Good day, everyone, and welcome to the Interactive Brokers’ Fourth Quarter 2012 Earnings Results Conference Call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Ms. Deborah Liston, Director of Investor Relations. Please go ahead.

Thank you, operator, and welcome everyone. Hopefully by now you’ve seen our fourth quarter and full year 2012 results press release which was released today after market closed and which is also available on our website. Our speakers today are Thomas Peterffy, our Chairman and CEO, and Paul Brody, our Group CFO. They’ll begin with some prepared remarks about the quarter and then we’ll take some Q&A. Today’s call may include forward-looking statements which represent the company’s belief regarding future events and by their nature are not certain and outside the company’s control. Our actual results and financial condition may differ possibly materially from what’s indicated in these forward-looking statements. We ask that you also refer to disclaimers in our press release. You should also review a description of the risk factors contained in our financial reports filed with the SEC. I’d now like to turn the call over to Thomas Peterffy.

Good evening everyone. I apologize for my voice. I have a cold, so please bear with me. Our results this quarter reflect the continuation of the subdued market environment we have seen all year. Investors endured an extended period uncertainty through 2012 which continued in to the fourth quarter ahead of the Presidential election followed by the subsequent focus on the looming fiscal cliff. And despite of such uncertainty, the market remains fairly calm with persistently low volatility. Only around the election and in the final days of December did the VIX creep anywhere close to 20. Exchange traded volumes have been weaker all year as well. The OCC, for instance, reported that average daily volume for the fourth quarter fell 9% compared to the year ago quarter. Similarly our total customer DARTs have decrease 9% for the same period. The environment has dampened the revenues in both our business segment as you know market volatility is not only a key ingredient for our market making business but it also have to drive our customers trading volumes which fuel commission revenues. Moreover, we usually see higher account add when the markets are particularly active. Our business thrives on a combination of volatile markets, rising exchange traded volumes and wide bid and offer spreads. Yet despite softer top line results in 2012, our efficient business model allowed us to maintain a healthy 47% profit margin for the group which certainly stands out amongst other companies in our sector. We are seeing the effects that this difficult trading environment is having on other financial institutions, consolidation, layoffs and in some cases firms exiting certain business segments altogether. By contrast, our brokerage business is expanding albeit at slower pace than we would like to see and we have been able to substantially grow…

Thank you, Thomas. Welcome everyone to the call. Thanks for joining us. So as usual, first we review the summary results and then we'll be happy to take questions after we go through the segments. In December we paid a special dividend of $1 per share to holders of IBKR common stock. In total, the company paid out about $409 million. Given the uncertainty over government action on tax rate, we took this action prior to year-end to ensure that our public shareholders who hold qualifying shares in IBKR stock will benefit from the lower tax rate on dividends. The dividend was funded from our Market Making affiliates, which is consistent with our policy to reduce the amount of capital related to Market Making segment and as the opportunities there shrink. The amount enhanced the dividend yield by about 6.8% based on the share price as of declaration date. We determined the amount as a dividend to provide shareholders with a meaningful return while preserving a substantial capital base for future opportunities. Unlike the special dividend we paid in December 2010 as Thomas mentioned, this dividend was funded from retained earnings that were previously taxed in the U.S. hence this dividend did not generate any additional income tax liabilities. Our financial statements include the GAAP accounting presentation known as comprehensive income. Comprehensive income reports all currency translation gains and losses, including those that reflect changes in the U.S. dollar value of the company's non-U.S. subsidiaries, known as other comprehensive income or OCI, and these are reported in the statement of comprehensive income. The performance of the U.S. dollar relative to other currencies reflects a result of adding OCI to net income increased their reported EPS by $0.01 for the quarter and $0.03 for the full year. 2012 was a difficult…

(Operator Instructions) Our first question comes from the line of Rich Repetto with Sandler O'Neill. Please go ahead, your line is now open.

First question is for Paul. I believe you mentioned the $0.07 of tax benefits for 2012. I guess the question is, I believe were all those tax, the $0.07 you spoke of, all realized in the fourth quarter?

About $0.05 of it was recognized in the fourth quarter as tax benefits related to prior periods. The other $0.02 had to do with the accounting restatements that was already recognized earlier in the year but $0.07 would apply to the full year, Rich.

Okay. So $0.05 in quarter. And then Thomas, I don’t want you to get you to speak too much seeing that you are not feeling well but you too got a question. You had made reference on the prior call to acquisitions and I guess is there still the opportunity -- was there any, I know you probably won't name them, but were the things you were looking at on the 3Q call, are they still opportunities that are possibilities now, I guess, is the question.

I'm not sure if this is a trick question. Did I really talk about opportunities?

Because we talked about the special dividend and you're weighing whether paying a special dividend or looking at…?

Yeah, right, right. Yeah, right. Well, I confess that we have looked at some opportunities and we found them to be wanting.

You found them to be, excuse me?

Wanting.

Okay. All right. Then the very last question then, Thomas, when you look at how you pay the special dividend out of the, and this is I guess for Paul too, you paid it out of the U.S. subsidiary. Was that purely for tax purpose so you wouldn't absorb the taxes and have to repatriate the taxes or was it to keep, I was going to say, uses of capital overseas. Is there any -- was it just specifically keeping abundance of capital overseas or was it purely just the tax issue?

We funded the dividend from the entities that had the most excess, from the Market Making entities that had the most excess. It was not strictly from the U.S. entity, it was from retained earnings that had been previously taxed in the U.S. So, some of our foreign operations are structured such that their income is taxed on a current year basis each year in the U.S. And so, because those were the entities that had built up excess over the years that, that was the logical place to fund the dividend from.

Thank you, sir. Our next question comes from the line of Chris Harris with Wells Fargo. Please go ahead with your question.

So, it was obviously a challenging quarter for Market Making. We know that the environment was pretty difficult given the volatility and other things you mentioned. I'm curious to get your perspective. Is there really any organic growth opportunities for this business any longer or are we just looking at a business whose results are primarily going to be driven by volatility at this point going forward?

I do not see much opportunity for organic growth. As you know, the exchanges are listing new products which one would believe that trading those products would contribute to our growth in the business, but at the same time there are more and more hedge funds and high frequency traders coming into this space. So, I think the newcomers pretty much counterbalance or maybe even overrun the advantage of new products.

Okay. And then in the Brokerage business, I know its early days in the first quarter here, but we're seeing better fund flows and it seems like retail investors are starting to feel a little bit better about the market. Are you guys seeing like pickups in your trading activities so far in Q1? And what are you hearing generally from your brokerage clients?

Well, relative to the fourth quarter, there is some pickup but it's not really overwhelming. And it appears that we had some little higher inflows than usually in the first few days. So, in other words, it looks good but it's not exceptional.

Got it. So it sounds like it's pretty similar to exchange volumes and I guess, that's kind of how those have been trending?

Yeah, maybe.

All right. Well, last one from me. Thomas, you had mentioned in your prepared comments there, regulations potentially coming out of the SEC. Are there any couple, specifically that you're looking to over the next year or two?

I'm really looking for some regulations that hopefully keep the markets without the kinds of incidents that we had in this past year. And hopefully there will be some technology solutions to these issues as ordered by the SEC, and that may or may not give us some advantage but that's basically it.

What do you think the odds of something happening over the next year, on the regulation side, low, medium, high?

40%.

Thank you, sir. Our next question comes from Niamh Alexander with KBW. Please go ahead, your line is open.

On the other revenue, sorry if I missed it earlier, but maybe Paul if you could just clarify, you mentioned it was a bit elevated but it's been elevated the last few quarters as well as just relative to the fourth quarter. Is there something new in there? Is this a good run rate to think about going forward like the $26 million instead of the $15 million, $16 million level?

There wasn't anything specific to this quarter, it was rather in the comparison that in the 2011 quarter we lost money on the non-trading investments. In particular we had the well known investment in MF Global that lost money at the end of 2011.

Okay. So you had been run rating like $15 million-$16 million and this is $26 million, so $26 million is probably a better run rate now?

It's not by design so it's a little hard to say what it might be quarter-to-quarter.

Okay. So there was not any kind of end of your (inaudible) or payments, or something like that that might be just (of course) seasonal?

No.

All right. Okay, fair enough. I think that’s helpful. Just on the -- I guess, Thomas, you fairly answered questions on the acquisitions. It seems like you are looking and maybe that's why maybe you held some cash back, but you kind of moved on. You fairly clearly think that you can grow your business organically better and you've kind of laid out that, look, right now organic growth in the Market Maker is not a big opportunity. So can you help me understand what are you targeting in the electronic brokerage business? You have been making great progress with the advisors but maybe they are not as active a customer. What about the institutions? What about the hedge funds and more of the proprietary trading desks? Is there anything you can share on your strategy to get more penetration with those customers?

Well, I can tell you that our best kind of account is not a surprise, are the hedge and mutual funds and the proprietary trading groups. And so, if you look at our account growth in the past year I can tell you that it's that individual accounts that grew by 8% and the hedge and mutual funds grew by 16% and the stock trading account grew by 13%. Now the reason why this is significant is because as far as hedge and mutual funds are concerned they are still comprising only 0.6% of our accounts, but they also give us 7.2% of our commission income. And the prop trading groups comprised 4% of our accounts and give us 17.6% of our commission income. So, these two groups, although they are relatively few in number of accounts, they have a large impact on our income.

Yes, understood. And the growth there is clearly outpacing the market and so I was just trying to understand, is there anything you can share on -- is there a new system roll out or new platforms or maybe some more new sales efforts on, for their targeting then? Or kind of you are just more of the same because you're already been pretty effective at deeper penetration?

Well, if you heard, in my prepared statements, we put out model portfolios early in the year and we put out the Money Manager Marketplace just very, very recently. So, these are those facilities that these kind of traders would use.

And you're already offering prime brokerage, right, and investor introduction I think with that?

That we've been doing for some time, yes.

And then I guess just back to the Market Maker, you've announced your $0.10 dividend this quarter. You kind of said, look we didn't it earn it last year so we shrank the business. Are you getting closer, do you think to maybe pulling back in a bigger way and how should we think about the dividend and the $0.10 dividend going forward?

I think you can rely on the $0.10 dividend going forward. We are not going to cut that back. So, if that results in us having to go back then we will.

Next question comes from Ed Ditmire with Macquarie. Please go ahead, your line is open.

My question is about the -- you guys are making several efforts to right size the capital base around the Market Maker which is non-earning as a cost of capital. Do you think you've been aggressive enough on either right sizing the capital around that business or realized we've reduced the amount of excess capital but I don't think we've necessarily cut in a muscle, so to speak? Have you guys made efforts to also pair down some of the operations, i.e. pull back from the least profitable or at least lower ROE product segments or geographic segments. It just strikes me that with the valuation of IBKR in the 12 to 13 times earnings range versus an electronic-broker range of like 16 to 21 times, it seems like there is a market disconnect especially with the majority of income coming from your electronic broker now?

So you said that we are not earning our cost of capital. What do you call our cost of capital?

Within the Market Maker is what I meant, and the idea that you are not earning the targeted 10% pre-tax ROE?

Right. So the 10% was targeted so that if we earn less we payout the capital and if we earn more we accumulate capital. So you now are saying that maybe that is too slow a process one way or the other and you would like us to be more quicker about it, yes?

I think in specific, I think that sentiment is a popular sentiment but I want to hear your view about them?

I like water boarding, I just saw this movie -- I am sorry. Well, look, obviously, we have in the past closed on certain parts of our business and respond in due course if we have to.

So, in summation, would you say that you have the ability to exercise options to right size the business, shrink it down a little bit, get to higher returns, but you would like to keep your options open in the meantime?

That is correct. We basically look at this as a core option as long as we can run this firm without losses, and it's hard for us to forget that in the year 2008 we made $1.2 billion in Market Making. And if something like that would happen again it would be a terrific thing and we would be sitting here -- if we had taken your advice -- we would be sitting here under that circumstances and say to ourselves, gee, we wish we had never met Ditmire.

(Operator Instructions) Next question comes from Mac Sykes with Gabelli and Company. Please go ahead, your line is open.

Could you remind us what the impact from higher interest rates would have on brokerage profitability? I think in your previous comments you had talked about making, perhaps not earning a spread on your credit balances currently and then what would happen to your margin spreads if we did have higher rates?

I am sorry. I do not remember the number. You have to basically understand that what we do is we pay interest to our customers 0.5% under the Fed fund rate and the Fed fund rate is more than 0.5% and balance is over $10,000 in any account. So, from that we could estimate that (inaudible). So, we would make the interest on roughly $1.2 billion and 0.5% on whatever cash is over that.

And then just one follow-up, in light of Ed's comments on valuation, would you ever kind of reconsider a more aggressive repurchase program at this point?

Well, again, sure, if we could buy the stock back under book we would, as I always say.

(Operator Instructions) Presenters, I'm showing no additional phone line questions, I’d like to turn the program back over to Ms. Liston.

Thanks everyone for participating today. And just a quick reminder, this call is going to be available for replay on our website shortly. Thanks again for your time and have a good night.

Thank you, presenters. Again, ladies and gentlemen, this does conclude today’s conference. Thank you for your participation and have a wonderful day. Attendees, you may log off at this time.