Interactive Brokers Group, Inc.

Hello and welcome to the Interactive Brokers Group third quarter 2026 earnings call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 11 on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star 11 again. I will now like to turn the conference over to Nancy Stuebe, Director of Investor Relations. You may begin. Thank you.

Good afternoon, and thank you for joining us for our third quarter 2026 earnings call. Joining us today are Thomas Peterffy, our founder and chairman, Milan Galik, our president and CEO, and Paul Brody, our CFO. I will be presenting Milan's comments on the business, and all three will be available at our Q&A. As a reminder, today's call may include forward-looking statements which represent the company's belief regarding future events, which by their nature are not certain and are outside of the company's control. Our actual results and financial condition may differ, possibly materially, from what is indicated in these forward-looking statements. We ask that you refer to the disclaimers in our press release. You should also review a description of risk factors contained in our financial reports filed with the SEC. The S&P 500 was up 2% this quarter after rising nearly 15% last quarter, maintaining its resilience even as interest rates moved higher due to enthusiasm for both large technology companies and artificial intelligence. However, this performance masked somewhat narrow market breadth, as large technology names represented the majority of the S&P 500's gains this quarter. The 10 largest US technology stocks now represent nearly 40% of the total value of the index, which has become more concentrated over the course of the year. The most actively traded names on our platform this quarter continue to be global technology names. Their growth and business traction appeal to investors around the world, want the ability to invest directly and gain ownership in them, and convert their currency inexpensively into USD to do so. Investors hold these stocks across accounts, in hedge funds, in their personal accounts, and in their retirement accounts. The flexibility with which they can do so, regardless of account type, is a major reason for the success of our platform. As can be seen in our over 30% account growth, strong interest continues in opening and funding accounts. We are seeing growth from both institutional and individual investors and in all regions. Pre-tax profit was a record, and our 78% pre-tax margin marked the eighth consecutive quarter with margins above 70%. In recognition of this, and as a sign of confidence in the strength of our business model, its growth potential, and of our capital base, we revisited how we allocate our capital and decided to increase the amount of dividend we pay to $0.60 a year. We introduced multiple new products and initiatives this quarter. We added access to multiple new exchanges, the Bucharest Stock Exchange, one of the top-performing markets over the past decade, the Texas Stock Exchange, where we are already seeing average daily volume of about 2.5 million shares, and New Options Exchange that aims to improve liquidity for larger, particularly institutional, options orders. In Brazil, we launched trading of B3 futures on financial indexes, cryptocurrencies, and commodities. Expanding our Latin America access. We began a limited rollout of cryptocurrency staking, giving our clients a means to earn a return on their coins. In Japan, we now can offer several new ways for clients to enhance their returns, starting with margin lending. We can also offer our fully paid securities lending program, as well as Geica Plus, our proprietary offering that enables Japanese clients to turn interest on the eligible non-Japanese yen cash balances in their brokerage accounts. For prediction markets, we introduce trading in short duration event contracts with hourly and 15-minute expirations in crypto, metals, and energy. These give clients a way to gain intraday exposure to price outcomes and have increased platform engagement by our clients. Our AI connector remains one of the fastest adopted features we have ever introduced. This quarter, we added Perplexity as an official partner and expanded connectivity to support any AI tool that uses the Model Context Protocol, or MCP, including the coding and desktop assistance preferred by many of our active clients. We also enhanced the connector with account-level P&L, alert management, and watch lists, and expanded its trading capabilities to include two-leg option strategies. We also launched autonomous AI trading, which allows eligible clients to connect the AI agent of their choice to their IBKR account and authorize it to trade autonomously. It works with any compatible MCP client or AI platform. Clients can create and fund a dedicated partition for autonomous AI trading within their existing account in a single session without opening a new account. The rollout is underway. with autonomous AI trading now available to eligible clients in several countries with additional countries to follow. Clients can trade global stocks and options using a variety of order types and trading sessions, including day, overnight, and overnight plus day. Turning to some of our customer segments, for registered investment advisors, we now offer tax-aware long-short strategies to their customers. Given that our platform is designed for active, sophisticated clients and that we have a long-standing prime brokerage offering, taxware accounts that use margin, short selling, and securities lending are a good fit for us. We are seeing increased interest in our offering, particularly as other brokers impose limits on these strategies. We have three tax-aware strategy providers onboarded now, with additional ones coming by year-end and more early next year, offering RIAs a broad range of options. We've been able to utilize our extensive programming expertise to customize the offering for different clients based on their needs. Our introducing broker pipeline once again was strong, similar to what we saw last quarter, a growing substantial pool of prospects and the continued onboarding of a number of new introducing brokers, as well as the growth of existing ones. This quarter, Dowell Investment and Securities, a publicly traded South Korean brokerage firm, launched a global securities trading platform powered by IBKR's technology and trading infrastructure. AI continues to be adopted internally. We are implementing and rolling out AI-assisted tools to our client service team that can retrieve data across multiple internal systems, begin analysis of a simple or multi-part request, and present findings to the representative, helping our team serve clients faster and more efficiently. New account onboarding, compliance, and surveillance are all incorporating AI and machine learning to help us scale as we ramp up the flow of new clients and global exchanges. Finally, despite somewhat slower overall trading activity versus the second quarter, our overnight trading volumes continue to rise, increasingly showing how important it is for international investors who want to trade during their waking hours in active liquid markets. Overnight trading rose from 3.5 million trades in the third quarter last year to over 10 million trades this year. We have much planned for the quarters ahead and look forward to sharing further updates in the coming quarters. With that, I will turn the call over to Paul Brody. Paul?

Thank you, Nancy, and thanks, everyone, for joining the call today. We'll start with our revenue items on page three of the release. We are pleased once again with our financial results this quarter as we again produced near-record adjusted net revenues and record pre-tax income. Commissions rose 12 percent versus last year's third quarter to $602 million. The third consecutive quarter, our commission revenue has exceeded $600 million. Net interest income rose 19 percent year-on-year to over $1.1 billion, driven primarily by higher balances. Robust growth in margin borrowing reflected an investing environment that grew more risk on as the quarter progressed. Our segregated cash portfolio grew with new accounts, though as our clients put more funds to work in the market during the quarter, interest on segregated cash was about even with the prior quarter. The interest we paid on our customers' cash balances, which offsets the interest revenue somewhat, also expanded with the cap growth. Other fees and services generated $88 million, up 33%, primarily driven by higher risk exposure fees in a more risk-on environment than last year, higher market data fees, and strong options volumes, which led to higher payments from options exchange-mandated order flow programs. Other income includes gains and losses on our investments, our currency diversification strategy, and principal transactions. Note that many of these non-core items are excluded in our adjusted earnings. Without these excluded items, other income was $28 million for the quarter. Turning to expenses, execution, clearing, and distribution costs were $134 million in the quarter, up $42 million, or 46% over the year-ago quarter, primarily from the reinitiation of SEC regulatory fees. These fees were zero in last year's third quarter and $30 million this quarter. Because they're largely passed through, these fees increase both our commission revenue and execution costs and do not impact profits. Execution and clearing costs were 17% of commission revenue in the third quarter for a gross transactional profit margin of 83%. We calculate this by excluding from execution, clearing, and distribution $28 million of non-transaction-based costs, predominantly market data fees, which do not have a direct commission revenue component. Compensation and benefits expense was $167 million per quarter for a ratio of compensation expense to adjusted net revenues of 9% similar to last year. Our headcount at September 30th was $3,286. DNA expenses were $78 million up from the year-ago quarter, with continued expansion of advertising the predominant factor. Our pre-tax margin was 78% for the quarter, as reported and as adjusted. Income taxes of $148 million reflected the sum of the public company's $60 million and the operating company's $88 million. This quarter, the public company's effective tax rate was 16% within its usual range. Moving to our balance sheet on page five of the release. The consistent strength of our business and our healthy balance sheet support our raising the dividend from 35 cents to 60 cents per year, returning capital to shareholders while still maintaining an ample capital base for the current business and future opportunities. Our total assets were 21% higher than the prior year at $243 billion, with growth driven by higher margin lending and segregated cash and securities balances. New account growth also helped drive our record customer credit balances. We continue to have no long-term debt. Profit growth drove our firm equity up 19% to $23.3 billion. We maintain a balance sheet Geer towards supporting growth in our existing business and helping us win new business by demonstrating our strength to prospective clients and partners while also considering overall capital allocation. Turning to the operating data, customer activity was strongest in futures contracts, up 13% over the prior year, with more muted activity in options and stocks. Options volumes were down slightly. Stock share volumes were down 24% versus last year, primarily driven by low-price stocks where share volume is high relative to notional value. Generally, clients gravitated to larger, higher-quality names where returns far exceeded the rise in most major market indices. On page seven, you can see that total customer darts were 4.3 million trades per day in the quarter, up 18% from the prior year. Commission per cleared commissionable order of $2.59 was down 4% from last year on smaller order sizes across product types. Turning to net interest margin, page 8 shows the NIM numbers. Total gap net interest income was just over $1.1 billion for the quarter, up 19% on the year-ago quarter, and our NIM table net interest income was $1.2 billion also up 19%. We include for NIM purposes certain income that is more appropriately considered interest, but that for GAAP purposes is classified as other fees and services or as other income. Our NII reflects strong annual increases in balances along with a mixed bag of policy rate changes across central banks worldwide. Several central banks raised rates in September, providing a minor tailwind to net interest income in the third quarter and further benefit going forward. Together, these factors drove a rise in interest income on margin loans and customer segregated cash, partially offset by higher interest expense on customer cash balances. Year on year, the average US Fed funds rate fell 63 basis points, or by 15%. Despite this decline, Our margin loan interest was up 30% to 6%, and our segregated cash interest was up 4%, both bolstered by higher balances. The average duration of our investment portfolio remained at less than 30 days. Because of the timing of the Fed rate hikes in mid-September, most of their impact will be realized in the fourth quarter. The US dollar yield curve is generally positive in the short to medium term. and we have responded by pushing our duration out of bid while still maintaining a relatively tight maturity match between our assets and liabilities. Reported securities lending net interest trailed last year's unusually strong result, though both quarters had a few very popular hard to borrow names. However, an all-encompassing view of securities lending paints a different picture. A portion of what we earn from securities lending is classified as interest earned on segregated cash. We estimate that if the additional interest earned and paid on cash collateral were included under securities borrowed and loaned, then total net revenue related to securities lending would have been $426 million this quarter, up 36% over the prior year quarter. Fully rate sensitive customer balances ended the current quarter at $27.8 billion versus $25 billion in the year-ago quarter. Now, for our estimates of the impact of changes in rates, given some uncertainty over the direction of U.S. interest rates and the divergent actions of central banks around the world, we look at potential effects of rate moves in either direction. We estimate the effect of a 25 basis point increase or decrease in the benchmark Fed funds rate to be $83 million higher or lower respectively in annual net interest income. Note that our starting point for this estimate is September 30th with the Fed Fund's effective rate at 3.88% and balances as of that date. Any growth in our balance sheet and interest earning assets would increase these impacts. About 30% of our customer interest sensitive balances is not in U.S. dollars. So estimates of a US rate change exclude those currencies. We estimate the effect of a 25 basis point increase or decrease in all the relevant non-USD benchmark rates would increase or decrease annual net interest income, respectively, by $35 million. In conclusion, this was another financially strong quarter, reflecting our continued ability to grow our customer base and deliver on our core value proposition to customers while simultaneously scaling the business. Our business strategy continues to be effective, automating as much of the brokerage business as possible, continuously improving while expanding through new product introductions what we offer while minimizing what we charge. And with that, we'd like to open up the line for questions.