Interactive Brokers Group, Inc. (NASDAQ:IBKR) Q1 2017 Earnings Conference Call Transcript

Apr 18, 2017 • 04:30 pm ET


Interactive Brokers Group, Inc. (NASDAQ:IBKR) Q1 2017 Earnings Conference Call Transcript


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Good day, ladies and gentlemen, and welcome to the Interactive Brokers Group First Quarter Financial Results Conference Call. (Operator Instructions) As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Nancy Stuebe, Director of Investor Relations. Please go ahead.

Nancy Stuebe

Thank you, operator and welcome everyone to our first 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). 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. I'd now like to turn the call over to Thomas Peterffy.

Thomas Peterffy

Good afternoon, everyone. Thank you for joining us to review our 2017 first quarter performance. This quarter, we made a difficult decision to wind down our options market making operations. Timber Hill is widely known in the industry as the pioneer of electronic trading. Starting in 1977, we built technology for market making that in subsequent years was adopted by everyone who remained in the industry as exchanges moved from open outcry to the electronic method.

This technology also became the foundation for our brokerage business giving us the technological edge and the deep knowledge of international exchanges and markets that strengthens and drives our electronic broker today. Recently, we have come to the conclusion that in a low-volume environment -- in a low-volatility environment that may go on indefinitely, it is difficult to earn a profit as a market maker without substantial order flow to interact with. Interestingly, that was the very same reason that drove us in the early 90s to expand our market making systems to providing brokerage services in the first place.

At that time, we saw the large bulge bracket brokers that are today banks making great efforts to sell to their customers an OTC derivatives at the expense of exchange trading ones. We fear that soon, we'll have no one to trade with of the exchanges, and that we have to develop a source to generate our own order flow. As we began working on building the software, the idea was supplemented by what we saw as a more urgent need for a trading platform that floor traders could adopt as the exchanges started to go electronic. Providing that platform became our niche in the brokerage business. Initially, we served floor traders who had to move upstairs.

Later, our customer base grew into the generally financially more sophisticated customer. Our typical customer understands the conflict of interest a broker has, whether directly or indirectly takes the opposite side of his customers' orders. For this very reason, we decided not to trade against our customer orders and we have invested in building