Interactive Brokers Group, Inc. (NASDAQ:IBKR) Q2 2016 Earnings Conference Call Transcript

Jul 19, 2016 • 04:30 pm ET


Interactive Brokers Group, Inc. (NASDAQ:IBKR) Q2 2016 Earnings Conference Call Transcript


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Good day ladies and gentlemen, and welcome to the Interactive Brokers Group Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions)

I would now like to introduce your host for today's conference, Ms. Nancy Stuebe. You may begin.

Nancy Stuebe

Thank you, operator, and welcome everyone to our second quarter earnings call. Our earnings were released today after the market closed and are also available on our website. Our speakers today are Thomas Peterffy, our Chairman and CEO; and Paul Brody, our Group CFO. They will start the call with some prepared remarks about the quarter, and then we'll take your questions. (Forward-Looking Cautionary Statements)

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

Thomas Peterffy

Good afternoon and thank you for joining us to review our second quarter 2016 results. Our pretax profit for the quarter was $213 million. Of this amount, $191 million was generated by brokerage, $5 million by market making, with the remainder of $17 million from Corporate, primarily the currency translation.

The overall impact of holding our equity in proportion to the basket of currency we call the GLOBAL was a loss of less than $2 million. Our pretax profit margin was a robust 58%, despite the pullback in margin loans and lower market volatility compared to the first quarter.

The big news for the quarter was Brexit. We had begun preparing for the possible outcomes early in the year by adding the event to our event risk scenarios, which are under regular evaluation by our Risk Committee. We started to adjust margin requirements on the relevant products, first initial margins, so as to prevent the establishment of risky new positions, and later increased maintenance margins. Using this approach, very few existing positions needed to be liquidated.

Accordingly, for Interactive Brokers Brexit was business as usual. We experienced no credit losses and the increased volatility was a positive for our brokerage business. We heard that several brokers suffered outages in the first two market days following the vote. We had no such problems. Our volumes were up, but only about 40% over the usual. We generally plan for volume spikes about 300% above normal run rates.

During the quarter, we were favorably impacted by the continuing increase in the mark-to-market volume of treasury bills, in which we invest our customers' cash positions. As we explained in our January earnings call, in the fourth quarter we took a large loss for marking our treasury portfolio to market, and we continue to make up that loss, with $14 million coming back this quarter on top of the $37 million gained back last quarter.

At the June meeting of the Federal Reserve, there was no rate increase and the market seems to reflect the belief that global headwinds make any increase in the near-term less likely. While these lower benchmark interest rates compress the yields we can earn,