All right. All All right, welcome back, everyone, to the 2024 Piper Sandler Global Exchange and Trading Conference. My name is Patrick Moley. I'm a senior research analyst covering the exchanges, trading companies, and online brokers. It's my pleasure to introduce Mr. Thomas Peterffy, Chairman of Interactive Brokers. They're a leading automated electronic broker that Thomas founded back in 1978? 1977. 1977. Thomas is a pioneer of electronic trading. He's played a significant role in driving technological advancement in financial markets. Very happy to have you with us. Thank you very much. I thought, you know, we'd start with the macro. Lots of uncertainty right now. Geopolitical tensions are rising, interest rate uncertainties persisted, we have a U.S. presidential election coming up. What are your thoughts on the current state of the global economy, and what do you think is in store for markets? Well, I think we all agree that the current state of the world is not good. Middle East, Ukraine, Taiwan are certainly flashpoints that can evolve into larger conflicts. And, inflation. Inflation is prevalent all over the world, and those of you who have followed what I've been saying about that over the last two years at least, you know that I've been saying that I do not believe that inflation is going to ever come back down to 2%. I do believe that on the short run, it could come down a bit, but I think that it's going to be back pretty soon. And I have four reasons for that. One, number one is the... It's these very global tensions that incentivize nations to bring the production of their essential goods back to their shores, and that is going to be very expensive. Secondly, the global warming and the elimination of carbon-emitting energy generation is going to be also extremely expensive. Thirdly, we have demographics all over the world, where we see developing countries' diminishing birth rates, counterbalanced by underdeveloped countries having very high birth rates. So that is going to result in lesser and lesser number of high-skilled workers and more and more unskilled workers. And lastly, we have the rolling over of the ever-increasing deficits, and so that is going to just continue in more issuance of more and more money and larger and larger deficits, which will create more and more inflation. So these, these are reasons that are hard to, hard to do anything about, right? On the opposite side, we have the promise of AI. It's, I'm really not able to see where, at what rate and on what path AI will take as it becomes more and more prevalent in the economy, but it certainly is something that, could drastically improve productivity, and it could counterbalance all these factors, but I really don't believe that it will. Yeah. Very different take from someone we had up here earlier. But, so, you know, maybe keeping it high level, big picture, you know, how, how do you assess the regulatory landscape in retail trading right now? And, you know, we kinda know what we're gonna get with both candidates, but do you... How do you think about, you know, regulation changing based on the outcome of the presidential election and just the overall, you know, regulators' thoughts on retail trading? So it is generally believed that, under Democratic administrations, we have regulators that are more and more, restricting, activity in general and, are very slow in processing new kind of business applications. Republican administrations are said to be the other way around. On the other hand, we can all see that during Democratic administrations, the markets seem to rise more than during Republican administrations. So that this is hard to explain in. The contradiction probably can be explained by the fact that, Democratic administrations are probably easier with money than Republican ones, but I, in this very instance, I don't think that that will be the case, because, even if Trump comes in, Trump is, an easy money person. He likes real estate, and he likes low interest rates, so I don't think that is going to matter which side comes in, as far as spending is concerned. So basically, the only difference is I think that regulations may be easier under a Republican administration. All right, so digging into IBKR's business itself, we've seen sort of an odd dynamic in May with this kind of retail trading spike. Could you just sort of talk about what you're seeing across your platform? I see you... It doesn't look like maybe you think there was a retail trading spike, but in the news, we've seen this kind of, like, mini-meme stock rally. Oh, the meme stock, yeah. Yeah. What have you seen, you know, among the traders on your platform, what's the appetite been like? You know, we don't have too many meme stock traders on our platform. Yeah. So I didn't realize that there was an explosion in trading. As a matter of fact, May was, as far as new accounts are concerned, our slowest in this year. On the average, we have about 60,000 new accounts a month, and in May, we only had 57, I think. Yeah, but still 20%-24%, I think, annualized. Oh, yeah. I'm not complaining. Yeah. I'm not complaining. It's doing very well, but, you know, account growth is kind of lumpy because it depends on, you know, whenever a large introducing broker comes on board, it, you know, so it fluctuates. Sure. So I think year to date, though, you're annualizing account growth around 28% through the end of May? I would think 30. 30%? Okay. So, you know, what do you think is driving these traders to your platform over other platforms, and how do you kind of expect that to play out through the end of the year? And then after that, I wanna. I do wanna touch on some of the introducing broker relationships, but I'll leave it there. You know, the question is not what is driving it, the question is what was holding it back for so many years? Because the fact is that everybody who is our customer tells us how very, very happy they are on our platform, and if you look at it from the various points of view, there is no platform that they say is as well-rounded and has as many capabilities as ours. We finally seems to have emerged, after so many decades of being in the shadows, as really the best platform there is for not only retail traders, but most importantly, not so much for retail traders, but most importantly, for professional traders, which was always our target audience. So we just let retail traders to the extent they wanna come onto our platform to do so, but the platform is geared to professional traders. Then, touching on the introducing brokers, any update on where you're at? I know there was two that you were working to onboard. Any update there, and have those had any impact at all on overall account growth this year? When do you expect that to kinda show up? Yeah, well, we had one large one come up around the end of last year and another large one pending and still pending. Continues to be pending, and that we'll see some of it this year. All right, moving on. I wanna touch on the competitive landscape in the U.S. One of your U.S. competitors just completed, I think, the largest integration of customers in the industry's history. Another has recently started matching deposits and lowered their margin rates to be more competitive to platforms like yours. Can you just speak to the competitive landscape, and your thoughts on, you know, some of these competitive moves from your peers recently? Yeah. So we like, we like it when our peers become more competitive because that brings more people into the market. And then the ones who are more professional tend to move to the best platform. So to the extent that these new moves by our peers bringing more people into the space, we eventually end up with more customers. As far as Schwab is concerned, I think they have done a pretty good job integrating Ameritrade. We do hear every now and then some complaints that Ameritrade may have guaranteed certain exceptions to certain clients and that Schwab is not willing to fulfill those promises, and to that extent, we get quite a few people who want to leave there and come to us. But this is not a substantial number, so I think they are doing well. Now, as far as Robinhood cutting their rates, I think that's fine that they cut their rates. As far as matching the 1% of the new assets brought in, I think it may work on the short run, but on the long run, I don't think that's a good policy. Because if you look at who these people are, these people are the ones who will constantly continuously look for where can they get a better deal, because that's why- Sure. They came here to Robinhood now, and when somebody else offers something else, they will move over there. One percent is quite a lot because that's roughly the revenue that, by and large, a broker makes a year, so- Mm-hmm. I don't know. I wouldn't- I don't think you're alone there. I certainly would be interested in copying it. Sure. Yeah, another... Staying on the topic of competition, you know, both, Schwab and Robinhood, that you—like you mentioned, have recently either launched in Europe or said that they're trying to take a more deliberate approach there. You talked about in the U.S. how, you know, competition is good, it brings more people into the system, and you end up benefiting from that. So can you talk about the moves by your competitors to move overseas and what that means? Does that impact your approach to competing abroad at all? So it's an interesting question because over the last two or three years, many, many competitors closed up their European and Asian operations. So I don't really understand what the thinking behind this is. For example, Schwab eliminated Singapore two years ago, if I remember correctly. And so what... About 2010, where there was a big upset over some UBS clients that were not AMLed correctly, and these FATCA regulations came in at that time. And they finally were put into effect in 2014-2016, and they are very complicated, and I think those were the regulations that prompted many brokers to leave. That... Basically, the regulation says that whoever is not FATCA compliant, a foreign bank that is not compliant with the FATCA regulations, the customers who bank there, their sales have to be... The sales proceeds are taxed at 30%, so it can't possibly work. So if you buy a stock for $1,000 and sell it a month later for $1,000, you have to pay $300 in taxes, so that wouldn't work. But other than that, I mean, we spent a lot of time and attention and many man-hours to program all those FATCA rules into our systems, and that's what enables us to take customers basically from anywhere in the world. So to the extent that these brokers have done the same, I think that, it's, it's certainly easier to get clients, new clients, outside of the United States because the, the, basically the culture is not, not so much oriented towards investing in public stocks. Now, the, the problem I do see is that most investors, wherever they are, like to invest in the big U.S. stocks, so the big technology stocks. So what many of these brokers do is they say: "We charge no commission," and they indeed charge no commission, but they exchange the local currency into U.S. dollars to buy the stock, and they tack on anywhere from 0.25%-0.5%, which is a huge markup. So... And when the customer gets out, they change it back into the local currency, and that happens over and over and over again. So it's very difficult for a customer to really make money. In my opinion, and to have a good brokerage business, you must make sure that your services are good enough and low enough and low priced enough so that well over 40% of your clients end up with a positive return in a flat market. ... So that's maybe a good segue into my next question, which was on options appetite internationally. I think in the past, you've talked about, you know, how international investors are maybe at the earlier stages of options adoption relative to the U.S. How do you think about that kind of evolving over time? Do you think there's a lot of runway for derivatives trading with some of the, you know, APAC and European investors? Well, I'm absolutely certain that options trading will rise more outside of the U.S. than inside, and that's because outside it, it starts at a very, very low basis. All right? Sure. So there is very little of that. And that is basically in the 1990s, where the first options exchanges became electronic. That happened in Europe and Asia, because in the U.S., we were open outcry for another 10 years. And so at that time, it looked like much of the options trading will move abroad. But what happened was that these very large brokers, the UBSs and the BNP Paribas, et cetera, they were very greedy, so they didn't want to put up their customers' trades at the exchanges. But they convinced the exchanges that they should be able to cross their customers against internalize them against themselves, and just put the trades up at the exchange without any constraints on the price of those trades. So that, as a result, the exchange markets became very illiquid. The customers lost a lot of money, and they basically killed the business. It's still suffering from that today. So now that there are the Cboe put up an exchange in Europe and in Asia also, maybe that's going to be reversed, but it's so difficult, has a difficult background. Sure. All right. I wanna ask you about capital return and M&A. You're sitting on a healthy pile of cash. Last quarter, you increased the dividend, I think, for the first time since initiating it. You've also indicated that M&A is a possibility if the right opportunity presents itself. So can you just kind of give your updated thoughts on M&A, and, you know, is there anything you've looked at recently, and what are you thinking in terms of the criteria for any potential targets at this point? Well, M&A is difficult for us because the firms we look at have a higher profit on their customers than we do. So if we brought them over to us, the revenue would decline on those customers. Therefore, we are not in the position to pay a healthy multiple on those revenues. On the other hand, the customers see them and see that, and we are gaining share fairly rapidly. So some of these firms that are not well-equipped technologically are losing their customers more and more rapidly. So they may think that they would be better off selling to us today, when they still have a lot of customers, or just selling to us years down the road when they will have very few. So they could probably get more for the business today than they will get in the future. Are you saying you would be willing to take a look at those- Sure. Opportunities? Sure. Sure. Okay. It's still realistic to think that, you know, given some of the dynamics you mentioned, there still are opportunities out there? Yeah. All right. So we got a couple of minutes left. Maybe a big picture, I know that you, you know, maybe aren't much of a believer in AI, but you're- I didn't say that. You didn't say that? No. At least I didn't mean to say that. Okay. So that... Well, that's gonna be my question. You're obviously someone who's driven technological change in markets. What do you sort of see as the next big catalyst that's gonna drive- Yeah, I just don't see it as such an incredibly different thing, because I think that AI is just a natural next step in the evolution of computing. That's been going on for 60 years, right? My apologies. So, you know, I think that AI models and AI methods are very, very good, and I just cannot see precisely how it's going to evolve. I mean, I don't think anybody else can either. But... no, I'm very positive on AI. I think it's ter-- I mean, if you don't do it- Yeah. ... you can say goodbye to your business. Yeah. So I think we spend a lot of time and energy on getting AI methods incorporated into the platform, and we are going to be continuing to do that for as far as I can see. Yeah. No, I think it's very, very important. I think anyone who ignores it is finished. Good. I'm, I'm glad we cleared that up, and I apologize for mishearing you. But, I think we're out of time. But, Thomas, thank you so much. That was, that was great. Really enjoyed it. Thank you. It was a pleasure.