Interactive Brokers Group, Inc. Class A Aktie

Thank you for standing by. Welcome to the Interactive Brokers Group First Quarter 2026 Earnings Call. [Operator Instructions]. Please be advised that today's conference is being recorded.

Now it's my pleasure to hand the conference over to the Director of Investor Relations, Nancy Stuebe. Please proceed.

Thank you. Good afternoon, and thank you for joining us for our first quarter 2020 earnings. Joining us today are Thomas Peterffy, our Founder and Chairman; Alan Galik, our President and CEO; and and Paul Brody, our CFO. I will be presenting Milan's comments on the business, and all 3 will be available at our Q&A. .

As a reminder, today's call may include forward-looking statements, which represent the company's belief which, by their nature, are not certain and are outside of the company's control. Our actual results and financial condition may differ, possibly materially, from what is indicated in these forward-looking statements. We ask that you refer to the disclaimers in our press release. You should also review a description of risk factors contained in our financial reports filed with the SEC.

In the first quarter, markets began with a strong January, supported by solid equity performance, optimism around corporate earnings, expanding market breadth and resilience despite geopolitical risks. However, that momentum did not persist. Most global market indices declined in February and fell further in March, broadly mirroring the kind of price movement we saw in the first quarter of 2025. The S&P 500 ended the quarter down 5%. Notably, each of the Magnificent 7 technology stocks declined by more than the broader market, resulting in relative outperformance by the rest of the index. .

Despite this backdrop, we continue to see strong interest from both institutional and individual investors globally in opening and funding accounts. Client engagement remained healthy, trading activity increased and clients gradually took on more risks since last year's tariff-driven market decline as reflected in higher DARTs and increased risk exposure fees over the past several quarters.

We continue to set records across key metrics, including net revenue, total accounts and account adds. Growth in new accounts has driven -- has driven higher clients' uninvested cash balances, which increased 35% year-over-year to a record $169 billion. Client equity rose 38% to $789 billion and was up 1% sequentially, despite the 5% decline in the market, as continued account funding offset market performance. Across products, stocks, options and futures, all delivered double-digit year-over-year growth. Of note, futures contract volumes increased 20% to a quarterly record, driven by higher volatility and increased demand for hedging.

Turning to our strategic initiatives. We have been incorporating AI across the organization. We had introduced investment themes and connections tools which use AI to streamline research and visualize relationships among trends, companies and securities to give our clients actionable investment ideas. This quarter, we expanded international company coverage and integrated themes into market screeners, watch lists and new summaries.

We continue enhancing our ASK IBKR tool which enables clients to query our portfolios for insights such as sector exposure, performance, tax lots, corporate actions and fundamentals. It now provides more direct and relevant responses. We also expanded the number of new sources we are authorized to summarize using AI. Within client service, our AI-powered chatbot continues to improve, successfully addressing a growing share of client inquiries in multiple languages. We continue to increase its accuracy and coverage, while enabling our reps to focus on more complex issues.

We are also planning AI to further automate processes across areas like onboarding, compliance and other operational areas. Expanding the use of AI remains a priority across the firm, both to enhance the client experience and to improve internal efficiency. While we have made meaningful progress, we see significant opportunities to extend it further.

Our efforts translated into strong financial performance. Quarterly commission revenue and total net revenues both reached record levels. At the same time, we remain disciplined on expenses. Our pretax profit margin was 77%, maintaining our position as an industry leader and marking the sixth consecutive quarter with margins above 70%. In recognition of this and as a sign of confidence in the strength of our business model, its growth potential and of our capital base, we revisited our allocation of capital and decided to increase the amount of dividend we paid to $0.35 a year.

Turning to our customer segments. Our introducing broker pipeline remains exceptionally strong. We continue to maintain a robust pool of prospects while onboarding a substantial number of new introducing brokers and supporting the growth of existing ones. For larger introducing brokers, we offer customized solutions and have made it easier for them to launch with a wide range of configurable features. Many international brokers require specialized functionality to address their local investment, tax and regulatory requirements. We have user interface enhancements and development that we look forward to discussing in future quarters.

Within our Hedge Fund segment, our high-touch prime brokerage offering continues to gain traction, and we are particularly encouraged by referrals to new clients from existing clients. We've also received positive feedback on our ability to handle complex requirements, and several clients have launched additional strategies on our platform. We had a productive quarter for new product introductions. In cryptocurrency, we expanded our offering to clients in the EEA, significantly broadening our footprint. We also introduced crypto transfer in capabilities, allowing clients to consolidate external holdings into their IBKR linked accounts.

In addition, we launched access to the coin-based derivatives exchange, providing trading in nano-sized crypto contracts and perpetual style futures. Our prediction markets have been live and trading 24/7. In anticipation of increased interest ahead of the 2026 U.S. midterm elections, we introduced election board a discovery and trading tool that helps clients browse and trade political event contracts. You may also have seen our client outperformance advertising campaign. As we shared previously, in 2025, the average account across each of our client segments outperformed the S&P on a net basis after fees and commissions. Our average individual account returned 19.2% versus 17.9% for the S&P, while our average hedge fund account returned 28.9%. The campaign began with digital channels and has since expanded into print and television globally.

These outperformance results reflect our low-cost offering and high interest paid on client cash, the strength of our platform and our focus on best execution. This focus means that we seek to maximize client outcomes by routing orders directly to the venues offering the best price rather than selling order flow to third parties. We continue to see growth in overnight trading, which is increasingly important for our global customer base. Overnight trading volumes nearly tripled year-over-year in the first quarter, increasing to 8.1 million trades from 2.8 million and up from $6.2 million in the fourth quarter. We remain highly active across all areas of the business with multiple initiatives underway across platforms and client segments. We look forward to sharing further updates in the coming quarters.

With that, I will turn the call over to Paul Brody. Paul?

Thank you, Nancy, and good afternoon. Thanks, everyone, for joining the call. We will start with our revenue items on Page 3 of the release. We are pleased with our financial results this quarter as we again produced record net revenues and strong results in our key operating metrics. Commissions rose 19% versus last year's first quarter, reaching over $600 million for the first time. We saw robust trading volumes from our growing base of active customers across stocks, options and futures. Net interest income rose 17% year-on-year to $904 million, driven by higher balances and partially offset by lower benchmark interest rates. .

We saw strength from margin borrowing and from our segregated cash portfolio, partially offset by interest we paid on our customers' cash balances. Other fees and services generated $86 million, up 10%, primarily driven by higher market data and FDIC sweep fees as well as higher payments for order flow from options exchange mandated programs. Other income includes gains and losses on our investments, our currency diversification strategy and principal transactions. Note that many of these noncore items are excluded in our adjusted earnings. Without these excluded items, other income was $77 million for the quarter.

Turning to expenses. Execution clearing and distribution costs were $106 million in the quarter, down 12% over the year ago quarter, driven by lower SEC regulatory fees, which were set at 0 in last year's second quarter. Versus the fourth quarter, execution and clearing was higher due to exchange fees on greater futures trading volumes because they are largely passed through, these fees increased both our commission revenue and execution costs. Execution and clearing costs were 13% of commission revenues in the first quarter for gross transactional profit margin of 87%. We calculate this by excluding from execution, clearing and distribution, $24 million of nontransaction-based costs predominantly market data fees, which do not have a direct commission revenue component.

As a reminder, for the upcoming quarters, the SEC raised its fee rate for securities from 0 to $20.60 per million effective April 4. For comparison, based on our volume in the first quarter of 2025, SEC fees then totaled $24 million when the fee rate was $27.80. And again, these fees are a pass-through for us, increasing both commission revenue and execution and clearing expense equally with no impact on the income we earn.

Compensation benefits expense was $167 million for the quarter for a ratio of compensation expense to adjusted net revenues of 10%, down slightly from 11% last year. Note, there are several calendar-based components that tend to increase comp and benefits expense modestly such as additional U.S. attacks on salaries in the first quarter and on the vesting of stock incentive plan shares in the second quarter. Our head count at March 31 was 3,232.

G&A expenses were $68 million up from the year ago quarter, mainly on expansion of advertising. Our pretax margin was 77% for the quarter as reported and as adjusted. Income taxes of $117 million reflects the sum of the public company's $56 million and the operating company's $61 million. This quarter, the public company's adjusted effective tax rate was 17.2%, within its usual range.

Moving to our balance sheet on Page 5 of the release. The consistent strength of our business and our healthy balance sheet support our raising of dividend from $0.32 to $0.35 per year, returning capital to shareholders while still maintaining an ample capital base for the current business and future opportunities. Our total assets were 39% higher than in the prior year at $219 billion, with growth driven by higher margin lending and segregated cash and securities balances. New account growth also helped drive our record customer credit balance.

We continue to have no long-term debt and profit growth drove our firm equity up 22% to $21.3 billion. We maintain a balance sheet geared towards supporting growth in our existing business and helping us win new business by demonstrating our strength to prospective clients and partners while also considering overall capital allocation.

Turning to operating data. We had near record customer activity and options with our contract volumes up 16% over the prior year. Futures contract volumes rose 20% for the quarter to a new quarterly record and stock share volumes were up 25%, all were in line with the industry volumes. Stock share volumes generally increased versus last year as clients gravitated to larger, higher-quality names and traded relatively less than pink sheet and some other very low-priced stocks. Growth in the notional dollar value of shares traded in the quarter was significantly higher than the growth in share volumes.

On Page 7, you can see that total customer DARTs were 4.4 million trades per day in the quarter, up 24% from the prior year. Commission per clear commissionable order of $2.59 was up slightly from last year when the full SEC fee rate was being charged. Page 8 shows our net interest margin numbers.

Total GAAP net interest income was $904 million for the quarter, up 17% on the year ago quarter. And our NIM table net interest income was $953 million, up 20%. We include for NIM purposes, certain income that is more appropriately considered interest, but that for GAAP purposes is classified as other fees and services or in other income. Our net interest income reflects strong annual increases in balances as well as reductions in benchmark rates in most major currencies, including the full quarter impact of December's cuts in the U.S.

The growth in balances resulted in a rise in interest income on margin loans and customer cash balances, partially offset by higher interest expense on customer cash balances. This quarter, Central Banks in most major markets held their benchmarks constant. Year-on-year, the average U.S. Fed funds rate fell 69 basis points or by 16%. Despite this decline, our margin loan interest was up 17%, and our segregated cash interest was up 3%, both bolstered by higher balances.

The average duration of our investment portfolio remained at less than 30 days. During the quarter, the U.S. dollar yield curve inversion from the short to medium term substantially flattened. So we continue to maximize what we earn by focusing on short-term yields rather than accept the uncertainty and higher duration risk of longer maturities. This strategy also allows us to maintain a relatively tight maturity mismatch between our assets and liabilities.

Securities lending net interest was higher than last year, though we did not see as much activity in hard-to-borrow names as in the fourth quarter. Contributors to annual growth includes several factors: our growing account base, which increases our inventory of attractive stocks to lend, including international securities, the interest we pay on short cash balances, which makes us attractive to investors to utilize short selling. Our fully paid lending program shares proceeds with clients generally on a 50-50 basis, which appeals to investors looking to maximize the return on their portfolios. And finally, more activity in some of the typical drivers of securities lending, including IPOs and M&A activity.

A portion of what we earn from securities lending is classified as interest on segregated cash. We estimate that if the additional interest earned and paid on cash collateral were included under securities borrowed loans, then total net revenue related to securities lending would have been $270 million this quarter, up 45% over the prior year quarter. Fully rate-sensitive customer balances ended the current quarter at $27.8 billion versus $20.3 billion in the year ago quarter.

Now for our estimates of the impact of changes in rates, we estimate the effect of a 25 basis point decrease in the benchmark Fed funds rate to be an $82 million reduction in annual net interest income. Note that our starting point for this estimate at March 31, with the Fed funds effective rate at 3.64% and balances as of that date. Any growth in our balance sheet and interest-earning assets would reduce this impact. About 1/3 of our customer interest-sensitive balances is not in U.S. dollars, so estimates of the U.S. rate change exclude those currencies. We estimate the effect of a 25 basis point decrease in all the relevant non-USD benchmark rates would reduce annual net interest income by $35 million.

In conclusion, we started the year with another financially strong quarter, reflecting our continued ability to grow our customer base and deliver on our core value proposition to customers while simultaneously scaling the business. Our business strategy continues to be effective, automating as much of the brokerage business as possible, continuously improving and expanding on what we offer while minimizing what we charge.

And with that, we will turn it back to the moderator and open up the line for questions.

First question comes from the line of Patrick Moley of Piper Sandler.

So last week, the SEC eliminated the pattern day trader rule. It seems like it could be a pretty significant structural change for the industry and make more active day trading available to far more retail investors. So I was just curious how you're thinking about the strategic opportunity here if you think that there is any avenue for increased account growth because of this and how you're just thinking about the overall opportunity to attract some of these smaller walled retail investors?

Well, we welcome the change. The regulators are basically replacing an outdated concept of counting trades and an arbitrary equity threshold or account size with a risk-based system, real-time intraday margin requirements. The expectation is that it will broaden the retail access, increase the trading frequency and engagement, and also liquidity in the markets. The rule will probably speed up the outcomes, the disciplined participants who have experienced some well-tried trading methodology will probably end up growing their accounts faster, whereas those that trade in a more a hazard fashion will probably realize their loss.

Okay. So you're viewing this as an opportunity for IBC, I guess. Any color on the strategic opportunity here? It is an opportunity in the sense that majority of our accounts are individual accounts. Many of these individual accounts are smaller accounts, and they will be able to trade frequently. So

In that sense, it is an opportunity.

Okay. All right. And then maybe just if you could help us break down the account growth that you saw in the first quarter. It seems like it's a pretty 2-sided market for the business. On 1 hand, you have the war and you have an energy market volatility that I think is bringing people to the market and wanting to trade. And then on the other hand, I think that there's some concern about what this could mean for the rest of the year and whether it could create some frictions, I guess, in terms of new account formation, particularly internationally. So any thoughts on just the current environment and just account growth through the storm here as we enter into the back half of the year?

No, I don't think we need to expect anything different from what we have seen in the past. What tends to happen is that the equity market prices are increasing more and more of the public ones to participate on the run up, and we see strong account openings. Whereas as the volatility increases, that may discourage newcomers from joining the market, but that gets offset by increase in the DARTs increasing the trading. So as I said, the increased volatility is something that we have seen before for different reasons. So I would expect things to continue the way we have seen over the past several years. .

Our next question comes from James Yaro of Goldman Sachs.

I wanted to return to a topic discussed on last quarter's call, on your focus on accelerating marketing spend to support account growth, -- is there any way you could provide a bit more detail on what marketing spend trends might have looked like either historically or perhaps both historically and today. And -- and maybe if you could just provide a little bit more color on how you would think about scaling marketing going forward. .

Where we are bent on trying to increase our marketing spend but we are also very strict about getting the required minimum return on every additional marketing dollar. So as a result, while we keep trying to increase the spend, it is going very slowly. So what we are really doing is we are trying to find additional marketing outlets that are going to hopefully give us more opportunity to spend more. .

That's very clear. As my follow-up, just there has been discussion among U.S. brokers and banks recently around potential AI-enabled cash optimization tools. which -- I think the idea is that they could ensure that customers receive yields on their deposits that are closer to Fed funds. I'm curious if you have any views on these sorts of tools -- and I guess, are there -- is there any consideration that this could affect your pricing on deposits?

So we're not happy about these tools because we have always been paying close to market rates. And if these tools force other bookers to do the same, they're going to have more competition. But I don't think they will do that.

I mean, it is somewhat ironic that we hear these noises about using the AI in the area of cash optimization from the banks, banks that have been paying very, very little on the uninvested cash. And if you think about it, there isn't that much that AI needs to do here. It's really the brokers or the bank's decision of how much of the interest income they want the client to enjoy versus how much of it they want to keep to themselves. And we have historically been on the forefront of the industry. Our costs have been low, and that has helped us maximize the outcome for our clients. .

Our next question is from Ben Budish with Barclays.

Maybe to start following up on Patrick's second question. I'm just curious, I remember a year ago, the markets were selling off quite a bit in April, and you gave us an update on your margin balances, which tend to follow the S&P. It seems like there's -- we're seeing the opposite this month where end of March -- since then, the markets are up fairly meaningfully. I'm just curious if you can give any more of a detailed update, what are margin balances look balance looking like intra month. Are we seeing the sort of S&P growth supported reacceleration of account growth, particularly curious on the margins because that seemed to be such an interesting topic last year. And I would think you'd see a bit of a rebound, but just curious, any details you can share there.

So our margin loans are precisely at the end of the quarter, $86.6 million, but that's part of our -- every month and we release our margin balances. So if anybody cares to look at that, they could see what's happening. .

All right. Fair enough. And then maybe just a higher-level topic on prediction markets. Just curious, any updates you can share in terms of -- I know you've always bring this up as a very long-term opportunity. Any updates you can share in terms of conversations with institutions that may be interested in onboarding to forecast any progress there?

Forecast taxes and receiving more and more inquiries from people who have sworn months ago that they will never enter an issue market and now more and more of them are curious and are considering becoming members. Yes. So I think this is going to be a huge thing as I have said before, and it's going to be a lot of prediction trading. .

Our next question that comes from Brennan Hawken with BMO Capital Markets. .

You touched on the non-U.S. dollar sensitivity to rates with 1/3 of those balances there. Is it possible to get a currency breakdown for those balances and maybe which of those currencies are growing the fastest?

Yes, we don't really get into it at that granular level, Brennan. But we make that differentiation between USD and non-USD because, of course, the bulk is in USD, but we want to make sure that in your mind, there's a differentiation when you see the benchmark rates change? What can you expect? .

Okay. And then is it still fair to assume you framed the changes in rates as a drop in those policy rates. But are the upside and downside scenario symmetrical or do they differ if rates moving up?

They're roughly symmetrical. There are some low rate non-U.S. dollar currencies. As we saw when rates here went near 0. There's a little bit of asymmetry when you go from positive to negative territory, but that's fairly minor. So other than that, they are pretty symmetrical. .

[Operator Instructions] Our next question is from Chris Allen with KBW.

4 I just wanted to ask about crypto. You continue to build out capabilities there. You announced the transfer capabilities in crypto. I know it's just been a few weeks, but I'm wondering if you've seen any clients actively proactively transferred position to IBKR since you offer that capability.

We indeed have released it only a couple of weeks ago. We do see amounts coming in. It's mostly United States, but internationally, we see that as well. And the other thing that we announced not long ago was launching our European offering. We have done that in cooperation with our partner, Zero Hash. We have so far been under soft release. We have issued a press release about it. We have sent an e-mail modification to existing clients. We have not yet been marketing it externally. .

Got it. And maybe just following up on that. Anything else you think you need to offer right now to increase or accelerate your digital asset penetration? Or do you think you're kind of already there with your product solutions offering. I know you can always add coins things on those lines.

There are a couple of things we still need to do. We are not covering all the geographies. We are working on that, in Singapore, for example. And the other thing that we need to work on is the staking. As you know, some of the currencies -- cryptocurrencies use the the proof-of-stake concept, which allows the holders of those currencies to earn very significant interest income. And our partner, Zero Hash is working on that capability. And as soon as they have it, we're going to integrate it into our offering. .

Our last question comes from Karen Siv with Bank of America.

Just 1 question actually on the crypto business. If you could talk a little bit more about that agreement or partnership that you've had with can-based derivatives maybe around like the client demand there and how we should kind of think about the potential revenue opportunity and any of the economics that you could share with us?

So the agreement that we have with them is very simple. The coin-based derivatives exchange, it's a number of cryptocurrency futures. Most of them are different in terms of size from what the large exchanges offer. They are significantly smaller contracts. So they are geared towards retail traders. There is one particular instrument type that is interesting to the traders. Those are the so-called perpetual futures. That was the main reason why we have decided to integrate that offering into ours.

The perpetual cryptocurrency futures they command very, very significant volumes, and that is why we joined the exchange and now offering it to our clients. Our clients traded. It's not a very large number of accounts yet, but the ones that are trading it are trading it in big numbers.

Thank you. And ladies and gentlemen, this concludes our Q&A session, and I will pass it back to Nancy Stuebe for closing comments. .

Thank you, everyone, for participating today. As a reminder, this call will be available for replay on our website, and we will also be posting a clean version of our transcript on the site tomorrow. Thank you again, and we will talk to you next quarter end. .

And this concludes our conference. Thank you for participating, and you may now disconnect.

Thank you all for joining Bank of America's 34th Annual Financial Services Conference. This is Craig Siegenthaler, North American Head of Diversified Financials at Bank of America, and it's my pleasure to introduce Thomas Peterffy. Thomas is the Founder and Chairman of Interactive Brokers. He founded the firm 49 years ago and is the pioneer of electronic trading. Interactive Brokers is a digital investing platform that services its clients globally across multiple segments, targeting not just individuals, but RIAs, hedge funds, prop traders and introducing brokers, and it extends this to most international markets. In our view, Interactive Brokers' competitive advantage is its technology R&D effort, which allows them to offer multiple products in multiple markets, launch new capabilities quicker and also underprice its competition. Thomas, we're thankful that you're joining us again this year.

It's a great pleasure.

So let's start on the macro front. It's been a fairly Goldilocks setup. You've had a bull market, you've had relatively high rates, strong account growth, elevated client engagement. I wanted your thoughts on the macro backdrop today.

On the economy?

Yes.

Yes. Well, it's a -- there are 2 economies in this country. If you listen to the BLS, the economy is doing great. If you listen to the big firms that are making huge capital investments, the economy is doing great. If you listen to the newspapers and the television, the economy is doing extremely poorly. So I don't quite know how to interpret that. But I believe that the economy is doing great, and it will continue to do great. So I do not think that interest rates will come down by much. Maybe they could come down at most 0.5 point to have Trump in the midterms. And so 0.5 point drop in interest rates would hit IBKR's net income by $200 million for the year. So it's not a huge impact. But of course, it's the same. If interest rates were to go up, it wouldn't be a tremendous boom either. So -- and that's where I run interest rates.

And that's all short end, not long end.

Short end, short end. Absolutely short end.

So Thomas, I wanted to talk about your strategic priorities. What are you looking to do over the next 3 years? What's most important at IBKR?

So our long-term goals are to grow the business at a healthy pace. As long as our clients and prospects know that IBKR is the best platform to achieve higher-than-average returns, we can be certain to do that. What we need for that, of course, is best execution. That's the most important. And this is not difficult for us to achieve because our competitors, both the online brokers and the large prime brokers are basically one way or another are profiting for trading against or along with their customers and these trading profits by my -- as I counted them up, they are approaching $300 billion a year.

So it's no chump change. And they all want to participate in that. And therefore, they are basically frozen in place because they cannot compete on our turf by providing best execution because they are the better price they give to the customer, the worst price they get themselves. So I think that we are extremely comfortable from that point of view. We do not sell our order flow. We do not trade our own account, except in very small ways to facilitate fractional shares or overnight orders or when we can provide a better price than any other available. Client-to-client crossing, of course, is the best way to provide great executions and the more volume we have, the more we can convince our clients to use limit orders, the better we can do that.

In addition, we continue to pay interest on our clients' cash holdings, 50 basis points under the Fed funds, and we pay interest on short proceeds. We charge very low margin rates. We try to lend out our clients' fully paid shares and share the interest with them. We continue to build novel research and trading tools, keep on adding new products and trading venues. So in other words, we do whatever we can do to make our clients as profitable as we can.

So Thomas, your first point was growth. So account growth is around 20% a couple of years ago, but it accelerated up to 30%. It's even been above 30% kind of recently. The question is, what do you think about the longer-term trajectory of account growth over the next 3 to 5 years? Can you keep it up at this level?

Yes. We -- I think there is no problem with keeping them at this level.

So 30% account growth is very fast, much faster than your peers. One pushback that we've been hearing is that there is a shift going towards accounts with smaller equity balances, they're less active. Is that true? And how do you think about that?

So over the last 10 years, the mean value of a customer account, the liquidating value of a customer account has been fluctuating between $140,000 and $270,000 Currently, it's about $180,000. So it's not -- if it were -- if it were true, that the new accounts are always smaller, then that number would be continuously going down, but that -- we don't see that.

So let's talk about regulations. So the regulatory backdrop has gotten a little more favorable for financials and the brokers. And this could include changes to the SEC equity market structure proposal, but what are you expecting on the regulatory front in the U.S., including with crypto? We may be near passage of the Clarity Act this year.

So SEC Chairman, Atkins' basic approach is let the free market and competition take care of the best execution. That fits us perfectly. It allows us to be flag carriers and the requirement for more detailed 605 reports may help us. Although in my mind, nothing is as good as marking your customer trades to market and the brokers that are trade with the customers to mark their trades to market that I think would give you the real story, but that is not going to happen, I don't think.

Thomas, on the international side of things, are there any big regulatory initiatives outside the U.S. that you guys are focused on that's impacting the business?

As I looked into the EU regulations, they mostly are focused on ESG, and they are not focused on the brokers, but they are focused on the companies whose shares people are investing in. So that's where all the action seems to be.

So the U.S. dollar has been weak over the last year. And then we had Liberation Day trade war. My question is investors outside the U.S. hold a lot of U.S. assets. Your clients probably outside the U.S. hold a lot of U.S. assets. Have you been seeing any mixing from U.S. to non-U.S. assets just given what's been going on recently?

Well, there is some -- there was some movement, especially in currencies. So people have been keeping their money in dollars, foreign customers, keeping their cash in dollars and that changed over the last several months. So the stock holdings did not change much. Most of the stock holdings are still the big U.S. stocks. But the cash holdings, certainly, they wandered into euros and mostly euros.

So you started ForecastEx, this was an exciting new business where you started it before the 2024 presidential election -- sorry, 2024 presidential election. I'm losing time here. But you also decided not to go into sports, which is a decent chunk of that market. What are the prospects for that business longer term? And why did you decide not to go into sports?

So I am extremely bullish on the prediction markets. I think this is going to be the biggest thing that happened in our business in the last 100 years. So I look at prediction markets as the ultimate synthesis of human imagination and economic incentive. Our participants are rewarded for accuracy and penalized for error. This transforms guessing about the future into rigorous analysis that forces a continuous real-time calibration of expectations based on the new data. If you aggregate a diverse pool of incentivized rational actors, the resulting consensus is mathematically likely to be the most accurate proxy for reality available. By assembling these forecasted facts, we are mapping the future with high resolution. We create a model on which we can plan our investments, our businesses and our lives with better results.

This is the most significant utility of instantaneous global communication, decentralized voluntary collective that replace a government fiat with free individual initiative. Eventually, all traditional markets will operate within the framework established by the prediction markets. We are building a centralized nervous system for global decision-making, the ultimate resolution to the dichotomy of free market capitalism and socialism. Just think about it. It will take some time to develop a sufficient, sophisticated and large following for these markets and to develop the right contracts and to show participants the connections and interdependencies among these contracts and other markets will take some time.

I think sports betting is a distraction from all this. But to some degree, of course, we are all corruptible. So when all the legal wrangling with the states eases a bit, we may enter in sports betting. But I mean some people at the firm want to do it, I rather would leave it alone, but if they really want to do it, I'll do it. But more importantly, we will need some regulatory help in distinguishing between securities and commodities as far as the prediction question go. We know that the price of a share of Tesla is a security, but it's a question about the number of cars sold by Tesla in any quarter or the dollar amount of Tesla sales or the company's income or profits in any quarter or the number of employees or their average wages a security, I'm not sure.

We know that the average wages of a state or the number of new cars sold in a state or the quarterly profits of all the companies headquartered in the state together are not a security. We know that. How do we go from a region to a specific company in the region is a question that will need to be answered in order to establish clear connections between securities markets and the commodities markets, the prediction markets and the local economies. So when you, Craig, publish your spreadsheet, about your predictions about Interactive Brokers and the other companies that you analyze. I'm suggesting that you may have some company in the future in the forecast trader platform.

Eventually, the regulatory barriers will break down and analysts forward-looking spreadsheets will be created by the prediction markets. That is no way a threat for your occupation, of course, because you may just as well earn even more money than you currently do, much more money if you tend to be right most of the time. Right?

And then Thomas, how do you think about -- like right now, like Kalshi, Polymarket Big, CME has a new venture in this space, you have ForecastEx. What's the scale advantage? Is it important to be first? Now some of them are involved in sports, which could create some hurdles in the future. But what does this market look like longer term? Do you think there's a few big players. Do you think there's lots of players?

I think there have been many players, but I think that there'll be -- so the brokers will be distinguished by whether they can offer, whether they can give their customers access to all the available markets and of course, whether they can give you the best price that is available at any one moment. So from that point of view, those markets will be the same as the current stock or option markets.

Thomas, let's move into crypto. Very quickly, and it's very impressive. You went from not having lot in crypto to now having a lot. And I still think you're in the process of launching a few things. But you have a partnership with Paxos and Zero Hash, that was helpful. What capabilities do you offer today? And what do you still plan to launch over the near term?

So we believe that crypto requires dedicated expertise and institutional-grade controls, which we do not have on our own. That's why we partner up with Paxos and Zero Hash. As a matter of fact, IBKR owns 30% of Zero Hash. So I think that's the stance we're going to take here.

Got it. You're working on crypto transfers in and out. Is that live yet?

Crypto transfers are going to come live within the next couple of weeks.

And is that -- like USDC and stablecoins? Is that some of the cryptocurrencies like ethereum, you can move in and out? Or is it kind of everything?

Yes. But our strategy is not to offer every new token short-lived coins and things like that. We focus on serving sophisticated investors who want measured exposure to establish cryptocurrencies. At the same time, we want IBKR to be a platform of choice for crypto investors who trade crypto on major exchanges, but also want access to the broad range of traditional asset classes and global markets we offer. To support this, we are building a seamless bridge between traditional and digital finance. We recently enabled account funding. We have stablecoins that will soon support crypto asset transfers.

So Thomas, just circling back on that. You have a large client base. It's growing nicely. Is crypto really cross-sell to them? Or are you actually trying to attract new investors that are really focused on sort of crypto first before stocks?

No, our initiative was always to enable our existing clients to not to have to go elsewhere to gain crypto exposure.

Got it. Let's talk about capital management for a second. Dividends, organic, buybacks? How do you think about the various uses of capital? Because I think since I've covered you over the last 10 years, kind of I watch that balance sheet, keep growing. So is there ever an opportunity to do something with that capital? I know it does partly help the prime brokerage business too.

I think if you keep watching, you will just keep seeing it grow.

Got it. And the issue with buybacks, is liquidity still an issue because it's -- obviously, it's a very large market cap now with a large flow, small relative to the total, but the flow is pretty big these days.

So the float is -- I mean, it's still relatively small given the size of the company. So I do not regret selling the stock that I did sell, but I don't feel that I need to sell any more. I wanted more float out there, but -- so currently, I don't think that I need to sell any more stock. And the float is increasing a tiny bit every year by employee bonus shares. And as the price keeps rising, some holders may think that they had enough and give others a chance to take a ride.

Let's come back to M&A. You commented, I think it was a year ago in the earnings call that you were looking at a few things, maybe you didn't agree on price. What type of deals do you look at? What businesses are interesting to IBKR and when something sounds expensive, what does that mean?

Well, to tell you frankly, we are so busy building the company, and we think that we are doing a really good job, and we're doing it very well and have a great deal of satisfaction doing so. So we do not think that we really need to take a shot at a test that is much less well defined. It's not to say that we never look at other things. But every time we do, so far, we always concluded that we better stick with what we know best. We think that the opportunities we can create for ourselves are greater and easier to achieve than something else that would rise in somebody's business that they no longer want, right?

So your operating margin today is almost at 80%. That's the highest margin in my coverage. It might be the highest margin in the S&P 500 now. But at 80%, and yet we're still forecasting good revenue growth. So it looks like it could go up. But how do you think about incremental margins and a potential ceiling because obviously, 80% is very high.

I don't think we're going to go over 80%. I think we should probably start spending a little bit more money on new products and our white-glove service.

Let's talk about technology, which I said earlier, I thought it was one of your key competitive advantages. If you look across your leadership team, how many have a background or even the university studied computer science? And besides that, what is else special about your ability to generate technology organically inside of IBKR rather than having to go out and buy or lease something from a third party?

So it's true that we started on the technology side and most of the executives of the company are computer people. But the fact is that today, I don't think the major advantage that we have is technology, I think it is the culture. And we basically have a very different culture than most other publicly held companies. We are more like a privately held firm. People do not come to Interactive Brokers as a career step and then move on. Most people tend to come to us when they get out of school or soon thereafter and build their own specialty, their own expertise, they become proud of it and take responsibility for it and grow with the company.

At other firms, people build something and then they move on and do not much care if what they build does not work any longer or maybe the new users do not know how to use it, and it ends up in storage. I mean it's absolutely staggering how some of the largest, best-known firms have really very primitive back-office processes even after they have spent many billions and billions on building them over the decades. I don't really know what -- how that happens.

So let's stick with technology and shift into artificial intelligence. I know you've automated many processes inside of IBKR. But how are you employing AI today. And if you look -- think about the firm in 3 or 5 years, what else could you be using AI for?

So looking at the use of computers on a very long-term perspective, I basically see a very long-term progression of how people get to use those chips to do more things with less effort. When I started some 60 years ago, people were still using machine language, moving variables to and from specific memory locations. and they had to keep track of it with pencil and paper, writing a routine to sort a column of numbers, optimized for time, it was a huge project. We came from there through assembler language to COBOL to C, to Java and now we have AI.

It can guess what you really want to get done from your not so precise description. As the technology keeps getting better, the question moves from -- moves more and more to what you want done from how to get it done. That means that we really have to be thinking hard about how to transfer our technological advantage and focus more on products, enabling our customers to take advantage of the relationship among our unique collection of products and services. We will -- that will continue to set us apart. Inventing new products is key. We must continue to provide an environment in which people can manage their money profitable -- profitably with satisfaction that is -- that's all that Interactive Brokers is about.

We want our customers to make more money than any other brokers' customers. And the fact is that in 2025, our individual customers have outperformed the S&P by 1.3%. Our wealth management -- our people who -- wealth managers who run their accounts on our platform, those accounts have outperformed by 2.67% and hedge funds outperformed the S&P by 11% through 2025.

So I have a question here on...

I'm beginning to lose the people. 6 of them just left in this sentence.

I think no, he was the photographer though. So he's allowed to go.

Yes. Okay.

Margin loan usage, it's had a really nice growth here that normally happens in a bull market. I think it's mostly driven by the hedge fund prime business, the prop trading business, the active trader business. What are your thoughts on the growth of that margin loan balance over time? And is there anything else kind of special happening there?

So margin loans have been on roughly 10% to 12% of client assets. And to tell you, frankly, I get nervous when margin loans rise too quickly. I'm not happy when I see that happening.

Okay. So with that, let me see if there's any questions from the audience, please raise your hand. We got one up here in row 2. So just wait before you state your question because we'll get you the mic.

IBKR, you guys are -- have presence in over 160 countries. Most recently, you've enabled access to UAE, Taiwan and Brazil. Kind of like looking ahead, are there any other countries or region where you would like to expand or deepen your product offering?

Yes. Well, over the years, you will see us going into more and more countries. We will always want to be covering all the exchanges that basically are important. And as more and more exchanges come alive in different countries, we will become a member of those exchanges and as more new products are introduced, more different kind of exchanges will arise. We will continue to become members. It's very important for us that our customers can access all the products in the world that matter.

I think with that, we are out of time. But Thomas, on behalf of all of us at Bank of America, I just wanted to thank you for joining us.

Thank you very much.

Okay. Hello, everyone. I'm Mike Brown, the senior analyst covering brokers and asset managers here at UBS. I'm pleased to introduce our next guest, Paul Brody, the CFO of Interactive Brokers. Interactive Brokers continues to distinguish itself as one of the most scaled and technologically advanced electronic brokerages globally, serving clients in over 200 countries and territories, executing more than 4 million trades per day and managing nearly $780 billion in client equity. Paul, thank you so much for joining.

Thanks for having me.

So I wanted to start with a kind of high-level macro questions. So what are your thoughts on the current market environment with markets kind of near historic highs, but certainly a little bit of angst in the market? And then what are your kind of current thoughts on account growth here as we think about maybe the next 12 to 24 months?

Well, we do a lot of things if market prognostication is not really one of them. We follow along with the markets, and we now have a client base that's big enough that it tends to reflect what the market is doing. When things get active, our clients get active and that drives commission revenue and all sorts of things, margin lending. And then you asked me a client base.

So we have 5 segments. They are all growing pretty rapidly, very healthy environment. Our individual segment, which has our most clients for obvious reasons, grows very well organically. There's a lot of word of mouth by which we attract new customers. We are slowly ramping up our advertising there. And we've gone from -- I mean, our advertising spend is still small compared to many of the large brokers, but we've probably ramped it up 50% in the last couple of years.

The introducing broker segment is also going quite well. We attract large banks from around the world and a lot of smaller introducing brokers who bring us their clients, financial advisers. We don't compete with -- we don't have in-house advisers that compete with the external and our hedge fund segment is going nicely. We've stepped up with a high-touch service and that gives them a level that makes us competitive with some of the larger offerings out there and prop traders round out the thing. So they're all growing a pace. It's a good environment for us.

Okay. Great. Clearly, Interactive Brokers, very well known for continuing to innovate, continuing to invest. If you maybe zoom out and you think about the next 5 to 10 years, what are you working on currently? Where do you kind of focus your efforts? And how do you make sure you don't become complacent in the marketplace?

Sure. Well, one thing is we have a technological advantage. We're a technology firm. We've been doing this from the very beginning and that takes continual work to keep pushing ahead. We expand our offerings geographically all the time. And by doing that, we can attract customers from a locale who can then connect to us and trade the whole world. So that's been a business model of ours for a long time.

In terms of what's new and exciting, forecast contracts are new and exciting. We're putting a lot of effort in there. We have our own exchange, ForecastEx, and our own offering on the broker side is called our Forecast Trader. And it's just a -- it's a fascinating new world that has just a huge potential. Our Chairman likes to say, to become a multiple of what the equities markets are because really, if you think about the possible things that institutional users and industrial users and speculators might want to participate in forecast contracts, event contracts, touch literally every part of life. And it's quite exciting. This will take a while because new ways of thinking do take a while, and options have only been around the U.S. since the 70s, I say only, but things really didn't pick up until the '80s when financial futures became a big thing. So this is more of a sea change.

So I guess maybe double-click on that a little bit, what inning do you think we are in? And what's kind of the next steps for broader adoption in the space?

I think we're in the top of the first. We rolled this thing out in August of 2024. First big participation turned out to be the election that year, and there were a lot of things going on around that, that allowed us to participate. But the development of markets simply takes a while. It has to soak into the psyche of participants and investors and it has to be advertised so that industrial users understand the value of hedging, the farm operators can now enter into contracts on rainfall, which clearly affects crop production or various other things that solar, wind speed, things that will affect property disruption, which affects insurance. And so all these underlying contracts, interesting ones will be attractive to different segments of the eventual marketplace out there.

Okay. So if we think about some of the other areas that you've been investing as well. So you've been adding some crypto capabilities. You got the USDC funding, you plan to continue to expand in the prediction markets. Can you maybe just speak to how all these initiatives fit into the broader IBKR ecosystem and then why other areas such as sports betting do not?

So in crypto, we responded to customer demand really. We did not enter the custody part of the chain. We consider it risky and not fully -- you can't really nail it down at least with our knowledge. So we entered into it by partnering with platforms that can do the execution on behalf of our joint clients. And that has worked pretty well. It allows us to make the offering so that a financial adviser, say, might be able to bring their business over without saying, I could only bring -- I can bring it over if only you could do the crypto along with it because I want to put 5% into crypto. So we've solved that.

The stablecoin offering is interesting. What we allow is a customer who is already holding their asset in the form of stablecoin can transfer it to our partner platform, which will then immediately convert it into U.S. dollars and send the dollars to us. So as a broker, we're just seeing a dollar deposit, but it was an easier transaction for the client who may have started their asset lifetime in stablecoin. And that's sort of one of many different things we've done along the funding spectrum to just make it easier and easier for clients all around the world to fund in whatever currency they started.

So if I take a step back, and you touched on this in the sense that IBKR serves the active retail advisers, small institutions and pros. What's the strategic choice that you made on the platform in terms of who is ultimately built for? And what are the product decisions that you've said no to because they may have dilute that product offering?

So we have always targeted the professional trader and investor. We -- that's in our DNA. We used to be market makers for a long time. We were the largest options market-making firm. We turned it into a brokerage offering, now one of the largest. So we understand what's going to attract that client. It doesn't mean that we are offering a product or a feature and not offering another one. Obviously, we have to prioritize our long list of projects, but we listen to customer demand. We listen to the smart customers. If things make sense to us, we build them. It's always a software project.

And we do stay away from -- we have had instances where we have been asked or we think about things like order types. There are a lot of complex order types for getting an execution some order types based on our long experience would not be particularly good for the market. Maybe they chase the market around and create excess volatility for no economic benefit. So we, in the past, have not built those.

Got it. Okay. And then when you think about the next leg of growth geographically, whether it's Europe, Asia, Latin America, what's maybe the hardest constraint for that next leg.

We're always pushing on all geographies at the same time. There's no particular constraint. Now I mean, obviously, in certain places, there are heavy regulatory environments. There are political environments. China, for example, has a lot of restrictions on how their own population interact with the financial world. But we managed to operate within all of those constraints around the world. We spend a lot of effort building out compliance and automating those functions and staying within the regulations.

And that's, quite frankly, one of the advantages we have is that we've spent years and years at the less glamorous side of the business, which is building all that underlying infrastructure.

And then within each of the regions, any that you would -- how would you kind of rank the growth potential for each Europe, Asia, Latin America?

They're really all the same. So we've seen good growth in all those regions. We've added some markets. Part of our modeling is they add a local market to get the local clients who are going to trade the rest of the world with us. As a matter of fact, the general model is they like to trade 70-plus percent in U.S. products. But last year, we added Malaysia. And Malaysia has some local futures products that are interesting and now we can -- we had Malaysian customers before, now we have more. And so that's the kind of targeting that we do. We try to go to where the demand is.

Okay. If we change gears to net interest income. What's the split between client credit balances versus margin lending versus other sources when we think about the key knobs that you can really turn to defend NII if spreads compress.

Well, they all contribute. And in terms of the customer side of the net interest income, it does actually have to be combined. So for example, here in the U.S., where our biggest operations and more of the client money resides, we're taking in client credits and partially lending them to other clients against their own marginable securities. So you really have to combine those two.

And then with the excess portion that we're not lending to clients, we're putting it in segregated places like banks and treasuries. And so you really have to add up all those things. But our model is fixed spread, which is very transparent. Our website's got all of our interest rate tiers on it. Anybody can check in and that's the rate they're going to get. It doesn't move around. It's always in relation to the published benchmark in each currency. And so, for example, in the U.S., eligible balances would earn Fed funds less 50 basis points, which is a tremendous rate compared to banks and many other brokers.

And likewise, they can borrow money at, say, Fed funds plus 1% to 1.5% or less for larger balances. Again, that's a spread that's fairly locked in for us as those balances grow.

How do you model client cash as maybe a function of market conditions? Are there specific cohorts, retail versus adviser versus pro where cash is stickier? And what have you been observing in terms of sweep behavior versus migration into T-bills or money funds?

So they're all fungible. We won't really break it down by segment. They don't really behave differently, things that we do find because there are a lot of moving parts inside of the cash balances is as we grow larger, obviously, with account growth, we take on more deposits, so that drives part of it. But also market conditions drive a good part of it. If the market takes a dive, people are largely getting out of their securities positions and generating cash.

So we're sort of getting commission revenue off of those trades. But there's no longer positions there, instead, there's cash, and now we earn net interest income off the cash. It's a balanced business model for us. And the market part, we're just there sort of supporting it as opposed to driving it. The clients all decide what to buy and sell.

So let's maybe change gears to the topic du jour, AI. So artificial intelligence is beginning to really reshape trading, portfolio construction and certainly client service. Where is IBKR actively deploying AI today? And maybe where are you kind of cautious about its potential?

We are cautious, but it can be very powerful. We've deployed it in a number of different areas. For some time, we've devoted it to responding to client inquiries. We have a ticket system and they put through inquiries of any nature. We started with several AI engines some time ago. And what we find is AI -- we'll use the tool to generate responses. A person always has to review the responses. That's a regulatory thing, but also common sense thing before they get sent out back to the customer. And what we find is that over time, the AI responses as trained on our own data, get better and better to the point where a larger percentage of them don't need to be edited at all before they're sent out to the clients. So that's a big efficiency gain for us because we can service more clients faster accurately without increasing the staff. So it scales extremely well.

In a broader sense, we've made AI engines starting last year available to all of our staff worldwide and encourage everybody to participate to try it out to play with it, to figure out how they can make their own jobs more efficient. And we're collecting up all the ideas and starting to build things in all sorts of areas, and it is very interesting.

And with regard to software development itself, which is a big part of what we do, programmers have their own desires. So some of them like using it as a tool, might generate some basic piece of code and then they edit it to try to get to the finished product. Others would say they are well capable of generating -- of writing their own code because reviewing and editing the AI code will probably take them just as long. So we leave it up to them. We've got a lot of smart people out there, and we're just encouraging them to use those tools. And over time, they'll undoubtedly be used more and more.

That's really interesting. Maybe just a quick follow-up there. When you're using AI alongside some of the coding, is that an internally developed AI tool? Or is that one of the third-party tools that we would...

Well, we start with the third-party tools. So we have a number of them to figure out which ones work better on different things. So when we roll it out to staff, not particularly for making code, but certain AI engines are better at crunching numbers and making models and certain AI engines are better at writing text and responses to clients and things like that.

Right. So on the noninterest income side of the income statement, where do you think you can be kind of structurally larger? Would it be market data, commissions, payment for order flow, stock flow and borrow fees, FX? And what would kind of be -- need to be true to see a mix shift play out?

Well, primarily, the commission business. Some of the other things you mentioned like market data, it grows with our customer base, but the customers sign up for market data, and we're largely paying for it and passing it through to them. So it's not a material revenue generator. But obviously, the commissions we spend a lot of time on. And that's -- our bread and butter is providing really best execution for our customers.

Our revenue model has proven itself because of all of the so-called 0 commission fee providers there, so we have a 0 commission offering, which does less than 5% of our business. So clearly, the clients that we attract place the value in the quality of our trade executions because they are happy to pay our commissions and probably do better by getting a better price. So that's where our focus is. I mean -- and net interest income speaks for itself. But the other line items in our revenue are largely -- they're either pass through or kind of incidental.

Got you. So prime brokerage and the hedge fund services side, that's a smaller but strategic part of IBKR. How do you balance the requirements of this segment? And maybe what are -- how do you balance the demands and growth potential of that segment with the demands of the more retail-orientated side of the business?

They are separate. The retail growth is word of mouth in advertising. As I said, the hedge funds we have targeted by -- I mean, obviously, we've grown in the rankings. We're #4 in terms of number of hedge funds now. We don't have the $5 billion hedge funds. We've got the $10 million to $15 million hedge funds, but then they grow on their own. We have started up some time ago, High-Touch Prime Services Desk, which combines the services of several different teams that we already were operating. So for example, the securities finance team worked with hedge funds on financing arrangements and sometimes corporate actions and various things that they are interested in.

And then we combine that with a more operational aspect of a team we call [ Prime Service ], which is there to answer any questions that customer has. And so by coordinating all that whole function, we can service those clients much better. It's still a relatively small offering for us, but we're getting very good feedback from the clients who are making use of it.

Great. So IBKR is known for its low cost. And I just wanted to ask a little bit about maybe where you do see pricing power? Is it kind of the data, the margin lending? Is it crypto, stock loan, technology services? And what would maybe make you deliberately lean into higher take rates without really compromising the brand?

Nothing I can think of. It has been our model from day 1. We are the low-cost provider. That is because we make a living at building technology. Technology allows you to operate at much lower revenue levels and still turn in what might be a 79% profit margin. It's very much in our DNA to operate that way. We've always said that what we want to do is provide our customers with the best set of tools to make them successful, and that means low cost and we can deliver low cost based on our technology. We have no reason to start to raise our rates just because they're still cheaper than everybody else.

And you just touched on the 79% margin. Maybe just kind of unpack that a little bit. Where is maybe the true fixed cost base versus the variable side? And what would be kind of the level of incremental revenue that could give you even more margin expansion from here?

Hard to say. So we have a concept we call gross transactional profit. And that means that we executed trade, we generated commission revenue. And against that, we have an expense, variable expense of having executed the next trade. So that's execution and clearing costs, basically. And that number is now up to 89%. That means 89% of the next trade revenue is dropping to the bottom line, hasn't always been that high. About a year ago, it was probably more like hovering around 80% for quite a while. It's done better for a couple of reasons. One reason is the SEC set their fees to 0 midyear last year. Those will come back. And those are a component of those costs, not the largest component, but they will come back.

Also, the more volume we get, the more we grow the customer base, the more kinds of trades we get, it allows our software, which is expert at order routing and getting the best execution for the customer to really come into its own to provide more and more value. And so that just -- that's going to lift it all on itself. And to the extent that we are routing orders to venues that may pay back liquidity rebates because many of them do, they want to attract liquidity on their platform, they want standing orders. When we get a liquidity rebate, we pass it through to our customer. So that reduces both the expense line and the revenue the commission line. But from a margin standpoint, a fixed amount, reducing the expense line, reducing it by a greater percentage. So it is going to expand that gross transactional profit even more. Hard to believe, it will go higher, but we also said that line was 80%.

Okay. And then what's your current view on margin loan growth potential? And how do you kind of think about credit risk through a full cycle? How do you think about loss rates or collateral haircuts, stress scenarios? How do you think through maybe like the kind of 2020 type of drawdown situation?

Sure. So we're very conservative in risk management. We -- it goes all the way back to our history as market makers, and we ran that as an automated risk management business, and we continue to do that for brokerage. Margin loans are at or near our all-time high. That's very much a market sentiment kind of thing. Obviously, we offer great margin debit rate. And so to the extent that the market is risk on and taking on more margin that a significant amount may come to us. We run lots of risk scenarios. We run stress testing, all sorts of things.

And when clients show that they have a certain risk that maybe didn't show up in the base margin amount, we charge them an overnight exposure fee that's an incentive to reduce their risk. So we have these various levels that we execute risk management at. But our history has shown that our losses on bad debt -- our customer bad debt are miniscule quarter over quarter over quarter.

So maybe how do you -- kind of related to that, how do you size your excess capital? What do you kind of consider from a regulatory buffer? How do you evaluate that trade-off between that stronger capital level and higher ROE?

Well, the first thing is that stronger capital allows us to attract much bigger clients, hedge funds and other institutions who don't have to worry. They may know our name a lot better than they did 5 or 10 years ago. But now they see there's $20 billion capital behind it and they don't have to worry there either. They don't -- hedge fund doesn't have to tell their investors who we are. So that's actually quite meaningful.

And the other thing is, of course, that capital is deployed in many different places around the world. So it's fragmented. And these affiliates are -- each one is under its own regulatory jurisdiction and stress testing and all sorts of things that end up using up capital and we really want to be there because when the market falls apart or gets extremely active in any way, we want to be there with business as usual. And for that, it takes excess capital to absorb those times.

Sure. So tokenization is certainly a hot theme in the landscape these days. What's kind of the approach here for IBKR? How do you think about that? How do you think about the industry? What's kind of the pros and cons of the tokenization type products?

We don't understand tokenization. We don't understand the economic value. We have open ears on anybody in the room or elsewhere that can tell us what it is. Stocks have been traded for many decades as electronic book entry items in a fairly efficient manner. They've brought in the settlement period from 5 days to 3 to 2 to 1 day, that's gone in a pretty good direction. We don't understand why it would be advantageous to buy a token that a broker has issued that's not fungible with other tokens out there that may not have a liquid market. To the extent that it's bought and sold, it's price is not -- is only loosely based on the price of the underlying according to some regulatory guidelines.

There's a significant amount of slippage there allowed. And so -- and why introduce another layer in between yourself, the investor and the underlying asset. So maybe there's some good answers to these questions. But at the moment, we don't see it.

And maybe, Paul, if you could talk a little bit about the OCC, the National Trust Charter Bank opportunity. What could that ultimately mean? And what's the latest there?

Sure. So this is a natural expansion of the kind of business we're already doing. We have fund customers, 40 Act funds and ETF issuers, who are under regulation so they must keep their securities in custody with a custody bank. We don't have a bank yet. So we already have these clients for whom we execute, maybe that's derivatives or even stocks. And then the custody takes place in a tri-party arrangement.

So by having our own custody bank, we can make that a seamless offering to those customers who can do the custody side. And then as well, we can offer them fully paid securities lending, which enhances their return because we're very good at -- we're very active in securities lending on the street. So this is -- it's a very natural expansion for us, and we could attract new clients as well, obviously, with that kind of offering.

Great. Just a reminder for those in the room, if you want to submit a question, you can do so through the app, and I'll happily read it here for Paul. Why don't we switch to the European side. So on the European bank license side, yes, same thing. What's kind of the latest there? And what's the opportunity for you?

Well, we've had tentacles out for a long time, and we're still exploring it. We would like to have that. It's not our highest priority. It has a different set of benefits than U.S. [ trust ] banks. Obviously, banks are freer than brokers to operate with client money while still protecting it. It would be a more efficient use of capital for us. So we have a number of reasons to want to do that. And we're pretty much always in the process of exploring it, and we're still exploring it right now as to what the best fit might be and what country and what region. And we'll end up doing that at some point.

If we go back to the kind of forecast contract discussion, maybe take us through the road map there. What could be kind of next in terms of what we could see from a product offering?

So there's a big push to research and offer new forecast contracts because it's completely unlimited in terms of what it might -- what parts of life and industry and business it might touch. If you just open up the ForecastEx website, you'll see all the popular contracts, the most popular ones, it's very transparent. You can see how much money is on each one, you can see the pricing and the probabilities that people believe things will happen or not happen. And it's very much in -- it's also categorized and some of the most interesting products turn out to be environmental like temperature and rainfall and things like that because they have obvious impacts for businesses right now.

So maybe if we kind of go back to maybe the first question, we talk a little bit more about the account growth. And I guess, a common debate from the investor community is just about how you can continue to grow at such a strong pace? And so maybe just unpack that a bit more in terms of, again, which segments you could see growth either stay the same or accelerate? And maybe just think about kind of the puts and takes in '26 versus '25.

Hard to predict. It was 32% for 2025 larger than we thought it would have been, We're very happy with that. They are -- the segments are all growing at fairly similar rates for different reasons. Individual side is word of mouth and advertising and then so forth as I talked about before. But we're quite happy with the account growth. We wouldn't count on it remaining at 32%, but we also didn't think it would be much higher than 25% over last year and it was.

So there's a lot of factors, and we're focusing more on advertising now, as I said, and that will grow the individual client base. And we're putting a lot of efforts into these IBrokers and onboarding. So these things, some of them are a more lengthy pipeline. But when it comes to fruition, then you see them all come out in the numbers.

Maybe talk a little bit more about the advertising. You guys seem to be doing a bit more. I kind of heard some of it. How do you decide where you want to kind of target some of that spend? And how do you track the ROI on where you've been putting those dollars to work?

We're very quantitative about it. A lot of it is online, banner ads and click-throughs and so forth. So what we do is we analyze a lot of the data, put more money into the sources that are producing more clients for us and less money into the others and monitoring and shifting that along the way. That process has improved over time. So we'll continue to do that. And we continue to explore other types of advertising. I keep being told that. So we have some large physical sort of billboard kind of ads and it turns out that the one in the Hong Kong airport is really popular. So who would know, but we learn these things along the way.

Some of your peers have kind of leaned a little more on the promotional side of investment dollars. How long do you think that they could kind of continue to do it at the higher pace that they've been doing it? And about shifting your approach to account growth by considering more promotional-type activity?

So we don't really do that. We have some promotional built in, which is really more about referrals and incentive there. But we don't do promotions in the sense of we'll give you better prices now and then pull the rug out later on, just come in now. We just don't do that. We're transparent. We have stable pricing. We have great pricing, but it's very stable, and it's transparent. It's out there on the website.

So to the extent that other brokers might offer big promotions and pull over customers, we think that's a temporary phenomenon. It hasn't made a material impact anyway, but we would think it's temporary because in the long run, serious investors want a stable platform with stable pricing.

Great. And maybe just one more to kind of wrap up on, Paul, I just wanted to talk a little bit about how you think about shareholder returns and the shareholder return framework? How do you kind of think through buybacks and dividends and just capital allocation broadly?

So we talked a little bit about capital allocation and wanting to maintain big buffers for running the business, but we acknowledge we've gone over $20 billion, and that's a pretty big number for being able to attract the clients. We are not thinking along the lines of a buyback because we're still only about 26% held by the public. So there's not much point in doing that. We'd rather grow that.

We have increased the dividend a couple of times in the last few years. We would generally target a dividend return in the -- on the order of, say, 0.5% to 1% probably because we're still very much a growth stock, but we fully understand that sort of return on capital. So that's likely as we grow more and more. But we don't see any large deployments of capital on the horizon. We keep looking in the M&A space, but people bring us things that are just not a great fit or not at the right price.

Maybe just unpack that a little bit. When you're considering some of these M&A targets, what would be some of the opportunities that you would kind of look to fill with inorganic growth?

It's so tough because when we look at say, another electronic broker. Well, we're already offering that, and we offer it better and we offer it cheaper, so why should we buy their clients and not their system. It's not going to be worth much to us. It will be worth much more to say private equity, it doesn't have any of that. So that's an obstacle. Maybe there's some expansion regionally around the world. We haven't really found the right fit yet. We're not actively looking, as I said, we're actively engaged in growing our business all on our own.

Possibly it could be in the order of taking on something that is not our core strength, maybe building our institutional sales or something like that, but nothing has been on the table. So instead, we have our hands full of growing the business organically all on its own.

Great. Okay. Well, I'm sure everyone in the room will join me in thanking you, Paul, for all of your time. Thank you.

Thank you.

Thank you for standing by, and welcome to Interactive Brokers Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to hand the call over to Nancy Stuebe, Director of Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you for joining us for our fourth quarter 2025 earnings call. Joining us today are Thomas Peterffy, our Founder and Chairman; Milan Galik, our President and CEO; and Paul Brody, our CFO. I will be presenting Milan's comments on the business, and all 3 will be available at our Q&A.

As a reminder, today's call may include forward-looking statements, which represent the company's belief regarding future events, which by their nature, are not certain and are outside of the company's control. Our actual results and financial condition may differ, possibly materially, from what is indicated in these forward-looking statements. We ask that you refer to the disclaimers in our press release. You should also review a description of risk factors contained in our financial reports filed with the SEC.

In the fourth quarter, we continue to demonstrate the power and leverage of our diversified fully automated global platform, which serves the full spectrum of investors from those new to the markets buying their first fractional share of Magnificent Seven stock and a cash account, through sophisticated traders benefiting from low cost and geographical reach to professionals using our APIs and algorithms to execute advanced quantitative strategies and portfolio margin accounts. Many clients start gradually and evolve into active sophisticated traders, and our platforms are designed to support that entire journey, supporting their growth with us along the way at every stage.

We continue to see strong international interest in the global securities markets on a secular basis as people around the world seek higher returns on their assets as interest rates decline and as other financial institutions pay them less. In 2025, we added more than 1 million net new accounts, an annual record for the firm. Client equity rose 37% to $780 billion, an increase of more than $200 billion year-over-year and the first time we've ended the year with over $0.75 trillion in client assets.

Cyclically, rising markets and expectations for lower interest rates drive increased client engagement. Clients traded actively, grew more comfortable taking on risk, increased their market exposure, and make greater use of leverage through margin loans. They also expanded beyond equities into other asset classes, including options and futures. Our client-centric focus by which we mean delivering global market access at extremely competitive pricing on state-of-the-art platform is best reflected in one simple measure, our clients' performance. In 2025, the S&P 500 rose 17.9%. By comparison, our clients outperformed. Individual investors here were up, on average, 19.2% or 130 basis points above the S&P 500. Financial advisers were up 20.57% on average, or 267 basis points above the market. Hedge fund clients were up 28.91% on average, a full 11 percentage points ahead of the S&P.

This performance is the direct result of our focus on empowering clients through low trade and margin pricing and less drag from costs, superior trade execution, advanced order types and algorithms, the advantage of attractive interest rates on cash and short proceeds as well as the many advantages of our platforms from AI and research tools to comprehensive educational offerings. It is why clients come to us. No gimmicks, no games, just the best prices and the most comprehensive platforms. It is why the best informed investors choose Interactive Brokers.

That client focus, combined with strong global demand for investing, translated into exceptional financial results. Quarterly adjusted pretax income reached a record level of more than $1 billion for the fifth consecutive quarter despite lower interest rates. For the full year, we generated more than $6 billion in net revenues for the first time. We continually invest in improving our platform from front to back end, supported by a global team of programmers who deliver new functionality, ongoing enhancements and client-driven improvements, while also meeting the diverse regulatory requirements across the many market centers and currencies we support.

This year -- throughout 2025, we introduced a wide range of new products and enhancements worldwide guided by deep engagement with and a strong understanding of the needs of our diverse client base. This year, we expanded market access to Brazil, Taiwan, the UAE and Slovenia, with additional countries planned for 2026. We continue to add to our ever-growing list of country-specific tax-advantaged funds. We offer traditional and Roth IRAs in the U.S. as well as Canadian RRSPs and TFSAs, U.K. ISOs, French PEAs and Hungarian TBSCs. This year, we added Swedish ISK, Japan's Nisa, and Canadian FHSA. We now have several billion dollars of client assets in these accounts and are able to support individual investors at all stages of their investment journey.

From a funding perspective, clients can now fund their accounts using stable coin, making cross-border account funding easier and available 24/7. We doubled the amount of cash eligible for our FDIC suite program, from $2.5 million to $5 million for individual accounts and from $5 million to $10 million for joint accounts. In October, we teamed with Carta to introduce a premium charge card globally. The Carta Visa Infinite Card allows eligible clients to link their accounts and access their cash instantly anywhere in the world with no foreign transaction fees and especially compelling benefit for our global client base and it comes with premium cardholder benefits.

Platform-wise, our Global Trader 2.0 mobile platform was launched with a comprehensive UI/UX revamp and an all new look and feel. Quick access trading tools, accessible via swipe or Long Crest were added. Watch list management was streamlined and AI new summaries Incorporated. Our leading-edge IBKR desktop platform delivered several highly requested enhancements this year, including multi-monitor support, with independent windows for charts, option chains and more, multiple new screener filters, a named strategy selector for clients to quickly access popular combo strategy types and a new Linux beta installer, extending IBKR desktop into the Linux ecosystem and addressing another long-standing client request.

We introduced connections where clients can enter a company's ticker and explore its broader investment ecosystem, including options, ETFs that hold the stocks, forecast contracts related economic indicators, competitors and more. This feature is already seeing strong engagement.

We have embedded artificial intelligence throughout our organization, benefiting both clients and employees. We launched AI-powered investment themes which allows clients to enter a concept such as nuclear energy or quantum computing and instantly receive a list of actionable investment ideas, significantly streamlining the research process. We also launched AI generated news summaries, receiving FINRA approval midyear. These summaries deliver timely, relevant news directly tied to clients' portfolios, helping them stay informed more easily.

Across our platform, we launched the first version of ASK IBKR, an innovative AI power tool that lets our clients interact with and ask questions in plain English about their portfolios. Clients can ask about performance and allocation analysis, track their activity and get performance attribution. They can ask to compare their performance versus various benchmarks, find their top dividend payers, calculate their capital gains and losses and analyze sector exposure. Performance can be analyzed across flexible time frames, 1 year, 1 month, period to date, et cetera. Staying on top of an active portfolio with rapid access to a wide breadth of data is critical for successful investors.

Beyond these highlights, we have delivered a wide range of enhancements and new features. I encourage you to explore our platforms on our website or better yet request a demo. Seeing our offerings firsthand across a broad range of client types and experience levels is the best way to appreciate what we have accomplished.

In other areas of our business to further enhance execution quality, we expanded our network of liquidity providers across bonds, options, overnight trading, international stocks and ETFs and ADRs. And to further support our non-U.S. client base, we translate our investor education courses and webcasts into multiple languages, making it easier for clients around the world to get started on investing on our platform.

Trading volume during our overnight hours continues to grow rapidly, up 76% from last quarter and more than 130% from the fourth quarter of last year. Providing deep liquid markets that are not constrained by U.S. regular trading hours is critical to meeting the needs of a globally active client base.

And finally, a note on ForecastEx. We created this exchange, which is regulated by the CFTC, to support trading on consequential predictions that have measurable third-party verified outcomes. ForecastEx traded 286 million pairs this quarter, up from 15 million pairs in the third quarter and now has 4 members quoting into the exchange, which has over 10,000 listed instruments. Our pipeline of new business, new initiatives and enhancements remains as strong as ever, and our platforms resonate with people around the globe. We are not stopping here to rest on our achievements. We have many projects to work on, which we will look forward to sharing with you once they become a reality.

With that, I will turn the call over to our CFO, Paul Brody. Paul?

Thank you, Nancy. Welcome, everyone, to the call. We'll start with our revenue items on Page 3 of the release. We are pleased with our financial results this quarter as we produced near-record net revenues and pretax income for the quarter and record results in all the major financial categories for the year.

Commission revenues rose to a record $582 million this quarter. For the full year, commissions were $2.1 billion, up 27% from last year, driven by higher trading volumes across the major product categories. Net interest income reached $966 million for the quarter and a yearly record of $3.6 billion despite multiple rate cuts in nearly all major currencies. The continued risk on environment during most of the year led to a significant increase in margin borrowing, while strong net customer deposits led to higher segregated funds balances.

These revenues were partially offset by the interest we paid to our customers on their cash balances. We saw fewer hard-to-borrow names in securities lending than in the third quarter but their presence across the second half drove full year results well over the prior year. Other fees and services generated $85 million for the quarter and $291 million for the year, both up modestly versus the prior year period. This is primarily driven by higher payments for order flow from options exchange mandated programs and higher FDIC sweep fees despite reductions in risk exposure fees.

Other income includes gains and losses on our investments, our currency diversification strategy and principal transactions. Note that many of these noncore items are excluded in our adjusted earnings. Other income was $10 million as reported and $37 million as adjusted, primarily driven by a loss in our currency diversification program.

Turning to expenses. Execution, clearing and distribution costs were $91 million in the quarter, down 21% from the year ago quarter primarily due to 2 factors. First, we had a full quarter of an SEC fee rate at 0. In the fourth quarter of 2024, SEC fees were $22 million. And second, higher volumes meant we earned higher rebates at exchanges as a result of our smart order routing optimization, particularly for options. These costs and rebates are largely passed through to customers, so these reductions don't have much impact on our profitability, but they are components of our clients' profitability and this execution quality is one of the reasons they choose to execute with us to maximize their returns.

As a percent of commission revenues, execution and clearing costs were 11% in the fourth quarter for a gross transactional profit margin of 89%. We calculate this by excluding from execution clarity and distribution, $23 million of nontransaction-based costs predominantly market data fees, which do not have a direct commission revenue component. Compensation and benefits expense was $153 million for the quarter for a ratio of compensation expense to adjusted net revenues of 9% versus 10% in the prior year quarter. As always, we remain focused on expense discipline as reflected in our moderate staff increase of 6% over the prior year. For the full year, this ratio was 10%, down from 11% in 2024.

Our head count at December 31 was 3,182. G&A expenses were $62 million, up 5% from the year ago quarter, primarily from increasing spending on advertising. For the full year, G&A was $247 million down from last year, which included a legal settlement that added $78 million and a onetime charge of $12 million to consolidate our European operations. Excluding those items, G&A for the year was up 10% and predominantly on higher advertising expense.

Our pretax margin matched the third quarter record 79% and achieved a new record 77% for the year, both as reported and as adjusted. Income taxes of $99 million reflects the sum of the public company's $39 million and the operating company's $60 million. The public company's effective tax rate was 12% below its typical range, primarily due to tax benefits we were able to capture in 2025.

Moving to our balance sheet on Page 5 of the release, our total assets ended the year 35% higher than the prior year at $203 billion with growth driven by higher margin lending and segregated cash balances. New account growth also helped drive our record customer credit balances. We continue to have no long-term debt and profit growth drove our firm equity up 23% for the year to exceed $20 billion for the first time. We maintain a balance sheet geared towards supporting growth in our existing business and helping us win new business by demonstrating our strength of prospective clients and partners while also considering overall capital allocation.

In our operating data on Pages 6 and 7. We had record customer activity and options with our contract volumes up 27% over the prior year quarter and up 26% for the full year, in line with industry volumes. Futures contract volumes rose 22% for the quarter to a near record and were up 12% for the full year, well above industry volumes. Stock share volumes rose 16% for the quarter and 38% for the full year. Stock share volume generally increased versus last year as clients gravitated to larger, higher-quality names and traded relatively less in pink sheet and some other very low-priced stocks.

Growth in the notional dollar value of shares traded in the quarter, was significantly higher than the growth in share volumes combined with the rise in major equity indices worldwide. On Page 7, you can see that total customer DARTs were a 4 million trades per day, in the quarter, up 30% from the prior year. Commission per cleared commissionable order of $2.64 was down from last year, primarily due to a mix of smaller average order sizes in stocks and futures and slightly higher in options. In the previously mentioned SEC fee rate moving to 0 which lowered commissions as well as execution and clearing expense.

Page 8 shows our net interest margin numbers. Total GAAP net interest income was up 20% from the year ago quarter to $966 million, just $1 million shy of third quarter's record despite benchmark rate cuts in multiple countries. Adjusted for NIM presentation, net interest income was just over $1 billion for the first time. We include for NIM purposes, certain income that is more appropriately considered interest, but that for GAAP purposes is classified as other fees and services or as other income. Our net interest income reflects strength in margin loan interest and securities lending, partially offset by modest increase -- by a modest increase in interest expense on customer cash balances despite lower benchmark interest rates.

Many central banks including the U.K., Canada, Hong Kong and the U.S. reduced rates this quarter, while others, including Australia, Europe and Switzerland held steady. Year-on-year, the average U.S. Fed funds rate fell 75 basis points or by 16%. Despite this decline, our margin loan interest was up 17%, and our segregated cash interest was down only 3%, both bolstered by higher balances. The average duration of our investment portfolio remained at less than 30 days. During this quarter, the U.S. dollar yield curve remained flat to inverted from the short to medium term, so we continue to maximize what we earn by focusing on short-term yields rather than accepting the lower yields and higher duration risk of longer maturities.

This strategy also allows us to maintain a relatively tight maturity match between our assets and liabilities. Securities lending net interest was higher than last year, that we did not see as much activity in hard-to-borrow names as in the third quarter. Contributors to annual growth included several factors: our growing account base, which increases our inventory of attractive stocks to lend, including international securities, the interest we pay on short cash balances, which makes us attractive to investors who utilize short selling, our fully paid lending program shares proceeds with clients generally on a 50-50 basis, which appeals to investors looking to maximize the return on their portfolios. And finally, activity has picked up in some of the typical drivers of securities lending, including IPOs and merger and acquisition activity.

As most benchmark interest rates are now sufficiently above 0, a portion of what we earn from securities lending is classified as interest on segregated cash. We estimate that if the additional interest earned and paid on cash collateral were included under securities borrowed and loan and total net revenue related to securities lending would have been $290 million this quarter, up 58% over the prior year quarter. Fully rate-sensitive customer balances ended the current quarter at $24.7 billion versus $19.1 million in the year ago quarter.

Now for the estimates of the impact of changes in rates. We estimate the effect of a 25 basis point decrease in the benchmark Fed funds rate to be a $77 million reduction in annual net interest income. Note that our starting point for this estimate is December 31, with the Fed funds effective rate at 3.64% and balances as of that date. Any growth in our balance sheet and interest-earning assets would reduce this impact. About 29% of our customer interest-sensitive balances is not in U.S. dollars. So estimates of the U.S. rate change exclude those currencies. We estimate the effect of a 25 basis point decrease in all the relevant non-USD benchmark rates which reduced annual net interest income by $31 million.

In conclusion, we posted another financially strong quarter in net revenues and pretax margin, leading to a record year. This reflects our continued ability to grow our customer base and deliver on our core value proposition to customers while simultaneously scaling the business. Our business strategy continues to be effective, automating as much of the brokerage business as possible, continuously improving and expanding what we offer while minimizing what we charge. And with that, we will turn it over to the moderator and open up for questions.

[Operator Instructions] Our first question comes from the line of Brennan Hawken of BMO Capital Markets.

I was curious about the Paul, on the customer credit balances. It seems as though the decline in the amount paid to yield didn't come down quite as much as we were looking for. Just some color around some of those dynamics and what might have caused the lower rates not to flow through and whether or not there might just be some more on the come here in the next quarter or 2?

Yes, sure. So obviously, it's -- the net interest income and the major segments there being segregated cash, and margin loans and the customer credit balances, it all operate a little bit differently. So for cash when the rates come down, even though we have a relatively short duration, there is a little bit of tail out there. and we retained somewhat higher rates while we pay lower rates on our credit balances during that period because they are based on the overnight rates. The rest of balance changes. So our very strong performance in the margin lending balances overcame vastly overcame the drop in the general benchmark rates.

Okay. Got it. So we got basically a repricing lag on some of the asset side that makes sense. And from a follow-up, I believe the comment period for your bank charter application ended day. Could you maybe update us on that process, what you've heard back from the regulators? And what kind of impact we should expect i.e., if the bank charter is approved and you go forward with the bank?

So we have been in contact with the OCC for a while. The way this process works is you are in contact with them, you talk to them, you present the business plan. They point out what they do not like or what you would like to receive more information on. Once you get through this stage, they give you the go ahead to officially file the application, which we did, and they acknowledge that. Then there is a several months long time period that they have to actually approve your request. There are others applying for the National Trust Charter Bank. I do not know exactly where we are in the queue. But my expectation would be to be operational by the end of this year.

Now exactly what that means for us is as the broker dealer, the regulations do not permit us to custody assets of mutual funds and exchange rate funds. A trust charter bank, we've allowed us to do that. So that is the rationale behind our applications.

Our next question comes from the line of Patrick Moley, Piper Sandler. Please go ahead, Patrick.

I had 1 on prediction markets. There's been a lot of speculation recently about whether regulators or the U.S. courts will allow prediction market platforms to continue offering sports contracts. So I was just hoping to get an update from you on how you maybe see this all playing out between the platforms and the sports books. And then with ForecastEx launching NFL contracts in the fourth quarter, just wondering what you would need to see from regulators or the courts that would make you comfortable offering contracts like that to IBKR customers? Or if this is an aspect of markets that you just think is will never make sense to co-mingle with your existing customer base?

So I don't know if you've heard that Massachusetts just came out with a ruling against case. So the judge ruled against Kashi and that probably means that no longer take customers from Massachusetts. But this is certainly not the final word. So you get is as good as ours as to what will happen here. And so luckily, the Interactive Brokers does not rely on sports. We do believe that these contracts will have in enormous applicability to many, many things about the future and be very, very successful and it doesn't really have to depend on sports.

Okay. Great. And then just as a follow-up. You're sitting on a healthy pile of excess cash. Any updated thoughts on the appetite for M&A and capital return priorities. And then on M&A specifically, I know in the past, you said that with traditional brokerage models, it's been difficult to make the deal math work with your pricing model. But in an emerging asset class like prediction markets, I'm just wondering if M&A could make sense here for you.

Anything is possible, but we're not going to buy a firm that is doing sports betting and there is nothing else out there at the moment, right?

It's not only that we have our own platform forecasts it's growing nicely. -- mid-December of last year, we have rolled out forecast bets on 24/7 trading schedule. We adding liquidity providers. ForecastEx now let over 10,000 different instruments, and the trading volumes have increased significantly. So no reason for us to look for an acquisition in this space.

Our next question comes from the line of James Yaro of Goldman Sachs.

So you touched a little bit on the National Trust bank charter. I was hoping you might be able to touch a little bit on the aspirations for a European banking license? And if so, where you are in the process of looking to get one of those?

We have not started the process having a bank license in Europe would come with some benefits. It is not urgent for us to have one. We will eventually have a license in Europe, the most likely place for us to acquire it would be in Ireland, where our broker operations are already regulated by banking regulator with whom we have a very good relationship.

Okay. Excellent. I just wanted to ask a follow-up on prediction markets. I was hoping, Thomas, you might be able to just update us on the institutional adoption of prediction markets so far, how you plan to cater to this client set specifically on the retail side? And over what period in your view, institutional prediction markets fully develop?

So our most frequently traded contracts are temperature contracts. We are currently working on tying up these temperature contracts with the electricity contracts and the natural gas contracts. And as you know, it is basically the utilities that have to every day make a judgment about the next use of electricity. So we are working on approaching those. And I think that sometime in the course of the year, you will see them onboarding.

Our next question comes from the line of Craig Siegenthaler of Bank of America.

I hope you're all doing well. My first 1 is on your expanding crypto offering. How should we think about the appetite for adoption across your base? And I'm especially interested in the individual investors in the direct and the eye broker channel. Do they want crypto trading and do they want it from IBKR?.

Crypto revenues are at the moment, small relative to the overall company's revenues. -- most clients who actively trade cystocurrencies were already doing so before we enter the space. So we are not yet a major brand in cryptocurrency space. You asked about the eye brokers. The answer is no. They have not been asking for access to crypto. I'm not sure why that is. Our pricing as we explained over a number of earnings calls is superior to our competitors in the United States and outside. We added crypto to our offering to round it up to -- particularly targeting investment advisers and multi-asset clients. who wanted limited exposure to the assets. Our offering is competitive, and we continue to add capabilities, new geographies, namely Europe is currently the focus, I would expect us to go live with our offering in this quarter. And then I am hopeful that asset transfers, once we support asset transfers some crypto assets will migrate to our platform and take advantage of our superior pricing.

Thanks, Milan. And just for my follow-up, it's 1 I've asked, I think, 2 quarters in a row now, but account growth, still very strong, north of 30%. Thomas, any specifics on how long you can keep this up? Because your comments at that may come...

As long as I shall live. That's my answer. I don't see any reason why our account growth would slow down. It will continue at the rate that we've been going. You see the benefit that we have is our platform is attractive to very people.

Our next question Comes from the line of Dan Fannon of Jefferies. .

So just another question on growth, but more just in terms of investment and spend. As you think about all of the initiatives you have entering this year, do you think the level of spend is growing? Is it consistent with the last couple of years? Or how should we think about overall expense growth?

The overall expense growth, I think, has been consistent over the past many quarters over the last few years. We have been cautiously adding to our head count as we needed in this past year, it was around 6% growth. Our compensation went up by 10% or so I would expect for us to see similar growth in the future. Of course, we have a number of AI initiatives in process and those initiatives may affect the rate at which our expenses will grow in the future.

Understood. And then just another 1 on account growth in terms of the account growth today and where it's been coming from here in the latter part of 25 versus maybe where you think there's growth going to change or other areas that could grow faster in next year? Just trying to get a sense of what's different in terms of where you're seeing more success or more markets are more mature versus less?

We have been universally doing well. We have been attracting large accounts, small accounts, very active accounts, less active accounts, retail, professional institutional -- they all come to a sedative reason. The technology works, pricing is fair, access is global. No need to rely on promotions or incentives.

[Operator Instructions] Our next question I'm from the line of Benjamin Budish of Barclays. Please go ahead, Benjamin.

Maybe tying a couple of these previous questions together, I think Thomas, in the press, you made some comments about the U.S. midterm election later this year potentially juicing account growth. Can you maybe talk about the -- and I think you've mentioned in the prepared remarks, the advertising spend is up a little bit, even though I think a lot of your growth comes from more of mouth -- can you maybe talk about your plans to get -- or drive more engagement on prediction markets, either through the Interactive Brokers platform onboarding more FCMs. How are you thinking about that opportunity coming up later this year to kind of boost account growth even more?

Advertising is certainly a key. We are doing -- getting better and better at advertising -- and we are also increasing our spending, advertising spending to some extent. So that's what it is. We will not let our account growth go lower.

Love the confidence. Maybe just 1 more question on prediction markets you talked earlier about institutional interest. I'm just curious, when we look at some of the institutional products offered at CME and ICE, we tend to see very, very large notional amounts and larger fees per contract, but less relative to the size -- to the notional amount of exposure. Just curious, onboarding insurance companies, electric utilities, these sorts of institutions. -- does that require any change to product design? Or do you think it's more a matter of education, making sure the liquidity is there and then you'll be able to onboard those kinds of customers?

It's not a product design question. It is a matter of selling it.

Thank you. I would now like to turn the conference back to Nancy Stuebe for closing remarks. Madam?

Thank you, everyone, for participating today. As a reminder, this call will be available for replay on our website, and we will also be posting a clean version of our transcript on the site tomorrow. Thank you again, and we will talk to you next quarter end.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Okay. Let's get started here. So we are extremely pleased to have Thomas Peterffy, Founder and Chairman of Interactive Brokers, join us again for a fireside chat. Thomas founded Interactive Brokers 48 years ago. He was instrumental in the creation of electronic market making, then in the evolution of retail brokerage and now innovating in areas, including some very novel products like prediction markets. Interactive Brokers remains a uniquely growing brokerage firm, servicing retail and institutional clients across nearly all products and offering a unique tech-enabled platform. Thank you so much for joining us, Thomas.

Okay. So Thomas, you've seen many cycles over the past 48 years of building Interactive Brokers. What are you seeing from the market today on where we are in the economic cycle and also in terms of risk appetite from your clients?

So unlike David Kostin, it is not my job to have to figure out which way the market is going to go. But I do admit that I do sometimes do trades for myself, and you will be surprised to hear that my brokerage account is with Interactive Brokers. And the reason for that is that they are the only ones where I can get in and out of large positions relatively unnoticeably without being front run because they have -- what do you call this, Argo -- Argo orders called accumulate, distribute where you can get into a large position without being detected and you can get rid of it without being detected. And you can do so over several hours or days or months automatically by saying that you're going to buy, say, 500,000 shares of such and such, say, 1,000 shares at a the time every 2 or 3 minutes, but it will randomize the size and it will randomize the timing. So you avoid traders front running your orders.

And so that's an important feature. And I hope that many of you who have accounts at Interactive Brokers are enjoying that. Now I do have sometimes a market view, but that's my personal view. So on April 8, I was very bullish and I was on Fox Business News that afternoon and said that I thought we had the greatest buying opportunity in a lifetime. And I just happened to be very right that day. But this claim and immediately asked if I really thought it was a better opportunity than when the S&P 500 hit 666 in March of 2009, and I immediately was no longer so sure of my opinion.

But the fact is that on that day, a bull market started. And in my view, it is going to continue. Now why do I think it will continue? It is because Trump will do anything he can to trump up the economy for the midterm elections. On IBKR forecast trader, the Democrats have currently a 72% chance of taking back the house. And Trump will try to do whatever he can to remedy that. And so he will put a person into -- to run the Fed who is likely to lower rates. And then there are several other initiatives they have even at the cost of potential cost of increased inflation to boost up the economy. And so that's what I think will happen.

Great. Okay. So maybe as we look ahead, what are the key investment priorities in your view for Interactive Brokers? And I'll let you take in whatever direction you want, product, geography over the next few years.

So much of our focus is on forecast trader. We believe that this is going to be much, much bigger than the equity markets, but I think you want to talk about that later. Other than that, we are -- we continue to focus on adding subsidiaries in -- brokerage subsidiaries in different countries and adding new exchanges to our existing 160 or 170 exchanges we are currently executing on.

We are building presentation layers for theme trading that we call it, which is basically when you are focusing on a certain investment theme like, say, solar energy or dentistry or cancer cure, where we are putting together different -- the shares of different companies that are related to that theme and whenever it's applicable, futures contracts having to do with it and the forecast contracts that relate to it so that people who specialize in certain areas of endeavor can come to our platform and try to invest in companies and other different contracts around that theme. So that's one of those things that we are adding to -- we are currently working on. And that includes AI-driven facilities and also but we are not really leaning towards any geography because we are -- we want to grow globally evenly, more or less evenly around the globe.

Excellent. So maybe let's just turn quickly to the regulatory backdrop. Are there -- I guess, what are the key market structure changes in which you'd have -- you'd like to see more clarity and/or changes? And then we've seen tremendous focus among legislators and regulators on crypto. Do you think that makes sense?

So I'm not very happy with the way Bitcoin incentivizes criminal activities. And that is a problem. And I really don't know what we should do about it, but that's a serious issue. But other than that, I am very excited about Stablecoin. And here, we can announce that we are adding Stablecoin still this year, we are going to accept Stablecoin from Tether, repo, PayPal and Circle still before the end of the year.

So you can fund your account in Stablecoins and withdraw and deposit in Stablecoins, and this is going to attribute to the increase in the velocity of money, which will then add to the -- to the economic boost that the Trump wants to see in the near future. Now as far as the SEC is concerned, we would like the SEC to clarify if certain prediction market questions related to companies would or would not be securities such as the sales or the employee, average wages or of certain companies or the number of employees or various questions having to do with publicly held companies, are there securities or are they not? So that's a question we would like to see it clarified because as prediction markets grow, these will be relevant questions.

Great. So we're on the topic of prediction market. So maybe let's focus on that for a bit here. What is your perspective on the development of institutional prediction markets? I guess what's the time frame you would expect this to develop? And I guess, what's the scope that you would anticipate? Is it sports, non-sports or both?

Well, so I expect that in time, we'll have a bunch of economists, data and climate scientists on the one side and smart -- street smart traders on the other fighting it out in the prediction markets. The timing is not very clear. We must do more advertising in order to have more liquidity on certain contracts that we are going to emphasize. So we don't want a situation where we entice a commercial participant to come in and try to do a big trade and then it cannot get done because then it's very hard to get them back. So we first have to build the liquidity. And so we are advertising and we -- surprisingly find that the greatest interest currently on our platform is in temperatures.

And interestingly, the temperatures, the daily temperatures fluctuate with electricity use and electricity prices and energy prices and energy use. So this is a way for us to back into the entire economy via temperatures. And so we are going to add wind speed at the time when we have wind speed, people will begin to think maybe about insurance. And so eventually, I think that we will have a situation where anything you want to know about or anything you're interested in as far as the future is concerned, which is basically what we should all be focusing on, you will be able to come to Interactive Brokers platform and see what the consensus opinion is and either participate or disagree and take your -- invest in your own views or noticing what the prediction market opinion is telling you and go back into your portfolio and see whether your portfolio is aligned with that or not.

And so I think that is going to be a very big market. We are going to -- as I said, we are going to get into energy shipping, transportation, insurance all over the globe, not only in the United States, but everywhere. And I think that some investors will generate models, investment models based on what the prediction markets tell them and portfolios will be optimized accordingly, and they'll be continuously updated based on the probabilities seen in the prediction markets. This will continuously change.

The consensus estimates will continuously change and continuously drive a model portfolio. We already have built facilities for -- on our platform where you can run a model portfolio next to your existing portfolio. And we have a way to -- for your target portfolio to continuously update your existing portfolio. And we have -- as you know, we have our ATS with a lot of liquidity in there. So we can continuously basically trade your portfolio. And hopefully, we can do that at a profit at a daily trading profit for you. So this is going to be the future.

One more for you on prediction markets. Can you just expand a little bit on the ability to and barriers around expanding ForecastEX into sports?

So one of the barriers about sports is our culture because, as you know, we like to focus on sophisticated serious investors. And when somebody is on our platform doing their work on their -- maybe doing research or trading their portfolio, we don't want to distract them by going into basketball or something different. So we are concerned about doing that. And therefore -- so at this time, we are not sure if we want to have sports on the platform. But -- on the other hand, we realized that if we had sports, we would have more people opening accounts with us. But also the -- as you know, there is the issue of whether it's state regulation or federal regulation matters here.

Our lawyers tell us that the states are extremely likely to prevail here, and there could be some serious difficulties for the firms that currently offer sports. And I'm pretty sure that eventually the states will have a program for online brokers to register and to pay taxes because the states have a very substantial revenue they derive from sports bet -- tax revenues on sports bets, and they are not about to give that up. So I'm sure that there will be some resolution around that.

Okay. So maybe just turning to your account growth. Your target is 20% over the long term, but you've obviously been well above that this year, even closer to 30%. If the market sell-off reoccurs or we see more pain for customers, how do you think about what that means for growth? Could we slip back closer to 20%? And then I guess, any other updates around the structural account growth in your view?

So the precise number is 33% for the last 12 months. We don't really have a target because in my view, it's silly to have a target because what's the point in having a target. You always want more, right? So if we had a target, we could never meet it because we would always have a higher and higher and higher target. So we just want more. We just want more, no matter how many we have. So what advertising, of course, is the most important way that we gain new accounts.

And then, of course, many of the new accounts bring friends and family. And so about 30% of our accounts come by recommendation and about 20% come by sales and 50% come by advertising. The 30% -- I mean, depending on -- the last quarter of the year is always the weakest as far as new accounts are concerned. And the first quarter of the next year is always the strongest, and you will see that this year again. And so whether it's 20%, 30%, 40%, it's hard to tell, but we always want more.

Makes sense. All right. Let's touch on a couple of your client channels. So could you just give us an update around the introducing brokers channel today? How is the growth in this channel? And are you seeing more success in bringing in new clients more recently?

We do not really see more success. We are seeing the same rate of success. This is a very, very slowly moving picture because what's happening is that by now, all brokers either have their own technology or they are on a platform that provides them with technology. If anybody you talk to who is familiar with this space, they will tell you that Interactive Brokers technology is by far the best. On the other hand, all the other providers require their clients to sign a long-term contract. We are the only ones who do not because we're pretty sure that once somebody is on our platform, they are not likely to want to go elsewhere. And if they do want to go elsewhere, why should we prevent them from doing so.

So our salespeople go out and they go to brokers who are already on somebody else's platform. Most often, it's on Pershing. And Pershing has an old updated obsolete technology, and they are much more expensive than we are. But they have a very -- they have a long-term contract. So people say, yes, we'll come over when our contract is up. And then we come back to them when the contract is -- has a year to go and then they start working with us and preparing for their FINRA application because for some reason, FINRA has to approve these associations. When a broker wants to change to go to a new platform, they have to apply to FINRA and FINRA has to approve it. FINRA takes a couple of months to do so generally. And once it's approved, we go back and they continue to work slowly dragging their feet. And then when it becomes -- when we come very close to the deadline, they say, gee, we will probably miss the deadline. This is not good and they get scared and they renew with the old platform.

Interesting.

Okay. It's not in every case. But that happens a few times and you get very discouraged. So this is going to be a generational transfer.

Okay. That makes sense. Let's turn to your increasingly high-touch prime brokerage offering, which at least according to Preqin is now ranked #4 in the number of hedge funds. Have you seen increased competition in the space for your hedge fund client? And with big banks starting to see lower capital requirements, are they becoming more competitive yet?

Well, we cannot tell that. So big banks basically compete on they imputed safety by being too big to fail. And we are obviously trying to boost up our equity capital to -- but we are still far -- we just went over $20 billion of equity capital just a couple of weeks ago, and we continue to keep growing that. And -- but we're still far below where the other big banks are. On the other hand, we do not have the exposure to the over-the-counter contract, which is basically a spaghetti with obligations and rights and obligations with hundreds of thousands of different customers and counterparties that are not through clearing houses.

So if you remember when Bear Stearns and Lehman had the problem, the problem was that people couldn't figure out where -- whether they could collect from everybody that owed them and therefore, the prime brokers themselves became a problem for other prime brokers because you couldn't tell if Lehman could pay you. And there is no -- the lack of clearing houses is a very, very serious problem. But of course, the big banks like the lack of clearing houses because that way, you cannot compare prices.

So when there are no -- there is no price comparison, you can charge any price. So we -- that's what we tell our salespeople to go out there and say all these complicated over-the-counter programs, colors and whatnot, you can basically use exchange-traded products to create the same kind of colors. But that, of course, then is not specific to a specific date or a specific strike. -- but it basically does the same job. So ultimately, I keep telling my guys, you go out there and you tell this person who happens to be with a big bank and ask them, how come that the big banks report over $200 billion of trading profits together every year, who do you think is the other side of those trades? Who do you think?

Thomas, don't tell my clients that. Okay, maybe on your trading tech, how do you -- how are you investing to stay best-in-class from a trading tech perspective? Obviously, that's your legacy, having best-in-class trading tech. So maybe what are the new tools out there that allow you to offer that better tech? Is it AI? Is it cloud? Other things that we should be thinking about?

So we use AI, obviously, for our customer service. Our employees are encouraged to use AI and internally put together AI environment for looking up information, writing memos, creating marketing materials and creating code. This helps us to keep our costs low. Creating code is probably the most interesting prospect here. And we have hundreds of developers of the company. And some of them love the AI and some of them say that they don't want to use it because it ends up to be more work, debugging whatever they get from AI and fitting them into their existing code.

So the jury is still out on this. But in my view, it certainly is going to grow in that direction. So developing is going to be relying more and more on AI. And we certainly want to be one of the companies who do that. And then, of course, on the customer end, we have more and more AI-generated research, but customers can go and do their own on the AI platform, right?

Okay. Maybe just turning quickly to excess capital acquisitions. How much excess capital do you have today? And could you update us on acquisition priorities when you're thinking about a deal?

So as Josh just said, we have -- we just run over $20 billion of equity capital. We have, I think, 16 or 17 subsidiaries, wholly owned subsidiaries in different regions of the globe, and they each need to have their own capital, and that eats up about $12 billion of our $20 billion of capital. So we have $8 billion of excess. We like that access because you never know when you need it. And we do look at acquisitions. We recently looked at a European bank, but it didn't go through. So what usually happens is when we look at acquisitions is we -- when we visualize how it would fit in, we find that we're always better off -- we always come down on the side of building it ourselves is better than acquiring it and trying to fit it in because we have a culture -- we have a problem with the culture, with the culture fit and how to assimilate the technology is always difficult. So then it often would happen that you just discard the newly acquired technology that you just paid for and then why pay. You have to build it anyway.

Okay. Any updates on your plans to sell stock? And I guess what are the key considerations that you're thinking about?

So I always say to myself that I will sell stock when the growth will plateau. But any time when it seems like it's plateauing, there is something new out there that I get excited about. And currently, that is prediction markets. And I think prediction markets will keep me excited for the remainder of my life.

There you go. Okay. Last one for you, Thomas. Could you talk a little bit about -- you talked about Stablecoin already. Just how do you think about the crypto products that you're offering, your aspirations in the space. And how do you think about growing that going forward?

So we have been offering crypto for a very long time, but we are not well known for it because we do not custody the crypto ourselves. We custody it with Paxos or zerohash. And the reason for that is that it is extremely difficult to keep the crypto safe and at the same time, accessible to your customers. And you have the problem of people coming and trying to extort potentially, right? And we haven't found a good way of building technology to keep the crypto safe and to have it accessible at the same time. So that is why we decided to have it on other platforms. And that seems to be somewhat of a disadvantage because even though our commissions are lower than the competitors' commissions, the fact that we do not custody the crypto ourselves seems to be a deterrent for people, so...

Okay. All right. I think with that, we're out of time. Thank you so much, Thomas. It was pleasure to have you on stage.

Thank you for standing by, and welcome to the Interactive Brokers Group Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Nancy Stuebe, Director of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us for our third quarter 2025 earnings call. Joining us today are Thomas Peterffy, our Founder and Chairman; Milan Galik, our President and CEO; and Paul Brody, our CFO. I will be presenting Milan's comments on the business, and all 3 will be available at our Q&A.

As a reminder, today's call may include forward-looking statements, which represent the company's belief regarding future events, which, by their nature, are not certain and are outside of the company's control. Our actual results and financial condition may differ, possibly materially, from what is indicated in these forward-looking statements.

We ask that you refer to the disclaimers in our press release. You should also review a description of risk factors contained in our financial reports filed with the SEC.

During the third quarter, the market climbed a huge wall of worry with little pause. There is no shortage of traditional reasons for investors to be concerned about the economy or the markets, but as they cropped up they are treated either as a positive, like the huge sums of money being spent on AI or a minor impediment like the government shutdown.

The Federal Reserve cut interest rates this quarter for the first time since late last year. With a less restrictive regulatory environment and steady to declining interest rates, market sentiment in the third quarter was positive overall with the S&P 500 Index rising 8% and showing strong positive returns in each month. Investors bought dips of the market declined and participated in rallies as they occurred, showing the continued comfort with the current economic backdrop.

At IBKR, in any given week this quarter, the most active names showed a preponderance of buying overselling. Our strong net new account growth came from all regions and all client types. This is organic account growth. We attract clients without temporary bonuses or incentives. Our products, pricing and execution quality speak compellingly for themselves.

During the quarter, we added our 4 millionth customer and reached $150 billion in client cash balances, both up over 30% from last year. Our client equity, it took us from 2020 to 2024 to advance from $250 billion to $500 billion. It's up just over 1 year to add the next $250 billion. This quarter, our client equity surpassed $0.25 trillion, up 40% from last year versus 16% for the S&P. The 790,000 net new accounts we've added through the third quarter already exceeded what we added in all of last year.

More accounts meant more activity, which helped expand client trading volumes this quarter, especially in stocks and options. Our commission revenue increased by 23% compared to last year, which is slightly understated since the SEC fee rate which is included within our commission revenue was reduced to 0 in May. Net interest income was up 21% on a combination of larger balances and securities lending opportunities from a greater number of accounts. Our total net revenues were up 21%. Volumes rose to a record $418 million in options contracts and were up 67% in equities, as more people globally continue to participate in the markets.

In terms of newer products, we are seeing increasing activity by our clients in crypto, forecast contracts and overnight trading hours. We now offer a wide variety of over 8,200 open forecast contracts, 27% more than last quarter and contract volumes traded grew 165% in the second quarter. In Crypto, our trade volumes rose 87% from last quarter and are up over 5x versus last year. While this is from a base we want to grow much bigger, it is a sign of the growing strength of our offering. In addition, we introduced recurring buy orders for cryptocurrency and added Solana to our Hong Kong crypto offering.

Overnight trading, where we offer over 10,000 U.S. stocks and ETFs as well as equity index futures and options and global corporate and government bonds, was up 90% in 2024, which itself had seen higher volumes surrounding the first Fed funds rate cut in years. As we've noted for our global client base, U.S. overnight hours are their daytime trading hours. So this offering, in particular, resonates with them. We are continually making additions and enhancements to our platform as well as infrastructure upgrades. We added new liquidity providers for options, U.S. stocks and our Light program and for U.S. treasuries, corporate and international bonds, further enhancing execution quality for our active trading clients.

Our pipeline of potential introducing broker clients remains healthy with a steady stream of new prospects entering as we onboard the IBrokers who have previously signed up to offer the platform. Demand continues steadily around the world for our global introducing broker offering.

In terms of new efforts and product introductions, we again had a busy quarter. We work continually to innovate and give our clients the products they ask for. We added both NISA's tax-advantage savings accounts for Japan and ISK, tax-advantaged accounts in Sweden, for our growing offering of country-specific savings plans.

We introduced our proprietary connection feature, where clients can discover multiple investment relationships connected to any one company. These include stocks, ETFs, forecast contracts, options and economic indicators as well as competitor data-related products and option strategies. As an example, Investors holding long positions in sectors like homebuilding can use connections to explore related businesses like mortgage financing, review forecast contracts linked to new home sales or housing starts and gain insight into option strategies that could help reduce their exposure to economic fluctuations in the housing market. Decades of work expanding our product offering and geographic reach is what makes connections possible, helping clients uncover opportunities other platforms can't.

We have so far been averaging about 20,000 unique daily users. So it's a feature that has resonated with our clients. Connections complements the investment teams feature we debuted last quarter. Recline can use natural language prompts like quantum computing or artificial intelligence to find actionable investment opportunities.

In recognition that our prime brokerage offering and its many features benefit our clients, giving them a competitive edge. The latest annual hedge fund rankings showed that Interactive Brokers rose to rank #4 for a number of hedge funds serviced behind only Goldman Sachs, Morgan Stanley and JPMorgan, and ahead of all the other historically better known names in the funds industry. This should serve as evidence that we must be doing something better than some of the entrenched players and that potential clients may benefit from adding us as an additional prime broker.

We have much on our plate for the remainder of the year and even more to come in 2026. I look forward to sharing these developments with you as they are introduced. The trend towards more global investing across multiple client types and across jurisdictions and our ability to give investors the tools to invest in the companies and products they want, paying for them in currencies they wish around the clock continues. This trend and our ability to serve our clients' needs with a lower cost structure and a much broader product and tool set is what sets us apart and will continue to do so in the years ahead.

I want to thank our team and especially our founder, Thomas Peterffy, for the hard work and dedication it took to bring Interactive Brokers from its humble beginnings all the way into the S&P 500 Index this quarter. It is an achievement in which we all rightfully take pride.

With that, I will turn the call over to Paul Brody. Paul?

Thank you, Nancy. Good afternoon, everyone. I will review our third quarter results, and then we'll open it up for questions. Starting with our revenue items on Page 3 of the release. We're pleased with our financial results this quarter, as we again produced record net revenues and pretax income. Commissions rose to a record $537 million, 23% above last year's third quarter. We continue to see higher trading volumes from our growing base of active customers, outpacing industry volumes across major product classes. Our options volume rose 27% and set a new quarterly volume record and equity volumes were up 67% from last year.

Net interest income also reached a quarterly record of $967 million despite lower benchmark rates in most major currencies. Higher segregated cash and margin loan balances and significantly stronger securities lending contributed to these results. Net interest income also received a benefit from lower benchmark rates on the interest we pay our customer cash balances.

Other fees and services generated $66 million, down 8% from the prior year, driven by more cautious risk taking by clients leading to lower risk exposure fees, partially offset by positive contributions from higher FDIC sweep and market data fees. Other income includes gains and losses on our investments, our currency diversification strategy and principal transactions. Note that many of these noncore items are excluded in our adjusted earnings.

Other income was $85 million as reported and [ $5 ] million as adjusted, primarily driven by a gain on a long-held investment.

Turning to expenses. Execution clearing and distribution costs were $92 million in the quarter, down 21% from the year ago quarter, primarily due to 2 factors: First, we had a full quarter effect of the SEC reducing its fee rate to 0 after it was cut midway through the second quarter. SEC fees were $20 million in the third quarter last year, and $24 million in the first quarter of 2025. And second, we achieved higher rig dates and lower costs and exchanges resulting from our smart order routing optimization. These costs and rebates are largely passed through to customers. So these reductions don't have much impact on our profitability, but they are components of our clients' profitability and one of the reasons they execute through us.

As a percent of commission revenues, execution and clearing costs were 13% in the third quarter for a gross transactional profit margin of 87%. We calculate this by excluding from execution, clearing and distribution, $21 million of nontransaction-based costs predominantly market data fees, which do not have a direct commission revenue component. Compensation and benefits expense was $156 million for the quarter for a ratio of compensation expense to adjusted net revenues of 10%, down from last year's quarter. As always, we remain focused on expense discipline as reflected in our moderate staff increase of 5% over the prior year. Our head count at September 30 was 3,131.

G&A expenses were $62 million, down from the year ago quarter, which included a legal settlement that added $78 million and a onetime charge of $12 million to consolidate our European operations. Without those items, last year's G&A expense would have been $63 million, about level with the current quarter. G&A was also driven by an increase of $10 million in advertising expenses. Our pretax margin was 79% for the quarter, both as reported and as adjusted. Income taxes of $126 million reflects the sum of the public company's $64 million and the operating company's $62 million. The public company's effective tax rate was 19.4% within its usual range.

Moving to our balance sheet on Page 5 of the release, our total assets ended the quarter 35% higher than the prior quarter end at $200 billion, with growth driven by higher margin lending and segregated cash balances. New account growth also helped drive our record customer credit balances. The numbers seem to be supporting our long-held view at our strong financial standing and competitive interest rates provide customers with an attractive place to hold their idle cash.

We have no long-term debt. Profit growth, our firm equity up 22% over the prior year quarter to $19.5 billion. We maintain a balance sheet geared towards supporting growth in our existing businesses and helping us win new business by demonstrating our strength to prospective clients and partners, while also considering overall capital allocation.

In our operating data on Pages 6 and 7. Our customer trading volume surpassed industry growth over the prior year quarter in our 3 major product classes. Options contract and share volumes rose 27% and 67%, respectively. Futures volumes declined 7% in an environment of weaker industry activity. Stock volumes were driven both by increased activity levels overall and by relatively higher trading and low-priced stocks.

On Page 7, you can see that total customer DARTs were 3.6 million trades per day, up 34% from the prior year, strong in options and stocks. Commission per clear commissionable order of $2.70 was down from last year, primarily due to the elimination of the SEC fee and the performance of our smart order router leading to the capture of higher exchange rebates and minimizing exchange costs, which as pass-throughs, serve to lower both our commission revenues and our execution and clearing costs.

Page 8 shows our net interest margin numbers. Total GAAP net interest income was up 21% from the year ago quarter to $967 million. Adjusted for the net interest margin presentation, net interest income was $999 million. We include for NIM purposes, certain income that is more appropriately considered interest but that for GAAP purposes is classified as other fees and services or as other income. Our net interest income reflects strength in segregated cash interest, margin loan interest and securities lending, partially offset by a modest increase in interest expense that was moderated by lower benchmark interest rates on customer cash balances.

Most central banks including the U.K., Canada, Australia, Hong Kong and the U.S. reduced rates this quarter, while others, including Europe, Switzerland and Japan, held steady. Year-on-year, the average U.S. Fed funds rate fell 96 basis points or by 18%. Despite this decline, our segregated cash interest income was up 3% on higher balances, while margin loan interest was up 4%, bolstered by higher lending balances.

The average duration on our investment portfolio remained at less than 30 days. The U.S. dollar yield curve remains inverted from the short to medium term. So we continue to maximize what we earn by focusing on short-term yields rather than accept the lower yields and higher duration risk of longer maturities, particularly in an unpredictable economic environment. This strategy also allows us to maintain a relatively tight maturity match between our assets and liabilities.

Securities lending net interest was stronger this quarter. We saw a higher level of short activity and a significant rise in the total notional dollar value of securities we lend. Contributors to this growth include several factors as our account base has grown, our inventory of attractive stocks to lend has grown with it, including international securities around the world. We pay interest on short cash balances, which makes us attractive to investors last short selling.

Our fully paid lending program generally shares proceeds with clients on a 50-50 basis, which appeals to investors looking to maximize the return on their portfolios. And activity has picked up in some of the typical drivers of securities lending, including IPOs and merger and acquisition activity. As most benchmark interest rates are now officially above 0, the portion of what we earn from securities lending is classified as interest on segregated cash. We estimate that if the additional interest earned and paid on cash collateral were included under securities borrowed and loan than total net revenue related to securities lending would have been $314 million this quarter, double the $156 million we earned in the prior year quarter.

Interest on customer credit balances, the interest we pay to our customers on the cash and their accounts rose slightly on the combination of 33% higher client cash balances from new account growth and from lower benchmark rates. As we have noted in the past, the higher interest rates we pay on customer cash currently 3.59%, unqualified U.S. dollar balances is a significant attraction to new customers. Fully rate-sensitive customer balances ended the current quarter at $25 billion versus $19.5 billion in the year ago quarter.

Now for our estimates of the impact of changes in rates. Given the market expectations of further rate cuts in 2025, we estimate the effect of a 25 basis point decrease in the benchmark Fed funds rate to be a $77 million reduction in annual net interest income. Note that our starting point for this estimate is September 30, with the Fed funds effective rate at 4.09% in balances as of that date. Any growth in our balance sheet and interest-earning assets would reduce this impact.

About 29% of our customer interest-sensitive balances is not in U.S. dollars. So estimates of the U.S. rate change exclude those currencies. We estimate the effect of decrease in all the relevant non-USD benchmark rates would reduce annual net interest income by $35 million or a 25 basis point decrease in those benchmarks. At a high level, a full 1% decrease in all benchmark rates would decrease our annual net interest income by $417 million. This takes into account rate sensitive customer balances and firm equity.

In conclusion, we posted another financially strong quarter in net revenues and pretax margin reflecting our continued ability to grow our customer base and deliver on our core value proposition to customers while scaling the business. Our business strategy continues to be effective, automating as much of the brokerage business as possible continuously improving and expanding what we offer while minimizing what we charge.

And with that, we will open up the line for questions.

[Operator Instructions] And our first question comes from the line of Brennan Hawken from BMO.

Paul, you spoke a bit in the beginning about how you're starting to see hard to borrow, specials come back on the back of capital markets activity ramping. Could you talk about how the trajectory of that played out in the quarter? What impact we could expect if we continue to see capital markets activity ramp as is broadly expected? And what kind of benefits we could expect from that?

Yes, I wouldn't exactly call it cyclical. However, as we know, the securities lending revenue is based on a general increase in our customer balances and shorting. And then on top of that, we see these specials, hard-to-borrow stocks that come up from time to time. And as a general statement, we might say that those specialists tend to come up more in an environment of more IPOs and M&A activity. So it's not predictable, but we have spent a lot of time building out our systems to optimize and take advantage when these opportunities present themselves.

Okay. And then a couple of years ago, I seem to remember as making comments that he was bullish on prospective AI leading to more velocity in trading and turnover. Are you -- you can sort of see chatter around this in some of the various websites and blog -- blogs and whatnot. Are you actually seeing evidence of this in your business yet? Or is that still something that has yet to play out?

I'm sorry, are you asking whether we can see evidence in the trading volumes of AI? Is that what the question was?

Yes. Whether you -- several years ago, Thomas had suggested that AI would lead to higher trading volumes. So I don't know whether or not you have any visibility or any idea about whether or not that thesis is actually playing out, now that we see AI become much more broadly integrated into people's everyday lives?

Unfortunately, we have no visibility into that. We -- obviously, you can see the increased volumes on our platform just like in the industry overall. I think the anticipation of AI permeating the financial industry causing higher volumes. I think that thesis in the long run should become real because if you think about it, you give a trader tools through which we can more research that sparks is position evaluating the news, we will be able to more quickly react to what's happening in the marketplace, how this portfolio is being affected, we will be able to make quicker decisions and we will be able to make them with great confidence. So I think if Thomas was anticipating that a couple of years ago, I'm not surprised that you would make a statement like that. But to repeat, we do not have an ability to see whether that's the reason behind the volumes. Or what percentage of those volumes would be attributable to that.

So Milan, you're absolutely right, but I do not recall ever saying that.

And our next question comes from the line of Benjamin Budish from Barclays.

Maybe just first on the interest rate sensitivity to non-U.S. balances. It looks like that stepped up a little bit from what you had disclosed last quarter. It also looks like for the last several quarters, the percentage of balances that are not in U.S. dollars is going up. Just curious if you could unpack a little bit what's going on there. Any particular trends to be aware of and what is impacting that sensitivity going forward?

Yes, Ben, fairly straightforward. As this business grows for us, we take on more clients, we get bigger balances. Bigger balances also mean more balances that are fully interest rate sensitive. And therefore, it looks like the sensitivity goes up, but that's good news for us because it means the baseline is a lot higher than it was before.

Got it. But nothing specific this quarter to the non-USD balances other than platform growth?

Yes. There was a bit of a change from the second quarter. Some of the -- there are several non-U.S. dollar currencies that had low rates that actually had approached 0 again. And there's a bit of a nonlinearity there as you project rates to go down from there in terms of whether we're passing through negative rates or not. So this was -- this quarter was a bit of a more normal-looking environment.

Understood. Maybe just a follow-up. I was wondering if you could give us a little bit more color on forecast X. There's been some press suggesting that you've made a filing preparing to launch contracts on sports. I'm curious if you can comment to that. But maybe otherwise, it sounds like there's a lot of momentum there. Given the international customer base versus maybe what we see is a lot of headline noise in the U.S., what sort of products are seeing the most traction? And how are you thinking about the pace of product rollout from here?

So at this point, we're waiting for the states -- for the courts to decide if the states have an exclusive right to regulate sports betting or not. But as far as Interactive Brokers is concerned, we are not currently contemplating to get into sports betting. We are focusing on election contracts, economic indicators and climate indicators and we are taking that global. And so that's our focus currently is. And however, the exchange will be available for other brokers to carry sports contract. But -- so introducing brokers can come to forecast tax and carry sports contracts provided that the states will let us do that.

And our next question comes from the line of Patrick Moley from Piper Sandler.

Maybe just following up on the prediction markets and forecast. Could you just maybe speak a little bit more to your strategy for growing that business, whether it's adding more broker partners. We've seen a number of JVs get announced in the space. What are your thoughts on how you're going to grow the number of users on that platform?

We are focusing on adding broker partners, but we're also focusing on our own Interactive Brokers, dear customers participating more and more in forecast contracts.

Okay. And then just a follow-up. Margin loans were up 20% quarter-over-quarter. Could you maybe just provide a little color on the breakout of the types of customers that drove that growth? Was it retail? Was it hedge funds? And then given some of the choppiness we've seen here month-to-date, what are your expectations around margin loan growth from here? Do you think it's sustainable?

We do not look at the breakdown of where the margin loans are coming from. Or we do have some internal measures that obviously, we understand what they are. We're not comfortable talking about it in public as to how exactly it happens. I think I could state in general that the appetite for risk has grown. That's what typically happens when the markets are going up when they are momentum driven, that is what we have seen. Our margin balances are at their all-time high. Should there be a sudden dislocation in the market, I would expect that is taking to decrease what we like and what we see is that our customers have been trading stock on leverage. They are not making as much bets with being short cheap options as perhaps in some quarters in the previous year. We see that in the reduced income due to the exposure fees that we collect. So when we see the margin balance is going up, that's fantastic, we directly benefit from that to the bottom line. When we see the exposure fees increasing, that's somewhat of a mixed feeling for us because on the one hand, we like to see that revenue, but we are conscious that it's coming from the fact that the clients are making cheap option that can go bad. So high-margin numbers, we like them a lot.

And our next question comes from the line of Dan Fannon from Jefferies.

Just another quarter of strong account growth. Curious about the mix. Any changes from either the profile of that customer and/or geographies where you're sourcing those accounts from?

It pretty much looks the same as in the previous quarters. Geographies -- the different geographies are equally represented different mix of clients. We still like all the segments that we have been growing whether it's direct clients, introducing brokers, prop trading firms, financial advisers, it's all growing well, net of course.

Okay. And then as a follow-up, Paul, I was hoping as you think about 2026 and expenses and investments you're making, any preliminary thoughts on expense growth and where those areas of investment might be directed if anywhere different than what you've been doing more recently?

We don't really look forward-looking statements. As you know, I would say that this quarter is a typical run rate, I think, for most of the expense categories. Milan, you might want to add to that. We had a 5% growth in headcount.

Of course. So the way we look at things is we have always run our business in the way that we do not allocate budgets to certain activities. There are some ideas that we have. There are certain ways we like to grow our business. There are opportunities that we see, and we work on them. When we see that we fell behind in terms of our staffing, be it either technology box or on the operational side, we adjust -- that is how we have been running the business. So there is -- we should not think of that as we are allocating $25 million to a certain project. If we want to do something, we're fully in. We're obviously paying attention to make sure that we do not build our technology too expensively. But that has been the modus operandi since Thomas started this firm decades ago, and that approach has worked for as well, and that is what we're going to be continuing.

Our next question comes from the line of James Yaro from Goldman Sachs.

You've seen a smaller percentage of U.S. clients over time. Could you just walk us through recent geographic client acquisition trends in your view? And then specifically, whether the regulatory environment in China around account opening has weighed on and will continue to impact your growth in this region?

Yes, there was a change. You noticed that Chinese regulators clamp down on foreign brokers acquiring accounts in Mainland China. We have been getting some number of them. What basically changed was -- we now have to ask the account applicants to prove to us that the residents outside of the Mainland. And many have been doing that, and we are still getting clients in China as a result. It is a smaller number than before, but it is not something that would materially impact our figures.

Great. You recently led a new funding round for cash note. Could you just update us, to the extent there's anything new on your aspirations and in digital assets. And especially any update on the 30% limit as regards to what percentage of crypto customers can have in their accounts?

You meant funding [indiscernible]

Sorry, yes, sorry.

Right. So the funding round was concluded. We have upped the dollar value of our investment. We have kept the percentage of the investment in roughly 30%. Zero Hash have been a good partner with us. We are working with them on a significant project together. They're going to be the provider. We're going to use for our European offering. They're going to be getting their license. The anticipated basis sometime in -- at the end of October or beginning of November of this year, they will receive a Dutch license, and they will be authorized to offer crypto services on the European continent, and that is what we will do. We will offer cryptocurrency trading to our European clients through Zero Hash.

As far as other aspirations in the area, we are working on stable growing deposits and the ability for account holders to fund their accounts with stablecoin. That's something that should be going online at the end of October. We're working on the crypto asset transfers, which I'm cautiously optimistic about. And the reason for that is very simple. And if you look at our pricing, despite the fact that we are latecomers to the crypto industry, our pricing is very good. We are significantly less expensive than our bigger competitors. Yet, we do not see an inflow of accounts and part of the reasons could be that if somebody wanted to switch their providers, let's say, they wanted to come to us from Coinbase or from or whatever. If they already have cryptocurrency positions with embedded tax gains -- unrealized tax gains, the only way for them to come to us now would be to sell their investments and realize those games. With the asset transfer, they will not have to do that. So when we put online the crypto asset transfers, I would hope to see increase in the activity.

Another thing that we have in the plan is to offer staking. Obviously, we are relying on Zero Hash to do their work first. Once they are ready to offer we will offer it to our clients.

[Operator Instructions] Our next question comes from the line of Craig Siegenthaler from BofA.

So my question is on total account growth. I'm actually going to ask a similar question to last quarter. So at a May conference, Thomas talked about a potential deceleration account growth as. And my question is, where is it? Because account growth is again showing no signs of slowing down through September?

We have not seen any deceleration as a matter of fact. So exactly the opposite and we expect that to continue.

Got it. My thought is on crypto. More specifically with timing. So when will clients be able to transfer tokens in and out of their IV care accounts? And how will the rollout work by geography will some regions move faster? And I believe IBKR will end up offering a noncustodial wallet, just like some of the crypto exchanges offer today?

So the rollout is going to be very -- at the moment, we are able to offer cryptocurrency trading to our U.S. clients and Hong Kong clients. And hopefully, soon, we will be able to offer it to our European clients as well. The rollout schedule will be funding with stablecoin end of October, crypto asset transfers by the end of the year, taking maybe the beginning of next year, that is roughly the schedule. It depends somewhat on our partner, Zero Hash. They have to complete their work first, and then obviously, we have to integrate the feature into our platform. So unfortunately, I cannot give you better estimates than that.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Nancy Stuebe for any further remarks.

Thank you, everyone, for participating today. As a reminder, the call will be available for replay on our website, and we will also be posting a clean version of the transcript on our site tomorrow. Thanks again, and we will talk to you next quarter end.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Good day and thank you for standing by. Welcome to the Interactive Brokers Group Second Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to turn the call over to Nancy Stuebe. Please go ahead.

Thank you. Good afternoon and thank you for joining us for our second quarter 2025 earnings call. Joining us today are Thomas Peterffy, our Founder and Chairman; Milan Galik, our President and CEO; and Paul Brody, our CFO. I will be presenting Milan's comments on the business, and all 3 will be available at our Q&A.

As a reminder, today's call may include forward-looking statements, which represent the company's belief regarding future events, which by their nature are not certain and are outside of the company's control. Our actual results and financial condition may differ, possibly materially, from what is indicated in these forward-looking statements. We ask that you refer to the disclaimers in our press release. You should also review a description of risk factors contained in our financial reports filed with the SEC.

What we experienced in the second quarter felt like a rollercoaster in reverse. Instead of the market moving upward, getting to a high level and dropping precipitously to a series of volatile ups and downs. We got the precipitous drop first with the S&P reaching a low on April 8, then a spike of volatility followed by the market grinding upwards towards quarter end. The uncertainty and volatility during the quarter led to an accompanying spike in trade volumes. Also over the quarter, we saw the shrinking life of market dips. Investors whether looking for securities with momentum behind them were simply worried about missing out on a rally, bought the dip.

In equities, we saw customers actively using our platform tools to find companies to invest in that met their particular parameters. This included an expansion of the Magnificent 7 to include companies that may be beneficiaries of the world embrace of artificial intelligence as AI is incorporated into more environments. By quarter end, the market had recovered to surpass its February peak, closing up over 10%. And since quarter end, it has continued upwards from there. Volatility and uncertainty often spark increased market activity. Combined with our strong net new account growth, this led to our client trading volumes expanding for stocks, options and futures.

Our commission revenue increased by 27% compared to last year. So this figure may slightly understate the actual growth. The SEC fee rate, which is included within our commission revenue, was reduced to 0 halfway through the quarter. Without this fee, we would have generated an additional $15 million in commission revenue, which would have represented a 3% increase on our total of $516 million. We continue to see increasing activity in our overnight trading hours. We offer the most comprehensive overnight product set with over 10,000 U.S. stocks and ETFs, plus U.S. equity index futures and options, and on the fixed income side, global corporate bonds, U.S. treasuries and European and U.K. government bonds. Given our global client base for some customers overnight hours here, are their daytime trading hours that they want to operate in and therefore, are particularly sought after. Our overnight volumes grew over 170% from second quarter 2024 to second quarter of 2025.

Given our rapid growth, continuous additions and enhancements to our platforms and periodic volume surges, having a platform that is scalable is critical. We enhanced our ATS this quarter by improving its performance and ability to handle large spikes in volume by up to 20x on high-volume days, ensuring we're better equipped for market surges and capable of delivering top-tier execution for our clients. We also made enhancements to our smart order router, which is designed to provide best execution, which includes price improvement and the possibility of receiving rebates. It is this price execution advantage we offer that keeps our sophisticated customer base engaged on our platform and that encourages new clients.

We saw strong account growth as we added more investors to our platform. This quarter, we added 250,000 net new accounts, bringing our year-to-date total to over 528,000, more than we added in all of 2023. Our application processing is highly automated and continually becoming even more so, allowing us to handle surges in new accounts efficiently, without adding significantly to our headcount or cost base. New accounts meant more cash in those accounts, raising our client credit balances 34% to a record $144 billion. Despite strength in trading volumes indicating, our customers are using the cash they deposit to participate in the markets. Our client equity rose 34% to $664 billion, up 16% for the quarter versus 11% for the S&P.

More accounts and higher volumes translated into strong financial results. Quarterly commissions, net interest, total net revenue and pretax income were all records with our pretax income reaching over $1 billion for the third consecutive quarter. Our expenses remained well controlled, and our pretax profit margin was an industry-leading 75%, a record for us.

Finally, on the platform side, automating substantial parts of the brokerage business and using all possible tools and the judicious inclusion of artificial intelligence is the heart of what we do. In the second quarter alone, we rolled out thousands of software releases and product configuration changes around the globe. This is a scale of automation and effort that we handle routinely within highly regulated environments around the globe, to give our clients the global access and edge they demand.

In terms of how the business looked on the client front, we continue to see growing numbers of investors worldwide wanting access to international and particularly U.S. markets. Regarding introducing brokers, our pipeline of potential [indiscernible]. We continue to onboard eye brokers to the platform and add prospective ones to it at a steady pace with steady demand around the world. In terms of new efforts and product introductions, we had a busy quarter. ForecastEx is now live for retail clients across most of Europe as it is for the U.S., Canada and Hong Kong. We also expanded into forecast contracts on financial markets including indices like the S&P 500 as well as forex and crypto. These have seen strong interest.

Yesterday, we introduced Investment Themes, a powerful new discovery tool designed to help investors quickly turn market trends into actionable trading ideas. With Investment Themes, clients can begin with broad topics like generative AI or nuclear energy and instantly uncover companies tied to those themes, no ticker symbols or prior research needed. Alternatively, they can start with a ticker symbol and view detailed company profiles including insights into competitors, related industries and global revenue sources, helping them assess regional risks and growth opportunities. We believe Investment Themes will streamline our clients' investment process helping them uncover opportunities and make informed decisions faster than ever before.

With respect to our stock, we completed our four-for-one stock split on June 17, and increased the dividend as announced in the previous quarter. As for capital allocation, while we have not stopped looking at potential acquisitions, we realized there are a few opportunities at a price that makes sense for us. We will keep looking. But as we have been noting, returning capital to shareholders via increases in the dividend makes sense for now. We will be adding our 4 millionth customer in the third quarter, just 1 year after adding our 3 million.

While the market may move in any direction in the short run, we are looking to capture the long-term trend towards more global investing across multiple customer types and jurisdictions giving investors the ability to invest in the companies they like, paying in the currencies they have around the clock. This trend and our ability to serve it with a much lower cost structure and a much broader product and tool set is what sets us apart and will continue to do so in the years ahead.

With that, I will turn the call over to Paul Brody. Paul?

Thank you, Nancy. Thanks, everyone, for joining the call. We'll review the second quarter results, and then, of course, we'll open it up for questions. Starting with our revenue items on Page 3 of the release. We are again pleased with our financial results this quarter as we again produced record net revenues and pretax income. Commissions rose to a record $516 million, 27% above last year's second quarter. We continue to see higher trading volumes from our growing base of active customers with options and futures both setting new quarterly volume records.

Net interest income also reached a quarterly record of $860 million despite lower benchmark rates in some of the major currencies and a risk off posture adopted by investors responding to tariff-driven market uncertainty at the beginning of the quarter. We recognized a onetime credit of $26 million related to recovery of taxes withheld at source, which is reflected in segregated cash interest. Without this, our net interest income still reached a record $834 million. Higher segregated cash balances and strong securities lending contributed to these results. Net interest income also received a benefit from lower interest expense on customer cash balances as rates have declined worldwide over the past year.

Other fees and services generated $62 million, down 9% from the prior year, driven by more cautious risk taking by clients, leading to lower risk exposure fees, partially offset by positive contributions from higher market data and FDIC sweep fees. Other income includes gains and losses on our investments, our currency diversification strategy, and principal transactions. Note that many of these noncore items are excluded in our adjusted earnings. Our other income was a $42 million gain, both as reported and as adjusted.

Turning to expenses, execution, clearing and distribution costs were $116 million in the quarter, up just 1% over the year ago quarter despite significantly higher volumes in options and futures, which carry higher fees. Midway through the quarter, the SEC fee rate was cut from $27.80 per million to 0. Had it been in effect the entire quarter commission revenue and execution and clearing expense, with both have been an estimated $15 million higher. The SEC fee is a pass-through to customers, so it does not impact our profitability. As a percent of commission revenues, execution and clearing costs were 18% in the second quarter for a gross transactional profit margin of 82%.

We calculate this by excluding from execution, clearing and distribution $22 million of non-transaction-based costs, predominantly market data fees, which do not have a direct commission revenue component. Compensation and benefits expense was $163 million for the quarter for a ratio of compensation expense to adjusted net revenues of 11%, unchanged from last year's quarter. IBKR stock incentive plan bonuses, vest in the second quarter, which leads to higher taxes paid for FICA and other social insurance than in other quarters. The total of these extra taxes was $5 million over the year ago quarter.

As always, we remain focused on expense discipline as reflected in our moderate staff increase of 5% over the prior year and our head count at June 30 was 3,087. G&A expenses were $61 million, up from the year ago quarter, mainly on higher advertising expenses. Our pretax margin was 75% for the quarter, both as reported and as adjusted. Income taxes of $98 million reflects the sum of the public company's $50 million and the operating company is $48 million. The public company's effective tax rate was 18.1% within its usual range.

Moving to our balance sheet on Page 5 of the release. Our total assets ended the quarter 33% higher than in the prior year quarter end at $181 billion with growth driven by higher segregated cash balances and higher margin lending. New account growth helped drive our record customer credit balances. We continue to believe that our strong financial standing and competitive interest rates provide customers with an attractive place to hold their idle cash. We have no long-term debt. Profit growth drove our firm equity up 22% to $18.5 billion. We maintain a balance sheet geared towards supporting growth in our existing businesses and helping us win new business by demonstrating our strength to prospective clients and partners while also considering overall capital allocation.

The consistent strength of our business and our healthy balance sheet supported our raising the dividend in the second quarter from $1 per year to $1.28 or $0.32 on a split adjusted basis. In our operating data on Pages 6 and 7, our customer trading volumes tracked industry growth over the prior year quarter in our 3 major product classes. Options and futures contract volumes rose 24% and 18%, respectively, and stock share volumes rose 31%.

On Page 7, you can see that total customer DARTs were 3.6 million trades per day, up 49% from the prior year and strong in all product classes. Commission per cleared commissionable order of $2.65, was down from last year, primarily due to the elimination of the SEC fee mid-quarter and the performance of our smart order router, leading to the capture of higher exchange rebates, which as pass-throughs, served to lower both our commission revenues and our execution and clearing costs.

Page 8 shows our net interest margin or NIM numbers. Total GAAP net interest income was $860 million for the quarter, up 9% on the year ago quarter. And excluding the $26 million recovery of taxes withheld at source it was $834 million, this quarter's NIM is also adjusted by removing this onetime credit of $26 million from segregated cash interest. The adjusted NIM net interest income was $861 million. We also include for NIM purposes, certain income that is more appropriately considered interest, but that for GAAP purposes is classified as other fees and services or as other income. Our net interest income reflects strength in segregated cash interest and securities lending as well as a decrease in interest expense, driven by lower benchmark interest rates on customer cash balances.

A few central banks, the U.K., Australia and Europe, reduced rates again this quarter, while others, including the U.S., Canada, Hong Kong and Switzerland held steady. Year-on-year, the average U.S. Fed funds rate fell 100 basis points or 19%. Despite this decline, our segregated cash interest income was up 2% on higher balances, while margin loan interest decreased 6% on lower rates but was bolstered by higher lending balances. The average duration of our investment portfolio remained at less than 30 days. The U.S. dollar yield curve remains inverted from the short to medium term, so we continue to maximize what we earn by focusing on short-term yields rather than accept the lower yields and higher duration risk of longer maturities, particularly in an unpredictable economic environment. This strategy also allows us to maintain a relatively tight maturity match between our assets and liabilities.

Securities lending net interest was stronger this quarter after a long period in the industry with a few of the hard-to-borrow names that typically drive revenue, there was an uptick in hard to borrows that we were able to capitalize on. What we have mentioned in the past still holds true. Some of the typical drivers of securities lending, including IPOs and merger and acquisition activity are somewhat more active than in 2024, but without a substantial impact on the securities lending market. Nevertheless, we have been consistently successful in raising the total notional dollar value of securities we lent. As benchmark interest rates rose from the near 0 -- from near 0 in 2022, more of what we earned from securities lending became classified as interest on segregated cash.

We estimate that the additional interest earned and paid on cash collateral were included under securities borrowed and loaned and securities lending net revenue would have been $251 million this quarter, versus $194 million in the prior year quarter, a 29% increase. Interest on customer credit balances, the interest we pay to our customers on the cash and their accounts, declined on lower benchmark rates, even though we built up higher cash -- client cash balances from new account growth and from risk-reducing sales resulting in cash balances. As we have noted in the past, the high interest rates we pay on customer cash, currently 3.83% on qualified U.S. dollar balances is a significant attraction to new customers. Fully rate sensitive customer balances ended the current quarter at $22.8 billion versus $18.6 billion in the year ago quarter.

Now for our estimates of the impact of changes in rates, given market expectations of rate cuts sometime in 2025, we estimate the effect of a 25-basis point decrease in the benchmark Fed funds rate to be a $73 million reduction in annual net interest income. Note that our starting point for this estimate is June 30th, with the Fed funds effective rate at 4.33% and balances as of that date. Any growth in our balance sheet and interest-earning assets would reduce this impact. About 27% of our customer cash balances is not in U.S. dollars. So estimates of the U.S. rate change exclude those currencies. We estimate the effect of decreases in all the relevant non-U.S. benchmark rates would reduce annual net interest income by $8 million for a 25-basis point decrease in those benchmarks.

At a high level, a full 1% decrease in all benchmark rates would decrease our annual net interest income by $335 million. This takes into account rate sensitive customer balances and firm equity. In the second quarter of 2024, we estimated that a 1% decrease in all benchmark rates would decrease our annual net interest income by $307 million. In the past year, the U.S. Fed funds benchmark did, in fact, fall 1% and other countries' rates for the most part fell about the same. However, this quarter's net interest income represented an annualized increase of $225 million, driven by higher balances.

In conclusion, we posted another financially strong quarter in net revenues and pretax margin reflecting our continued ability to grow our customer base and deliver on our core value proposition to customers while scaling the business. Our business strategy continues to be effective, automating as much of the brokerage business as possible continuously improving and expanding what we offer while minimizing what we charge.

And with that, we will now open up the line for your questions.

[Operator Instructions] And our first question today will be coming from the line of Craig Siegenthaler of Bank of America.

I wanted to follow up with a comment that Thomas made at a conference in May, actually I think it was promised. The commentary was regarding decelerating account growth. However, account growth in the quarter was still really strong, 32% clipped in line with last quarter. So I was just -- I was hoping you could help clarify those comments you made. And should we expect somewhat slower growth in the summer months into 4Q as we've seen in previous years?

So I would like -- I always like to overdeliver. That's why I projected lower account growth than I really believed that would take place. And I continue to do that for the future.

Great. Well, Thomas, we like it when you overdeliver, too. Just for my follow-up, so the GENIUS Act, I think, just passed in the house several minutes ago, says that's pretty much done. The CLARITY Act is making its way through Congress. So 2 digital asset initiatives. Thomas, I'm wondering, will broader demand for digital assets, could this cause you to rethink your current digital asset model, which relies on Paxos partnership but also doesn't allow your clients to use noncustodial wallets with their IBKR accounts. I know -- I think you felt pretty strong in the past about holding crypto on the balance sheet, which is one issue.

So I will take this one. This is Milan. Thanks for the question. You might have seen in the news that Interactive Brokers has an investment in a cryptocurrency exchange called Zero Hash. The news was published this week or a week ago that there is a continued capital raise done by Zero Hash and obviously, we participated in it in order to keep our percentage ownership steady. We have a good partnership with Zero Hash. We work together on a number of items that we're going to be delivering in the next quarters.

We have already added several cryptocurrencies in the past quarter, and there are numerous initiatives that we are working on. We are going to be making it possible for the clients to fund their accounts with stable coins. We are working on the asset transfer capability in the crypto space. So we will be able to take in crypto asset transfers. And then later during the year, we will be adding staking. Obviously, at the same time, we're working on expanding our ability to offer cryptocurrency trading geographically. At the moment, we are focusing on Europe, and we are hopeful that we will be able to add the capability to our European customers in the coming quarters.

And our next question will be coming from the line of James Yaro of Goldman Sachs.

I just wanted to start with any perspectives that you might have on the tokenized equity products that we're seeing across a variety of broker and crypto firms for European customers on U.S. stocks, maybe you could just talk about the advantages and disadvantages of this product in your view, I guess, is it something that you would consider offering, I'm not sure exactly why, but if so, that would be helpful. And then, I guess, your perspective on whether this product represents any sort of additional competition in Europe relative to your business?

So I will focus on different stock tokens that are currently available. One was made available to the European clients of Robinhood, I think they may be available at the beginning of July. And I think it's probably best if I contrast our offering to the offering that they just launched. So what they put online in the form of tokens on U.S. stocks is a fundamentally worse product than what our European clients had access to for years. Our clients have access to more than 10,000 real U.S. shares and ETFs 24 hours a day, 5 days a week. In contrast, the stock tokens that Robinhood made available to the European clients are a derivative on 200 or so symbols, which means that the client does not have ownership interest in the stock, instead, he or she has an OTC contract against Robinhood Europe. The customer cannot transfer the position to another broker if you wanted to. You would have to sell the position and transfer the cash.

As to the cost, if you look at Robinhood's own key investor information document, which is a document every broker has to offer to their clients about every financial instrument they make available for trading, a hypothetical $10,000 investment costs the client $10 while our clients pay the fraction of that, $1 or so. So that's the Robinhood offering. There is also Kraken X shares that are available. Kraken, as you know, is a significant cryptocurrency exchange. They made 60 or so tokens available, which are similarly secured notes backed by the underlying in a Jersey entity that they have. The creation and redemption fees for these X shares are 0.5% each, and there is a management fee of 0.25% per year. Now unlike in case of Robinhood, Kraken lets you withdraw the tokens to your own self-custody wallet and then trade the token of the DeFi network. But that obviously will lead to some problems.

There was an article a couple of days ago on Wall Street Journal, which talked about the very significant price differences between the tokens and the underlying shares. And on some days, I think specifically on July 5th, Amazon was reported to show the price that was 4x as large as the stock price from the previous closing price. And the same -- similarly an AMZNx, which is the token issued by Kraken, suffered even while the dislocation on Jupiter. There was lack of liquidity available for the client who submitted an order for $500. And briefly, the Amazon's token was trading at price 100x larger than the closing price on the previous day. So all in all, stock tokens at this time seem like a great opportunity to do much worse than buying an ordinary share.

Okay. That's really helpful color. Could you just talk a little bit about the execution cost differences that you're seeing on your platform in overnight market versus during market hours? I know that's a tough one because I'm generalizing across a variety of products. So maybe you can just talk about stocks today. And then maybe you could just talk about your expectations for how execution costs outside of market hours could evolve over time?

There's obviously a difference between the stocks and options and futures on the other hand, on the -- between the overnight hours and regular trading hours. So if you look at the exchange traded products like options and futures, the execution costs are the same, whether you trade them overnight or during the day. The execution costs for stocks are very different because the stocks are currently not offered outside of extended trading hours.

So every platform that offers them and Interactive Brokers has a substantial offering in this space has a different price than what one would pay to an exchange. Interactive Brokers has its own ATS -- Eso ATS where overnight stocks are trading. And it is also connected to a Blue Ocean that is another significant ATS in the space. So the combination with these 2 venues allows us to offer thousands and thousands of stocks and ETFs during the overnight trading with a lot of liquidity at a very low cost.

Our next question will be coming from the line of Benjamin Budish of Barclays.

Maybe first, just a high-level question. You've talked a lot about the pickup in international growth quite a bit over the last many years. I'm just curious in terms of overnight trading specifically, it sounds like that is growing much faster than international growth more broadly. Curious, is that sort of a behavior change? Is it sort of more -- stock options being made available? It sounds like your offering has been pretty consistent for some time, but just curious if you could unpack what you're seeing there? I know -- I think Thomas mentioned also at a conference earlier that you have an expectation that that's going to be quite meaningful as a percentage of total volumes over the next 10 to 20 years. So I'd be curious for your commentary on sort of the recent drivers of that outsized growth?

Well, for us, especially the overnight U.S. stock offering is important because we have significant clientele in Europe and Asia, and our overnight hours correspond to their day during the day hours. So by us offering the U.S. stock trading overnight, we are satisfying the appetite of the overseas clients in these geographies so that they can trade and access U.S. markets during the day. Given that we have significant clientele overseas, that part of an offering for us is very important and more and more of our introducing brokers are realizing that and are turning on this offering for their clients. As far as the importance of the overnight trading in the long run in general, I think we will see the same progression as we have seen over the past decade or so.

You -- I'm sure you remember that the regular trading hours for NYSE stocks or even NASDAQ stocks, those markets opened at 9:30 and close at 4 p.m. and then the so-called extended hours have been added. Those markets now open at 4 a.m. and close at 8 p.m. and the amount of volume we see during those trading sessions is growing as well as the volume we show in the overnight session. So over time, the differences between the trading hours will not disappear, but will diminish for sure. There will still be some special time periods like on Open Trading at 9:30 and on Close Trading at 4:00 p.m. because a lot of ETFs and mutual funds marked their NAV using those prices, but we will see more and more overnight trading in the future.

Very helpful. Maybe one more sort of in the weeds question perhaps for Paul. Just in terms of your interest rate sensitivity, it looks like this quarter versus last quarter, maybe a slightly higher percentage of cash is not in U.S. dollars, but the sensitivity to a 25-basis point change in rates seems like it's a much lower dollar number. Just curious is it like a lower absolute starting level of rates? Or what's the driver of that sort of lower sensitivity?

Right. And that's a good question, Ben. So primarily, there are some, once again, low rate, low-interest rate currencies. There are several of them out there, that are either nearing or just breach the 0 line back into negative territory. So that leads to nonlinearity of the up and down scenarios because when you cross over the 0-point, our -- we're either passing through or we're not passing through, the full spread gets compressed and then it returns. So yes, the -- that overall number was somewhat lower than in the past because those rates are going down.

And the next question will be coming from the line of Dan Fannon of Jefferies.

I was hoping to expand upon your comments around sec lending, clearly improved this quarter. You talked about an increase in some hard-to-borrow securities, Curious about how diverse that was. And as we think about an environment where IPOs are picking up? Is it reasonable to assume that, that should be on an upward trajectory, given the kind of current trends?

Well, if -- so in terms of how diverse it was, not especially, there are some -- several high flyers in there. But -- so our results are coming from 2 places, right? We -- generally, with more accounts and more equity and more participation, we see a rise in our general level of both customers who are shorting stocks and they're recovering or customers with margin stocks that we're able to lend out or fully paid stocks in our fully paid program to lend out and share the benefits with the customer. And then, of course, the specials come in on top of that. And as I said, a few high flyers can make a substantial difference in the overall P&L. As to what's going to happen in the future, you tell me, it's general markets for IPOs and M&A activity and so forth leads to more of this and these hot stocks from a stock loan rate standpoint come from a greater proportion of shorts to available stock to cover those shorts. So corporate deals and so forth tend to lead to those kinds of conditions. If those pick up, then the likelihood is so will some of the hard-to-borrow stocks.

Great. That's helpful. And then I was hoping you could expand upon the introducing broker comments thinking about the size of the partners that are coming on and also the backlog you mentioned also, I think, was reasonably good. Just curious how you would characterize that versus, say, maybe a year ago and how those conversations have progressed.

If we look at the number of integrations delivered in the second quarter, they increased compared to the Q1 of this year. The pipeline remains very strong. The pipeline includes new entrants to the market, existing firms that broaden their offering in terms of either new products or countries or asset classes. One interesting note I would make is that some firms that we spoke to in the past, who at the time decided not to go with Interactive Brokers, but chose a competitor or chose to do an in-house build are coming back around to us. and reengaging. They do realize that our offering is superior, our cost is superior as well, so they come to us. So I'm very happy with what I see in the pipeline, both in terms of conversion as well as what's in the backlog.

[Operator Instructions] Our next question will be coming from the line of Kyle Voigt of KBW.

Maybe just a question on client credit balances, which grew, I think, over 6% in the month of June, which is the highest since March of 2020. Can you just speak about the main drivers of what you saw in June specifically. Was it more new cash being deposited into accounts? Was it rebalancing from existing clients or is there something else driving that significant cash increase that we saw in June?

I think it was a combination of those things. New cash coming in was as strong as it has been in the last several months. It does have its ups and downs. April was particularly strong, both in taking a new cash and in that risk-off environment of April when a lot of stocks are being sold that generates cash balances and -- because clients feel comfortable leaving those cash balances with us, they simply go up and reinvest them. I don't think there was anything else specific to June that was notable.

Okay. Just for a follow-up. We've seen a recent reacceleration in 0DTE trading percentages in the broader options market. I was just curious to hear about whether you have been seeing that in your own customer base in recent months. And then also curious to hear about your view of rolling out 0DTE on single stocks what else needs to be done from the brokerage industry standpoint in terms of functionality to be able to offer this? And how close are we in terms of being able to see that product hit the market, do you think?

I did not pay a lot of attention to how the 0DTE percentages are changing. They are roughly the same as they were in the previous quarter. I would point out one interesting thing, and that is the 0DTE options trading is doing very well, and those options are very busy, especially the ones on the S&P 500 Index. If you look at the ForecastEx, ForecastEx just listed a few weeks ago, contracts -- the F&O contracts that are in some sense similar to the 0DTE options, and we listed those on a number of different indexes, and we see significant engagement from our clientele and are happy with that. As far as the stocks are concerned, that's a little bit more complicated issue. As I mentioned, the popular 0DTE options are the index options they settle in cash. The stock options, they settle into physical. So you get the stock delivered if you exercise a long call.

Now you can submit your exercise requests after the stock market is closed after the main session closes at 4:00. You have, I think, half an hour or 60 minutes to submit your exercise instructions. So it will -- there will be some amount of extra volatility in the stocks on the days when they publish their earnings or when there is a significant news issue. So you may see some unexpected exercise and assignment activity on those days. And that is an issue that the industry recognizes, we ourselves wrote a comment letter about that. So one way to solve that would be to list 0DTE stock options that settle in cash, but that would come with its own type of problems. So we will see what the ultimate decision is going to be, but there are some issues that the cash settled index options did not have.

And our next question will be coming from the line of Patrick Moley of Piper Sandler.

Thomas, I had one for you. I caught your interview on CNBC before the call here. You sounded very bullish. I think you said that you don't really see much that could derail this rally here and that you could see this rally continue for the next 2 or 3 years. So with that in mind, I'm just hoping you could elaborate on what that could mean for overall retail trading activity if we do see markets continue to grind higher. And then in terms of IBKR platform specifically, what are some of the read-throughs there if that is the environment that we're entering into?

As I have said, I expect this environment to be very, very favorable to brokerage firms in general and investment banks in general and specifically for Interactive Brokers. This is a great time for us. And it's a great time for your firm too. All of your firms.

And maybe just a follow-up on crypto. Milan, I think last quarter, you said that you were somewhat surprised at just how much -- how little market share you've taken since beefing out the crypto offering just given how much lower cost the offering was. So just curious if that's still what you've seen. Have you seen any market share gains there? And then this push to kind of build out the offering even more, is that a factor of you just recognizing that you think you need to have a more robust offering in order to attract more retail customers to the platform? Any color there on that strategy would be great.

So my disappointment in terms of how much market share we are getting in the crypto space remains. I'm still disappointed given how much less expensive we made it for our clients to buy cryptos. But I do expect, and I do hope for some asset transfers coming our way, which right now is impossible if you already have holdings in cryptocurrencies and you want to switch brokers, you will have to sell those currencies, turn them into cash, and that's what you would have to deposit with us. So supporting asset transfers should open the doors to some new clients to recognize that our prices are lower, and they should bring our assets to our platform.

That is my hope. As to why is that, that we are paying attention to crypto, we have been paying attention to it for a while, but the environment has changed with the new administration which is significantly friendlier to the crypto space than the previous one. We obviously have to react to that. Our investors as well as clients, financial advisers, individual clients do expect to have means to enter the space through us, so we need to add it to our offering.

Thank you. This does conclude today's Q&A session. I would like to turn the call back over to Nancy for closing remarks. Please go ahead.

Thank you, everyone, for participating today. As a reminder, this call will be available for replay on our website, and we will also be posting a clean version of our transcript on the site tomorrow. Thank you again, and we will talk to you next quarter end.

This concludes today's program. Thank you all for joining. You may now disconnect.