining net interest income.

Higher trade volumes resulted in top-line revenue from commissions and execution fees of $149 million, an increase of 9% from the year-ago quarter, though down 4% sequentially.

These revenues are spread mainly across options, futures, stocks and foreign exchange.

Net interest income rose to $89 million, up 35% from the first quarter of 2014, and down 2% sequentially.

Low benchmark interest rates, which continued to compress the spreads earned by our brokerage units, generally have been offset by steadily higher customer credit balances.

And our aggressive lending rates continue to boost 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.

And we continue to improve our securities lending utilization to capture more revenue from lending hard-to-borrow stocks.

Net interest income as a percentage of net revenue was 31%, as our brokerage revenues are maintaining diversification between commissions and net interest income.

With the growing customer asset base, we believe we are well-positioned to benefit from a rise in interest rates.

Based on current balances, we estimate that a general rise in overnight interest rates of 25 basis points would produce an additional $45 million in net interest income annually.

Further increases in rates would produce smaller gains, because the interest we pay to our customers is pegged to benchmark rates, less a narrow spread.

Execution and clearing fees expenses increased to $39 million for the quarter, up 5% from the year-ago quarter, reflecting higher futures trading volumes, and they were unchanged sequentially.

Fixed expenses increased to $200 million, up 285% on the year-ago quarter, due to the Swiss franc net losses.

Pre-tax income from Electronic Brokerage was $51 million for the first quarter, down 62% on the year-ago quarter, and 69% sequentially.

And as I did with the overall numbers, for the quarter, excluding the Swiss franc customer losses, our core brokerage results were as follows.

Net revenues were $272 million, up 21% from the year-ago quarter.

Non-interest expenses were $100 million, up 12% from the year-ago quarter.

Pre-tax income was a record $172 million, up 27% from the same quarter last year.

And the pre-tax profit margin was 63%, up from 60% in the year-ago quarter.

Turning now to Market Making.

Market Making trade volume was down 2% from the prior-year quarter.

Contract volumes were down 7% in options and 26% in futures, while stock share volume was unchanged.

Trading gains from Market Making for the first quarter of 2015 were $62 million, down 41% from the year-ago quarter.

Pre-tax income from Market Making was $27 million for the quarter, down 59% from the year-ago quarter.

Execution and clearing fees expenses fell to $16 million for the quarter, down 6% on the year-ago quarter, driven by lower trading volumes in options and futures.

Fixed expenses were $24 million, down 14% from the year-ago quarter, primarily due to employee compensation.

We continue our aggressive expense management as we monitor the performance of the Market Making business.

Taking a look at the Corporate segment, the earnings reported in the Corporate segment reflect the effects of our currency diversification strategy.

Our overall equity as measured in US dollars was decreased by the strengthening of the US dollar against other major currencies.

More specifically, we estimate the overall loss from our strategy of carrying our equity in proportion to the basket of currencies we call the GLOBAL to be about $197 million for the quarter.

Because $10 million of this loss is reported as other comprehensive income, this leaves a loss of $187 million to be included in reported earnings.

This loss is the primary component of other income in the Corporate segment.

Now I'll turn the call back over to our moderator, and we will take some questions.

(Operator Instructions)

Chris Harris, Wells Fargo.

A few questions on the Scottrade announcement.

How many accounts, Thomas, are we talking about, now, that are part of this arrangement?

And you made a comment where you expect other brokers potentially to migrate over.

Wondering if you could elaborate on that a little bit.

Are you talking about other e-brokers, or are you talking about different brokerage firms that that?

In the first quarter, the Scottrade on-boarding was only 1,014 accounts.

The arrangement started, I think, around the 1st of March.

And in the course of that month, we onboarded 1014 accounts, but this thing is continuing.

As far as our expectation, our expectation is that in the fullness of time, there'll be very few smaller brokerage firms around, where I even would include large electronic brokerage firms like E-Trade.

I mean -- sorry.

Like Scottrade.

Now, are there any other similar firms we're currently in conversation with?

No.

But I think that eventually there will be.

And we are in conversations with many not-so-large, smaller brokerage firms, on the same idea.

Okay, very good.

My follow-up is on the Covestor transaction.

I'm sure I might get this wrong, so definitely please correct me.

But from what I understand, it sounds like Covestor charges 1.5% of management fee.

And that seems kind of high, relative to the other robo advisers in this space.

So wondering what it is that Covestor does that's specifically differentiated, where they can potentially capture the higher fee?

In addition to performance fees.

We have a higher caliber of managers.

And to the extent we do not, it's up to the manager how much he charges.

I'm saying that is the top, the 1.5% is the top that the manager is allowed to charge.

Okay.

It was coming and saying -- okay, I'll charge 1/4 of 1%.

And if you otherwise qualify, we will take you on.

Okay, understood.

Thanks.

Thank you.

Rich Repetto, Sandler O'Neill.

The first question is a clean-up on the accounting, and I guess it's for Paul.

On the e-brokerage results, you made an adjustment to the revenue side as well.

I'm just trying to -- when you try to do the -- stripping out the FX and the loss, I'm just trying to see, what was the net revenue adjustment on the e-brokerage results?

The net impact is what we talked about, the $121 million net loss.

And that was spread across actual, somewhat higher customer losses.

And the fact that we took immediate action taking over positions, and then liquidating them in a as-optimal way as possible, and we earned money back on that, and it ends up in two line items.

Because the street customer losses are on the expense side, and then the liquidation gains end up in other income.

But the net of the thing was $121 million.

I got that.

And then on the other income, if you added back the FX-- if you took the full -- I think it was $187 million-- added back that to other income, you'd come up with a very high number.

Is that the proper adjustment, that all the FX impact went to other income?

Yes.

As adjusted, if we took the whole $187 million impact, it would all go to other income, yes.

So if you did that, then the $187 million minus $132 million -- there was $55 million of other income, absent the FX impact?

It could have been along those lines.

In other words, the comparative quarter was $40 million.

It probably wasn't far off from that.

Okay.

And last -- and this is for Thomas.

An automated market maker just went public.

And the capital is much more limited capital.

And the question is, how did you look at -- if you did look at it, Thomas -- that model with limited capital?

When your market maker -- I know it's coming down, but still has -- I believe it's up in the -- close to $2 billion, $1.9 billion or $1.8 billion or whatever it is now.

If you quote the market maker, they are a different market maker than we are.

Namely, they go home flat.

We, on the other hand, carry positions.

So our turnover is basically -- our market making turnover is really once every five days.

Their turnover is a matter of hours.

So if they end up buying stock, buying a specific stock all day long, they eventually turn around and sell it, even if the stock never picks up.

We wouldn't do that.

We provide longer-term liquidity than virtu provides.

And we almost never sell into a folding market or buy into a rising market, which is not what they do.

Okay.

And then can I sneak one more in?

Did you disclose how much you paid for Covestor?

I would rather not.

Okay, all right.

Thank you.

Niamh Alexander, KBW.

The Scottrade deal, if I could just clarify, is it specifically in option trades that their customers are going to be using IBKR, or their advisers that they work with, for the options overlay?

So help me understand the potential there.

If they've moved over 1,000 accounts, will those customers know they're trading with IBKR?

Or will they have the option to trade equities as well?

Or is there primarily just only the options capability that they'll be using IBKR for?

It's sophisticated options traders' accounts that have been moved over to us completely.

Those accounts are with us, and they do everything in that account.

What they needed was the ability to execute complex trades.

And instead of building the system themselves, they rather chose us to do this for them.

But since these accounts also need to have stock often, and stock is often a part of the trade, the entire account is with us.

Now, it's 1,000 accounts that came over so far, but there are about another several thousand still in the queue.

Also in the future, these kinds of accounts for sophisticated option traders will be open with us when they come to Scottrade to open a new account.

But do you pay Scottrade some kind of a referral fee?

Or how does that work?

Will the commissions be low?

Are you paying them some kind of a net commission for --

No, we're not paying them anything.

They are paying us.

So say if you -- for the first 10,000 option contracts, if you come to us directly, we charge you $0.75 a contract.

But if you trade over, I think, 100,000 contracts, we charge you $0.15 a contract.

So all the Scottrade accounts are looked at as though they were one account, so they get the benefit of these volume tiers.

Okay, so hold on.

Everything that comes over from Scottrade is treated as an omnibus, or is it like a group account?

So it's that lower fee.

It's a fully disclosed account, but for purposes of charging commission, we use them all as though they were an omnibus account.

Okay, understood.

That's helpful.

Thank you for extending on that.

And then, Paul, if I could, just quickly on the -- I'm trying to extract the Swiss, because that was such an unusual item.

Is it possible to separate the tax effect of that versus a normalized tax rate?

Because we saw very low tax rates around the quarter.

Difficult in a short few sentences, but it's -- I think, suffice to say that the customer losses all occurred in our US broker dealer Interactive Brokers LLC.

Therefore, they would be subject ultimately to US rates, and not to anything complicated, because they're not in foreign markets.

Okay, so for to normalize, we should think about that way.

Okay, that's helpful, thanks.

And then lastly, if I could, just going back to -- Thomas, again, I if I could -- on the ownership of the business, you've given us some good information.

The extra disclosure on the non-controlling versus the public, just more precise information.

The stock is back over to IPO price, which was a long time ago.

Just want to get an update on your thoughts on owning the stock here, or maybe starting to sell down some of your shares in the future, and then maybe the excess capital.

I think I said the last earnings call that I'm thinking about selling small amounts, like 1 million shares of [Clorice] dollar are up.

So by this time, the stock is up by $350.

I may be out.

Have you set up a 10b-5 or something like that?

Not yet.

But that's planned?

Haven't reached that level yet.

Okay, that's helpful, thank you.

And then, just the -- that's potentially just to sell the shares, but what about capital in the business?

Still want to keep all this capital in the business?

That's right.

All right, I'll move on.

Thanks.

(Operator Instructions)

Rob Koehn, Ivy Lane Capital.

I am going through the math on brokerage earnings and the trajectory, and trying to strip out these non-recurring items.

At the current growth rate, it looks like mathematically you can get to $0.25 billion of quarterly pre-tax earnings in the broker sometime in 2016, which would be like $1 billion annualized.

Is that a reasonable conclusion, looking at the growth track?

It's reasonable if you look at the end of 2016, yes.

Could you repeat that?

If you look at the -- it's reasonable if you look at the --

The last quarter of 2016.

That's kind of what I'm looking at.

Late Q3, Q4 of 2016.

All right.

And then going back to the Scottrade business, how does that come about, to the extent you're able to discuss?

Do you have a team of people that goes out and calls on another brokers for introducing broker business?

Or do they just come to you and say -- can we talk about this?

Well, we have a team of service people around the globe, roughly 35 of them.

And their task is to approach other brokers, hedge funds and investment advisers and prop traders.

These are the four classes of clientele that we are marketing to.

And we also -- as there is more and more publicity about the various things we do, they often receive calls.

The conversation with one of our sales force at Scottrade has been going on for, I think, about a year and a half, before they actually decided on doing this.

Okay.

There was an article actually in January in Investor's Business Daily that said they have over 3 million total accounts.

Now I'm sure a lot of those are small.

But it seems like the active trader group is an important group to them, and probably some of their most profitable customers.

So it's a little surprising.

What's the math from their perspective, do you think?

You see the next idea that we're thinking about trying to get them into, is offering futures, because they do not offer futures trading right now.

As we transfer all the [optery offense or though] the options accounts, maybe we'll think about talking to them about futures and currencies.

The 3 million accounts mostly are small stock traders, and they are just as well being where they are.

Okay.

And then last question.

On the new account growth, the investor presentation hasn't been updated in a couple months.

So in what classification should you see in that February and March were both records for the Company, in terms of new account growth?

So is that coming from which groups out of the page 16 of the presentation?

Introducing brokers, hedge funds, prop trading, financial advisers and individual investors.

I don't think the mix has changed that quickly.

It's probably the same mix going forward.

Okay.

Last question.

In a couple of years or a few years, is it possible that a lot of these other smaller prime brokers and electronic brokers just become front-end sales organizations and white label?

Our task is to make our platform good enough for them to say to themselves that we can offer a better service if we offer Interactive Brokers' platform, and we just do the hand-holding.

That's where we would like to get to.

Is that because the technology is such a high proportion of their cost structure?

And it's difficult to maintain.

It's not only the technology also the back office and the regulations, they are getting more and more complex.

So I don't think that a smaller outfits can afford the expense of keeping it up-to-date.

Okay, thanks very much.

Thank you.

Patrick O'Brien, Teton Capital.

I may be asking you to repeat yourself slightly, and it does look like the account growth accelerated in February and March.

Could you just talk about what the drivers for that were?

It's better technology, better sales, we are better known.

Two years ago, whenever we approached a potential client, they said -- Interactive Brokers, who is that?

We've never heard of them.

Now that's no longer the case.

The longer we have this, the better it will go, I think.

Okay.

You wouldn't call out Asia or more introducing brokers or anything else, particularly?

No.

Okay, thank you.

Thank you.

This does conclude the question-and-answer session of today's program.

I'd like to hand the program back to management for any further remarks.

Thank you, everyone, for participating today.

Just as a reminder, this call be available for replay on our website.

We will be posting a clean version of our transcript on our website tomorrow.

Thanks again for your time.

Thank you, ladies and gentlemen, for your participation in today's conference.

This does conclude the program.

You may now disconnect.

Good day.