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 ran, because they have a what do you call this? Algo 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 want to buy, say, 500,000 shares of such and such, say, 1,000 shares at a time every two or three minutes. But it will randomize the size, and it will randomize the timing, so you avoid traders front running your orders. 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 8th, 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 Liz Claman 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 in to run the Fed who is likely to lower rates, and then there are several other initiatives they have, even at the 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 it 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, and, but I think you want to talk about that later. Other than that, 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 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.
That's one of those things that we are adding to. We are currently working on, including, and that includes AI-driven facilities and also, but we are not really leaning towards any geography because 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 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, Ripple, 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 economic boost that the Trump account, 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 at certain companies or the number of employees or various questions having to do with publicly held companies, are they securities or are they not? So that's a question we would like to see clarified because as prediction markets grow, these will be relevant questions.
Great. So we're on the topic of prediction markets. 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 timeframe you would expect this to develop, and I guess what's the scope that you would anticipate? Is it sports, non-sports, or both?
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. 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. We first have to build the liquidity. We are advertising, and surprisingly find that the greatest interest currently on our platform is in temperatures.
Interestingly, the daily temperatures fluctuate with electricity use and electricity prices and energy prices and energy use. So that 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.
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. I think that is going to be a very big market. 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.
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 probability 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 on our platform where you can run a model portfolio next to your existing portfolio, and we have a way for your target portfolio to continuously update your existing portfolio. As you know, we have our ETFs 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. Could you just expand a little bit on the ability to and barriers around expanding Forecast X 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 at this time we are not sure if we want to have sports on the platform. But on the other hand, we realize that if we had sports, we would have more people opening accounts with us. But also, 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, so because the states have a very substantial revenue they derive from sports bets, tax revenues on sports bets, and they are not about to give that up, so I'm sure that there'll be some resolution around that.
Okay. So maybe just turn to your account growth. Your target is 20% over the long- term, but you've obviously been well above that this year. You've been closer to 30%. If the market sell-off reoccurs or we see, you know, 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 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 Interactive Brokers introducing broker 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're seeing the same. 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. Now, 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 when 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 when 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, outdated, obsolete technology, and they are much more expensive than we are. But they have a very long-term contract. So people say, "Yes, we'll come over when our contract is up." And then we come back to them when their contract has a year to go, and then they start working with us and preparing for their FINRA application because for some reason or other, 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 in general.
And once it's approved, we go back and they continue to work slowly, dragging their feet. And then when it becomes big, 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. I didn't know that. Okay.
Now, 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 number four 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 their imputed safety by being too big to fail. And we are obviously trying to boost up our equity capital, 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, you know, 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 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 the lack of clearing houses is a 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 is no price comparison, you can charge any price.
That's what we tell our salespeople to go out there and say, you know, all these complicated, over-the-counter programs, collars and whatnot. You can basically use exchange-traded products to create the same kind of collars, but that, of course, then is not specific to a specific date or a specific strike, but it basically does the same job. Ultimately, I keep telling my guys that you go out there and 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?
Tell us, you know.
Sorry.
Don't tell my clients that. Okay. Maybe on your trading tech, how are you investing to stay best in class from a trading tech perspective? Obviously, that's your legacy, you know, the 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? Are there things that we should be thinking about?
So we use AI obviously for our customer service. Our employees are encouraged to use AI, and an 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 at 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 you know, 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 I just said, we just went 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 excess 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. Will 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 anytime 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, you know, the crypto products that you're offering, your aspirations in the space, and how do you think about growing that going forward?
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 Zero Hash. 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 know, 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 our other platforms.
That seems to be somewhat of a disadvantage because even though our commissions are lower than the competitors, the fact that we do not custody the crypto ourselves seems to be a deterrent for people.