Interactive Brokers Group Inc
For the period ended Sep 30, 2024. Filed Nov 7, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 7, 2024
IBKR$75.82+4.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-05.
0001381197-24-000124
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-07.
0001381197-24-000143
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 212 previous paragraphs and 216 current paragraphs.
139 unchanged; 65 reworded; 11 added; 7 removed; 1 previous and 1 current paragraphs rearranged.
Tables are not compared: 14 previous and 14 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (11)
Current report
During the quarter ended September 30, 2024 (“current quarter”), world equities markets generally rose compared to the prior quarter, with only Japan registering a decline in its index among the major markets. Within U.S. equities, which led the world with a 34% year-over-year gain in the S&P 500 index, the dominance of a small number of technology stocks (the so-called “Magnificent 7”) weakened, with these stocks responsible for about 12% of the S&P 500 index’s gains during the current quarter, down from 37% in the prior-year quarter and 95% in the second quarter of 2024. Inflationary pressures have eased gradually and, as a result, central banks in several countries cut their policy rates after several quarters of market speculation about central bank policies. However, the U.S. elections and geopolitical uncertainties remain prominent sources of volatility.
Current report
Net interest income on customer margin loan balances increased compared to the prior-year quarter despite the average federal funds effective rate remaining stable at 5.26%, as margin loan balances grew in a risk-on environment.
Current report
Higher average balances contributed to a 9% rise in net interest income from the prior-year quarter, though our overall net interest margin declined from 2.46% in the prior-year quarter to 2.37% in the current quarter, primarily due to slightly lower yields on our margin loan balances and segregated cash and securities.
Current report
General and administrative expenses increased $108 million to $153 million, driven primarily by $87 million related to legal and regulatory matters and a one-time charge of $12 million related to the consolidation of our European subsidiaries.
Current report
General and administrative expenses, for the current quarter, increased $108 million, or 240%, compared to the prior-year quarter, to $153 million, primarily due to an $87 million increase related to legal and regulatory matters, a one-time charge of $12 million related to the consolidation of our European subsidiaries, and a $5 million increase in advertising expenses. As a percentage of total net revenues, general and administrative expenses were 11% for the current quarter and 4% for the prior-year quarter.
Current report
General and administrative expenses, for the current nine-month period, increased $89 million, or 54%, compared to the prior-year nine-month period, to $255 million, primarily due to a $58 million increase related to legal and regulatory matters, a one-time charge of $12 million related to the consolidation of our European subsidiaries, and a $12 million increase in advertising expenses. As a percentage of total net revenues, general and administrative expenses were 7% for the current nine-month period and 5% for the prior-year nine-month period.
Current report
Customer bad debt expense, for the current nine-month period, increased $12 million, compared to the prior-year nine-month period, to $14 million.
Current report
Operating Activities
Current report
Our cash flows from operating activities are largely a reflection of the changes in customer credit and margin loan balances. We raised $6.9 billion in net cash from operating activities mainly driven by customer credit balances which increased $11.6 billion, securities loaned which increased $5.5 billion, and investments in securities segregated for regulatory purposes which decreased $4.3 billion; partially offset by customer margin loans which increased $11.5 billion.
Current report
Investing Activities
Current report
Financing Activities
Removed paragraphs (7)
Previous report
During the quarter ended June 30, 2024 (“current quarter”), world equities markets were mixed, with the U.S., U.K. and Hong Kong rising, while Canada, Europe, Japan and Australia fell. Shifting of political winds seen in European elections impacted that region, while in other regions the continuing fears about inflation and tight monetary policy pulled equity markets back, after a strong first quarter 2024 global stock market rally that anticipated lower rates and a global economic “soft landing”.
Previous report
Net interest income on customer cash and margin loan balances increased compared to the prior-year quarter as the average federal funds effective rate increased to 5.33% in the current quarter from 4.99% in the prior-year quarter. During an extended period prior to and including part of 2022, when benchmark rates were at or near zero, the interest we paid on customer cash balances and earned on customer margin loans and investment of customer segregated funds resulted in spreads that were compressed. Today, now that nearly all benchmark interest rates are well over 50 basis points and spread compression is not a factor, we earn higher net interest income.
Previous report
Higher interest rates contributed to a 14% rise in net interest income from the prior-year quarter. Combined with increases in average interest-earning assets, particularly in customer margin loans, these higher rates led to an increase of our net interest margin from 2.34% in the prior-year quarter to 2.42% in the current quarter.
Previous report
General and administrative expenses, for the current quarter, decreased $33 million, or 39%, compared to the prior-year quarter, to $52 million, primarily due to the non-recurrence of legal reserves related to thepreviously-disclosed regulatory investigation into the use of unapproved electronic messaging subject to record-keeping requirements in the prior-year quarter; partially offset by higher advertising and legal expenses. As a percentage of total net revenues, general and administrative expenses were 4% for the current quarter and 9% for the prior-year quarter.
Previous report
Customer bad debt expense, for the current quarter, increased $3 million, compared to the prior-year quarter, to $2 million.
Previous report
General and administrative expenses, for the current six-month period, decreased $19 million, or 16%, compared to the prior-year six-month period, to $102 million, primarily due to the non-recurrence of legal reserves related to thepreviously-disclosed regulatory investigation into the use of unapproved electronic messaging subject to record-keeping requirements in the prior-year six-month period; partially offset by higher advertising and legal expenses. As a percentage of total net revenues, general and administrative expenses were 4% for the current six-month period and 6% for the prior-year six-month period.
Reworded paragraphs (65)
Previous wording
Interactive Brokers Group, Inc. (the “Company” or “IBG, Inc.”) is a holding company whose primary asset is its ownership of approximately 25.7% of the membership interests of IBG LLC. The remaining approximately 74.3% of IBG LLC membership interests are held by IBG Holdings LLC (“Holdings”), a holding company that is owned by our founder and Chairman, Mr. Thomas Peterffy and his affiliates, management and other employees of IBG LLC, and certain other members. The table below shows the amount of IBG LLC membership interests held by IBG, Inc. and Holdings as of June 30, 2024.
Current wording
Interactive Brokers Group, Inc. (the “Company” or “IBG, Inc.”) is a holding company whose primary asset is its ownership of approximately 25.8% of the membership interests of IBG LLC. The remaining approximately 74.2% of IBG LLC membership interests are held by IBG Holdings LLC (“Holdings”), a holding company that is owned by our founder and Chairman, Mr. Thomas Peterffy and his affiliates, management and other employees of IBG LLC, and certain other members. The table below shows the amount of IBG LLC membership interests held by IBG, Inc. and Holdings as of September 30, 2024.
Previous wording
We are an automated global electronic broker. We custody and service accounts for hedge and mutual funds, exchange-traded funds (“ETFs”), registered investment advisers, proprietary trading groups, introducing brokers and individual investors. We specialize in routing orders and executing and processing trades in stocks, options, futures, forex, bonds, mutual funds, ETFs and precious metals on more than 150 electronic exchanges and market centers in 34 countries and 27 currencies seamlessly around the world. In addition, our customers can use our trading platform to trade certain cryptocurrencies through third-party cryptocurrency service providers that execute, clear and custody the cryptocurrencies.
Current wording
We are an automated global electronic broker. We custody and service accounts for hedge and mutual funds, exchange-traded funds (“ETFs”), registered investment advisors, proprietary trading groups, introducing brokers and individual investors. We specialize in routing orders and executing and processing trades in stocks, options, futures, forex, bonds, mutual funds, ETFs and precious metals on more than 150 electronic exchanges and market centers in 35 countries and 28 currencies seamlessly around the world. In addition, our customers can use our trading platform to trade certain cryptocurrencies through third-party cryptocurrency service providers that execute, clear and custody the cryptocurrencies. In August 2024, we began offering trading in Forecast Contracts, which are event-based contracts traded on ForecastEx, a CFTC-registered exchange we established.
Previous wording
Global trading volumes. Worldwide, equities volumes reported by most major exchanges increased in the current quarter versus the prior-year quarter. Within U.S. equities, the dominance of a small number of technology stocks (the so-called “Magnificent 7”) continued, as these stocks were responsible for about 95% of the S&P 500 index’s gains during the current quarter, up from 63% in the prior-year quarter. U.S. stock trading volumes were higher versus the prior-year quarter and remained higher than pre-pandemic levels. In the U.S., according to industry data, average daily volume in exchange-listed equity-based options increased by 7%, futures by 14%, and listed cash equities by 9%, compared to the prior-year quarter. Options trading volumes continue to rise with the growing popularity of shorter-dated options contracts. In futures, market volumes increased across all product segments, particularly in commodities such as metals and energy, as well as in interest rate products and foreign exchange.
Current wording
Global trading volumes. Worldwide, equities volumes reported by most major exchanges increased in the current quarter versus the prior-year quarter. In the U.S., according to industry data, average daily volume in exchange-listed equity-based options increased by 12%, futures by 27% and listed cash equities by 10%, compared to the prior-year quarter. Options trading volumes continue to rise with the growing popularity of shorter-dated options contracts. In futures, market volumes increased across all product segments, particularly in interest rate products, with notable percentage increases in commodities such as metals and energy.
Previous wording
These factors led to strong results across our major product types. Our customer options, stock and futures volumes were up 35%, 26% and 10%, respectively, although foreign exchange volumes declined 16%, compared to the prior-year quarter.
Current wording
These factors led to strong results across our major product types. Our customer options, equities, futures and foreign exchange volumes were up 35%, 22%, 13% and 8%, respectively.
Previous wording
Note that while U.S. options, futures and cash equities volumes are readily comparable measures, they reflect most but not all of the global volumes that generate our commission revenue. See “Trading Volumes and Customer Statistics” below in this Item 2 for additional details regarding our executed order volumes, contract and share volumes, and customer statistics.
Current wording
Note that while U.S. options, futures, cash equities and foreign exchange volumes are readily comparable measures, they reflect most but not all of the global volumes that generate our commission revenue. See “Trading Volumes and Customer Statistics” below in this Item 2 for additional details regarding our executed order volumes, contract and share volumes, and customer statistics.
Previous wording
Volatility. U.S. market volatility, as measured by the average Chicago Board Options Exchange Volatility Index (“VIX®”), declined 15%, from an average of 16.5 in the prior-year quarter to 14.0 in the current quarter. Since the fourth quarter of 2022, volatility levels have been declining as the pandemic eased, the world economic outlook has improved, and recession fears have moderated. The current level of volatility is below long-term trends.
Current wording
Volatility. U.S. market volatility, as measured by the average Chicago Board Options Exchange Volatility Index (“VIX®”), increased 13%, from an average of 15.1 in the prior-year quarter to 17.1 in the current quarter, primarily due to a temporary spike in August that has since moderated. Volatility levels remain below the levels reached in 2020 through 2022 as world economic outlook has improved and recession fears have lessened.
Previous wording
Interest Rates. The U.S. Federal Reserve held the benchmark federal funds rate steady in the current quarter, as it has since July of 2023. The U.S. Treasury yield curve remained inverted, with long-term rates lower than short-term. Some central banks, including Europe, Canada, and Switzerland, have perceived an easing in inflation and began to lower rates by 25 basis points. In other countries with developed financial markets, such as Australia and the United Kingdom, benchmark interest rates were mainly held steady as central banks continue to watch inflation.
Current wording
Interest Rates. The U.S. Federal Reserve cut the benchmark federal funds rate in September 2024, reducing it by 50 basis points after holding it steady since July 2023. Once again, the U.S. Treasury yield curve remained inverted, with long-term rates lower than short-term. Other central banks, including those in Europe, Canada, Hong Kong, the United Kingdom and Switzerland, also lowered rates this quarter, with Europe cutting for the second time, and Canada and Switzerland for the third time, this year. In other countries with developed financial markets, such as Australia and Japan, benchmark interest rates either held steady or increased.
Previous wording
Higher U.S. benchmark rates have boosted the interest we earn on our segregated cash, the majority of which is invested in short-term U.S. government securities and related instruments. Higher short-term rates and an inverted yield curve have led us to maintain a short duration portfolio, all of which matured within three months at June 30, 2024, to more closely match our asset and liability maturities on our interest-sensitive assets. Further, our margin balances are tied to benchmark rates, so higher rates have also improved the interest we earn on margin lending to our customers. We continue to offer among the lowest rates in the industry on margin lending, and we believe our low rates are an important feature that attracts customers to our platform.
Current wording
Lower U.S. benchmark rates reduce the interest we earn on our segregated cash, the majority of which is invested in short-term U.S. government securities and related instruments. Higher short-term rates and an inverted yield curve have led us to maintain a short duration portfolio, nearly all of which matured within three months at September 30, 2024, to more closely match our asset and liability maturities on our interest-sensitive assets. Further, our margin balances are tied to benchmark rates, so lower rates limit the interest we earn on margin lending to our customers. We continue to offer among the lowest rates in the industry on margin lending, and we believe our low rates are an important feature that attracts customers to our platform.
Previous wording
Rising rates also increase our interest expense. For example, in U.S. dollars we pay interest to customers on their qualified cash balances when the federal funds effective rate is above 0.50%, which it has been since May 2022. Central banks in many other countries have also held their interest rates at higher levels. We believe the attractive rates we pay on customer cash are among the highest in the industry and are another important feature that draws customers to our platform.
Current wording
As an offset, lower rates also reduce our interest expense. For example, in U.S. dollars we pay interest to customers on their qualified cash balances when the federal funds effective rate is above 0.50%, which it has been since May 2022. With benchmark rates at higher levels than in the extended period during and after the pandemic, rate compression is eliminated and we are able to earn our full 0.50% spread. We believe the attractive rates we pay on customer cash are among the highest in the industry and are another important feature that draws customers to our platform.
Previous wording
Currency fluctuations. As a global electronic broker trading on exchanges around the world in multiple currencies, we are exposed to foreign currency risk. We actively manage this exposure by keeping our equity in proportion to a defined basket of 10 currencies we call the “GLOBAL” to diversify our risk and to align our hedging strategy with the currencies that we use in our business. Because we report our financial results in U.S. dollars, the change in the value of the GLOBAL versus the U.S. dollar affects our earnings. During the current quarter, the value of the GLOBAL, as measured in U.S. dollars, decreased 0.22% compared to its value at March 31, 2024, which had a negative impact on our comprehensive earnings for the current quarter. A discussion of our approach for managing
Current wording
Currency fluctuations. As a global electronic broker trading on exchanges around the world in multiple currencies, we are exposed to foreign currency risk. We actively manage this exposure by keeping our equity in proportion to a defined basket of 10 currencies we call the “GLOBAL” to diversify our risk and to align our hedging strategy with the currencies that we use in our business. Because we report our financial results in U.S. dollars, the change in the value of the GLOBAL versus the U.S. dollar affects our earnings. During the current quarter, the value of the GLOBAL, as measured in U.S. dollars, increased 1.14% compared to its value at June 30, 2024, which had a positive impact on our comprehensive earnings for the current quarter. A discussion of our approach for managing foreign currency exposure is contained in Part I, Item 3 of this Quarterly Report Form 10-Q entitled “Quantitative and Qualitative Disclosures about Market Risk.”
Previous wording
Diluted earnings per share were $1.65 for the current quarter, compared to diluted earnings per share of $1.20 for the prior-year quarter. Adjusted diluted earnings per share were $1.76 for the current quarter and $1.32 for the prior-year quarter. The calculation of diluted earnings per share is detailed in Note 4 – “Equity and Earnings per Share” to the unaudited condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Current wording
Diluted earnings per share were $1.67 for the current quarter, compared to diluted earnings per share of $1.56 for the prior-year quarter. Adjusted diluted earnings per share were $1.61 for the current quarter and $1.55 for the prior-year quarter. The calculation of diluted earnings per share is detailed in Note 4 – “Equity and Earnings per Share” to the unaudited condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Previous wording
For the current quarter, our net revenues were $1,230 million and income before income taxes was $880 million, compared to net revenues of $1,000 million and income before income taxes of $652 million in the prior-year quarter. Adjusted net revenues were $1,290 million and adjusted income before income taxes was $940 million, compared to adjusted net revenues of $1,064 million and adjusted income before income taxes of $716 million in the prior-year quarter.
Current wording
For the current quarter, our net revenues were $1,365 million and income before income taxes was $909 million, compared to net revenues of $1,145 million and income before income taxes of $840 million in the prior-year quarter. Adjusted net revenues were $1,327 million and adjusted income before income taxes was $871 million, compared to adjusted net revenues of $1,139 million and adjusted income before income taxes of $834 million in the prior-year quarter.
Previous wording
Commission revenue increased 26% to $406 million on higher customer trading volumes. Customer trading volume in options, stocks and futures increased 35%, 26% and 10%, respectively.
Current wording
Commission revenue increased 31% to $435 million on higher customer trading volumes. Customer trading volume in options, stocks and futures increased 35%, 22% and 13%, respectively.
Previous wording
Net interest income increased 14% to $792 million on higher benchmark interest rates, customer margin loans and customer credit balances.
Current wording
Net interest income increased 9% to $802 million on higher customer margin loans and customer credit balances.
Previous wording
Other fees and services increased $21 million, or 45%, to $68 million, driven primarily by increases of $14 million in risk exposure fees and $3 million each in payments for order flow from exchange-mandated programs and FDIC sweep program fees.
Current wording
Other fees and services increased $20 million, or 38%, to $72 million, driven by increases of $13 million in risk exposure fees, $5 million in payments for order flow from exchange-mandated programs, and $2 million in FDIC sweep program fees.
Previous wording
Execution, clearing and distribution fees expenses increased 24% to $115 million, driven by higher customer trading volumes and an increase in the SEC fee rate during the current quarter.
Current wording
Execution, clearing and distribution fees expenses increased 18% to $116 million, driven by a higher SEC fee rate and higher customer trading volumes.
Previous wording
Pretax profit margin was 72% for the current quarter, up from 65% in the prior-year quarter. Adjusted pretax profit margin for the current quarter was 73%, up from 67% in the prior-year quarter.
Current wording
Pretax profit margin was 67% for the current quarter compared to 73% in the prior-year quarter. Adjusted pretax profit margin for the current quarter was 66% compared to 73% in the prior-year quarter.
Previous wording
Total equity as of June 30, 2024 was $15.2 billion.
Current wording
Total equity as of September 30, 2024 was $16.0 billion.
Previous wording
In connection with our currency diversification strategy, as of June 30, 2024, approximately 24% of our equity was denominated in currencies other than the U.S. dollar. In the current quarter, our currency diversification strategy decreased our comprehensive earnings by $30 million (compared to a decrease of $24 million in the prior-year quarter), as the U.S. dollar value of the GLOBAL decreased by approximately 0.22%, compared to its value as of March 31, 2024. The effects of our currency diversification strategy are reported as (1) a component of “Other income” (loss of $20 million) in the consolidated statements of comprehensive income and (2)other comprehensive income (“OCI”) (loss of $10 million) in the consolidated statements of financial condition and the consolidated statements of comprehensive income. The full effect of the GLOBAL is captured in comprehensive income.
Current wording
In connection with our currency diversification strategy, as of September 30, 2024, approximately 25% of our equity was denominated in currencies other than the U.S. dollar. In the current quarter, our currency diversification strategy increased our comprehensive earnings by $178 million (compared to a decrease of $93 million in the prior-year quarter), as the U.S. dollar value of the GLOBAL increased by approximately 1.14%, compared to its value as of June 30, 2024. The effects of our currency diversification strategy are reported as (1) a component of “Other income” (gain of $25 million) in the consolidated statements of comprehensive income and (2)other comprehensive income (“OCI”) (gain of $153 million) in the consolidated statements of financial condition and the consolidated statements of comprehensive income. The full effect of the GLOBAL is captured in comprehensive income.
Previous wording
Total net revenues, for the current quarter, increased $230 million, or 23%, compared to the prior-year quarter, to $1,230. The increase in net revenues was due to higher net interest income, commissions, other income, and other fees and services.
Current wording
Total net revenues, for the current quarter, increased $220 million, or 19%, compared to the prior-year quarter, to $1,365 million. The increase in net revenues was due to higher commissions, net interest income, other income, and other fees and services.
Previous wording
Commissions, for the current quarter, increased $84 million, or 26%, compared to the prior-year quarter, to $406 million, driven by higher customer volume in options, futures and stocks. Total customer options and futures contract and stock share volumes increased 35%, 10% and 26%, respectively. Total DARTs for the current quarter increased 28% to 2.4 million, compared to 1.9 million for the prior-year quarter. Average commission per commissionable order for cleared customers, for the current quarter, decreased 3% to $3.01, compared to $3.11 for the prior-year quarter, due to a mix of smaller average order sizes in stocks and futures, and lower average commission per contract in options.
Current wording
Commissions, for the current quarter, increased $102 million, or 31%, compared to the prior-year quarter, to $435 million, driven by higher customer volume in options, stocks and futures. Total customer options and futures contract and stock share volumes increased 35%, 13% and 22%, respectively. Total DARTs for the current quarter increased 42% to 2.7 million, compared to 1.9 million for the prior-year quarter. Average commission per commissionable order for cleared customers, for the current quarter, decreased 9% to $2.83, compared to $3.11 for the prior-year quarter, due to smaller average order sizes across all product classes and lower average commissions per contract in options.
Previous wording
Other fees and services, for the current quarter, increased $21 million, or 45%, compared to the prior-year quarter, to $68 million, driven by a $14 million increase in risk exposure fees as customers exhibited more risk-on behavior, a $3 million increase in FDIC sweep fees due to higher benchmark interest rates and customer balances, and a $3 million increase in payments for order flow from exchange-mandated programs driven by higher customer trading volumes.
Current wording
Other fees and services, for the current quarter, increased $20 million, or 38%, compared to the prior-year quarter, to $72 million, driven by a $13 million increase in risk exposure fees as customers exhibited more risk-on behavior, a $5 million increase in payments for order flow from exchange-mandated programs driven by higher customer trading volumes, and a $2 million increase in FDIC sweep fees due to higher customer balances.
Previous wording
Other income, for the current quarter, increased $27 million, a 43% reduction in loss, compared to the prior-year quarter, to a loss of $36 million. This increase was mainly comprised of$35 million related our currency diversification strategy, which lost $20 million in the current quarter compared to a loss of $55 million in the prior-year quarter; $16 million from our principal trading activities; $15 million related to our strategic investment in Tiger Brokers; and a $9 million increase in net gains from equity method investments; partially offset by a $48 million loss on positions taken over as customer accommodation due to a technical issue at the New York Stock Exchange that occurred on the morning of June 3, 2024, as previously disclosed.
Current wording
Other income, for the current quarter, increased $29 million, or 107%, compared to the prior-year quarter, to $56 million. This increase was mainly comprised of$42 million related our currency diversification strategy, which gained $25 million in the current quarter compared to a loss of $17 million in the prior-year quarter; partially offset by $12 million related to our strategic investment in Tiger Brokers, which gained $11 million in the current quarter compared to a gain of $23 million in the prior year quarter.
Previous wording
Net interest income (interest income less interest expense), for the current quarter, increased $98 million, or 14%, compared to the prior-year quarter, to $792 million. The increase in net interest income was driven by higher benchmark interest rates, customer margin loans and customer credit balances.
Current wording
Net interest income (interest income less interest expense), for the current quarter, increased $69 million, or 9%, compared to the prior-year quarter, to $802 million. The increase in net interest income was driven by higher customer margin loans and customer credit balances.
Previous wording
Net interest income on customer balances, for the current quarter, increased $128 million, compared to the prior-year quarter, driven by an increase in the average federal funds effective rate to 5.33% from 4.99% in the prior-year quarter, a $12.4 billion increase in average customer margin loans, and a $6.3 billion increase in average customer credit balances. See the “Business Environment” section above in this Item 2 for a further discussion about the change in interest rates in the current quarter.
Current wording
Net interest income on customer balances, for the current quarter, increased $95 million, compared to the prior-year quarter, driven by an $11.8 billion increase in average customer margin loans and an $11.4 billion increase in average customer credit balances. See the “Business Environment” section above in this Item 2 for a further discussion about the change in interest rates in the current quarter.
Previous wording
In the current quarter, average securities borrowed balances increased 4%, to $5.9 billion, and average securities loaned balances increased 41%, to $13.7 billion, compared to the prior-year quarter. Net interest earned from securities lending is affected by the level of demand for securities positions held by our customers that investors are looking to sell short. During the current quarter, net interest earned from securities lending transactions decreased $54 million, or 68%, compared to the prior-year quarter, driven by lower demand for selling stocks short, as the stock market rose steadily in the current quarter, and fewer so-called “hard to borrow” stocks industry wide. As noted above, the rise in benchmark interest rates has shifted a portion of the interest reported as generated by lending securities to interest income on segregated cash (see further explanation above). It should be noted that securities lending transactions entered into to support customer activity may produce interest income (expense) that is offset by interest expense (income) related to customer balances.
Current wording
In the current quarter, average securities borrowed balances increased 12%, to $6.2 billion, and average securities loaned balances increased 45%, to $14.3 billion, compared to the prior-year quarter. Net interest earned from securities lending is affected by the level of demand for securities positions held by our customers that investors are looking to sell short. During the current quarter, net interest earned from securities lending transactions decreased $50 million, or 76%, compared to the prior-year quarter, driven by lower demand for selling stocks short, as the stock market rose steadily in the current quarter, and by fewer so-called “hard to borrow” stocks industry wide. As noted above, the rise in benchmark interest rates has shifted a portion of the interest reported as generated by lending securities to interest income on segregated cash (see further explanation above). It should be noted that securities lending transactions entered into to support customer activity may produce interest income (expense) that is offset by interest expense (income) related to customer balances.
Previous wording
We estimate that if the interest earned and paid on cash collateral related to our securities lending transactions were included under “Securities borrowed and loaned, net” in the table below, the total net interest income related to our securities lending activities would have been $194 million in the current quarter, compared to $190 million in the prior-year quarter. Such additional interest attributed to our securities lending activities would be reclassified from net interest income on “Segregated cash and securities, net” and “Customer credit balances, net” in the table below, so it would have no effect on our overall net interest income or net interest margin.
Current wording
We estimate that if the interest earned and paid on cash collateral related to our securities lending transactions were included under “Securities borrowed and loaned, net” in the table below, the total net interest income related to our securities lending activities would have been $156 million in the current quarter, compared to $181 million in the prior-year quarter. Such additional interest attributed to our securities lending activities would be reclassified from net interest income on “Segregated cash and securities, net” and “Customer credit balances, net” in the table below, so it would have no effect on our overall net interest income or net interest margin.
Previous wording
(3)Includes income from financial instruments that has the same characteristics as interest, but is reported in other fees and services and other income in the Company’s condensed consolidated statements of comprehensive income. For the three months ended June 30, 2024 and 2023, $7 million and $5 million were reported in other fees and services, respectively, and $6 and -$2 million were reported in other income, respectively.
Current wording
(3)Includes income from financial instruments that has the same characteristics as interest, but is reported in other fees and services and other income in the Company’s condensed consolidated statements of comprehensive income. For the three months ended September 30, 2024 and 2023, $7 million and $6 million were reported in other fees and services, respectively, and $17 and $5 million were reported in other income, respectively.
Previous wording
Non-interest expenses, for the current quarter, increased $2 million, or 1%, compared to the prior-year quarter, to $350 million, mainly due to a $22 million increase in execution and clearing fees, a $10 million increase in employee compensation and benefits, and a $3 million increase in customer bad debt expense; partially offset by a $33 million decrease in general and administrative expenses. As a percentage of total net revenues, non-interest expenses were 28% for the current quarter and 35% for the prior-year quarter.
Current wording
Non-interest expenses, for the current quarter, increased $151 million, or 50%, compared to the prior-year quarter, to $456 million, mainly due to a $108 million increase in general and administrative expenses, an $18 million increase in execution, clearing and distribution fees, an $18 million increase in employee compensation and benefits, and a $7 million increase in customer bad debt expense. As a percentage of total net revenues, non-interest expenses were 33% for the current quarter and 27% for the prior-year quarter.
Previous wording
Execution, clearing and distribution fees, for the current quarter, increased $22 million, or 24%, compared to the prior-year quarter, to $115 million, mainly driven by higher customer trading volumes and a $9 million increase in SEC regulatory fees due to an increase in the SEC fee rate effective May 22, 2024. SEC fees, as with other regulatory fees, are passed through to customers. As a percentage of total net revenues, execution, clearing and distribution fees were 9% for both the current quarter and the prior-year quarter.
Current wording
Execution, clearing and distribution fees, for the current quarter, increased $18 million, or 18%, compared to the prior-year quarter, to $116 million, mainly driven by a $17 million increase in SEC regulatory fees due to an increase in the SEC fee rate effective May 22, 2024, and higher customer trading volumes. SEC fees, as with other regulatory fees, are passed through to customers. As a percentage of total net revenues, execution, clearing and distribution fees were 8% for the current quarter and 9% for the prior-year quarter.
Previous wording
Employee compensation and benefits expenses, for the current quarter, increased $10 million, or 7%, compared to the prior-year quarter, to $146 million, mainly due to inflation and a 2% increase in the average number of employees to 2,951 for the current quarter, compared to 2,890 for the prior-year quarter. As we continue to grow, our focus on automation has allowed us to maintain a relatively small staff. As a percentage of total net revenues, employee compensation and benefits expenses were 12%for the current quarter and 14% for the prior-year quarter. Employee compensation and benefits expenses as a percentage of adjusted net revenues were 11% for the current quarter and 13% for the prior-year quarter.
Current wording
Employee compensation and benefits expenses, for the current quarter, increased $18 million, or 14%, compared to the prior-year quarter, to $145 million, mainly due to inflation and a 1% increase in the average number of employees to 2,960 for the current quarter, compared to 2,918 for the prior-year quarter. As we continue to grow, our focus on automation has allowed us to maintain a relatively small staff. As a percentage of total net revenues, employee compensation and benefits expenses were 11%for both the current quarter and the prior-year quarter. As a percentage of total adjusted net revenues, employee compensation and benefits expenses were 11%for both the current quarter and the prior-year quarter.
Previous wording
Occupancy, depreciation and amortization expenses, for the current quarter, were unchanged from the prior-year quarter at $25 million. As a percentage of total net revenues, occupancy, depreciation and amortization expenses were 2% for the current quarter and 3% for the prior-year quarter.
Current wording
Occupancy, depreciation and amortization expenses, for the current quarter, increased $1 million, or 4%, compared to the prior-year quarter, to $26 million mainly due to higher costs related to the expansion of our data centers. As a percentage of total net revenues, occupancy, depreciation and amortization expenses were 2% for both the current quarter and the prior-year quarter.
Previous wording
Communications expenses, for the current quarter, were unchanged from the prior-year quarter at $10 million. As a percentage of total net revenues, communications expenses were 1% for both the current quarter and the prior-year quarter.
Current wording
Communications expenses, for the current quarter, decreased $1 million, or 10%, compared to the prior-year quarter, to $9 million. As a percentage of total net revenues, communications expenses were 1% for both the current quarter and the prior-year quarter.
Previous wording
Customer bad debt expense, for the current six-month period, increased $5 million, compared to the prior-year six-month period, to $7 million.
Current wording
Customer bad debt expense, for the current quarter, increased $7 million, compared to the prior-year quarter, to $7 million, mainly due to customer losses during short periods of extreme market volatility.
Previous wording
Income tax expense, for the current quarter, increased $20 million, or 39%, compared to the prior-year quarter, to $71 million, primarily due to (1) higher income before taxes at our operating subsidiaries outside the U.S. and higher income tax rates in Europe following the adoption of the minimum effective tax rate of 15% on January 1, 2024; (2) higher income before income taxes subject to U.S. income tax at IBG, Inc.; and (3) IBG, Inc.’s higher average ownership percentage of IBG LLC, which rose from 24.7% in the prior-year quarter to 25.6% in the current quarter.
Current wording
Income tax expense, for the current quarter, increased $7 million, or 10%, compared to the prior-year quarter, to $75 million, primarily due to (1) higher income before taxes at our operating subsidiaries outside the U.S. and higher income tax rates in Europe following the adoption of the minimum effective tax rate of 15% on January 1, 2024; (2) higher income before income taxes subject to U.S. income tax at IBG, Inc.; and (3) IBG, Inc.’s higher average ownership percentage of IBG LLC, which rose from 25.2% in the prior-year quarter to 25.7% in the current quarter.
Previous wording
Income before income taxes, for the current quarter, increased $228 million, or 35%, compared to the prior-year quarter, to $880 million. Pretax profit margin was 72% for the current quarter and 65% for the prior-year quarter.
Current wording
Income before income taxes, for the current quarter, increased $69 million, or 8%, compared to the prior-year quarter, to $909 million. Pretax profit margin was 67% for the current quarter and 73% for the prior-year quarter.
Previous wording
Comparing our operating results for the current quarter to the prior-year quarter using non-GAAP financial measures, adjusted net revenues were $1,290 million, up 21%; adjusted income before income taxes was $940 million, up 31%; and adjusted pre-tax profit margin was 73% for the current quarter and 67% for the prior-year quarter. See the “Non-GAAP Financial Measures” section below in this Item 2 for additional details.
Current wording
Comparing our operating results for the current quarter to the prior-year quarter using non-GAAP financial measures, adjusted net revenues were $1,327 million, up 17%; adjusted income before income taxes was $871 million, up 4%; and adjusted pre-tax profit margin was 66% for the current quarter compared to 73% for the prior-year quarter. See the “Non-GAAP Financial Measures” section below in this Item 2 for additional details.
Previous wording
Six Months Ended June 30, 2024 (“current six-month period”) compared to the Six Months Ended June 30, 2023 (“prior-year six-month period”)
Current wording
Nine Months Ended September 30, 2024 (“current nine-month period”) compared to the Nine Months Ended September 30, 2023 (“prior-year nine-month period”)
Previous wording
Total net revenues, for the current six-month period, increased $377 million, or 18%, compared to the prior-year six-month period, to $2,433 million. The increase in net revenues was due to higher net interest income, commissions, other fees and services, and other income.
Current wording
Total net revenues, for the current nine-month period, increased $597 million, or 19%, compared to the prior-year nine-month period, to $3,798 million. The increase in net revenues was due to higher net interest income, commissions, other fees and services, and other income.
Previous wording
Commissions, for the current six-month period, increased $106 million, or 16%, compared to the prior-year six-month period, to $785 million, driven by higher customer volume in options, futures and stocks. Total customer options and futures contract and stock share volumes increased 29%, 3% and 2%, respectively. Total DARTs for the current six-month period increased 26% to 2.5 million, compared to 2.0 million for the prior-year six-month period. Average commission per commissionable order for cleared customers, for the current six-month period, decreased 5% to $2.97, compared to $3.13 for the prior-year six-month period, due to smaller average order sizes in stocks and options, partially offset by larger average order sizes in futures.
Current wording
Commissions, for the current nine-month period, increased $208 million, or 21%, compared to the prior-year nine-month period, to $1,220 million, driven by higher customer volume in options, futures and stocks. Total customer options and futures contract and stock share volumes increased 31%, 7% and 8%, respectively. Total DARTs for the current nine-month period increased 28% to 2.5 million, compared to 1.9 million for the prior-year nine-month period. Average commission per commissionable order for cleared customers, for the current nine-month period, decreased 7% to $2.92, compared to $3.13 for the prior-year nine-month period, due to smaller average order sizes in options, stocks and forex.
Showing the first 40 of 65 pairs. Open the source sections for the rest.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
Our cash flows from financing activities are comprised of short-term borrowings, capital transactions, and payments made to Holdings under the Tax Receivable Agreement. Short-term borrowings from banks are part of our daily cash management in support of operating activities. Capital transactions consist primarily of quarterly dividends paid to common stockholders and related distributions paid to Holdings. We used net cash of $647 million in our financing activities, primarily for distributions to noncontrolling interests, dividends paid to common stockholders, and payments made under the Tax Receivable Agreement.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
foreign currency exposure is contained in Part I, Item 3 of this Quarterly Report Form 10-Q entitled “Quantitative and Qualitative Disclosures about Market Risk.”