Good day, ladies and gentlemen and welcome to the Interactive Brokers Group Incorporated 2015 Financial Results Conference 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) I would now like to introduce your host for today’s conference Mr. Bill Cavagnaro, Investor Relations. Sir, you may begin.

Thank you operator and welcome everyone. Hopefully by now, you've seen our 2015 earnings release, which was released today after the market close and which is also available on our website. Our speakers today are Thomas Peterffy, our Chairman and CEO, and Paul Brody, our Group CFO. We'll start the call with prepared remarks 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 that you refer to these disclaimers in our press release. You should also review a description of risk factors contained in our financial reports filed with the SEC. I'd now like to turn the call over to Thomas Peterffy.

Good afternoon, everybody. Thank you for joining us on our fourth quarter 2015 earnings call. Our reported earnings this quarter were unfavorably impacted by the continuing increase in the US dollar against the basket of currencies in which we keep our capital and we call the GLOBAL. In the course of the quarter, the US dollar increased by 0.9% against the GLOBAL, resulting in a reported loss of $49 million. Further, in this quarter, we booked unfavorable marks in our treasury portfolio. Unlike most of our peers, we do not own nor are we owned by a bank, and as a broker, we must mark our treasury portfolio to market, while they do not. This quarter, the negative marks amounted to $52 million. For the entire year, the marks were negative $33 million. Our treasury portfolio is $16 billion and its duration is about one year, the longest instrument being just less than two years. The yields on the two year averaged 1.06% on the last day of the year. It reversed from there to 87 basis points as of today. The safest way to secure our customers’ cash is to hold treasuries. It is also our understanding that according to the new banking regulation, these type of financial deposits, this year, will have to be secured by treasuries even at the banks which may result in a squeeze on treasuries. Indeed, we see treasuries maturing within three months currently being traded well under the Fed Fund rates. In our earnings statement we list the coupon payments we receive on our treasury portfolio and the amortization of the premium or discount to face value as part of interest income, and the gains or losses resulting from marking the portfolio to market as other income. Since we hold this portfolio in…

Thank you, Thomas. Thanks, everyone, for joining the call. As usual, I'll first review our summary results and then will give segment highlights before we take questions. The fourth quarter operating results came down from the third quarter’s strong showing which was driven by high trading volume and volatility during the August market turbulence. Despite the pullback from certain customers after this period, brokerage operating results remain strong and market making outperformed the relatively weak performance of the year-ago quarter. However, currency translation and mark to market losses on non-trading investments were significant factors in the latest quarter’s performance. As compared to the year-ago quarter, net revenues this quarter were driven by increases in net interest income, smaller currency translation losses and higher trading gains, offset by declines in brokerage commissions and temporary mark to market losses on investments in US government securities that Thomas mentioned. Full-year results showed strength in core brokerage and market making activities. Our net pre-tax profits at $458 million represented a return on average equity of 9% and a profit margin of 39%. Excluding the currency translation effects and the unusual losses taken on the Swiss franc event in January 2015, our core profit margin was 57%, in line with the prior year. 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 the changes in the US dollar of the company’s non-US subsidiaries, known as other comprehensive income or OCI, and these are reported in the statement of comprehensive income. US dollar strengthened relative to all other major currencies during 2015. As a result, the currency basket in which we keep our equity which we call the GLOBAL weakened against the US dollar by an unusually large amount. In…

(Operator Instructions) Our first question comes from Chris Harris from Wells Fargo. Your line is open.

Thank you, guys. A couple of clarifying questions maybe to start, can you provide us with a breakout between net interest income and other income at the broker in the quarter? Thomas Peterffy Paul.

Yes. Between net interest income for the quarter we reported is a $103 million and the other income is a loss of $28 million and that was combining a number of other income items, but the largest item in there is the $52 million mark to market loss in the fourth quarter on those – on the US government securities which we consider temporary. Those will return to par.

So, that’s just at the brokerage segment, those two numbers?

Yes.

Okay. How should we be thinking about a good run rate for other income, excluding these temporary marks on your treasury securities?

Well, it’s roughly $20 million to $30 million.

Okay.

But in that context, it can be dominated by the currency translation move and perhaps by the mark to market on these on the government treasury holdings.

Got it, okay.

Excluding those two, yes.

Yes.

All right. Different question regarding sort of trends that are going on, you did allude to the fact that China or Asia broadly is having a little bit of impact on your trading activity and the margin borrowing, obviously, we’ve talked about that before, maybe you can share your perspective on why it’s not impacting your accounts or seemingly not impacting your accounts, any thoughts on that?

Well, it is my belief that while the currency – the value of the currency is falling, people would like to have as much currency invested in as many different assets as possible. And so, they want to invest in stocks outside, and we are very good vehicle for that. Even if they want to invest in different currencies, we are a very good vehicle for that. So, I think that more than counterbalances the economic slowdown that’s going on there.

Got it, okay. Well, that’s interesting, because you would think the volatility going on there may have wiped some people out which would have some –

I think they are different people.

Yes. I know, that’s clearly if that’s the situation, yes. Alright and then I did want to sort of ask the question about your commission per DART in brokerage, why do we see such a decline this quarter and just trying to frame up what might be the outlook for that?

So, our commissions substantially depend on how large the trades are and I spoke – said, in the last quarter, we saw smaller size trades. It is also the case that our introducing broker customers are one of the fastest customer – fastest increasing customer types. And as I have said several times, the way we charge these introducing brokers is that all the trades that the introducing customers do are aggregated for purposes of determining the volume tier. And therefore, introducing brokers with many customers end up paying very, very low fees, very, very low commissions for their trades and that is what enables them to charge maybe not even more than we charge our end clients and still make about 80% of the – retain 80% of the total commission that the end client pays.

Thank you.

Our next question comes from Rich Repetto from Sandler O'Neill. Your line is open.

Yes. Good evening, Thomas, good evening, Paul.

Hi.

I guess the first question is on the treasury mark to market and just to understand the mechanics, could you mention where you invest customer cash that are in segregated accounts, is there any way possible – is there a way, like, if a customer does cash out, are you forced to liquidate the treasuries or is it in aggregate or just a high probability that these things are going to be kept to full maturity?

So, it is a very high probability that it will be kept to full maturity, because we have several billion dollars that we just keep in cash.

Okay.

So, the treasury portfolio rolls off frequently. So, in other words, it‘s laddered it’s not in a bullet that goes out to a faraway date.

Sure. Well, I hear the answer. So, it is a high probability that you will recoup these losses over time.

It is a – we are almost 100% certain.

Got it. And then I guess the next question is – I understand how you explained, Thomas, the impact of what you believe the Asian traders will get into other currencies and trading US stocks etcetera. Has there been any marked difference in any of the trading you see to impact from Asia in the first two weeks of January here in 2016?

Not really. I mean the trading volume has generally increased from all corners of the world.

Understood, okay. And then, Paul, one sort of – I don’t know whether you have this available, but the net interest income split between what you derive from customer cash, customer margin and security lending, is there any way possible you can sort of break those out by the three things, three components?

Not on this call right now, but I take your request seriously and we are always thinking about how to display our information when we do our quarterly filing. So, we’ll consider whether we want to be able to be more precise on those.

Thank you. And one last question would be – so the metric, and I understand the smaller trade size and I understand the commission rate being introducing brokers as well as a smaller trade size, is there any way could one effect also be that the trading of low-priced stocks and high volume, but low-priced stocks has had an impact on the metrics especially as Singapore has sort of cleaned up its act on that type of trading?

Well, I haven’t specifically noticed a substantial increase or a decrease in low-priced stock trading as percentage or overall. So, I do not think that that is the result for the decline in per trade commission rate.

Understood. Thank you very much.

Our next question comes from Chris Allen from Evercore. Your line is open.

Afternoon, Thomas and Paul. I guess maybe to just start, Thomas, as you discussed kind of the seasonal slowdown in account growth in December and it usually ticks back up at the start of the year, does it follow that pattern so far in 2016?

I don’t want to talk about events past the end of the year.

Got it, okay. And then just for some clarity on China, you talked about the impact of the currency and clients wanting to have money in different stocks and different currencies, I mean, is the impact that you see is specifically from accounts within China or is it the impact of China more broadly in terms of your overall account base, because as I understood it, I don’t think there was a material level of accounts directly out of China’s mainland?

I’m sorry. I didn’t understand the question. Okay. Could you restate it please?

The impact that you noted of China in terms of impacting margin levels and customer equity over the course of the year, I’m just wondering if you are talking specifically around accounts and customer assets within China or just the broader impact of China into different accounts and regions more globally?

When I say what – what really – do I talk about accounts inside China, when I say what?

I’m just – when you talked about it, I think it was precipitous decline early in your comments.

Yes, but – okay. When I mentioned that there was a large decline in margin loans and account equity, I was generally addressing the accounts from countries in the region. Hong Kong, for example, is a very large – we have very many accounts from Hong Kong in addition to China, and Singapore and Japan and so forth.

Got it. Okay, and I just wanted to be clear of that. That’s it for me. Thank you.

Our next question comes from Rob Koehn from Ivy Lane Capital. Your line is open.

Hi, guys. Thanks for taking my call. So, sorry to ask about this again, but just to put a finer point on the treasury marks, could we just – Paul, would you mind just telling us pro forma for the $52 million of treasury marks in the quarter, what the electronic brokerage net revenues and pre-tax income would look like? I mean, is it just $219 million plus $52 million is $271 million and pre-tax is $162 million?

So, the $52 million is all in the brokerage segment. If you simply add it back to the numbers we reported, that would be normalized for this impact.

Okay. So $271 million of net revenue, because that comes out of the revenue line, correct? Right?

That comes out of a revenue line, yes. Right. So, you could say – yes, that would be normalized to $271 million.

And then $52 million more to the pre-tax income, so you're at $165 million?

Yes.

Okay, I think that's sort of the – I mean when you think about presentation going forward, I think maybe that's the kind of thing that is very confusing because I know that's a page that people focus on, that page six. And obviously, the net interest income excluding that was probably a lot better than what people were expecting. Okay. So Thomas, somebody else asked you about the seasonality of new accounts. Is there anything that you're seeing or that you can talk about that you're seeing in terms of the typical size of the new accounts changing over time? That's one thing that is hard to tease out of the monthly metrics is the – if market moves affecting asset levels in total, what are you seeing in terms of –

I do not see – new account fundings, the size of fundings per account hasn’t changed much.

Okay.

No, it hasn’t changed.

Okay. And so typically, I think what you’ve said you'd seen before was like, maybe it starts at $100,000 or $120,000 on average and then grows quickly after that when they transfer in more assets?

Yes. Generally, the average account size is around – upon funding, it’s generally – the average is about $120,000 and in the next six months, it goes up to about a $180,000 and in the fullness of time to about $200,000 and change.

Got you, okay. What do you think accounts for the seasonality that we've seen in the last couple of years and new account growth being really super strong, particularly strong in the first three to four months of the year? Is that just kind of first quarter activity and –

I have no idea. For some reason, other people – I guess don’t want to think about their savings at Christmastime. I don’t know.

Okay, okay, just curious. And you mentioned that you are planning to, or it sounds like you're about to expand that Scottrade relationship. Is there anything more you can say on that? I mean, that's obviously a big firm with a lot of accounts, so what is the goal there with Scottrade?

Well, it’s not only with Scottrade. So, generally – first of all, we get many more introducing broker accounts from outside the United States so far and people in many of these countries, this is a new kind of a business, because they haven’t done it before. So, we get many of them from West Asia and Eastern Europe and the Balkans and South America and people seem to open brokerage accounts and try to grow their business. So, it is – we are very high on that. I think it is going to become very, very substantial, because many of these are new businesses and people go into that business and they will work on that business for years to come. So, it’s very good for us.

Okay. So you can't really say anything about Scottrade in particular right now?

No, I can’t.

Okay, okay. And thanks very much for the market share data, it was very helpful. I think particularly the hedge funds at 0.2% and RIA investment advisors at 0.1%. I guess what's even mean more meaningful though would be trying to quantify what is a percentage point of market share worth in each of these areas in terms of revenue? Have you been able to estimate that, or?

I could, but I haven’t.

Okay. I mean, it seems like a percentage point of market share in the hedge fund world would be hundreds of millions of dollars of revenue just back of the envelope, but would love to hear more about that maybe in the future.

So, hedge fund commissions, we have gathered last year roughly $50 million or 0.2%. So that would mean that it would be $250 million, that’s the commission income only, $250 million per percent.

$250 million per percentage point of market share?

Right.

Okay, great. And what is the – I know that you have to add – every now and then you have to add a little bit of fixed expense, but what would you say the contribution margin is on additional commission revenue and brokerage? So the incremental margin, the margin you receive on incremental commissions. I mean, is it 90% or higher?

It is difficult to isolate from other growing expenses, many of which have to do with the rapid expansion of our legal department.

Got it, okay.

And so I don’t know to what extent we will have to grow that anyway and to what extent we need to do that because of the growing business.

Okay, okay. So I guess maybe last question. To what extent, and I probably know the answer to this, but to what extent do you ever – how often do you think about raising prices? I mean, I know for me as a customer –

I think about it almost every day and I always say I will never do it.

Okay. I mean, I think there are a lot of people out there that have nowhere else to go, and so they might –

I don’t want to be like Oracle.

You don't want to be like who?

Oracle.

Oracle, okay. Okay, I think that's it for me. So thanks very much guys, appreciate it Thomas Peterffy Thank you.

Our next question comes from Mac Sykes from Gabelli. Your line is open.

Good evening, gentlemen.

Hi.

Thank you for the additional color on the client segments, it was very helpful. And just to get back to China a little bit, what are some of the rules associated with opening accounts over there and capital flows? Are there any constraints to the amount that can be funded in an individual account?

Yes, there are – it is currently $50,000 per individual per year – per person per year.

Okay. And has your marketing or your sales efforts and kind of the reason changed at all given the volatility opportunity you think the last couple of months?

Has the marketing changed? No. We haven’t really changed the marketing much, no.

Okay. Great, thank you.

Our next question comes from Conor Fitzgerald from Goldman Sachs. Your line is open.

Thanks. Just going back on the market share statistics, which, again, thanks for sharing, I was wondering how much capital you think you need to support the growth in the hedge funds space. So, the market share statistics you gave do you think you could envision most of your excess capital being used to support growth in this channel over time?

We would like to, currently as you heard, we have $3 billion of excess. So, I think that if the business grows to the point where we need to use all of our $3 billion, our profits will be sufficient to support further growth.

That's helpful, thanks. And then maybe just going back to net interest income for a minute, I know you talked about the growth of the client balances. But were there any other drivers here that kind of drove the increase quarter over quarter?

Well, the client balances increase the interest income, but it’s the number of clients that increase commission income. Our commission income is roughly, it’s more than 50% of our income.

Got it, understood. Thanks and that's it for me. My other questions have been answered.

And I am showing now further questions at this time. I would like to turn the call back over to Mr. Bill Cavagnaro for closing remarks.

Thank you, everyone for participating today. Just a reminder, this call will be available for replay on our website. We will also be posting a clean version of our transcript on our website tomorrow. Thanks again for your time.