Interactive Brokers Group Inc

In 2024, most world equities markets, including the U.S., Canada, Europe, Japan, and Australia, continued to reach all-time highs. The S&P 500 index led major world indices with a 23% year-over-year gain. The dominance of a small number of technology stocks (the so-called “Magnificent 7”) diminished somewhat, with these stocks accounting for half of the S&P’s index’s gains in the current year, down from 63% in the prior year. Inflationary pressures eased gradually over the course of 2024 and, as a result, central banks in most countries cut their policy rates. Lower rates helped moderate economic conditions toward a “soft landing” for global economies, despite an ongoing backdrop of geopolitical uncertainty. Lower rates and the expectation of further rate reductions also contributed to higher market levels and volumes, with individual investors continuing their engagement with the securities markets, particularly in options and equities.

The following is a summary of the key economic drivers that affect our business and how they compared to the prior year:

Global trading volumes. Worldwide, equities volumes at most major trading venues increased in the current year, while major market indices reached all-time highs in the U.S., Canada, Europe, U.K., Germany, Japan, and Australia. In the U.S., according to industry data, average daily volume in exchange-listed equity-based options increased by 10%, listed cash equities volume by 10%, and futures by 9%, compared to 2023. Options trading volumes have risen with the growing popularity of shorter-dated options contracts. In futures markets, volumes increased across all product segments, particularly in commodities such as the metals, energy and agriculture sectors, as investors sought to mitigate their exposure to ongoing economic and geopolitical uncertainties.

These factors led to mixed but generally positive results across our major product types. Our customer options, equities, and futures volumes were up 32%, 22%, and 4%, respectively, while foreign exchange volumes declined 9%, compared to the prior year.

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 7 for additional details regarding our trade volumes, contract and share volumes, and customer statistics.

Volatility. U.S. market volatility, as measured by the average Chicago Board Options Exchange Volatility Index (‘‘VIX®’’), declined by 8%, from an average of 16.8 in 2023 to 15.6 in the current year. Volatility levels remain below the levels reached in 2020 through 2022, as the world economic outlook has improved and recession fears have waned.

In general, higher volatility typically enhances our performance because it often correlates positively with customer trading activity across product types.

Interest Rates. After holding rates steady since July 2023, the U.S. Federal Reserve cut the benchmark federal funds rate three times in 2024 (in September, November and December), by a cumulative 100 basis points. After a period of inversion, the U.S. Treasury yield curve began to revert toward a historically typical upward slope by year end, with long-term rates becoming higher than short-term rates. In most countries with developed financial markets, benchmark interest rates also declined over the course of the year as central banks’ concerns over inflation abated.

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 uncertainty over future U.S. Federal Reserve rate policy, have led us to maintain a short duration portfolio, substantially all of which matured within three months at December 31, 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 also 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.

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 they were during an extended period during and after the pandemic, 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.

Net interest income on margin loan balances rose compared to the prior year. This increase was due to the average federal funds effective rate increasing to 5.14% in the current year from 5.02% in the prior year, and the growth in margin loan balances in the current active market environment.

Higher average balances contributed to a 13% rise in net interest income over the prior year, and our net interest margin held fairly steady, dipping slightly from 2.36% in the prior year to 2.35% in the current year.

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 year, the value of the GLOBAL, as measured in U.S. dollars, decreased 1.45% compared to its value at December 31, 2023, which had a negative impact on our comprehensive earnings for the current year. A discussion of our approach for managing foreign currency exposure is contained in Part I, Item 7A of this Quarterly Report on Form 10-Q entitled ‘‘Quantitative and Qualitative Disclosures about Market Risk.”