StoneX Group Inc

Previous wording

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company, including adverse changes in economic, political and market conditions, losses from our market-making and trading activities arising from counterparty failures and changes in market conditions, the loss of key personnel, the impact of increasing competition, the impact of changes in government regulation, the possibility of liabilities arising from violations of foreign, United States (“U.S.”) federal and U.S. state securities laws, and the impact of changes in technology in the securities and commodities trading industries. Although we believe that our forward-looking statements are based upon reasonable assumptions regarding our business and future market conditions, there can be no assurances that our actual results will not differ materially from any results expressed or implied by our forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. We caution readers that any forward-looking statements are not guarantees of future performance.

Current wording

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company, including adverse changes in economic, political and market conditions, losses from our market-making and trading activities arising from counterparty failures and changes in market conditions, the loss of key personnel, the impact of increasing competition, the impact of changes in government regulation, the possibility of liabilities arising from violations of foreign, United States (“U.S.”) federal and U.S. state securities laws, the impact of changes in technology in the securities and commodities trading industries, and other risks discussed in our filings with the SEC, including Part I, Item 1A of our Annual Report on Form 10-K for the year ended September 30, 2023. Although we believe that our forward-looking statements are based upon reasonable assumptions regarding our business and future market conditions, there can be no assurances that our actual results will not differ materially from any results expressed or implied by our forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. We caution readers that any forward-looking statements are not guarantees of future performance.

Previous wording

We operate a global financial services network that connects companies, organizations, traders and investors to the global market ecosystem through a unique blend of digital platforms, end-to-end clearing and execution services, high touch service and deep expertise. We strive to be the one trusted partner to our clients, providing our network, product and services to allow them to pursue trading opportunities, manage their market risks, make investments and improve their business performance. Our businesses are supported by our global infrastructure of regulated operating subsidiaries, our advanced technology platform and our team of approximately 4,000 employees as of December 31, 2023. We believe our client-first approach differentiates us from large banking institutions, engenders trust and has enabled us to establish leadership positions in a number of complex fields in financial markets around the world. For additional information, see Overview of Business and Strategy within “Item 1. Business” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Current wording

We operate a global financial services network that connects companies, organizations, traders and investors to the global market ecosystem through a unique blend of digital platforms, end-to-end clearing and execution services, high touch service and deep expertise. We strive to be the one trusted partner to our clients, providing our network, product and services to allow them to pursue trading opportunities, manage their market risks, make investments and improve their business performance. Our businesses are supported by our global infrastructure of regulated operating subsidiaries, our advanced technology platform and our team of approximately 4,300 employees as of March 31, 2024. We believe our client-first approach differentiates us from large banking institutions, engenders trust and has enabled us to establish leadership positions in a number of complex fields in financial markets around the world. For additional information, see Overview of Business and Strategy within “Item 1. Business” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Previous wording

Operating revenues increased $129.4 million, or 20%, to $784.2 million in the three months ended December 31, 2023 compared to $654.8 million in the three months ended December 31, 2022, with all of our segments experiencing growth versus the prior year, led by our Institutional and Retail segments which added $92.2 million and $22.0 million, respectively, compared to the three months ended December 31, 2022. Additionally, our Commercial and Payments segments added $16.0 million and $5.2 million, respectively, compared to the three months ended December 31, 2022.

Current wording

Operating revenues increased $113.8 million, or 16%, to $818.2 million in the three months ended March 31, 2024 compared to $704.4 million in the three months ended March 31, 2023, led by our Institutional and Retail segments which added $100.9 million and $23.4 million, respectively, compared to the three months ended March 31, 2023. Operating revenues in our Commercial and Payments segments declined $19.6 million and $0.5 million, respectively, compared to the three months ended March 31, 2023.

Previous wording

Overall segment income increased $43.2 million, or 25%, compared to the three months ended December 31, 2022, with all of our segments experiencing growth versus the prior year, led by our Retail segment which added $32.9 million compared to the three months ended December 31, 2022. Our Commercial segment income increased $4.4 million compared to the three months ended December 31, 2022, while our Institutional and Payments segments, increased $3.2 million and $2.7 million, respectively, compared to the three months ended December 31, 2022.

Current wording

Overall segment income increased $25.3 million, or 14%, compared to the three months ended March 31, 2023, with all of our segments experiencing growth versus the prior year, with the exception of our Commercial segment. The growth was led by our Retail segment which added $28.4 million compared to the three months ended March 31, 2023. In addition, our Institutional and Payments segments increased $5.5 million and $8.7 million, respectively, compared to the three months ended March 31, 2023, while our Commercial segment income declined $17.3 million compared to the three months ended March 31, 2023.

Previous wording

expenses. Variable expenses were 54% of total expenses, in both the three months ended December 31, 2023 and 2022. Non-variable expenses, excluding bad debts, increased $13.6 million compared to the three months ended December 31, 2022, principally due to higher fixed compensation and benefits, non-trading technology and support, travel and business development and trading system and market information.

Current wording

expenses. Variable expenses were 51% of total expenses in the three months ended March 31, 2024 as compared to 51% in the three months ended March 31, 2023. Non-variable expenses, excluding bad debts, increased $16.5 million compared to the three months ended March 31, 2023, principally due to higher professional fees, occupancy and equipment rental, non-trading technology and support, travel and business development and trading system and market information.

Previous wording

Net income decreased $7.5 million to $69.1 million in the three months ended December 31, 2023 compared to $76.6 million in the three months ended December 31, 2022. Net income in the three months ended December 31, 2022, included a non-taxable $23.5 million gain on the acquisition of CDI-Societe Cotonniere De Distribution S.A. (“CDI”), which is included in Gain on acquisition in the Condensed Consolidated Income Statement. Diluted earnings per share were $2.13 for the three months ended December 31, 2023 compared to $2.41 in the three months ended December 31, 2022.

Current wording

Net income increased $11.4 million to $53.1 million in the three months ended March 31, 2024 compared to $41.7 million in the three months ended March 31, 2023. Net income in the three months ended March 31, 2024 was negatively impacted by the aforementioned unrealized losses on precious metals derivative positions entered into against inventories carried at the lower of cost or net realizable value. Net income in the three months ended March 31, 2024 includes a nonrecurring gain related to proceeds of $6.9 million resulting from a settlement in the Commodity Exchange Gold Futures and Options Trading matter, which is included in Gain on acquisition and other gain in the Condensed Consolidated Income Statement. Diluted earnings per share were $1.63 for the three months ended March 31, 2024 compared to $1.30 in the three months ended March 31, 2023.

Previous wording

Operating revenues derived from securities transactions increased $82.1 million, or 35%, to $316.2 million in the three months ended December 31, 2023 compared to $234.1 million in the three months ended December 31, 2022. This increase was principally due to a 47% increase in ADV, as well as a significant increase in interest rates. Carried interest on fixed income securities is a component of operating revenues, however interest expense associated with financing these positions is not. We deduct interest expense associated with our fixed income activities from operating revenues in the calculation of securities RPM in the table above in order to provide a more useful measure of the financial performance of our securities business. Net operating revenues derived from securities transactions increased $2.5 million, or 3%, to $95.9 million in the three months ended December 31, 2023 compared to $93.4 million in the three months ended December 31, 2022. This increase was principally due to the increase in ADV noted above, which was partially offset by a 30% decline in the RPM resulting from the tightening of spreads and a change in product mix, compared to the three months ended December 31, 2022.

Current wording

Operating revenues derived from securities transactions increased $91.5 million, or 37%, to $340.7 million in the three months ended March 31, 2024 compared to $249.2 million in the three months ended March 31, 2023. This increase was principally due to a 30% increase in ADV, as well as an increase in short-term interest rates. Carried interest on fixed income securities is a component of operating revenues, however interest expense associated with financing these positions is not. Our calculation of the securities RPM, in the table above, presents the RPM after deducting from operating revenues the interest expense associated with our fixed income activities. Net operating revenues derived from securities transactions increased $4.4 million, or 5%, to $88.6 million in the three months ended March 31, 2024 compared to $84.2 million in the three months ended March 31, 2023. This increase was principally driven by the increase in ADV noted above, which more than offset the 15% decline in the RPM resulting from a tightening of spreads and a change in product mix.

Previous wording

Interest and fee income earned on client balances, which is associated with our listed and OTC derivatives, correspondent clearing, and independent wealth management product offerings, increased $12.2 million, or 14%, to $98.4 million in the three months ended December 31, 2023 compared to $86.2 million in the three months ended December 31, 2022. The increase was principally driven by a significant increase in short-term interest rates.

Current wording

Interest and fee income earned on client balances, which is associated with our listed and OTC derivatives, correspondent clearing, and independent wealth management product offerings, increased $0.8 million, or 1%, to $104.2 million in the three months ended March 31, 2024 compared to $103.4 million in the three months ended March 31, 2023. This was principally driven by an increase in short-term interest rates, which was partially offset by declines in average client equity and average money-market/FDIC sweep client balances of 16% and 24%, respectively, as compared to the three months ended March 31, 2023.

Previous wording

Expenses were higher in our Exchange-Traded Futures & Options, Financial Ag and Energy and LME businesses, principally related to the increase in contracts traded, and expenses were higher in the Equity Capital Markets business, principally related to the increased ADV. Partially offsetting these increases were lower expenses in the Retail Forex business, principally related to reducing costs through successful renegotiation of certain vendor contracts.

Current wording

Expenses were higher in our Exchange-Traded Futures & Options, Financial Ag and Energy and LME businesses, principally related to the increase in contracts traded. Expenses were also higher in our Equity Capital Markets business, principally related to an increase in ADV. Partially offsetting these increases were lower expenses in the Retail Forex business, principally related to reducing costs through successful renegotiation of certain vendor contracts.

Previous wording

Expenses were higher in our Financial Ag and Energy business, principally due to increased volume and client mix traded, and higher in our Physical Ag and Energy business, principally due to an additional month of expenses resulting from the CDI acquisition, which was effective October 31, 2022, as well as growth in the physical cotton business following acquisition. Expenses were also higher in our Independent Wealth Management business, principally due to increased revenues. These increases were partially offset by lower payouts within our Retail Forex and Exchange-Traded Futures & Options businesses.

Current wording

Expenses were higher in our Financial Ag and Energy business, principally due to increased volume and client mix traded, and in our Independent Wealth Management business, principally due to increased revenues. Expenses were also higher in our Physical Ag and Energy business, principally due to the growth in the physical cotton business following the acquisition of CDI, effective October 31, 2022. These increases were partially offset by lower payouts within our Retail Forex, Exchange-Traded Futures & Options, and Correspondent Clearing businesses.

Previous wording

Increased interest expense attributable to trading activities principally resulted from an increase in our fixed income and securities borrowing activities, as well as the effect of the increase in short-term interest rates. The decrease in interest expense attributable to corporate funding was principally due to lower average borrowings on our revolving credit facility, partially offset by the higher short-term interest rates.

Current wording

Increased interest expense attributable to trading activities principally resulted from an increase in our fixed income and securities borrowing activities, as well as the effect of the increase in short-term interest rates. Interest expense attributable to corporate funding was relatively unchanged, as the incremental interest from our March 1, 2024 issuance of senior secured notes due 2031, was nearly offset by lower average borrowings on our revolving credit facility.

Previous wording

Compensation and Other Expenses: Compensation and other expenses increased $16.0 million, or 5%, to $325.9 million in the three months ended December 31, 2023 compared to $309.9 million in the three months ended December 31, 2022.

Current wording

Compensation and Other Expenses: Compensation and other expenses increased $15.0 million, or 4%, to $356.9 million in the three months ended March 31, 2024 compared to $341.9 million in the three months ended March 31, 2023.

Previous wording

Other Expenses: Other non-compensation expenses decreased $3.1 million, or 3%, to $107.8 million in the three months ended December 31, 2023 compared to $110.9 million in the three months ended December 31, 2022.

Current wording

Other Expenses: Other non-compensation expenses increased $13.1 million, or 12%, to $122.5 million in the three months ended March 31, 2024 compared to $109.4 million in the three months ended March 31, 2023.

Previous wording

During the three months ended December 31, 2023, we recorded net recoveries of bad debts of $0.3 million, principally related to recoveries within our Institutional segment. During the three months ended December 31, 2022, bad debts, net of recoveries were $0.7 million, principally related to client trading account deficits in our Commercial and Retail segments.

Current wording

During the three months ended March 31, 2024, we recorded net recoveries of bad debts of $0.4 million, principally related to recoveries within our Institutional segment of $1.4 million, which were partially offset by bad debt expense of $0.9 million of client receivables in our Payments segment. During the three months ended March 31, 2023, bad debts, net of recoveries were $3.0 million, principally related to a client receivable in the Physical Ag & Energy business.

Previous wording

Provision for Taxes: The effective income tax rate was 28% and 20% in the three months ended December 31, 2023 and 2022, respectively. The effective tax rate for the three months ended December 31, 2023 was higher than the U.S. federal statutory rate of 21% due to U.S. state and local taxes, GILTI, U.S. and foreign permanent differences, and the amount of foreign earnings taxed at higher rates. The effective tax rate for the three months ended December 31, 2022 was lower than the U.S. federal statutory rate of 21% due to the permanent difference for a non-taxable gain on acquisition, which reduced the effective income tax rate by 6.5%.

Current wording

Provision for Taxes: The effective income tax rate was 26% and 27% in the three months ended March 31, 2024 and 2023, respectively. The effective tax rate was higher than the U.S. federal statutory rate of 21% due to U.S. state and local taxes, GILTI, U.S. and foreign permanent differences, and the amount of foreign earnings taxed at higher rates.

Previous wording

Non-variable salaries increased principally due to the increase in headcount resulting from expanding capabilities among our business lines, as well as the growth in our operational and overhead departments supporting our business growth, and the impact of annual merit increases.

Current wording

Non-variable salaries increased principally due to the increase in headcount resulting from expanding capabilities among our business lines, as well as the growth in our operational and overhead departments supporting our business growth, as well as the impact of annual merit increases.

Previous wording

Employee benefits and other compensation, excluding share-based compensation, increased principally due to higher payroll taxes, benefits, retirement costs, and severance. Share-based compensation, which contains stock option and restricted stock expense, increased principally due to higher employee participation in the Company’s restricted stock plan.

Current wording

Employee benefits and other compensation, excluding share-based compensation, decreased principally due to lower severance costs, partially offset by higher payroll taxes, benefits, and retirement costs principally related to the increase in headcount. During the six months ended March 31, 2024, severance costs were $2.4 million compared to $12.7 million during the six months ended March 31, 2023, which were principally related to a reorganization within the Payments business. Also partially offsetting the decrease, was a decrease in employee-elected deferred incentive, which is exchanged for restricted stock that will be amortized over a thirty-six month period following the grant date. Share-based compensation, which comprises stock option and restricted stock expense, increased principally due to the issuance of additional stock option awards during the six months ended March 31, 2024.

Previous wording

Occupancy and equipment rental costs decreased $1.2 million, principally due to a partial refund of property rates covering prior years in London.

Current wording

Occupancy and equipment rental increased $1.8 million, principally due to additional office space acquired in London and India, as well as certain accelerated charges incurred as we consolidate office space in London to support our current and anticipated future growth, partially offset by a partial refund of property tax and related expenses covering prior years in London.

Previous wording

Depreciation and amortization decreased $1.5 million, principally due to lower amortization, as certain intangibles, recognized as part the acquisition of Gain Capital Holdings, Inc. in fiscal 2020, became fully amortized during fiscal 2023, partially offset by incremental depreciation expense from internally developed software placed into service.

Current wording

Depreciation and amortization decreased $2.3 million, principally due to lower amortization, as certain intangibles, recognized as part the acquisition of Gain Capital Holdings, Inc. in fiscal 2020, became fully amortized during fiscal 2023, partially offset by incremental depreciation expense from internally developed software placed into service.

Previous wording

Gain on Acquisition: The results of the three months ended December 31, 2022 included a nonrecurring gain of $23.5 million related to the acquisition of CDI.

Current wording

Gain on Acquisition and Other Gains: The results of the six months ended March 31, 2024 include a nonrecurring gain of $6.9 million resulting from settlement of the Commodity Exchange Gold Futures and Options Trading matter. The results of the six months ended March 31, 2023 included a nonrecurring gain of $23.5 million related to the acquisition of CDI.

Previous wording

Our operating segments are based principally on the nature of the clients we serve (commercial, institutional, and retail), and a fourth operating segment, our payments business. We manage our business in this manner due to our large global footprint, in which we have more than 4,000 employees allowing us to serve clients in more than 180 countries.

Current wording

Our operating segments are based principally on the nature of the clients we serve (commercial, institutional, and retail), and a fourth operating segment, our payments business. We manage our business in this manner due to our large global footprint, in which we have more than 4,300 employees allowing us to serve clients in more than 180 countries.

Previous wording

In the accompanying segment tables, ‘Allocation of overhead costs’ has been added beneath ‘Segment income’, which reconciles the segment income measure to the segment income, less allocation of overhead costs measure for the three months ended December 31, 2023.

Current wording

In the accompanying segment tables, ‘Allocation of overhead costs’ has been added beneath ‘Segment income’, which reconciles the segment income measure to the segment income, less allocation of overhead costs measure for the three and six months ended March 31, 2024.

Previous wording

(1) Includes an allocation of certain overhead costs to our operating segments as noted above for the three months ended December 31, 2023. These allocations will be provided on an ongoing basis but have not been calculated for comparable periods.

Current wording

(1) Includes an allocation of certain overhead costs to our operating segments as noted above for the three months ended March 31, 2024 and six months ended March 31, 2024. These allocations will be provided on an ongoing basis but have not been calculated for comparable periods.

Previous wording

Net contribution for all of our business segments increased $45.2 million, or 16%, to $336.8 million in the three months ended December 31, 2023 compared to $291.6 million in the three months ended December 31, 2022. Segment income increased $43.2 million, or 25%, to $216.1 million in the three months ended December 31, 2023 compared to $172.9 million in the three months ended December 31, 2022.

Current wording

Net contribution for all of our business segments increased $12.3 million, or 4%, to $329.0 million in the three months ended March 31, 2024 compared to $316.7 million in the three months ended March 31, 2023. Segment income increased $25.3 million, or 14%, to $204.7 million in the three months ended March 31, 2024 compared to $179.4 million in the three months ended March 31, 2023.

Previous wording

Operating revenues derived from listed derivatives increased $5.6 million, or 10%, to $59.4 million in the three months ended December 31, 2023 compared to $53.8 million in the three months ended December 31, 2022. This increase was principally due to a 21% increase in overall listed derivatives contract volumes, primarily in agricultural and base metal commodity markets, compared to the prior year period. This increase was partially offset by an 11% decline in the average rate per contract compared to the three months ended December 31, 2022.

Current wording

Operating revenues derived from listed derivatives declined $1.9 million, or 3%, to $59.1 million in the three months ended March 31, 2024 compared to $61.0 million in the three months ended March 31, 2023. This decline was principally due to a 15% decline in the average rate per contract, primarily as a result of a narrowing of spreads in LME base metals markets. This decline was partially offset by a 12% increase in overall listed derivatives contract volumes, primarily in agricultural and LME base metal commodity markets, compared to the three months ended March 31, 2023.

Previous wording

For the three months ended December 31, 2023, we have calculated an allocation for overhead costs of $8.8 million for the Commercial segment as described in the introduction to Total Segment Results above. An allocation of overhead costs will be provided on an ongoing basis. We have not calculated historical comparable information.

Current wording

For the three months ended March 31, 2024, we have calculated an allocation for overhead costs of $8.9 million for the Commercial segment as described in the introduction to Total Segment Results above. An allocation of overhead costs will be provided on an ongoing basis, but we have not calculated historical comparable information.

Previous wording

Operating revenues derived from listed derivatives increased $3.8 million, or 8%, to $49.8 million in the three months ended December 31, 2023 compared to $46.0 million in the three months ended December 31, 2022, principally due to a 28% increase in listed derivative contract volumes, partially offset by a 12% decline in the average rate per contract.

Current wording

Operating revenues derived from listed derivatives increased $3.7 million, or 3%, to $118.5 million in the six months ended March 31, 2024 compared to $114.8 million in the six months ended March 31, 2023. This was principally driven by a 16% increase in listed derivative contract volumes, primarily in agricultural and LME base metal commodity markets. This was partially offset by a 12% decline in the average rate per contract, primarily as a result of a narrowing of spreads in LME base metals commodity markets.

Previous wording

Segment income increased $4.4 million, or 5%, to $87.2 million in the three months ended December 31, 2023 compared to $82.8 million in the three months ended December 31, 2022, principally due to the growth in operating revenues, which was partially offset by a $6.3 million increase in non-variable direct expenses. The increase in non-variable direct expenses was principally driven by a $1.8 million increase in fixed compensation and benefits, a $1.4 million increase in professional fees, a $0.8 million increase in travel and business development and a $0.6 million increase in depreciation and amortization compared to the three months ended December 31, 2022.

Current wording

Segment income decreased $12.9 million, or 7%, to $172.8 million in the six months ended March 31, 2024 compared to $185.7 million in the six months ended March 31, 2023, partially due to the decline in operating revenues, as well as an $8.9 million increase in non-variable direct expenses. The increase in non-variable direct expenses was primarily due to a $2.0 million increase in fixed compensation and benefits, a $1.9 million increase in professional fees, a $1.0 million increase in travel and business development and a $1.2 million increase in depreciation and amortization. The increase in non-variable direct expenses were partially offset by a $2.9 million decline in bad debts, net of recoveries. Also, the decline in segment income was partially offset by a nonrecurring gain of $6.9 million related to proceeds from a settlement in the Commodity Exchange Gold Futures and Options Trading matter.

Previous wording

Operating revenues derived from physical contracts declined $3.1 million, or 6%, to $50.6 million in the three months ended December 31, 2023 compared to $53.7 million in the three months ended December 31, 2022. This decrease was principally due to a $3.7 million decline in activity in our physical agricultural and energy business.

Current wording

Operating revenues derived from listed derivatives increased $3.1 million, or 6%, to $52.6 million in the three months ended March 31, 2024 compared to $49.5 million in the three months ended March 31, 2023, principally due to an 34% increase in listed derivative contract volumes, which was partially offset by a 19% decline in the average rate per contract.

Previous wording

Operating revenues derived from securities transactions increased $80.6 million, or 38%, to $293.6 million in the three months ended December 31, 2023 compared to $213.0 million in the three months ended December 31, 2022. The ADV of securities traded increased 47%, principally driven by increased client activity in both equity and fixed income markets. Carried interest on fixed income securities is a component of operating revenues, however interest expense associated with financing these positions is not. As a result, interest expense associated with our fixed income activities is deducted from operating revenues in the calculation of securities RPM in the table above. The securities RPM decreased 30% in the three months ended December 31, 2023 compared to the three months ended December 31, 2022, principally due to a tightening of spreads and a change in product mix.

Current wording

Operating revenues derived from securities transactions increased $88.1 million, or 39%, to $314.9 million in the three months ended March 31, 2024 compared to $226.8 million in the three months ended March 31, 2023. The ADV of securities traded increased 30%, principally driven by increased client activity in both equity and fixed income markets. Carried interest on fixed income securities is a component of operating revenues, however interest expense associated with financing these positions is not. Our calculation of Securities RPM, in the table above, presents the RPM after deducting from operating revenues the interest expense associated with our fixed income activities. The securities RPM decreased 15% in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, principally due to a tightening of spreads and a change in product mix.

Previous wording

Operating revenues derived from FX contracts declined $1.2 million, or 13%, to $8.0 million in the three months ended December 31, 2023 compared to $9.2 million in the three months ended December 31, 2022, principally due to an 18% decline in the ADV of FX contracts, partially offset by a 13% increase in the FX contract RPM.

Current wording

Operating revenues derived from FX contracts declined $1.7 million, or 18%, to $7.6 million in the three months ended March 31, 2024 compared to $9.3 million in the three months ended March 31, 2023, principally driven by a 20% decline in the ADV of FX contracts.

Previous wording

Interest and fee income earned on client balances, which is associated with our listed derivative and correspondent clearing businesses increased $1.2 million, to $60.5 million in the three months ended December 31, 2023, with an increase in short-term interest rates more than offsetting 27% and 31% declines in average client equity and average money market / FDIC sweep client balances, respectively, compared to the three months ended December 31, 2022.

Current wording

Interest and fee income earned on client balances, which is associated with our listed derivative and correspondent clearing businesses increased $6.2 million, to $65.4 million in the three months ended March 31, 2024, principally driven by an increase in short-term interest rates, which was partially offset by declines of 17% and 24% in average client equity and average money market/FDIC sweep client balances, respectively, as compared to the three months ended March 31, 2023.

Previous wording

As a result of the increase in short-term interest rates and the increase in ADV, interest expense increased $81.8 million, to $226.5 million in the three months ended December 31, 2023 compared to $144.7 million in the three months ended December 31, 2022, with interest expense directly associated with serving as an institutional dealer in fixed income securities increasing $75.8 million. Interest paid to clients decreased $1.4 million, and interest expense directly attributable to securities lending activities increased $6.7 million compared to the three months ended December 31, 2022.

Current wording

As a result of the increase in short-term interest rates and the increase in ADV, interest expense increased $83.4 million, to $249.6 million in the three months ended March 31, 2024 compared to $166.2 million in the three months ended March 31, 2023, with interest expense directly associated with serving as an institutional dealer in fixed income securities increasing $78.6 million and interest expense directly attributable to securities lending activities increasing $5.7 million as compared to the three months ended March 31, 2023. Partially offsetting these increases, interest paid to clients declined $6.0 million as compared to the three months ended March 31, 2023.

Previous wording

Variable expenses, excluding interest, expressed as a percentage of operating revenues declined to 25% in the three months ended December 31, 2023 compared to 30% in the three months ended December 31, 2022, primarily as the result of the increase in interest income.

Current wording

Variable expenses, excluding interest, expressed as a percentage of operating revenues declined to 24% in the three months ended March 31, 2024 compared to 30% in the three months ended March 31, 2023, primarily as the result of the increase in interest/fees earned on client balances, which is generally not a component of variable compensation.

Previous wording

For the three months ended December 31, 2023, we have calculated an allocation for overhead costs of $12.8 million for the Institutional segment as described in the introduction to Total Segment Results above. An allocation of overhead costs will be provided on an ongoing basis. We have not calculated historical comparable information.

Current wording

For the three months ended March 31, 2024, we have calculated an allocation for overhead costs of $13.3 million for the Institutional segment as described in the introduction to Total Segment Results above. An allocation of overhead costs will be provided on an ongoing basis, but we have not calculated historical comparable information.

Previous wording

Operating revenues derived from FX/CFD contracts increased $27.0 million, or 68%, to $66.6 million in the three months ended December 31, 2023 compared to $39.6 million in the three months ended December 31, 2022 principally due to an 84% increase in FX/CFD contracts RPM, which was partially offset by a 13% decline in FX/CFD contracts ADV compared to the three months ended December 31, 2022.

Current wording

Operating revenues derived from FX/CFD contracts increased $20.2 million, or 38%, to $72.7 million in the three months ended March 31, 2024 compared to $52.5 million in the three months ended March 31, 2023 principally driven by an 82% increase in FX/CFD contracts RPM, which was principally driven by increased client activity in gold, oil and index contracts, which typically have a higher RPM than do FX contracts. This increase partially offset by a 24% decline in FX/CFD contracts ADV, primarily related to a decline in client activity in FX markets, compared to the three months ended March 31, 2023.

Previous wording

Operating revenues derived from securities transactions, which relate to our independent wealth management activities, increased $1.5 million to $22.6 million in the three months ended December 31, 2023 compared to $21.1 million in the three months ended December 31, 2022.

Current wording

Operating revenues derived from securities transactions, which relate to our independent wealth management activities, increased $3.4 million to $25.8 million in the three months ended March 31, 2024 compared to $22.4 million in the three months ended March 31, 2023.

Previous wording

Interest and fee income earned on client balances was $0.7 million in the three months ended December 31, 2023 compared to $0.8 million in the three months ended December 31, 2022.

Current wording

Interest and fee income earned on client balances was $0.7 million in the three months ended March 31, 2024 as compared to $0.8 million in the three months ended March 31, 2023.

Previous wording

Variable expenses, excluding interest, as a percentage of operating revenues were 31% in the three months ended December 31, 2023 compared to 43% in the three months ended December 31, 2022, principally due to the increase in operating revenues derived from FX / CFD contracts which typically incur a lower relative percentage of variable expenses than do our other business lines.

Current wording

Variable expenses, excluding interest, as a percentage of operating revenues were 30% in the three months ended March 31, 2024 compared to 37% in the three months ended March 31, 2023, principally due to the increase in operating revenues derived from FX / CFD contracts which typically incur a lower relative percentage of variable expenses than do our other business lines.

Previous wording

Segment income increased $32.9 million to segment income of $28.7 million in the three months ended December 31, 2023 compared to a segment loss of $4.2 million in the three months ended December 31, 2022, principally due to the increase in net operating revenues noted above as well as a $9.5 million decline in non-variable direct expenses compared to the three months ended December 31, 2022. The decline in non-variable direct expenses was primarily a result of a $2.9 million decline in fixed compensation and benefits, a $2.3 million decline in selling and marketing and a $2.7 million decline in depreciation and amortization compared to the three months ended December 31, 2022.

Current wording

Segment income increased $28.4 million to $33.2 million in the three months ended March 31, 2024 compared to $4.8 million in the three months ended March 31, 2023, principally due to the increase in net operating revenues noted above, as well as a $6.9 million decline in non-variable direct expenses compared to the three months ended March 31, 2023. The decline in non-variable direct expenses was primarily a result of a $2.6 million decrease in amortization, as certain intangibles, recognized as part the acquisition of Gain Capital Holdings, Inc. in fiscal 2020, became fully amortized during fiscal 2023, a $1.8 million decline in selling and marketing, and a $0.5 million decrease in bad debts as compared to the three months ended March 31, 2023.