Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Interactive Brokers Group First Quarter Financial Results. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. Now, it's my pleasure to turn the call to Nancy Stuebe, Director of Investor Relations.

Thank you, operator. Good afternoon and thank you for joining us for our first quarter 2019 earnings conference call. Once again, Thomas is on the call, but asked me to present his comments on the business. He will handle the Q&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. Interactive Brokers achieved more new records in the first quarter, with accounts rising 21% from the year ago quarter and passing 600,000 for the first time. Client equity reached an all-time high of $147.6 billion. This quarter, we had the third highest quarterly DARTs ever in our company's history. This occurred even though volume returned to more traditional levels after a period of very high volatility in the first quarter of last year. As our customer base has grown, our DARTs have shown a secular trend upward punctuated by spikes in volume during turbulent markets. Over the past two year period, our DARTs rose from 657,000 in the first quarter of 2017 to 848,000 in the first quarter of 2019. The year-on-year decline this quarter is a reflection of just such a spike in last year's first quarter conditions, which pushed our DARTs for that quarter to 939,000. That volume increased last year coincided with the spike in volatility, when the VIX more than tripled over the course of the first quarter from under 10 to over 30. We continue…

Thank you Nancy. Thanks everyone for joining the call. As usual I'll first review our operating results and also I'll touch on the non-core items. And my comments will follow the format of the earnings release after which we'll open up the call for Q&A. Starting with the operating data. The first quarter results included the two noteworthy non-core items. We recognized a $103 million gain or $0.19 per share from our strategic investment in Tiger Brokers, and the $42 million loss that Nancy referred to or $0.08 per share from our previously disclosed margin lending loss. Operating metrics reflected fairly active trading in a declining volatility environment. Volatility as measured by the average VIX fell modestly to 16.7 this quarter from 17.2 in the year ago quarter. However, a closer inspection reveals a different story. The index declined over the course of this quarter from an average of 20 in the month of January to under 15 for March. In contrast, during last year's first quarter, the VIX fluctuated aggressively between about 9 and 37. And that kind of volatility sparked higher volumes, especially in options and futures and our year-over-year volume comparisons should be viewed in this context. Customer trade volumes fell in stock options and futures although the impact of commissions is lower from stocks given the cutback in micro-cap stocks. Foreign exchange dollar volume is down as well. Total accounts reached 623,000, up 21% which contributed to customer equity growth of 14% to $147.6 billion at quarter end. Accounts grew in all customer segments led by introducing brokers that was also robust in individuals and financial advisers. In comparison to the high volatility period in the first quarter of 2018, our quarterly total DARTs were down 10% versus last year. Our overall average cleared commission per…

Thank you. [Operator Instructions] And our first question is from Rich Repetto with Sandler O'Neill. Please go ahead. Your line is open.

Yes. Good evening, Thomas. Good evening, Paul. First, thank you for the disclosure on the Tiger brokerage, or your comments on it. And, I guess, when we look at, the stock has continued to go up, it closed at $22. So we calculate another $90 million mark-to-market gain as of today from quarter-end. So, I guess, given the difference in it, what appears to be what they're saying, or the rhetoric they put out about them being able to self-clear versus the time that someone -- that you projected actually would take. I guess, the question is, have you had the conversations with a very large customer that you have the significant investment that continues to go up about this?

Thomas, are you addressing that?

So sorry. We continue to have conversations with Tiger Brokers. We have a very good and close relationship with them.

Okay. So anyway, you got the 180 day lock-up, but the investment continues to do well. The next question would be on the loss. It didn't -- it varied a little bit from what you disclosed, I guess, in the filing earlier in the quarter in March. So is it safe to say that most of it or the vast majority is worked off now? That we wouldn't expect a lot of change from the -- if it was the $42 million or $43 million that you reported?

So, as you know, we have explained at the time when we disclosed the loss that our problem was that the stock became extremely liquid and we became unable to liquidate virtually. And so, currently, we're in a situation where we still are holding a large amount of the stock and we are unable to liquidate that for different reasons. Our lawyers tell us that, since we had taken over the stock due to the inability to pay the margin, that we are not -- that we cannot now liquidate it for about a six months period.

Yes. Okay. And then, I guess, the very last question will be brief as, on the expenses at the brokerage, they came down quarter-to-quarter, Paul, like -- ex the adjustment -- the FX and non-recurring items, we get it coming down by about $15 million. Certainly, some of that has to do with the lower activity levels. But could you just talk more about the expense growth and why that might -- may have come down by that amount? And, I guess, the plans over the next quarter or two?

Well, you're right. And it is very much driven by the direct expenses, the execution and clearing is most of that decline. So there wasn't anything particularly notable in the other categories. And we are continuing to grow the business, so we would expect some growth in certainly things like the employee compensation and benefits and then -- and various other things as we expand this business.

Okay. Thank you very much.

Thank you. And our next question comes from Will Nance with Goldman Sachs. Your line is now open.

Hey guys, good afternoon. I wanted to maybe circle back to some of the questions on some of your larger introducing brokers clients. I guess, this has been a big topic of discussion recently. And I guess maybe if you zoom out and talk about like the economics of the different client channels that you have, and I appreciate the disclosure that you give every quarter on commissions per account by client segment. I guess can you talk maybe more holistically about the profitability of the different client segments? And maybe talk about the overall contribution to earnings of the introducing broker segment versus some of your other client segments?

So as we have disclosed, our commissions, 9% of our commissions came in the last 12 months from the introducing brokers segment, even though they represent 32% of our accounts. So as you know we have tiered commissions and are introducing brokers treated only, their accounts are treated as one account. And that's how they get tiered. So the commissions we make on them are relatively slow, much less than they are for any other account type. That is not quite true for interest. So as far as introducing brokers are concerned, our interest income well exceeds our commission income from that group.

Got it. That's helpful. Okay. And then maybe just circling back to the question for Paul on the expenses. I think you've previously talked about something like 10% to 15% growth in expenses. And if I look at just total expenses ex the execution cost, I'm still seeing them being relatively flat year-over-year. So I guess could you talk about expectations in the near term for the expense growth just -- because it seems like we're not -- unless there’s a big ramp in the back half of the year, it doesn't seem like we're tracking to the 10% to 15% right now.

Well, what we do is grow the business opportunistically rather than set budget targets that we are bent on meeting by some target dates. We don't find that to be helpful, so what Thomas may have referred to in past calls is more of our overall strategy and as opposed to timing of any particular quarter. And yes there was not much of an aggressive expansion this quarter. The other thing I should mention is that a good portion of the -- certainly over the last year, the expansion in our staff taken place in India where, obviously, on a per head basis the expenses are lower.

Got it. That makes sense. And maybe if I could squeeze just one more in. I guess you mentioned you're making some changes to some of the margin requirements after you disclosed this loss this quarter. I guess did that have any meaningful impact on the balances? Or was the decline in balances this quarter largely a function of just client activity in the overall environment?

A lot of the discussions of some of the margin rules occurred very late in the quarter or maybe even after the quarter. So the answer is no, it did not impact the margin balances during the quarter.

Got it. Okay. Thank you for taking my questions.

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

Good evening, everyone. Just given the bad debt expense, it would imply a higher cost of credit for the platform since your financing is materially lower than competitors, have you considered revising your rate schedule at all, or at least for those portfolios with riskier stocks?

We have not considered revising the rate schedule. We want to be compellingly less expensive than any of our competitors.

My follow-up just on the rabbit, is there any way to provide a little more color perhaps a certain -- whether it's around certain asset classes, product ranges, global versus domestic, just anything to sort of give us a…?

I am sorry you have to be patient. It's just -- give us another two or three months and the rabbit will be there.

Okay. Thank you, and Happy Easter on that.

Thank you.

Thank you. And our next question is from Kyle Voigt with KBW. Your line is now open.

Hi, good evening. I think about a year ago you were looking at potentially investing in some agency securities. I just wanted to follow-up on that and see where you are in that process? Or if there could be any changes to the management of the securities portfolio near term in terms of what you invest or what duration you invest in as well?

That has not happened yet, but it is likely to happen in the future.

Is that something we could expect this year Thomas or?

More likely next year.

Okay. And sort of unnecessarily just -- but just on Tiger Brokers again, if they did move to a self-clearing model, could you just help us frame how much of your total revenue is generated from that relationship?

I think it is about -- it's not a great deal it's about -- it's about -- sorry I have to calculate this. I would say it's less than $25 million per year.

Okay, great. And then last one for me it's just a follow-up on China. I think last -- in the fourth quarter, you disclosed that your account growth from Mainland China dropped by 70%. Has there been any change in your client's ability to fund those accounts from Mainland China in the first quarter?

Not so far.

Okay, thank you very much.

[Operator Instructions] And our next question is from Chris Allen with Compass Point. Your line is now open.

Good afternoon guys. I wanted to revisit the margin loans which were fairly steady over 2018 from an average perspective and dipped down this quarter. I mean is this just from your perception just customers taking risk off the table, just trying to think about what the trajectory is moving forward? Or does your account mix factor into that as well?

No. It was mostly customers taking risk off as a result of the down market and that actually came to an end at the end of last year. But the customer reaction is always delayed.

Got it. Okay. And then just one quick one. The stock lending securities borrowed line, I understand why it was down year-over-year, but it's a nice pickup from the level you saw in the fourth quarter and moving in the right direction. Is -- you're seeing increased risk appetite there? Is there anything to kind of note when you think about how that compares to the prior quarter moving forward?

So a couple of factors here. One is that the aggregate amount of our shorts that we're carrying for our customers has definitely risen. On the long side, where we either lend margin securities or we have the fully paid program we call the Stock Yield Enhancement where we split the benefits with the customer that's very opportunity-driven. You know when a few stocks become hard to borrow, get hot in the market, they are simply more profitable to lend out and so it's very much driven by those opportunities overall. The one other factor that I just touched on in my talk before is that as you lend out securities, we take-in cash collateral. And as the rates in the market rise, which they did certainly over 2018 quite a bit percentage-wise that more of the income from that activity ends up as interest income on segregated funds because you're taking in cash collateral and then you're protecting it for the customer whose stock you lent out. So it ends up in the seg funds where it produces more interest than it did before. And going forward from this vantage point, we see a flat yield curve and no anticipated Fed hikes for maybe quite a while. So we wouldn't expect that phenomena to continue until the rates started to change again.

Okay, thanks.

That answers your question, Chris.

Yes, I am all good. Thank you.

Thank you very much. And I'm not showing any further questions in the queue. I would like to turn the call back to Nancy Stuebe for her final remarks.

Thank you everyone for participating today. As 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 site tomorrow. Thank you again and we will talk to you next quarter-end.

And with that ladies and gentlemen, we thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.