Interactive Brokers Group, Inc. (IBKR)

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Interactive Brokers Group, Inc. (IBKR)

Q3 2012 Results Earnings Call

October 16, 2012 4:30 PM ET


Deborah Liston - Director, Investor Relations

Thomas Peterffy - Chairman and CEO

Paul Brody - Group CFO


Niamh Alexander - KBW

Chris Harris - Wells Fargo

Matthew Heinz - Stifel Nicolaus

Ed Ditmire - Macquarie

Mac Sykes - Gabelli

Chris Allen - Evercore

Quincy Lee - Teton

Rich Repetto - Sandler O’Neill

Rob Rutschow - CLSA



Good day, everyone. And welcome to the Interactive Brokers Third Quarter 2012 Earnings Results Conference Call. This call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Ms. Deborah Liston, Director of Investor Relations. Please go ahead.

Deborah Liston

Thank you, Operator, and welcome, everyone. Hopefully by now you’ve seen our third quarter press release, which was released today after 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. They’ll 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 the company’s control.

Our actual results and financial condition may differ possibly materially from what’s indicated in these forward-looking statements. We asked that you also refer to disclaimers in our press release. You should also review description of risk factors contained in our financial reports filed with the SEC.

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

Thomas Peterffy

Good evening. As you can see from our latest results, the third quarter operating environment was not nearly as chaotic as it was during the same period last year when we saw a surge in trading volume fueled by rising volatility caused by the U.S. debt downgrade and concerns intensifying over the European debt crisis.

By start contract the end of this summer we did not have any dramatic market moving headlines and volatility level dropped to new lows. While we had a slight bump in volatility at the end of July around the fed stimulus measures, the first three weeks of August were very difficult for Market Making. Volatilities collapsed to extreme lows which negatively affected our profit as we have long volatility.

Trading volumes decreased during this time as well, due in part to seasonal trend, we continue to see subdue trading volumes on exchanges across major asset classes which weigh on the results of both our business segments.

Balancing a tepid trading environment, this quarter our results are benefitted by a staggering of thorough major currencies against the U.S. dollar. By now you are familiar with our strategy basing our equity in GLOBALs, our self-defined basket of currencies in order to minimize our currency risk given that we are a global company trading products around the world in multiple currencies and reporting our results in U.S. dollars.

While our currency hedging strategy can create large things in profit from quarter-to-quarter, we are operating in very uncertain times and the global economic environment is very unstable.

By diversifying our capital, we significantly reduce our exposure to any one currency. Year-to-date, this things have netted small translation gain of about $10 million on a comprehensive basis.

This quarter the value of the GLOBALs as expect the U.S. rose 1.3%, which boosted our comprehensive earnings by about $66 million or roughly $0.11 per share. I will explain how this affected our profit when I’ll discuss Market Making results.

In fact currency movements, our overall results are influenced by market conditions effecting trading volumes, competition and regulatory environment. The debate over high frequency trading and other market structure issues continues.

High profile electronic glitches like the August 3rd Fiasco Knight Capital are contributing to regulator sense of urgency to understand the real effect, algorithmic trading and high frequency trading are having on the markets and investors something a wide review of market structure.

High-speed trading now focus more speed than safety and another growing volume of trades are executed in large pools or internalization engines. In the meantime public customer orders are making up a smaller and smaller portion of the overall volumes.

I continue to voice my concerns about the state of our markets and recommend safeguards against run away crisis and I’m hopeful that regulators will enact changes to reverse these trends.

While the environment remains challenging for our business and others in our industry, we continue to focus on the long-term and things that we can control that is continuing to deliver high value to our brokerage customers in form of sophisticated technology and trading tools, while keeping their trading and financing significantly lower than our competitors.

These differentiators are driving market leading growth in accounts and customer equity. Customer accounts have grown to $205,000, an annual increase of 11% and customer equity has reached $31.5 billion, 35% higher than a year ago.

We remained the largest electronic broker by number of total revenue trades, which totaled $390,000 in the third quarter. Which is attributable to our highly sophisticated customer base executes on average 30 to 60 times more trade account per year than the average customer the other large e-brokers.

The decrease we saw in DARTs this period reflected the industry-wide slowdown in volumes, I mentioned earlier. But I would like to point out that our customer trading volumes have fallen less than those of our competitors or the industry overall in the past year.

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