Good day, ladies and gentlemen and welcome to the Interactive Brokers Group Second Quarter Financial Results 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] As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Mr. Bill Cavagnaro, Investor Relations. Please go ahead, sir.

Thank you, operator and welcome everyone. Hopefully by now you’ve seen our second quarter earnings release, which was released today after the market closed and which is available on our Web site. Our speakers today are Thomas Peterffy, our Chairman and CEO and Paul Brody, our Group CFO. They’ll start the call with prepared remarks about the quarter and then we’ll take questions. 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 is indicated in these forward-looking statements. We ask you refer to disclaimers in our press release. You should also review a description of risk factors contained in our financial reports filed with the SEC. And now I will turn the call over to Thomas Peterffy.

Good evening, everyone and thank you for joining us to review our second quarter performance. Our pre-tax comprehensive income for the quarter was $268 million. Of this amount $53 million was a result of the appreciation of the global against the U.S. dollar. As most of you are aware, we keep our capital in an internationally diversified basket of 16 currencies, we call the global, and as the value of that basket fluctuates against the dollar we make a profit, if it rises and vice versa when the value falls. Excluding that gain, our pre-tax profit for the quarter would have been $215 million. All-in-all it has been a good quarter given that historically and adjusting for our rapid growth, the first quarter tends to be our best one and yet we had another record in brokerage. It seems that almost every quarter something happens between the end of the last quarter and the earnings call. And that is what everybody wants to hear about and nobody pays any attention to the rest of my story until I get to that. So let me go there right now. As you know in early July there was a great deal of volatility in the Chinese and Hong Kong markets which gave rise to two events which I need to comment on. First, some people started to circulate rumors about losses Interactive Brokers had supposedly suffered due to margin loans made to customers getting positions in Chinese and Hong Kong stocks. Please understand none of that is true. In the course of the past several quarters we have done a great deal of work on further refining our margin setting systems which are based upon dynamic collateral valuation algorithms that restrain the amount by which we value securities with rapidly increasing prices…

Thank you, Thomas. Welcome everyone to the call. And as usual, I’ll review the summary results and then give segment highlights before we take questions. Results of the second quarter were driven by another record performance in brokerage and modestly profitable outcome in market marking and gains on currency movements. Core brokerage results reflect strong increases in commission revenue and net interest income. Market making results which were slightly higher than the prior quarters stem from better trading gains and continued reduction in expenses. 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. These are reported in the statement of comprehensive income. The U.S. dollar weakened relative to most of the other major currencies there in the second quarter of 2015. And as a result, the currency basket in which we keep our equity which we call the global, strengthened against the U.S. dollar by 1%. OCI is a component of the total global effect and the rest is contained in other income. We estimate the total positive effect from the global on our reported earnings per share for the quarter to be $0.11 with $0.07 reported in OCI and $0.04 as other income. Overall operating metrics to the latest quarter were flat to higher across product types versus the year ago quarter. The brokerage customer metrics were stronger in all products. Average overall daily trade volume was 1.23 million trades per day, up 14% from the second quarter of 2014. Electronic brokerage metrics continued to show solid increases in the number of customer accounts and customer equity. Total and cleared customer DARTs were up 16%…

[Operator Instructions] And our first question comes from Rich Repetto of Sandler O'Neill. Your line is now open.

Good evening Thomas, good evening Paul and congrats on the strong brokerage quarter again, I guess the question that comes up is and you did mention $2 billion of margin loan, and I believe you said from China, is there any way else you could break out of your -- you have given metrics on Asia but specifically the China impact whether it'd be DARTs or accounts and or whether it'd be through the Shanghai, Hong Kong stock connect program to judge the impact of the Chinese I guess slowdown in the market?

I didn't say that it came from China, but it happened at the time that the Chinese market fell. Look, Rich, I don't think we should disclose too much of this information. After all this is a competitive marketplace and we disclose a heck of a lot more than any of our competitors do.

Sure and I guess the question though is, given what's going on in the Chinese market and say movements in the metrics like you've mentioned on the margin loans, like how would we expect I guess the coming quarter would we expect to see the same sort of growth rates, if there, if sort of the run rates coming out of the quarter then that reflect China, would we see a significant slowdown in the brokerage growth rate I guess this is the question?

So Chris Harris’ numbers were pretty much correct, I am not saying, first of all we have customers all over the world and many of them trade in Hong Kong even though they are not Chinese customers, right. So we have not actually broken out how many of our customers that borrow money against Hong Kong stock are actually Chinese customers.

Okay. I guess my last question Thomas is again you've mentioned this and the whole growth from small institutions and hedge funds that you've seen as some of the other primes pull back and I guess is there any way -- I think we all saw the increase in the average stock order size et cetera, is there any other way we can gauge and get a feel for how that growth is going given that JPMorgan is existing the business, is there any other metrics either you or Paul can give that can give us a better feel for how many -- how fast we're growing in these bigger I guess more institutional type accounts?

We publish our monthly metrics, right, but you see there the number of new and the number of net new accounts and you see the amount of net new deposits, right? So you have to gauge it from that. We're really not looking to break it out in any finer degree than that.

Okay. And one last one for Paul, in this other income revenue line, Paul, there has been gains on investment both I believe it is this quarter, I know that was last quarter as we looked in the Q. And could you explain that a bit, is this and I think it related to hedging activity these gains in the other income line, could you go through that a bit?

Sure, while the primary -- since we've changed the presentation in our accounting in the fourth quarter the primary component of other income is the currency translation effect. And so as we described that this quarter that's about $25 out of the $53 million and it all goes to other income there. We did that to make it a much more straightforward presentation for folks like you perhaps because you're asking the question that it is not quite as straightforward as it might be. If there are some other components to it as I mentioned it's a collection of the exposure fees one of the ways that we approach risk management to allow customers to cut their risk or to perhaps take somewhat greater risk at a greater cost to them and the greater income to us. So, these are all components but by and large to the largest one of these days is the currency translation.

Yes. Okay I guess yes if you might you can subtract $20-$25 off of their well it is still $30 and generally higher than the run rate in the past but anyway we can follow up on the question afterwards but again congrats on.

We would expect to give you little more color on that in the upcoming 10-Q.

Okay. Congrats on again Thomas the strong-strong brokerage growth for the quarter.

Thank you. And our next question comes from Chris Allen of Evercore. Your line is now open.

Good evening guys, so, I guess if you could just start out in the -- your latest investor deck it noted that 42% of commissions are -- through April 15th came from Asia Pac…

Sorry. Where did you get that?

From your Sandler O' Neil presentation.

Who pointed out that 42% of the commission?

I am sorry I miss-quoted 23.6% of revenues.

Okay. That I can believe.

I apologize. I'm just wondering through April 30th it was 23.6% Paul you noted elevated activity at Hong-Kong I am just wondering if that was a dramatic increase in overall 2Q relative to that run rate through the end of April?

Yes. So, first of all so roughly 25% of our accounts are from Asia and 25% of our commission derives from those accounts, those are very good numbers they are good within in 3% either way.

Okay, all right. And then...

As I tell you most of those commission dollars are a result of those accounts trading in the U.S. and to some extent in Europe.

Got it, okay. And then Thomas you noted that right now you’re penetrating about kind of 6% of your addressable market I mean any metrics you can give us in terms of how you arrived at that number?

Well. We are guessing that 5 million to 6 million people would benefit unquestionably by having their account of Interactive Brokers and these are people who are financially sophisticated people who are, who care about their quality of execution and their trading cost and financing costs. So, we have just moved up how many people in the different countries would qualify roughly for that sort of, who are trading as professionals. Not necessarily for their own account but also for institutions. So, for example if you ever have an online account, an online brokerage account you would be one of those 5 million to 6 million people who would benefit from adding your account with us.

Got it. And then not to continue on the Asia trend but in the fourth quarter you noted that these are the Far East is ramping at faster pace in the geographies and does that continue to be case right now are you seeing any impact there?

We did not see any… Hong-Kong trading volume slowed to some extent, but we haven’t seen any bad debt as far as new accounts or new money spend surge in from Asia.

Okay. Then the last one from me what was the impact in rough numbers from Scottrade and Motley Fool in terms of account growth during the quarter and then just a kind of that is the big one kind of transfers kind of over and it's more kind of organic knows venues now?

I think the case is the latter and also they have asked us not to talk about it.

Thank you. And our next question comes from the Chris Harris of Well Fargo. Your line is now open.

Another follow up on Asia if I may, this is a pretty big decline in your margin balances and really Thomas you've been in the business for a very long time and this occurs periodically obviously and specially in some of the markets that you guys operate in. What has been the impact on investor psychic when you have something of this magnitude impact a region or an area I'm just particularly wondering about how those customers in that region might react?

They have already reacted to it in the sense that they contracted their borrowings and some of those borrowings were contracted by us because of the margin violation. So this happens all the time, when market go down people are borrowing money to a lesser extent.

But no impact on trading activity or account growth and what I really find curious is that you are getting a loss or taking a haircut on some positions in one region why that wouldn’t impact your behavior in another region. So you mentioned your Asian customers trade a lot in the U.S. and Europe and wondering why if they are taking substantial losses in Asia why that wouldn’t bleed into activity in other parts of the world?

First of all our customer base is more sophisticated than the average brokers’. So our customers are not necessarily long the market. Many of them trade options, many of them are short, many of them run a long-short portfolio, secondly we’re extremely well diversified and in some places the market goes down and in other places goes up and there isn't -- other than the sudden margin contraction there I didn't see a huge impact as far as trading volume or new account openings of new money coming in. It's not a big impact I wouldn't worry about it, or let me say I'm not worried about it.

Wondered maybe switch to another topic and perhaps I mis-read or I am mis-quoting you here Thomas but I think at a recent event you had downplayed that there was a lot of excess capital available potentially for investors. I just want to give you a chance to comment if that’s indeed the case and if it is why that is the case?

You mean that we have a lot of excess capital?

Correct, yes.

Well we have always had a lot of excess capital and we aim to have that even more in the future. I think that all the banking regulations that are growing on both from the Basel III and from the Dodd-Frank are playing into our hand and they are, we can pick up a lot of this business and I think we can use the capital well.

So more of the healthy organic growth of the business than there being some massive distribution you may or may not want to make to investors?

I very plainly said that we’re not looking at making any distributions other than our regular quarterly $0.10 dividend.

And then a quick question on the P&L. You guys have run this fairly low tax rate for some period of time and I'm just trying to think for modeling purposes is it fair to sort of use this sub 10% GAAP tax rate on a go forward basis or is there some benefit that rolls off that we should be thinking about for future quarters?

Paul?

Well yes the original benefit embedded in the IPO transaction is a 15 year benefit and our IPO was in 2007, that kind of benefit, though we have nothing planned, that kind of benefit would be increased in renewed with each additional of any secondary offerings where the sale price was in excess of essentially the book value really the tax cost basis but call it the book value that is what generates that tax benefit, so each one of those is a 15 year amortization, so last for quite a well.

Paul that includes employees selling unregistered shares also, right?

Yes, each time shares are sold into the public.

And including bonus shares right?

Not including bonus shares.

Not including bonus shares. Okay so the shares that are originally owned shares that become a newly registered, yes?

Yes, correct.

OK, thanks for clarifying.

And our next question comes from Rob Koehn of Ivy Lane Capital. Your line is now open.

First question would you able to provide some more clarity at least directionally around the top firms that ACAT accounts into Interactive Brokers in other words presumably you see the ACATS data every day or every week and where those accounts coming from largely is it the Fidelity’s and JPMorgan’s or Schwab’s?

It's always two groups. It's the four big online brokers and the four big banks. So it's Schwab, Ameritrade, Fidelity and E-Trade, on the one hand and JPMorgan, Goldman and Morgan Stanley and to some extent Citibank the other and Pershing.

And are you seeing more with the mini-primes tightening their belts so you're seeing more from…

We wouldn't see the mini-primes, we see them as the big banks because for the mini-primes the big bank is where the ACAT comes from.

Right, so I was going to say Goldman Sachs, Goldman Sachs execution and clearing being one of those.

Yes, Goldman is one of the names I mentioned, yes.

Okay and then to follow up the Sandler conference, you talked about the brokerage business generally, and the fact there are hundreds of brokers out there out there. Everybody is doing the same thing back office, stock lending, executions and dealing with regulatory burdens and eventually the best platform would have to end up with the majority of the business. I wanted to see if you could talk some more about that and maybe also from the perspective of banks and brokers that could become introducing brokers to you, so what is the math look like to them. I mean are they even profitable in this area, are they able to cut out substantial amount of R&D expense presumably headcount and they able to go from marginally profitable to significantly profitable in an introducing relationship or how does that work?

To tell you frankly I do not understand how it is possible that many of these folks are still in business. I mean the only way that it is possible is that they're charging very high commissions and very high financing rates because their technology is very, very poor and it's expensive for them to run it and they have future regulatory issues. So I think that as time goes on more and more of them will realize that they save a great deal of money by coming onto our platform and dispensing with their own. As soon as they realize that we're not going after their customers, their fear is that the customer will leave them and come here, of course that will only happen if they really become lazy and they just put their name on it and don't service the customers. And their customers then think that well maybe we better go to Interactive Brokers because my broker doesn't do anything for me. But given that we have that fear the commissions in which the customer is charged based on his volume, and their brokerage, and we charge the broker based on all their customers volume. So even if they go out to their customer with our charges they would and it is my belief, make more money than they currently do.

Right okay and I noticed that a couple of different from the marketing perspective that a couple of your introducing brokers actually kind of use your, used Interactive Brokers Barron’s ratings and awards in their own marketing you know basically saying and used they have the top rated technology, so do you guys have a, I guess differently -- do you have a specific group of sales people that go and call on global banks and brokers for introducing business or how proactive are you about generally…?

We have about -- we have not about, we have exactly 34 sales people today who are located on the three continents where we are active and they go around and they talk to introducing brokers and hedge funds and wealth managers and that’s what they do.

Which seem like that's a very senior level decision in a lot of these firms and then I am just wondering whether the sales people are senior enough to go out and talk to the right people to win that business?

It's not a difficult situation because there is basically we have no competitors. Nobody else is seems to be operating the same thing other than maybe Saxo Bank right. And Saxo Bank is a very small $1 billion Danish Bank and they're the only ones who compete with us on this so.

Okay.

It is not a difficult sales job.

Okay, okay. And I guess one last thing on Asia how big I mean I guess Asia is obviously Japan and I guess Australia is in there it's a pretty broad category if you somebody may have asked this question differently have you thought with that kind of breaking out Asia, mainland China just from the rest of Asia?

No. We did not break out mainland China from the rest of Asia and as I've said Asia constitutes roughly 25% of our account and 25% of our commissions.

And is it fair to say that you have said a couple of quarters back that the Hong-Kong, Shanghai connect has not really been a very successful product.

Yes it has picked up it seems it is used much more than it was soon after it came up.

Thank you. And our next question comes from Mac Sykes of Gabelli. Your line is now open.

My first question is actually for Chris Harris. Actually more recently we've seen we think might of the growth in the global reach Virtu I'm sure you saw the IPO recently and just listening to their commentary and results probably we believe there is still pretty significant opportunity using technology on a global basis within trading markets. I was curious if you maybe you can just comment on those success and maybe being able to emulate some of that what they are doing in terms of using your technology?

You are asking me or you are asking Chris Harris?

I’ll stick to you if that's okay thanks.

Well. Look we do not we can guess what Virtu is doing but we do not know for sure and that is the type of trading that we never focused on because our idea always has been that we will supply liquidity and we will get paid for it. And by supplying liquidity what we have in mind was supplying liquidity for hours and days, so our average turnover is our average position is open for five days. They on the other hand go home flat everyday so it's a very-very different business and what do I think of it? I hope that it is but I really think of it is but it's not a socially beneficial activity but it's a free country so it's not something that we would what we want to do.

And my last question is just to accumulate global aspect of your platform and obviously leveraging on the Internet and can you just comment on cyber security and so how do you feel about that spending maybe your attitude how do you protect the customer assets and files and so on, if you seeing an increase there or just [Multiple Speakers].

We are extremely security conscious and even more worried as we are many of our, we have lost many accounts based on the idea that we want the two factor authentication and we have more kinds of others security barriers that we often people just throw up their hands and say yes I don’t want to have to deal with this and they go away, but I think that security is a very-very big issue and I'm not as much worried about ourselves but I'm worried about the entire infrastructure and what happens if that comes down so we have our backups we are continuously testing it to make sure that it is operational but I'm afraid of what would happen if the whole Internet came down or if the banks operations got disrupted or all kinds of things can happen.

Thank you. And our next question comes from Chris Allen of Evercore. Your line is now open.

Hi guys I just had a one follow up. On the $2 billion in margin loans that came out after the quarter trying to gauge the impact on brokerage NII I would guess that it is little bit higher margin rates and through overall would that be kind of correct just trying to think about the NII over margin loans and just extrapolate that forward?

You mean that those rates are higher than -- no all of our rates are the same.

Got it, okay.

So we’re always benchmark plus anywhere between 0.5% and 1.5% depending upon the amount borrowed.

So it is simply just taking the balances out and assuming some growth rate on ex that?

That’s right, but also I don't expect those margins to continue at the diminished levels forever either.

Thank you. And I'm showing no further questions at this time. I would like to turn the conference back over to Mr. Cavagnaro for any closing remarks. End of Q&A: Bill Cavagnaro Thank you everyone for participating today. Just a reminder, this call will be available for replay on our Web site. We will be posting a clean version of our transcript on our Web site tomorrow. Thanks again for your time.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Have a great day everyone.