Good day and thank you for standing by. Welcome to the Interactive Brokers Group Third Quarter Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to Nancy Stuebe, Director of Investor Relations.
Please go ahead.
Thank you. Good afternoon, and thank you for joining us for our 3rd quarter 2021 earnings call. Once again, Thomas is on the call, but asked me to present his comments on the business. He will handle the Q and 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 Q3, we once again reached a record number of accounts, 1,536,000. Our year over year account growth of 57% was nearly equal in all three of our geographic regions.
The markets continue to be constructive for us, but more normalized than they were last year, driving commissions to $311,000,000 the 2nd highest we have ever reported, only exceeded by this year's hyperactive Q1. While our GAAP reported net revenues were $464,000,000 Our adjusted net revenues of $650,000,000 were also our 2nd highest on record, again surpassed only by the Q1. The $186,000,000 adjustment to net revenues was virtually all due to the depreciation of Tiger Broker stock price. We invested in Tiger at a blended price of less than $3 a share in 2018 2019 to help them gather enough The stock is traded as high as $38 and as low as $3 And at quarter end, our gain on this investment was about $80,000,000 Even though this started out as a relatively minor investment, it certainly has provided a lot of unintended distraction to our investors who look at our financials. With the new focus on the part of the Chinese government on data security, we now expect the stock to keep swinging for a while until they come to a clear understanding with the regulator of what is required and how to get there.
Our financial performance underscores the strength of our platform and of our focus on automating as much of the brokerage business as possible. This gives us the ability to maximize our product offer product and service offering while minimizing our costs. Automation to us means that our 1,500,000 customers from all over the world can interact and trade securities, commodities and currencies with each other across 141 trading venues in many jurisdictions under different rules seemingly from one account. This is not easy and it is the reason that not all products on our platform are available for all users such as crypto, which is not yet available to many of our non U. S.
Customers, but we are working hard on that. We just yesterday enabled registered investment advisers to add small crypto positions to the investment portfolios of clients who request it, which we are told happens ever more often. Automation can also enables us to generate upon request A single nicely compiled investment report that not only summarizes your holdings and returns and the risk you have been taking, that does so across continents and products and currencies. And you can even custom tailor it for yourself or for your customers column by column. We've even added the capability to include assets that are custodied elsewhere and incorporate them into this report no matter what country or major currency they are in.
We continue to see active trading among our client base. To give a sense of this, in the Q3 of 2019, our equity volume was 41,000,000,000 shares. In the Q3 of 2020, it was 86,000,000,000 shares. This quarter, it reached 172,000,000,000 shares. 3rd quarter total DARTs of $2,300,000 were the 3rd highest in company history following the 1st two quarters of this year as existing clients continue their activity and new clients begin to participate.
Client investing confidence can also be seen in our customer margin loans, which reached a record $50,200,000,000 up 67% from last year. We continue to see our clients putting their available funds to work. $50,000,000,000 of margin loans represents about 6% of all outstanding industry margin loans, even though we only hold less than fraction of 1% of all investable assets. This is also remarkable because our margin lending policies are comparatively conservative and we automatically liquidate positions and accounts that come into violation of these policies. The reason for our high margin balances that we only charge 0.75 percent to 1.56 percent to IBKR Pro customers for margin loans.
This policy is a major draw for sophisticated traders who trade often and use leverage. The more our clients participate, the stronger we become. Our reported pretax profit margin was 50% and adjusted for non core items was 65%. We know of no other broker who can claim profit margins close to this. Our new account growth remains quite positive ahead of both prior year and prior quarter adds.
Investor confidence and activity are strong across the globe in all regions as we emerge from the pandemic. This activity continues to be led more by individual investors who tend to stay with us, especially internationally, because we offer a broad product range and the lowest cost to those investors and there are many who wish to invest globally. This breadth is one of our strategic advantages, one that is extremely difficult to offer. For any broker, Providing market access can be expensive and complex. To do so globally with compliance, legal, currency and tax and Reporting requirements that vary by market is even more so.
Having all this automated is our competitive advantage. Three quarters of our accounts are international in rapidly growing markets. Even as we come through this period of COVID, global interest in the markets that began early last year continues. People have grown comfortable doing more and more of the financial business electronically. They have grown more connected to financial markets, institutions and each other online, which in turn drives even more people to participate.
This, along with our continuing dedication to add more products and services to our platform, is why we believe year over year growth at total accounts can be at least 30% going forward indefinitely. Once again, all client segments and geographies showed strong account adds with all regions showing greater than 55% year on year account growth. Now I will go over our 5 client segments. Individual customers who made up 64% of our accounts, 37% of our client equity and 54% of our commissions Continued the remarkable run of growth with 12 month account growth of 79%, client equity growth of 57% and commissions up 35%. All geographic regions we serve saw growth in individual accounts of over 70%, with European accounts topping all regions with over 90% growth.
This underscores what we always say, it is Hedge fund customers also continue to grow. For the 12 months ended September 30, we saw 4% hedge fund account growth, 41% customer equity growth and 4% commission growth. We continue to add growing and larger hedge funds, which can be seen in the particularly robust growth in client equity in this segment. Hedge funds represent 1% of our accounts, 7% of our client equity and 6% of our commissions. According to Prequin, we moved from 8th to 7th place as the prime broker servicing the most single manager hedge funds.
We are in 1st place as the prime broker servicing the most hedge funds under $50,000,000 in AUM. And for the 2nd year in a row, we are the fastest growing prime broker. Proprietary trading firms are 2% of our accounts, 9% of our client equity and 12% of commissions. For the quarter, This group grew by 36% in accounts for the 12 month period, 44% in client equity and 19% in commissions. All regions saw strong growth.
We are seeing particular success in this segment in Europe as more prop trading firms open And new and existing firms moved to us due to our unusually diverse international product base to capitalize and as investors seek to counterbalance negative interest rates in the EU. Financial advisors are 9% of our accounts, 17% of our customer equity and 10% of our commissions. This group grew accounts by 19% for the 12 month period, Customer Equity by 41% and commissions by 7%. Account and client equity growth in this segment tends to be higher than commission growth as advisors typically tend to trade more conservatively. More larger advisor firms are beginning to try Interactive Brokers for our adaptable account structures where you can manage hedge funds, SMAs and regular client accounts under one master and invest across the world in a wide variety of products that now includes crypto.
An RIA can use a rich set of tools and capabilities And with our dedicated client service desk for advisors, we continue to get better and capture more business globally. Our final segment is introducing brokers. These represent 25% of our accounts, 30% of our client equity and 17% of our commissions. IBroker segment account growth was 31% for the latest 12 months with client equity up 59% and commissions up 97%. Offering the ticket of global access to their customers is critical for brokers looking to grow their business.
Worldwide, new brokers starting up and existing brokers looking to extend the breadth and depth of their offerings Turn to our platform for its global trading and seamless back office functionality. With the worldwide growth in investors who want global access, Introducing brokers know that their best opportunity to succeed is to partner with us to provide it. Much was done to enhance and improve our platform this quarter. We eliminated monthly inactivity fees, part of our ongoing commitment to provide low cost trading solutions. We introduced Bitcoin early last month in response to client demand.
Over the next few months, we will be broadening both the regions and types of customers and coins available on our platform. We are very proud of the great advances we have made in building out our compliance systems and staff in a group that now numbers 350 across the many regional brokerage subsidiaries we have around the world, each with its own unique rules and regulations. We've increased the yield on our advertising dollars to a point at which it is becoming profitable to spend more. We have grown our sales force and they are gaining stride. As Interactive Brokers becomes better known for the sophistication and diverse capabilities of our platform, along with our industry low pricing, It is easier and easier for them to attract new and larger customers.
The growing controversy and focus on payment for order flow is to our advantage. Due to our unique position in the PFAS space, where we provide either 0 commissions or executions at a small commission By crossing at usually better prices in our ATS, we have a great opportunity to attract more institutional flow. They love to trade against our often overseas retail flow in between the NBBO, where both sides benefit. All in all, it is a thrill for us to keep building new things and adding more and more products and capabilities and to offer it to an ever growing audience at the same time. It feels like our opportunities are, for the moment, unlimited, but we must hurry because the empty, unserved product space is filling in quickly.
With that, I will turn the call over to our CFO, Paul Brody, who will go through the numbers for the quarter. Paul?
Thank you, Nancy. Thanks, everyone, for joining the call. I'll review the Q3 results and then we'll open it up for questions. Please first note, we have reordered our earnings release a bit to more closely align with many So I'll start with our revenue items on Page 3 of the release. Commissions continue to be strong, Returning our 2nd highest ever quarterly revenues of $311,000,000 This reflects higher trading volumes, especially in stocks and options from active customers and a groundswell of new customers on our platform.
Net interest income generated $274,000,000 in revenues. Margin lending was particularly strong this quarter with customers producing $141,000,000 in margin interest, reflecting their confidence in the market. Securities lending also continued its strong run as investor demand for a broad range of securities to borrow was met with a growing supply of inventory held by our customers. We generated $49,000,000 in revenues from other fees and services, even while discontinuing account inactivity fees. Strong client activity drove revenues higher Market data fees and risk exposure fees and income from options exchange liquidity payments was driven higher by options volume.
Market data fees were $20,000,000 up 21%. Risk exposure fees more than doubled to $8,000,000 and Exchange liquidity payments were $10,000,000 up 51%. We eliminated Other income includes gains and losses on our investments, our currency diversification strategy and principal transactions. Many of these are excluded in our adjusted earnings. Outside of those, other income was up to $16,000,000 Turning to expenses.
Execution, clearing and distribution costs were down 18% despite the higher trading volume. Capturing exchange liquidity rebates through our state of the art order routing system drove this performance and regulatory transaction fees were We have gotten better and better at reducing these costs for our clients. As a percent of commission, Execution and clearing costs declined from 36% in the Q3 of 2019 to 27% in the Q3 of 2020 and now to 20% in the Q3 of this year. With client trading volumes rising while we continuously improve our order Routing Technology. More commission revenue goes to the bottom line.
Our ratio of compensation and benefits expense to adjusted net revenues was 15%, unchanged from last year despite a 28% increase in headcount. This reflects our expense discipline and our strong top line. Our quarter end headcount was 2,471. G and A expenses were up 19% on the prior year, reflecting legal expenses on litigation and prior period bank fees, neither of which we would expect to continue at this pace. Our adjusted pretax margin was a robust 65%.
By practicing expense control, while also hiring and investing in the business for accelerated growth, we are maintaining the operating leverage in our business. Finally, on the income taxes line, of the $28,000,000 shown, The operating company's portion was $19,000,000 and the public company's portion was $9,000,000 Moving to our balance sheet on Page 5 of the release. The total assets ended the quarter at 106 $1,000,000,000 with growth driven by margin lending to customers. Our consolidated equity capital reached $10,000,000,000 for the first time We continue to deploy our balance sheet to support our growing client business. In particular, More and larger customers want access to margin lending, which our capital base gives us the ability to provide.
We opened offices in Ireland and Hungary in response to Brexit. For those and our other rapidly growing international locations, our capital base provides the foundation needed for today's operations and for future growth. Our capital is also used for numerous other growth and investment opportunities And finally, an ample capital base helps us win business by showing the strength and depth of our balance sheet to current and Let's look briefly at our operating data on Pages 67 of the release. Page 6 shows contract and share volumes for all customers rose 34% in options and 100% in stocks, well above industry growth. Activity is strong across client types and geographies.
In most securities products, our volumes are still above the very high activity levels of 2020. Turning to Page 7, account growth remains robust with 555 1,000 account adds for the year and 122,000 for the latest quarter, on top of record performance in the first half of this year. Total accounts reached $1,500,000 57 percent over the prior year and 9% over the prior quarter. Customer equity growth reflected strength in new accounts, solid additions to existing accounts and a generally supportive market environment. Total customer DARTs reached their 3rd highest quarterly level ever at 2,300,000 trades per day.
This reflected investor confidence in rising markets, the ongoing global search for yield in 0 and negative interest rate environments and more customers on our trading platform. Commission for a cleared commissionable order shows our success in capturing rebates Paid by exchanges, we route IBKR Pro orders directly to exchanges, realizing these exchange rebates and passing the savings onto our clients by lowering their commission. Our cleared IBKR Pro customers paid an average of $2.46 per order, 9% less than they did last year as our order adding system found opportunities to maximize rebates while achieving best price execution. Our clients benefit with lower commission costs as we pass our lower execution and clearing costs on to them. Profitability per order to us remains the same.
Next, we break down our net interest margin On Page 8 of the release, total GAAP net interest income was $274,000,000 significantly higher than a year ago, reflecting increases in margin lending and securities lending. Average margin loan balances and margin interest income were up 64% 70%, respectively, from last year. Investors were comfortable this quarter taking on leverage in a fairly benign market environment. Securities Lending net interest was up 43% from last year, driven by strong client As we grow our client our customer base, our opportunities to lend customers' shares to other customers who short these stocks also grows. Together with increasing our profitable securities lending to other broker dealers, the model generates expanding revenues.
And we'll now turn the call over to Steve. Thanks, Steve.
Thanks, Steve.
Thanks, Steve. Thanks, Steve. Thanks, Steve. Thanks, Steve. Thanks, Steve.
Good morning, everyone. Good morning, Steve. Good morning, everyone. Good morning, everyone. Good morning, everyone.
Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone.
Good morning, everyone. Good morning, everyone. This shows the impact of negative benchmark rates in certain countries. When benchmark rates are very low as they are in the U. S, We pay no interest to customers on their cash, but in currencies where rates are negative, we earn interest by passing through these negative rates to customers.
We earned $8,000,000 on this. When benchmark rates are positive, we earn interest on depositing and investing our segregated cash But because of negative rates in some currencies, we had a net cost of $4,000,000 on these balances. Taken together, the net interest income from these balances was $4,000,000 for the quarter. Now our estimate of the impact of the next 25 basis point increase in U. S.
Benchmark rates, we expect the next 25 basis point rise in rate to produce an additional $107,000,000 annually. This does not take into account any change in how we may adjust our strategy Take advantage of newly higher rates. About 24% of our customer cash balances are not in U. S. Dollars.
So estimates of the impact of U. S. Rate changes exclude those currencies. In conclusion, this was a strong quarter that reflects our ability to grow our customer base and that shows the attractiveness of our strategy to automate for growth, expanding what we offer while minimizing what we charge. Given our progress and performance, we're confident in our ability to grow accounts, Thomas has indicated, Maintain our expense discipline and to capture future opportunities as they arise.
And with that, we'll now open up the line for questions.
Stand by while we compile the Q and A roster. Our first question comes from the line of Rich Repetto with Piper Sandler. Your line is now open.
Yes. Good evening, Thomas and Paul and Nancy. Just a follow-up question on the China situation, I know the accounts have been drawn down at Futu and Tiger. I guess, Thomas, can you explain just about other operations? From what I understand, your servers aren't in China, but are there Any other impacts on client growth?
Again, it's clear what's going on with Futu and Targa, but Just that region, is that going to have any other follow on impacts?
Well, I'm glad that it's so clear to you. It may not be so clear to everybody else. So but any rate, so Well, IBKR does not process client data in China. To the extent we keep data on customers Who reside in China, we must keep that data on their procedures that satisfy You know the criteria that they have public. This criteria we find It's very similar to the one imposed by the European Union under the so called GDPR rules.
Since we have built those procedures at the time the GDPR rules came into effect, We will modify and reuse them for Chinese customers. Now these are direct customers from Mainland, China. As you know, we have the 2 introducing brokers Futu and Tiger Brokers, you mentioned, these two firms will have to work with the regulator to make Sure that they are compliant with the new rules. While we do not think that these accounts are that the accounts, their accounts with us In imminent danger of having to close, it is well known that Futu has been planning to go on their own in the U. S.
We think if anything, the new rules may slow down that process. At any rate, investors who want to know our Exposure to these 2 brokers, our expected net revenue no, gross revenue, Sorry, our expected gross revenue derived from servicing Putel and Tiger by the end of the year, we expect it to be 70 $5,000,000 Most of these accounts operate on an omnibus basis, But they still have about 64,000 individual accounts, which we have indications that they will convert to Omnibus. So in that case, it will result in a 64,000 Account diminution in our number of customer accounts. So that's what I have to say about that.
It was A little bit more complicated than what I thought, but that's helpful, Thomas. Thank you. Okay. And another question, just trying to understand a little bit about the crypto offering. I know it's the pricing of it is Interactive Broker style highly, highly competitive.
And I guess what you're seeing early on because Your customers don't go for haven't gone a lot for the 0 commission. So I'm just trying to see whether that's any whether they are real crypto traders as well?
Right. So we have invited so far, as you know, we cannot make this available Everywhere right at the start because we haven't worked out the licensing situation. So at this moment, this is only available in the United States. We have so far invited, I think, around 350,000 of which 17,000 requested permission to trade it and that's what we have so far. Now as of yesterday, we have enabled, registered investment advisers Because we often heard that people whose accounts are managed by registered investment advisers We'd like to have some crypto and so that creates a situation where we are the only broker At this time, an investment manager can trade crypto along with stocks and bonds for their clients Manage all positions on one screen and show them in one account.
Got it. Very helpful. Last question is the Mean Stock report or GameStop SEC report came out yesterday. I just was wondering whether you had any Big takeaways from the information that was provided or the conclusions that they reached anyway. I didn't quite see all the connections, but maybe you did, Tom.
I was extremely surprised To find that they did not mention the preopening activity on those 2 days when the stock Doubled or tripled, because preopening trading usually It's on a very, very strong run up is usually indicating that the broker has to cover fails Because the broker on the 4th day has to cover the sales prior to the open, No matter what the price. So I think that's what must have driven the price In those 2 days prior to the order.
Got it. Thank you, Tom. I'll get back in the queue since I already asked 3 questions. But anyway, thanks, Thomas.
Thank you. Our next question comes from the line of Will Nance with Goldman Sachs. Your line is open.
Hi, everyone. Good afternoon. Hi. Thomas,
maybe I could start on some
of the comments in the prepared remarks around growth. If I think back A couple of years ago, I think you talked about 20% growth. Now we're talking about 30% growth and it's on a larger account size. So I think It seems like you guys have gotten more confident in the growth outlook. And I'm just curious if there's anything in particular you'd point to or What you're kind of seeing in the market that you think is helping the brand resonate a little bit more with customers?
Yes. So Number 1, we are experiencing that stronger growth. And number 2, we have a clear A plan of how to go forward nurturing that growth. So I'm very confident About being above 30% going forward for indefinitely.
Got it. That's helpful. Maybe just a ticket tack one for Paul on the expenses. I think you mentioned there were some elevated legal expenses and I think a handful of other things in G and A this quarter. Any
So it's probably relatively safe to say that the Run rate that we had been running previously is a bit more realistic to return To put maybe an overall number on it, that's probably $3,000,000 to $4,000,000 extra in the quarter, Something like that. Got it. That's helpful. Appreciate it.
And then just lastly, I was wondering if you can maybe address some of the news flow in the quarter around like BSA AML issues. I realize there may not be much you can say, but just curious if there's any light you can shed on that. I think around the articles I had, I think around you guys and Morgan Stanley, around some Oh, yes.
Yes, yes, Yes, yes, yes. Well, I tell you honestly, that was the first time I heard of that customer. And You are right. I haven't even looked into the situation. I mean, I'm sure our compliance people are handling it.
But I would think that if it were a serious issue, they would have brought to my attention by now.
Got it. Appreciate the color. Appreciate you taking my questions this afternoon. You guys have good one.
Our next question comes from Dan Bannen with Jefferies. Your line is open.
Thanks. I wanted to follow-up just on the account growth and you're obviously very positive across all regions, channels. Can you talk about the profile of the new customers coming on board? How that compares to your existing kind of customer? And Is there anything specific or regions?
I know that you said broadly very strong everywhere, but Any specific areas to call out where you're having outsized success?
No. It's just straight across the board. It's similar growth every day.
And the profile of the customer is similar or
smaller? Yes, it is similar, yes. I mean, look, no, I mean, let's face it, at the very beginning when we started Internet Brokers, We were, of course, going after the people, the traders, the floor traders that had to leave the floor. So if you look back to our early years, we had very few customers, but very high rates of trading. So that is gradually coming down as we go forward.
So every year basically The number of trades per account is slowly dropping, but we're still at around about 400 It's a year or something like that per account.
Okay. And then just you mentioned an increased yield on your advertising dollars, which is something that I think you said Alluded to allow you to spend more. Can you talk about that in terms of obviously that I assume that ties to the account growth, but How we should think about that in terms of spending and are there certain channels or regions that you think your that advertising dollars going further?
Yes, because our advertising dollars are certainly tied to certain aspects of our platform. And when we introduce something new, we And when we introduce something new, we do that now with a lot of advertising. So when we introduce crypto, We had a crypto advertising campaign that is going to continue for quite some time. Now very, very shortly on November 1, we are introducing the new capability that we are going to Feel so confident about account
growth. Understood. Thank you.
Our next question comes from the line of Kyle Voigt with KBW. Your line is open.
Hi, good evening. If I could just follow-up actually on the question Dan's question on advertising. Thomas, I know there's you just mentioned new product rollouts and maybe that's different. But I know historically there's And some frustration about not getting that adequate return on marketing investment. And clearly that's changed.
I'm just wondering if you could speak to Has there been a strategy shift in terms of where which channels those marketing dollars are being spent in or in which geographies?
Yes. But this is a very sensitive competitive issue, because everybody is trying to advertise and gain more accounts. So Yes, we have gotten into it very deeply and we now understand better Where you get your money's worth and where you do not.
Got it. And so as we're looking out to 2022 and beyond, do you think that's going to be Kind of over the medium term, not just near term, but over the medium term, do you think advertising is going to be a bigger part of that medium term Growth story to continuously drive the account growth, is that what you're saying?
Well, I certainly hope so. I Do not have definite proof that for our plans, But we have the plans and we're going to go forward with them. And I think that we have every indication that they are going to work.
Got it. Fair enough. Thank you. And then, I guess another question. In terms of the Paxos relationship, just wondering, can you help us better understand the contract Structure, is there just a set revenue share on the trading revenue that generated, and so that's shared
So without the customer to PEXO, the customer's order to PEXO and Pexos charges a commission and then gives us a share of it, not a share of it, gives us a fee.
Understood. Thanks. And then just my last one is Just in terms of if I look at the individual account size, if I'm doing my math correctly from the prepared remarks, it looks like the average Account size is getting smaller despite the increase in the equity markets. So I think you commented earlier that The average client that's being acquired looks relatively similar, but is it fair to say that they're generally smaller sized accounts? Is that fair to say, Thomas?
Well, introducing broker accounts are smaller And, so yes, individual accounts are on the average, smaller, yes. Okay.
All right. Thank you for taking my questions.
Yes, sure.
Our next Question comes from the line of Chris Allen with Compass Point. Your line is open.
Good evening, everyone. Just want to follow-up on a couple of things. Well, Thomas, on the crypto launch, I think you said you're going to broaden the number of coins. Any color just in terms of where do you think we may get to on that? What's the timing around that?
I think Well, it's not up to us. It's up to PEXO's. And I understand that they are Working on adding 5 more coins in the near future.
Understood. And then, I just want to follow-up on Rich's question on, and your response to Futu and Tiger, I just want to make sure I understood it correctly. You expect the gross revenues From those Joe's IV relationships to get to $75,000,000 at year end, do you expect it to be maintained, even if they continue to Migrating some of the U. S. Customers to sub clearing or, is that going to decline over time?
I just want to be Clear on that.
So no, the $75,000,000 is just simple. I looked at the Year to date growth and I expanded it to the end of the year. So that I mean, I'm not expecting it to go up or down. I just wanted to quantify so that it's easily understandable, right? $75,000,000 a year is understandable, right?
Now some of our I mean everybody has known and we have been talking about that For some time that Futu wants to become self clean in the United States and they put up A company and they have applied. I think they applied for registration, So we are expecting them to eventually leave us. And so as I think this new rule, If anything, may slow that down a little bit. Otherwise, As I mentioned, yes, we have 64,000 individual accounts still that come from mostly from Tiger. And I think that those accounts will go into an omnibus account.
And as a result, we will lose those accounts As our number of accounts will our number of accounts will seemingly shrink, but simultaneously The average account size has increased.
Got it. That was it for me. Thank you.
Our next question comes from the line of Macquarie Sykes with Gabelli. Your line is open.
Good evening and congratulations on the quarter.
Hi, Max. How are you?
I haven't spoken to you in years. I've been
hiding. Just going back to this cryptocurrency, I think of Interactive as being a pretty competitive platform. And obviously, this is a huge business for Coinbase and some of the other competitors. But it sounds like given how you're rolling out things, You're viewing it more as a complementary product to your accounts. I mean, is this something that you could think Could be a significant growth driver in the future once you get settled on the operations, your relationship, etcetera?
Or should we always kind of think of this Not being a major focus for you.
Well, no, I wouldn't think that because I believe There are tens of millions of investors in the United States, and they will think of crypto as just One product among the many they invest in, right? So I think it's a pain in the neck for them To have to have a different account when they want to buy some crypto versus when they want to buy a stock or sell an option or By the future, right? I mean, it's so much nicer for a person like that to have all the assets In one account and see it on one screen and trade it from one screen, right? That's what has always been our Sensitive strength, right, enabling people to trade products all over the world from one screen in any currency and From one account, right?
Okay. I appreciate that. And I just wanted to just switching subjects a little bit. I wanted to get your thoughts on gamification and obviously providing education to clients Get them to understand the markets better, but I wanted to get your views on sort of where the gray area is between some of these gimmicks that The rules or sort of good ethics around engaging the customer.
So as I have indicated previously, we are Focusing on providing more education to our clients and So we will reveal Graphics that may be helpful in that effort. And I myself do not know about gamification because to tell you frankly, I never been on another broker's platform. And I also never played any computer games. So I don't know the similarities. I'm the wrong man to ask about that.
Well, thank you. I appreciate
Our next question comes from Rich Repetto with Piper Sandler, your line is open.
Yes. I just wanted to follow-up one question with Paul. And you mentioned that 24% of your cash balances are non U. S. And I assume that's 24% of the $23,000,000,000 of Segregated cash.
And could you also tell us, is there a way to quantify Customers that don't have the 100,000 to fully get any increase in rates if Short term rates went up. To quantify that other part, we don't pay interest to your clients, the incremental interest.
Right. So a couple of things. I can give you a minor correction. The 24% is of customer credits,
Not of
segregated cash, debt cash is a little bit different because in certain areas under SEC rules, we have Bring foreign currencies back into U. S. Dollars in order to protect them for the customers. That's about 26%. It makes the foreign currency about 26%.
So to your, I'm sorry, your second question was, about the interest Changes on where we're currently paying no interest on credit. It boils down to what is our spread. So In U. S. Dollars, our advertised right there on our website, the spread is a benchmark minus 50 basis points.
So when Fed funds goes over 50 basis points, we will start paying interest again. And similarly in other currencies, And I think you asked about on negative rate currencies or Maybe I'll just give you a little more information that on negative rate currencies as those rates go up something similar will happen except that We do pass through on the majority of balances. We now pass through negative rates to at least the larger customers, customers with Less than $50,000 equivalent in those negative rate currencies kind of get a free pass. They get 0 interest, because we want to treat them well and keep those customers around, and it doesn't cost us a lot.
Yes. And to respond to the $100,000 question. So if you remember, Say interest rates go to 1% that we're going to pay 0.5% to accounts with $100,000 and above And gradually less as the amount of funds in the account, the amount of the Value of the account decreases. So for example, if somebody has an account worth $50,000 He's going to get 25% on the cash part of his asset in the account.
Understood. Got it. Last question is, Thomas, we've had a quarter now Since I last asked you about this, but any views or thoughts on regulation regards to payment for order Coming after reading either the report or any interactions you might have had during the quarter, but your thoughts on Whether there will actually be any regulatory changes to payment
for it? Well, I think that Gensler very, very much like to do something. And he said To us as much that he would really love to do something and he is looking for Ways to do it. I don't know if you'll find one because there is going to be pushback about Whether the people get better price or not. So and he's very smart when he comes out with this information flow because Indeed, I mean, that is hard to put a dollar figure on.
But while the Internalizers get the information flow. I'm not sure who is being damaged by Them having the information flow, it's certainly not the person that sent the order, but the 1st with the next order, right? And that person may be through a different broker to a different High frequency trader, right?
Yes. Okay. That's helpful. Just wanted to hear your latest thoughts on it. Thank you.
All right.
I'm showing no further questions at this time. I would now like to turn the conference back to Nancy Stuebe.
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 our site tomorrow. Thanks again and we will talk to you next quarter end.
This concludes today's conference call. Thank you for participating. You may now disconnect.