Good day ladies and gentlemen, and welcome to the Interactive Brokers Group Second Quarter 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]. As a reminder this conference maybe recorded. I would now like to turn the conference over to Ms. Nancy Stuebe, Director of Investor Relations. Ma'am, you may begin.

Good afternoon everyone. Thomas is on the call but he has asked me to present his comments on the business. Thank you for joining us to review our 2018 second quarter performance. Once again in this quarter we set new records in our brokerage business. Just one year after we passed the $100 billion mark in customer equity for the first time we ended the quarter with $134.7 billion. We also hit an all time high in customer accounts up 27% to over 542,000. Margin lending at over $28 billion outstanding was also up 27% from the year ago quarter although it did moderate somewhat sequential. Our growth and momentum continued to increase. The pretax margin in our brokerage business reached 64% for the quarter. DARTs this quarter was 797,000 up 19% over last year though they were down from the very active first quarter as market volatility slowed from the high levels earlier this year. The 19% DARTs increase comes from account growth and not from making acquisitions. It is not that we have some fundamental objection to acquisitions but whenever we look at an opportunity we encounter the barrier of our own extremely low pricing. Sellers hope to receive a multiple of revenues but after transferring those accounts to our platform and our pricing they would generate substantially lower revenues so that we cannot justify paying for them based on the seller's pricing. It is ultimately those customers who would realize those savings who will eventually transfer those accounts to us anyway we hope. Commissions per DART were $3.86 down slightly from last year. Commissions per DART will probably continue to decline slowly as we find out more and more introducing broker accounts where the brokers pay us based on their customers combined volume and charge their customers…

As you are well aware the stock price has come down substantially in recent weeks and people often ask me why that is. I can think of two reasons; first, people may think that the tight negotiations may have an unfavorable impact due to our international client base especially in China. This is very possible although so far we have not experienced any change. Approximately 16% of accounts come from China. Second, our currency exposure, shareholders often ask why we carry foreign currency balances. When the dollar goes down our reported earnings rise but we do not get rewarded for it. While when it goes up earnings fall and we get penalized. To answer this question I would like to take this opportunity to once again explain our business model. IBKR is a highly automated global electronic broker. Wherever you are and whether you are a hedge fund, a proprietary trading firm, a financial advisor, a broker, or an individual investor or trader, wherever you want to invest around the world in whatever product using whatever currency you can do so on the IBKR platform at any time of the day or night and pursue the assets without lower cost than any of your alternatives. This is a concept we started out with and this is the technology we have been building for at least 25 years. Electronic exchanges so-called fintech companies, and many new regulations have grown up in our tracks all around us. This means for us is that we had to set up little bit registered only on brokerage entities in addition to the U.S. In the UK, Hong Kong, Japan, India, Australia, Canada, and the continental exchange lenders in many other countries in Europe, the Middle East, Latin America, and Asia wherever we execute for custody our customer positions. This build out is still in process and it will continue for quite a while until our customers will have immediate access to any trading venue around the world no matter how minor. All these different entities, our subsidiaries are running on IBKR technology but they must comply with local regulations that are often very different than U.S. regulations. These include the requirement to maintain customer accounts and regulatory capital in local currencies so that we must have those currencies on hand. This is the reason for maintaining 30% of our capital in a basket of different non-U.S. currencies. It also has the side benefit that it's in the very real remote case the U.S. dollar ever went to zero we will still remain a viable enterprise. Even before I have never have since we went public 11 years ago this has been our business model. We keep on building it and automating it, competing on technology and price, and expecting to continue to grow double-digit rates. Nothing has changed and if anything does we will let you know. And now Paul Brody will take you through the numbers. Paul.

Thank you Thomas and thanks everyone for joining the call. As usual I will review our results, put our numbers into context within the current environment, you may be happy to know that this quarter my comments will follow the format of the earnings release and hopefully leave more time for Q&A. Operating metrics reflected reasonably active trading in a moderate volatility environment. Volatility is measured by the average VIX rose to 15.4 this quarter or 34% from 11.5 last year. While this quarter's average is closer to the historical norm and represents meaningful increase over last year, the VIX has retreated to lower levels after an unusually volatile February and March. This increased volatility led to a rise in derivatives trading volumes. Customer trade volumes are at 13% and options in 21% percent in futures while falling 5 percentage stocks. Foreign exchange dollar volume is down as well. Total accounts reached 542,000 up 27% which contributed to customer equity growth of 29% to $134.7 billion at quarter end. The trend toward attracting larger customers including hedge funds and financial advisors has continued. This has led to our average account size growing to 249,000 up 2% over one year and up 21% from two years ago. Growth in introducing broker accounts has also been robust and although these accounts are of smaller average size we're happy to take them on in bulk. With the continued tailwind from new account growth our quarterly total DARTs were up 19% versus last year and our overall average cleared commission per DART fell 4% versus last year to $3.86 on a product mix that featured smaller average trade sizes across the board. Moving to our net interest margin table, our net interest margin widened to 1.61% from 1.17% in the second quarter last year.…

[Operator Instructions]. And our first question will come from the line of Rich Repetto with Sandler O'Neill Partners. Your line is now open.

Good evening Thomas, good evening Paul. I guess the first question is on actually the shares that the brokerage customers traded. You know we know the DARTs and you preannounced them and we've already done the accounting but I think it was about 49 million shares traded in the quarter and that seems like it's the lowest it's been in a year plus and I know I have talked a little bit about this but could you just go -- is that less of the trading of low priced stocks reflected because -- can you just add some color?

That's correct. The SEC does not like the newly registered shares or which are generally low priced shares, so yes that's while our high priced shares so to say the volume increased, the low priced shares decreased much more substantial.

And was that just market conditions or I am trying to see whether that was from regulatory or not?

Well, so we are scared to -- as you remember at conference when Chairman Clayton goes on I asked him about that because we are getting more and more feedback from the SEC on taking on orders in these low priced shares and if you remember he said that there is a great deal of up and down activity and other bad stock going on. And so we have to -- even though we don't know of any that came through us but we have to curtail the activity.

Understood, thank you. And another question, you talked -- the prepared remarks that Nancy did was -- talked about where another broker, a potential acquisition of another broker sort of hits a stumbling block because of the price of your highly competitive pricing and I guess is this from scenarios you went through more recently with companies that are out there or just trying to see what is -- whether there's been activity in the space is something that's occurred over the last…?

Yes, we have looked at two opportunities and when we try to model what the thing would look like if we try to incorporate those customers into ours that we are not as profitable to be able to justify the price the seller was asking even though based on their pricing they are reasonable.

And would this be more sizable acquisitions for you or small? [Multiple Speakers] Well one last question, the margin loan balances parts would you expect them to continue to grow -- to remain -- they were down a little bit quarter over quarter but still outpacing everyone else year-over-year, we expect that growth rate and anything more to what might occur this quarter, would you expect the marginal loan balance there?

We think if the margin loans is in the industry world study ours will grow because we are charging so much less, about one third of what other people charge. And if it grows in the first season our off margin loan balances will grow even faster. So unless margin -- unless the market crashes and the people who trade our margin will substantially shrink their margins always will grow.

I think I will just add a little color to that if I could. So, when you look at the period end balances sequentially they were down a little bit. The average debit balances for the quarter actually increased and that's what we are not based on. Increase is about 4% but you don't see that because the average is not there. And then the other relevant thing is we talked about opportunistic larger clients who put on yield based positions and we the Yorker flattening and so forth those opportunities fluctuate. And so by the end of the second quarter they were simply lower than they were at the end of the first quarter. Without that reduction our base margin debit has actually increased a few percent.

Understood thanks very much Thomas and Paul.

Thank you. The next question will come from the line of Doug Mewhirter with SunTrust. Your line is now open.

Hi, good evening. I just had one question, I heard you talk in the opening remarks about hiring in India. I know that in the past -- on past calls you had said India had not been growing as fast as other Asian countries like China or Hong Kong or Singapore and so have you made sort of a breakthrough in India, do you expect growth would improve there?

So our hiring in India has nothing to do with the location of the growth in the business. We hire in India because we get relatively well trained, well educated people to that -- cost.

Okay, I see so it's more of a technology customer service than direct brokerage in India. I get it. Okay, thank you that's all my questions.

Thank you, the next question will come from the line of Chris Allen with Compass Point. Your line is now open.

Good evening guys. In the prepared remarks that Nancy read she mentioned opportunities to accelerate growth, I wonder if you just give any incremental details around that, if there is any specific opportunities you point to or is this just more just continuing the same store blocking and tackling from here?

It is generally the same going forward and we have been doing that.

Okay, and then at the Sandler conference Thomas you had mentioned that you saw the potential for competition in China specifically year or two from now, your comments around trading the impact there are positive, just like when you are thinking about the competition, is it larger U.S. competitors that are moving overseas or is it domestic competitors, any color there?

No, I was mostly don't think about domestic competitors. So, there are more and more firms, more and more new firms that are getting into the electronic brokerage business in relatively complex ways because the number of brokers that are authorized by the Mainland Chinese authorities are fixed at something like 290 something, I don't know the heads up number. But it is -- so these companies are trying to do basically compete without the brokerage license, like we do not have ourselves, we do not have brokerage license in Mainland China. So we are not there but to the extent we get customers from there that's what is happening.

Understood, that's it for me. Thank you very much.

Thank you and the next question comes from line of Chris Harris with Wells Fargo. Your line is now open.

Yeah, with respect to your introducing brokerage relationships, when you guys on board a new broker to your platform, is there a specific screening process that's involved?

Of course there is a screening process for all customers.

Yeah, can you talk a little bit about…

If we are using brokers have to be register their license in their credible locality as a broker.

Okay, so you have to do --

A license credible broker in order to come on to our platform as we are introducing brokers.

Got it, I totally understand and I don't have to get an exact numbers I'm just wondering qualitatively when you think about the growth you've had in this channel what percentage of those relationships do you think are coming from brokers that were formed I don't know within last like 5 or 10 years?

Sure. I really --

Is it a high number you think?

I really don't know.

Okay, alright, thank you guys.

[Operator Instructions]. And the next question will come from the line of Kyle Voigt with KBW. Your line is now open.

Hi, just a couple for Paul and just one on the customer credit balances and the yield paid there. It looks like yield increased from 42 bps to 53 bps, so roughly 11 basis point difference sequentially. I think the average Fed funds rate increased 25 bps sequentially and I know you're above that kind of 520 bps hurdle. I was just wondering is that a good ratio to use as assumption going forward, if we're modeling in Fed increases, I guess I'm trying to get to like do you have a percentage of the credit balances that are held in U.S. dollar and then I know that some of the balances are obviously not being paid rates and we can kind of back into that but I just want to make sure that that kind of ratio, that 11 bps for every 25 bps increases, is that a good ratio to use?

I think that it is going to slowly diminish.

Right, you've identified the right components Kyle as far as the non-U.S. dollar and interest to you as a donor and interest in things -- I mean balance to you as earn interest.

Do you have an approximate breakdown of the percentage of the credit balances that are held in U.S. dollars?

We do though we haven't published that information specifically. But you can sort of -- you can backtrack it from seeing. I mean there's a number of factors but those are the major factors, the portion that won't follow along with Fed funds increases because they're either in foreign currency or they're not earning interest to begin with.

Okay, and I guess just one on the low tax rate in the quarter. I guess should we just look at 1Q as kind of a more normalized tax rate is that fair?

That's probably fair, yeah the second quarter generally each year we'll have a tax deduction when our stock incentive plan share is invested as it has in the past. But it is a function obviously of what the current stock price is because the more relative difference between the current price and the historical price at which those shares are granted then the bigger the tax deduction.

Okay, and then probably the last one for me is actually just on the market maker profitability in revenue I think in the second quarter was similar revenue and profit dynamics, is this a good run rate for that business or is there remaining kind of further pullback that's yet to come?

There are possibly -- probably it certainly have not become higher, more likely to become lower. In other words there are certain localities that we will still carrying doing this but it is not -- so we keep constantly looking at closing it down.

Okay, and then one more I guess on just on the hiring comments and the headcount growth, can you just talk about specifically what specific function you're trying to improve, is it mostly customer service for the financial advisor community, is that a lot of the headcount that you're adding is to support growth in that area or is there some other segment either…?

We are trying to hire in three areas customer service, compliance, and technology development.

Is the technology hiring picking back up now, I remember you had said that as you migrated some of the technology folks from the market maker to the broker headcount would maybe flat line for a few quarters but is that starting to pick back up again now?

It is back up again and our dreams are greater than our abilities to get them done.

Understand, okay, thank you very much.

Thank you and the next question will come from the line of Ryan Harschmidt [ph]. Your line is now open.

Good afternoon Mr. Peterffy and Mr. Brody. My name is Ryan Harschmidt, I'm German located in Luxembourg. We met two years ago at the annual shareholder meeting. So I bring in a more European point of view, first of all let me say I love the ads that you are currently running. I think this is high impact advertisement and I would actually like to see that in Europe if this plans to show that people can get 1.42% on cash in Europe, I mean they get nothing…?

What currency are you talking about.

Yeah okay, I know that it is dollars but Euro is much more strong. People might think…

If you deposit dollars or you convert your Euros to dollars yes you can get 1.1% [ph] but on Euros we cannot give that to you.

I know that but I think people should know in Europe that this is existing. This would make a high impact I guess. So I do my best to bring people to IB and to the platform and they are astonished to see what is possible, European I mean. So that is the one thing. The other thing is what I actually have a problem with is one month ago we got a new regulation, this PRIIP, and this although it's rated lot based market EPS for more than ten years. Now I cannot do that because I'm European and the European authorities want to protect me.

That's right.

Yeah, thanks. And the Europeans. The funny thing is it is my understanding please you can give me some explanation maybe, it depends on this KID this KID document, yeah...

That is correct. As we have not done any institutional investor. So if you have more money and put it into the account that is with us maybe you there are to the level of an institutional investor and you can take whatever you want.

Yeah, I opened a ticket and I got papers and signed them and posted all three criteria and so on but still I cannot do that what I did ten years ago for more than ten years. And the funny thing is my local bank which is a bank let me see the size of 20 billion, they let me trade -- EPS. I mean I will not do that because the commission is too high, I cannot trade with such a bank but it is possible they have this papers. So my question is there a difficulty that IB has not this papers.

Yeah, you see we all have laws we abide by. We are more stringent than most other folks, apparently more stringent than your local bank.

And I did not understand the answer correctly because of the line, are you in process to get this papers available?

There is nothing we can do about this situation. Sorry. If you have laws and we have abide by them.

Yeah, I understand fully that the ball is not on your side in this issue. The -- can you say about something that it happened very surprisingly four weeks ago…?

I am sorry about this, so maybe you can send me an email but I don't want to hold everybody else up with this issue. Please send me an email.

Yeah, okay, alright.

Thank you and I'm showing no further questions at this time. I would now like to turn the call back over to Ms. Nancy Stuebe for any further remarks.

Thank you everyone for participating today. As a reminder this call will be available for replay on our website and we will be also posting a clean version of our transcript on the site tomorrow. Thank you again and we will talk to you next quarter at.

Ladies and gentlemen thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.