Interactive Brokers Group Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ben Budish - Barclays Capital Inc. - Analyst : Hi, good afternoon and thanks for taking the questions. I was wondering if you could unpack the year-to-date account growth a little bit more. You gave some color on the faster-growing customer segments. But in terms of like the individuals, can you maybe talk a little bit about what the average customer looks like? How do they compare to the back book of customers? It sounds like they're bringing over ample new cash while still deploying into the markets. I was just curious if you could talk about the average size, what the activity levels are like. And then maybe similarly on the hedge fund side, talk a little bit about your progress there and what your expectations are over the rest of the year and into '25?

Question: Ben Budish - Barclays Capital Inc. - Analyst : That's helpful. And if I could ask a follow-up. Just on a comment you made, Paul, I think you mentioned something about $18.6 billion of rate-sensitive cash, but total fully rate-sensitive balances were a little over $30 billion. Could you could you clarify what you meant there? (multiple speakers)

Question: Ben Budish - Barclays Capital Inc. - Analyst : I got it. Helpful. Thank you.

Question: Craig Siegenthaler - BofA Securities, Inc. - Analyst : Thank you and good evening, everyone. And congrats on the first HSBC launch in the UAE. So let me just start there. I had a mechanical question on the launch. When this white-labeled offering is launched in a specific region, are you replacing an existing HSB offering so there's a large inflow without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 16, 2024 / 8:30PM, IBKR.OQ - Q2 2024 Interactive Brokers Group Inc Earnings Call of client equity and client cash with a large number of accounts on day one or is it smaller with the product being cross sell to existing clients with a longer ramp process?

Question: Ben Budish - Barclays Capital Inc. - Analyst : Thank you, Milan. And just as my follow-up on the same topic. Nancy, referenced that there's a couple of dozen regions that are currently testing or onboarding friends and family. I was curious, what percentage of the total accounts that you expect to win does this first batch that includes a couple of dozen regions it represents? Or does this couple of dozen regions, is that the total account package that you expect to win through this HSBC relationship?

Question: James Yaro - Goldman Sachs & Co. LLC - Analyst : Good afternoon and thanks for taking my questions. I just wanted to touch on the enhanced offerings for hedge funds. I think in April you announced the high touch prime and global outsource trading. Maybe you could just touch on how those initiatives have gone, the early readings from that. Has that accelerated your growth rate with hedge funds so far? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 16, 2024 / 8:30PM, IBKR.OQ - Q2 2024 Interactive Brokers Group Inc Earnings Call And then when you talk about other enhancements to your prime brokerage offering, would these be more high touch offerings or would they be tech enabled or mix of both? And should we think about any sort of ramifications from those to your margin?

Question: James Yaro - Goldman Sachs & Co. LLC - Analyst : Okay, great. That's very, very clear. Maybe just one other as a follow-up related to hedge funds. I think prime brokerage net leverage at the very largest banks is up substantially. But securities lending for you and certain other retail skewed brokers has remained fairly soft. Just any views on perhaps why there is that dichotomy? Is it that retail short selling activity is light, whereas large hedge funds are perhaps adding to shorts? And maybe if you don't have a view on that one, maybe just when do you look at your hedge fund business, your prime brokerage business, has there been increased short selling activity for those clients?

Question: James Yaro - Goldman Sachs & Co. LLC - Analyst : Okay. Thanks a lot.

Question: Dan Fannon - Jefferies LLC - Analyst : Hi thanks. Good afternoon. Just another question on the backlog with the introducing brokers, a couple of dozen that was cited. I guess, how would that compare to say a year ago? And then generally, who are you competing with to win this business? Is it just internal offerings or are there other peers that you are typically going up against?

Question: Dan Fannon - Jefferies LLC - Analyst : Okay, that's helpful. And then a couple of quarters ago, Thomas talked about declining interest rates maybe being pro-growth of your business in terms of utilization of things like margin and account growth and trading. But given the run we've had this year in the market, the growth in accounts, growth in margin balances, do we -- does that view still hold if we do get some Fed cuts going forward or have we maybe overshot here in the context of how your client base is performing currently?

Question: Dan Fannon - Jefferies LLC - Analyst : Understood. Thank you.

Question: Kyle Voigt - Keefe, Bruyette & Woods, Inc. - Analyst : Hi, good morning -- sorry, good evening. First one just on ForecastEx. I know that received CFTC approval last month, but I think there were some subsequent press around saying the launch may be delayed. Just wondering any update on the timing of a launch there? And then maybe just speak about the opportunity you see for forecast contracts more broadly and size and opportunity a bit for us.

Question: Kyle Voigt - Keefe, Bruyette & Woods, Inc. - Analyst : Great. Thank you for that. And then I just had one follow-up for Paul. Just to be super clear about the new securities lending disclosures that you provided today. So hypothetically, if we retroactively applied a 0% benchmark rate globally to the entirety of the second quarter, I just want (technical difficulty) the securities (inaudible) revenues that you would have reported would have been $194 million instead of 25 million. Is that correct? Or formulaically is that how the pricing methodology would have worked, just would have shifted the bucket into sec lending from said cash revenue?

Question: Kyle Voigt - Keefe, Bruyette & Woods, Inc. - Analyst : Right.

Question: Kyle Voigt - Keefe, Bruyette & Woods, Inc. - Analyst : Didn't make much difference. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 16, 2024 / 8:30PM, IBKR.OQ - Q2 2024 Interactive Brokers Group Inc Earnings Call

Question: Kyle Voigt - Keefe, Bruyette & Woods, Inc. - Analyst : Understood. Okay. Thank you very much.

Question: Patrick Moley - Piper Sandler & Co. - Analyst : Yes, hello. Thanks for taking the question. So I had one on options. Options volumes for you were up 36% year over year in the second quarter, I think. Can you just speak through the growth you're seeing there and maybe break it out and help us understand, looking across geographies where that growth is coming from? And I think Thomas has spoken in the past about expecting higher derivatives volume growth overseas. How big of a driver do you think that can be for your business and what kind of advantage you think you have over some of your publicly traded peers here in the US who have recently spoke about being more deliberate with their efforts overseas.

Question: Patrick Moley - Piper Sandler & Co. - Analyst : All right. That's great color. And then just a quick follow up on the NYSE loss. Can you speak -- was there any impact on the tax rate this quarter from that? And then just looking forward, is there any possibility at all that any of that could be recovered? Thanks.

Question: Patrick Moley - Piper Sandler & Co. - Analyst : Yeah. Just if there was any tax implications from the loss or anything that's worth calling out this quarter going forward?

Question: Macrae Sykes - GAMCO Investors Inc. - Analyst : Oh great. Thank you. I have two questions about the IBDs, and I'll just ask them together. I was wondering if you could kind of give us an update on the TAM around the IBDs, whether you know how many IBDs are out there globally, how much they cost you? Anything to kind of point to the opportunity there, and I know it's evolving? And then the second thing is with respect to working with these new relationship, is there any difference as you set up a white label operation with an individual company such as HSBC in terms of the costs associated or the economics. So is there a difference between handling a 10,000 account IBD or is one that's 50,000? And just are there any dissynergies with your platform in terms of having to handle kind of more bespoke operation? Thank you.

Question: Chris Allen - Citigroup Global Markets Inc. - Analyst : Yeah, evening everyone. A little bit of a cleanup question. Just on the NII sensitivity to rate cuts. I believe, Paul, it's a $59 million reduction, but Milan noted it was $77 million. So just wondering which is correct. Maybe $77 million includes all global rates or the $59 million US? Just any color there would be helpful. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 16, 2024 / 8:30PM, IBKR.OQ - Q2 2024 Interactive Brokers Group Inc Earnings Call

Question: Chris Allen - Citigroup Global Markets Inc. - Analyst : Just a quick one on expenses. Noted the decrease in compliance staff as you (inaudible) operational mode with new compliance system. Just wondering like how much efficiencies something like that would generate or realize you're redeploying that into other investment areas. But then what are the other incremental opportunities you're working on to reduce efficiencies moving forward?

Question: Chris Allen - Citigroup Global Markets Inc. - Analyst : Got it. Thanks, guys.