Really pleased to introduce our next speaker, Thomas Peterffy, Founder and Chairman of Interactive Brokers. Thomas has a really storied history within the equities and brokerage business. One of the first individuals to utilize computer models in options pricing, a pioneer in automating equity options and futures market making. His firm is a global leader amongst all the technology-driven brokers. While certainly he has an impressive background, ultimately, when we look at the financials, it's really standout best-in-class margins, best account growth across the space, and a really diverse tech stack. Interactive has really emerged as the premier player within the brokerage space. Couldn't be happier to have you here with us, Thomas. Now, before maybe delving into your business, you always have interesting perspective on the macro. I was hoping to get your thoughts on the interest rate backdrop, expectations around the stickiness of the higher for longer rates, and anything you'd like to share just on how that's going to impact the financial services and brokerage industry more broadly. I'm not saying anything new when I tell you that interest rates go with inflation, right? As long as inflation stays up there, interest rates will stay up there. I doubt that interest rates will dip below 4% because I think that inflation is driven by the three Ds, which is de-globalization, number one, over the past three or four decades, due to the containerization and the internet. The production of goods and services was reallocated over the globe, to places where it's the cheapest to produce them because it is so cheap to transport them anywhere you want to use them or sell them. As a result, costs of goods have gone down 50%-90%. In some cases, more than 90%. Now, as a result of the geographic tensions, this globalization is going to reverse now, it is in the process of reversal, and that is going to increase prices. That's one thing that is driving inflation on the long run in my mind. Secondly is the three Ds. De-globalization, demographics. Demographics, if you look around at the map, you will see that the mean age of the population in the U.S., in Europe, in China, and Japan. Anywhere where we see developed economies, the mean age is 40 or higher. When you look at the rest of the globe, the mean age is 30 or lower. Sorry, I don't mean mean, I mean median. Median age. As a result, the supply of new skilled labor where we need it, which is in the developed countries, is going to become less and less and less. People are growing up in the undeveloped countries, but there is no education. The kind of education that we need to continue to produce what we're producing is lacking there. For that reason, I'm saying that labor prices are going to rise in the developed countries fast. Thirdly, the deficit, right? Deficit looks like it's going to be $5 trillion in the U.S. over the next five years. Now, the interest on that. That's added to the current $33 trillion, right? It will be $38 trillion. The interest on that is just going to grow higher and higher and higher. Inflation rate will increase because of these three factors. You add ESG next to it, on top of it, and then you see where you are, right? On the other hand, we have AI. It's a great promise, I do not really see how that is going to help us out of here. Maybe it will, and maybe I'm wrong. You opened up the door to that, Thomas, given your background and deep expertise on the digital and technology side. What are your thoughts around AI broadly, and how are you maybe looking to deploy that at your own firm? At our own firm, we have been trying to use different versions of AI. We started about three years ago for customer service. Namely, when customer calls in, we try to service them online, and we try to get them to type in the question, and then we give them an answer. If they don't like the answer, they can switch to the customer service person. Right now, about 30% of our answers are correct, which is not bad because we started at something like 2% or 3% three years ago. It's getting better. That is a demonstration that, yes, we can save simple jobs like customer service. As a result, as our number of accounts are growing, we don't really have to add too many new customer service people as that AI gets better. What is more exciting about AI, of course, is what you all do, namely trying to predict stock prices, right? There are a number of quant shops that are working on that. What we are doing is we're trying to interface their software with our execution software, right? What is going to happen is that as they see the data points changing, they will very quickly will want to act on it. Of course, they are all looking at the same data points, right? It's whoever gets there first is, again, it's always the fastest kid that's going to win. It is important to have this immediate ability to trade. As soon as your data changes, you want the orders to execute. That's all. It's very color. You talked about higher for longer being your base case. How are you managing Interactive's balance sheet for this new higher rate paradigm? We are invested very short term, roughly about a month forward. It is also right now, there is a very interesting situation. If you watch the long-term bond market over the last 10 days or so, you saw that long-term interest rates came down by roughly 45 basis points to 4.55% from 5%. Simultaneously, the stock market went up by about 5.5%. What is happening is that it is institutional, I assume these are institutional accounts who are betting on lower rates. They are buying the long-term bond futures because it's very liquid, very simple to buy, and it's quick to buy, and you don't immediately need a lot of money to express your view. They are buying these futures. The hedge funds see the bonds trading lower than where the futures are, so they buy the bonds and sell the futures. On the other hand, when the futures are going to come due in December, what is going to happen, right? The institutions that bought the futures will probably not want to take delivery, so they will either roll forward or just sell out. If they sell out, the futures are going to dip. The hedge funds that are holding the cash against the futures will buy the futures and will want to sell the cash, but who is going to buy it, right? I think that come December delivery date, the rates are going to go. If not this time, then in the March delivery. I think if you are interested in this, you should watch interest rates around the future delivery. What was your question? No, that's honestly, it's about how you're managing the balance sheet. honestly. Right I hadn't heard that perspective in terms of the supply that's going to hit the market and the dynamic with futures. It's all about supply and demand in everything. Well said. The other piece just around client engagement, given this macro backdrop, maybe just speak to what you're seeing in terms of trading volumes, but also the utilization of margin, which ticked higher, as well as securities lending. Margins, if the market stays where it is or goes slightly up, our margin balance will increase because margin loan balance will increase because we are the lowest provider of margin loans. We charge 0.5% to 1.5% over Fed funds rate. We charge 1.5% for very small loans and 0.5% for very large loans, and for in between amounts, we are in between. If, however, the market goes down, margin loans generally decrease because people liquidate or some of those who don't liquidate, we liquidate them because our margin procedure is automated so that we never end up holding the bag. On securities lending, do you have? Securities lending. Securities lending, it largely depends on the number of hard to borrow situations. The profits in securities lending are greatly dependent on that. Currently, there aren't a hell of a lot of hard to borrow stocks. That's a fluctuating thing and I cannot forecast what is going to happen. We'll hope for an IPO recovery. That should hopefully help. Maybe just shifting to your business specifically, you've delivered consistently really best-in-class account growth. I know you've talked about 20%+ being the achievable bogey over the long term. Maybe just speak, Thomas, to the building blocks, how you get to that 20% growth sustainably. The account growth for the last 12 months is 22% account, 24% equity. The individual accounts have grown by 24% over the last 12 months. Nancy, are you here? Yes. Can you give me that my sheet? Yes. Individual accounts are up 24%. No, 22. I have to wait for the sheet. I'm sorry. That's okay. I wrote this all down on my laptop, what happened was that instead of my Wolfe presentation, I put out my Bank of America presentation. The answers don't match the questions, that's a problem. Okay. Individuals are growing at 24%, prop traders 21%, I brokers 18%, hedge funds 12%, and financial advisors 7%. However, the profitability of these segments is quite different per account because hedge funds are highest, prop traders are second, financial advisors are third, individuals are fourth, and I brokers are the least profitable. I expect accounts growing at the same rate going forward as they have been growing in the recent past. There's nothing Well, despite not having my questions in front of you, that was my next question. Good job at least anticipating that. Maybe spending a little bit of time on the introducing broker channel, can you maybe help frame, Thomas, the market opportunity for the broker-dealers that you're targeting, and what's differentiated about your offering that's resonating with that cohort in the marketplace? 80% of the accounts at Interactive Brokers are not U.S.-based. Only 20% of the accounts with us are American accounts. The growth, the new accounts are outside of the U.S. even more than 80%, something like 84%. We are basically an international broker because our accounts are coming from all over the world. That gives us the advantage that we have very, very little competition in places where there is very little equity culture. People who are now coming to a point where they're beginning to have enough money to invest, if they look around, the only advertisements they see for brokers is Interactive Brokers. They open accounts with us. That is the reason why our growth rate is faster than our peers. Clearly, the challenges on the regulatory side, Thomas, create a lot of high barriers to entry for some of the other brokers. For us, too. I tell you, the AML thing, of course, is extremely complex with accounts from all over the world because a U.S. applicant is very quick to AML online, right? With foreigners, the online AML is much more difficult, and we have to use people to follow up on these account applicants. We have some 400 people now doing nothing but AML. We've had one interesting development is, I know it's a very different demographic cohort, but Robinhood, who serves a very different clientele, is launching in the U.K. They have other ambitions to expand that more broadly internationally. Maybe speak to the competitive landscape and whether you perceive folks like Robinhood or others that are trying to make a similar push as meaningful threats in that regard. I was asked this question on CNBC two nights ago, and I answered saying that I do not understand Robinhood's business model because they have five times as many accounts as we have, and they repeatedly are reporting losses. We have $3 billion of profits a year, roughly. I do not understand. First, they wanted to grow themselves to profitability, hoping that as they have more accounts, their cost will not increase at the same rate, but that didn't happen. Now they are trying to shrink themselves to profitability and trying to get rid of the least profitable accounts, that doesn't give them profits either. How will they ever get to profitability is a very interesting question. I tell you, I'm not going to do their homework. Fair enough. Well, we have them, Vlad, presenting later today. Oh, you ask him that, right? I am very much interested in what he's going to say. Maybe just spending some time on the prime brokerage side. You noted that the hedge fund segment is the most profitable, or at least has the highest profitability profile, I should say. What about the offering at Interactive is really resonating with some of the hedge funds, and are there any capabilities you're adding to maybe attract larger funds onto the platform? We are very lucky with the hedge funds because what happens is that the large primes will not take hedge funds under $100 million, or you have to beg them. If you have a related fund that's over $100 million, then they'll take you. Otherwise, they won't. Most of the funds we get are under $100 million. If you are in the under $100 million category, you have to go to a mini-prime. Mini-primes they don't clear or custody themselves, so they go between the big primes and the hedge funds. That, of course, adds to the cost, and small funds are very sensitive to cost. Large funds are much less sensitive, and that is our problem because basically what we have to offer is better executions, more streamlined work, and less expense. We basically believe that we add 1% to the performance of a hedge fund. Large funds don't care much about 1%. They care more about hand-holding and all the white glove stuff that they get from the major primes. The second-- Oh, what do we do about it? Right. We are trying to go after the large prime brokers for part of their business, which is that they can keep their custody wherever, at Morgan Stanley or Goldman Sachs. If they give some of their execution business and maybe a little bit of their custody to us, that's great. Then they get access to our short availability, where we are the only prime broker who display all of our short inventory and the rate at which you can borrow it. Now, many of the funds look at that, and instead of really doing the business with us, they go back to Goldman and Morgan Stanley and beat them up saying, "Look, Interactive Brokers lends me this stock at 2%. Why do you want 4%?" Right. Then they usually get what they say. Lately, I have heard that some hedge funds say, "Interactive Brokers gives me a 2%, why don't you match them?" The fact is that we had that stock at 3%, right? The primes are picking up on the hedge funds lying to them, and they no longer match. I don't know what will happen. Anyway, we are just coming out with next week, we're coming out with a way to On your iPhone, you can enter the stock symbol and see the rate at which we are able to lend you the stock And the rate which we pay on the short proceeds, and not only in USD, but also HKD or EUR. Depending upon where you are and what currency your account is based in, because as I say, this is basically a global world, and America is only part of where we service accounts. I know you've been climbing up the prime brokerage ranks. Now that the banks have to grapple with some tougher regulatory and capital burdens, I imagine there'll be a growing TAM, at least at your side. Thank you very much. Shifting to the product side, Thomas, you've been an advocate for options trading for decades. I've been right. You have been right, and certainly the adoption statistics support that. Is your expectation that the options utilization continues to grow as a percentage of trading on your platform and maybe even across the broader industry? Definitely. That's what we've been seeing. I started in the option business 47 years ago, and options have been around for 50 years. The CBOE started in 1973. Throughout those 50 years, you see almost straight line growth with a little bit of a curve upward in the last year or so, last two years. The fact is that, as I say, where we are, where most of our new accounts come from, is outside of the U.S., where options utilization is much, much lower. We are in a very good position to market options. As a matter of fact, we do a lot of joint marketing with the CBOE and the CME at different places around the world. We have a very good situation as to where we are marketing. I expect that this is going to continue to yield good new options accounts. Maybe on zero DTE options specifically, that's been a significant tailwind to option volumes on your platform and even broadly across the industry. Can you help us at least understand why short-dated options have become so popular, and what's the runway for growth in your mind for that particular product? The reason is very simple. Short-dated options are so popular because the shorter the option is, the cheaper it is. People like to put up $100 and see whether they are right or wrong by the end of the day with the zero-day option, and they don't have to worry about managing the position overnight because it's a cash option, and it expires at the end of the day. It's a very, very simple proposition to buy or sell an option. Now, most of our customers are trading vertical spreads. Namely, you buy an SPY, you buy a Standard & Poor's options, right? You buy a 3,200, sell a 3,300 option, so your cost is reduced by the If the market is around 32-something, your cost is much less. You are risking basically $100 or something like that. At the end of the day, you either have a profit or a loss, it's a lot of fun. Also, if you want to trade your way into a portfolio during the day, the market is kind of illiquid. What people often do is if you want to accumulate a portfolio, you buy an in-the-money zero-day call option, which is very liquid. At the end of the day, you put in the portfolio order to buy on the close because you know that the option expires at the close, right? When you buy on the close, you get the price that you paid for the option, basically. The same way liquidating a portfolio, you buy a put option. Thanks, Thomas. I think one of the biggest differentiators in terms of your performance relative to the peer group is certainly your margins, which I think last year when you were here, you said you don't know if there's room for expansion. They have since expanded. They're now in the low to mid-70s type of zone. 73% to be exact. Okay. That's a lot. I appreciate the precision, 73%. How should we think about that margin trajectory in a higher for longer backdrop, confidence around the sustainability of that? We're likely to be able to sustain it over the low 60%. I think it will be 60%-75% for the next three, four years, and then it's going to go as inflation is going to rise, as I said. I don't think we can go much higher than 75%, because the profit margin for the average U.S. corporation, what is it? Maybe 10%, right? It's impossible to imagine that we could go much beyond 75%, right? I would've said that last year, too, that you wouldn't have gone much beyond the mid-60s. Yeah. Yeah. The expense growth has actually been a big driver of that positive surprise. Even as the account growth has been trending in line with your targets, that 15% growth in fixed expenses, you tended to deliver better than that. Why is the 15% the right benchmark, and can you sustain that even with the inflationary outlook that you just outlined? It no longer is, because I think that our expense growth is going to be more like 8%-9%. The expenses grew very fast because we had to put in new broker subsidiaries in various countries, which we continue to do, but at a slower rate now. Second, I mentioned before that we had to very, very substantially boost compliance. The compliance department is becoming almost the most expensive department of the firm. Now that it's all staffed, and we have put in a lot of compliance software, we can ease up on that expense a little bit, so our expense growth will come down to the 8%-9%. That's great. Well, I know, Thomas, you only have one more minute here. I did want to ask you around M&A. You did note on the 3Q earnings call that you were looking at two potential M&A targets. I wanted to just better understand your M&A philosophy. What are the types of companies you're interested in acquiring? Are they smaller broker-dealers that you could fold into your current business, or is it more of a product capability add that you're looking for from an M&A standpoint? As you read in the news, we haven't done very well on that because there is no news. We haven't done any M&A. The problem is that we don't want to get into the Robinhood situation where we have millions of accounts and not make any money, right? We don't want to buy any of these small brokers. The large brokers are more relationship driven, and we are not good at that either. We are good at building technology. We're kind of stuck here. The money we have keeps accumulating. We are now at $13.6 billion of equity, and we are making after tax, about $2.4 billion a year, and it just keeps accumulating on the bottom line. We have to spend it somehow or give it back as dividends. Great way to close. Thomas, thank you so much for being here again. Really appreciate it. Next up, we will have the heads of Pershing. Thank you again.