Welcome to Bank of America's 33rd annual financial services conference. This is Craig Siegenthaler. I'm the North America Head of Diversified Financials Research at Bank of America, and it's my pleasure to introduce Thomas Peterffy. Thomas is the founder and chairman of Interactive Brokers. He founded the firm 48 years ago and is the pioneer of electronic trading. IBKR is a global digital investing platform that services its clients across multiple segments, targeting individuals, RIAs, hedge funds, prop traders, and introducing brokers, and it extends to most international markets. In our view, IBKR's competitive advantage is its technology and R&D effort, which allows them to offer multiple products in multiple markets, allows them to launch new capabilities quicker, and also underprice competition. Thomas, what did you think of the intro? I think that's good, but you missed out on our greatest competitive advantage, which is that if you're a large investor, you're well aware that the big banks front-run your trades, right? In a very nasty way. I mean, it takes several percent out of your performance, right? Interactive Brokers doesn't do that. That's our major competitive advantage. I'll add that next time. Thank you. But Thomas, thank you for joining us. Maybe we can start with the macroeconomic setup. So right now, it looks like pretty close to a Goldilocks scenario. Interest rates are high, which is benefiting you on your cash sweep revenues. Client engagement is also very high. What do you think of the macro backdrop today? So I think the Republican victories of November speak very well for the next several years. As far as the U.S. and the global economy is concerned, it is well recognized that the new administration is going to be very business-friendly. And basically, I would say that the global free economy and voluntary exchange is going to be the theme of the next several years of cultural development. There'll be more and more people all over the world trying to invest, and most of them, they will invest in the United States because they generally believe that the U.S. is the global center of the free market economy. And so brokers who are able to transact in the United States, to carry the account of people who live outside the United States, are very well positioned for this. And we are the number one broker to do that. On the prospects for a good macro environment, there is the potential for significant increases in tariffs. Many consider tariffs inflationary and not good for economic growth. How do you think tariffs are going to impact the economy and potentially client engagement at IBKR? I do not believe that in the final version, tariffs will be as difficult as they now appear to be. I think they will have to be refined and targeted not only to specific countries, but within those specific countries to specific products, because you cannot, I mean, the people who are implementing this are very well aware, for example, that they cannot tax Mexico and Canada on car parts and not tax Japan, because that would then put the U.S. automakers out of business, and all the car business would end up with the Japanese car makers. So they know that they cannot do that. And this reverberates through the entire economy, this question. So I think tariffs will be targeted to specific products within specific countries. And I think that ultimately, the U.S. will benefit from this rather than have a disadvantage. So you have your friend there. The regulatory backdrop is looking a lot lighter the next couple of years. That's a good thing for brokers. We were dealing with an SEC equity market structure proposal under the prior leadership. Prospects are now that this will get watered down. What are you expecting from that, the SEC overall, and also anything with crypto that helps crypto adoption? We are in favor of the proposed regulatory. So you got this bug flying around me. Sorry. We are in favor of the proposed regulations. The tick changes of proposing specific tick increments for stocks under $1 and stocks over $1 will enhance the liquidity in the markets. And otherwise, there is the regulatory best execution and order competition that has not seen the light of the day yet. If that happened, we are already complying with that. But to tell you frankly, we don't really, we regard that as our competitive advantage. So we do not want to have our competitors be forced to provide best executions. We are happy when they don't. So I'm not as focused on the international regulatory environment, as I'm sure you are, given the business is so global. But are there any international initiatives in Asia, Hong Kong, Singapore, and Europe that we should be thinking about? The regulatory landscape internationally is continuously changing. At my level, I'm not really involved in the nitty-gritty. All I know is that we have a large group of lawyers and coders who keep up with these various changes because all of the regulations are coded into the Interactive Brokers platform so that depending upon where you are and what kind of an account you have, there are certain restrictions that the code knows. You cannot do transactions that you're not regulatory authorized to do. That's how it works. I'm pretty sure that we'll be up to date with that throughout because we have been for a long time. Given the strength of the U.S. stock market, we're seeing high demand for U.S. assets across the board: retail channel, institutional channel. Now, you have a very international business. You're headquartered in the U.S., and you have a lot of U.S. capabilities. And in these international markets, whether it's Asia, we have several large competitors. Brazil, you have a large competitor, but you are still viewed as sort of more of the American U.S. firm. How has this benefited you? The big deal is that most customers all over the world want to invest in the United States. Historically, the demand was about 80% of their assets were invested in the U.S. That's been rising gradually, and it's approaching 95% now, what we see. The big deal here is that most brokers advertise zero commissions, and they take advantage of the customers based on the Forex conversion. So they charge 0.5% to between 0.5% and 1.5% for the Forex conversion. We charge three pips. And also, so when you are in country X and you have to buy the dollar to buy the stock, when you sell the stock, they insist on reconverting your dollar proceeds back into your native currency. When you want to buy the next stock, they are again charging you a fee of 1.5% on buying the dollars. It's a real rip-off, and it's only shown in the small print. People are not aware of it until they become surprised that even though the market was going in their way, they end up making no money at all. That was sort of broad. I wanted to focus more on the introducing broker channel. With foreign investors wanting to buy U.S. assets, I think that puts you in a great position to win more IBs here. So what are you seeing from financial institutions across Asia and Brazil and Europe that don't have the capabilities or they're not very good, and they can simply white-label IBKR services? So picture what is happening here. People all over the world in different countries have their local banks. The local bank is helping them to invest their money, and it's often in U.S. stocks. But how does the process happen? The client calls the bank. If he is lucky, eventually he gets to his bank employee. He tells him what he wants to do. The bank employee keys it into some sort of a bank system that then comes to a U.S. bank, and the U.S. bank eventually implements the trade. And that's, of course, after all the Forex transaction has happened. And so it takes quite some time, and it is quite expensive. The alternative we offer is that we go to the bank and we say, "We will white label our platform." So the platform says Bank X. And so the client logs into the platform, and he executes within seconds. So if you compare the two things, the prices are much, much, much, much lower. So the performance is much better. And I don't see any. We have no competition in this other than Pershing, maybe. But Pershing has very old systems. So that's where we're alone basically doing this. So let's talk about long-term growth. Account growth has accelerated. I think it's a hair above 30% right now. If you divide the end of January number of accounts by the end of January accounts in 2024, then you get 1.314. So 31%. So which is 31.4%. Got it. So that's pretty quick. What do you think is driving your fast growth, which is much faster than all the brokers that I cover? And if I think about a three- to five-year time frame, can you keep that up, or is there some cyclical beta boosting that over the near term? We do not see any barriers here, but of course, we don't know. Something can always happen, right? But right now, we don't see what will stop the fast growth. I don't know. So 30% is very fast. One pushback that I hear, and probably Nancy may hear it too, is there's an underlying mix towards smaller, less active accounts. What is your perspective on that mix? That is true. So it's interesting. So the retail accounts, the average retail account at Interactive Brokers at the end of 2024, at the end of 2023, had $98,500. At the end of 2024, it had $110,000. So that's a growth of 12%, even though the market grew by 22%. On the other hand, you have to calculate into that the fact that we had 785,000 accounts opened in 2024 with an average balance of $66,000. So that should have overwhelmed the statistics. But in spite of that, we showed $110,000 for the 3.35 million accounts we had at the end of the year. Okay. That's AUC or size or client equity is the terminology you use. How about activity in terms of margin loan usage, in terms of trading activity rates over some time period, or if there are smaller accounts, there's higher accretion on net interest income if more of them have smaller cash balances? So we do not separate out accounts we have acquired in the recent past from the accounts we have had for some time. So I do not have a direct answer for you. But also, other than retail accounts, we also have institutional accounts, so hedge funds, and proprietary traders, and trading organizations and money managers like RIAs. And these folks, of course, are bigger and trade more often. And I think our trading pretty much grows at the same rate as accounts. All your geographies and client channels are growing. And I know there's kind of maybe three major ways of looking at it, but are any of the geographies or client channels? So people ask us that all the time, and we keep refusing to tell because we don't want the competitors to go to those regions where we are doing better than other regions. We prefer to keep that to ourselves. Understood. Respect that. ForecastEx, this was very exciting around the election. It emerged very quickly. It's something you can also white label to third parties. Now, we don't get. We only have presidential elections in the U.S. every four years. So maybe talk about this business. What else you can do with this? Can this work around the world in other elections? What are you planning with that business? So the question of elections is an interesting question. So we just got authorized in Canada today, but elections are not allowed. So this is, again, it's a country-by-country situation. Even within the E.U., we have to go country-by-country, which is a strange thing because one would expect that the E.U. has one common regulator, which they do, but within the common regulator, they also have specific country regulators. So I expect on the long run, this is going to be growing tremendously, but very, very slowly. And I'm basically interested in the large existential questions such as deficits and climate change because these are the two things that can basically create chaos eventually, and they will, I think. So the question is how fast these D-days are approaching and what we're doing about postponing those days. And that will be different from country to country. It's important that we gather all the data we can, and we distribute it to users of the platform, and then we take a regular, basically standing plebiscite of what you think of what the average person thinks about this and what we're going to do about it and whether different kinds of legislation helps or hurts because as this legislation is being discussed, people, of course, are the probabilities of something happening or not happening is going to change. You can always go on the platform and see immediately what people are thinking about, what the probability in their mind is as to what will happen and when. The other great advantage of this is, of course, that you have to put your money where your mouth is, so you cannot just say what you want other people to think that you are thinking, or you cannot say what you want. What you really want to say is what you think, honestly think is going to happen. Otherwise, you're throwing away your own money. Thomas, when I travel around the world, it seems like you're in every major economy. Is there any country that you—Iran? You You want to go to Iran? We're not in Iran. Other than maybe Iran or maybe North Korea, is there any other country you'd like to expand into your nine? Argentina? No, we are in Argentina. Yeah. Okay. In terms of the product offering, though, do you do hedge fund prime in Hong Kong? Is there capabilities that you can expand more into different regions? Yes. So whatever we create for the United States, for our most sophisticated customers, is available to everybody everywhere, except to the extent that the local regulations are disallowing any part of our platform, which happens quite often in many jurisdictions. If I look at trends like margin loan growth, trading activity rates, we're not exactly at the 1Q 21 peak level, but we're at very healthy levels today, and the bull market's fueling that. Do you view this sort of as a cyclical peak, or do you think we can generally get more upside as the bull market continues with some deregulation? I think it goes in a straight line. So we currently have $65.3 billion in margin loans. We have assets of $600 billion. So it's 20%. I'm sorry, 10%. 11%. 12%. So I wanted to talk about crypto. Given the prospects of continued growth in crypto, especially after the outcome of the November election, are you looking to adjust your offering? And my understanding right now is you're actually leveraging Paxos, but given your technology R&D effort, maybe you'll use IBKR in the future. So what happened was that we had to take our customers' crypto position as a liability onto our balance sheet. And that was the regulation up until roughly three weeks ago. So up until that time, we limited our clients' investments to 1% of their total assets. We have now changed that to 30%. What happened three weeks ago? They changed that regulation. We no longer have to show it as a liability. It's just the same as a stock, which is not our liability. Behind the scenes, are you using blockchain technology at all? No. No. Okay. Do you plan to? I know. No comment? No. Okay. I want to understand how the competitive landscape in the individual channel has evolved around the world. There's new entrants and bigger players. And I don't know if I want to list a bunch of names, but in places like Europe, Brazil, Asia, especially Mainland China, are you seeing the level of competitive intensity pick up? You sort of have a first-mover advantage globally, but if there's more and more competition around the world, that might be a headwind. So again, I have to emphasize our major competitive advantage, which is our execution. So when we started this business, we were market, and where does it come from? It comes from our background as market makers. We are market makers, and we were the largest market makers in options in the United States, which is equal as saying we were the largest in the world as far as option market making from 1986 to 2014, roughly. As a result, we know minutely how to execute an option trade at the most favorable price. By 2014, we came to a point where the Citadels of the world started to buy up retail order flow. And we sort of could not decide whether we should compete or not compete because we did not want our customers to think that we are executing against them. So we decided to do away with the market making at that point. And therefore, our idea is that if our customers can outperform the customers of every other broker, then we inevitably will end up all the customers in the world. Now, that's a slow process, but it is going to happen as long as nobody gets it right because it's all about customer performance. And people don't seem to think about that. They think about their own financial performance, not their customers' performance. That's what this business should be all about. You launched a new app, a GlobalT rader app. Yeah. I want to understand if you plan to make any changes or add capabilities to the app, and is this going to help you reach a younger, maybe less wealthy? Somebody wants to come into my house. So the GlobalTrader app, you kind of recently launched it. Yes, we recently launched it. It's not good, so we are going to relaunch it. Why wasn't it good? I mean, it wasn't good enough. It didn't get enough interest, and people didn't think it was handy enough. And I don't think we put enough focus into designing it, but we are redesigning it now. I don't know what to do with it. You like show. Guys, I'm really sorry about this. Go away. Is the goal of the app to reach a younger, less wealthy client base, or is it to supplement your more active individual? The GlobalTrader app. No, I said we're redesigning it. But when you reset it out there, do you want that to go down market to younger customers? Yes. The idea is that the most sophisticated, which is the desktop, is not, and also on the iPhone, is too sophisticated for many of the simpler people who want simpler ways of transacting. Now, I'm going to move on to the IBKR channel, but you announced two large wins. It might have been the summer of 2022 or 2023. I forget, but one of them, I think we know what it is. It's public. It's big. It's HSBC. HSBC. But after that, you stopped talking about them. So I want to know. No, we stopped talking about it. We didn't stop for any reason other than it's sort of becoming tiresome because these banks are incredibly slow. So they have fiefdoms. So for each country, they have a different fiefdom. And then for headquarters, it takes a long time to prevail on each of their countries to say, "Look, you really have to stop doing this, and you have to onboard your customers onto the Interactive Brokers platform." And it takes them a very long time. And that's the cost for basically all these banks because there are people who are actually making their living doing this stuff, right? And they don't want to change because that's what they do for a living. So it takes them a long time to do it. In your hedge fund prime business, I think in the league table, you're like number five now, right? I didn't get it. Good catch. I didn't get them. But I think you're about number five now. But you rolled out this white glove service, right? And you have $17 billion of equity capital now, I think. But there's a bunch of things you're doing to try to move up market. How successful has that been? What we had to do was introduce the white glove treatment, which is that we have specifically devoted service people to specific accounts. That's basically the bulk of it other than specific reports, very special reporting, customized reporting to the preference of each client. So you heard this in the ICE presentation earlier, but artificial intelligence. Oh, well. How are you using it today if you care to talk about, and what are ways you can use it in the future? One of your competitors in the U.S. has talked about AI-powered financial advisors. What do you think about that, too? I don't know about AI-powered financial advisors. I know that we are using it for customer service, and we're going to use it more and more and more. It's very helpful in that. Otherwise, I think there is a lot of hot air about this AI because while I think that it does work for molecular sciences and in any situation where the rules are extremely clear and well-defined, AI is great. But otherwise, it will take a long time for us to get. I don't think it's, I mean, yes, we have some efforts in using AI for investment advice, but what it really is, it just gathers all the information very, very quickly, and it analyzes the information faster, and maybe it can separate different impacts of different developments. But it's going to take a hell of a long time to do this. But there is fantasy in it, but I don't think I'll be around by the time it will really make great strides. Now, I've asked this in most of my meetings, too, but I think this is a special question for you in that you own so much IBKR stock, and most of my clients do not. So what do you see in the long-term story that you think many of them are missing? If anybody wants to buy a large block of stock, I'm willing to sell, but I'm not willing to sell at a discount. You can come to me and bid 1% or 2% over the prevailing market price and over the moving average price for the last several days, and then I may sell you the stock. I am not going out to the market to offer the stock. That will never happen. I tried it, and it immediately fell down. I will never do it again. It felt like you didn't like doing it either. Sorry? It seemed like you didn't like doing it either. No. No. No. We have time for a couple of questions. Please raise your hand, and we can get you a mic. You failed with this bug. When you get off the stage, I'm going to really get them. Yeah. Okay. Okay, guys. Please, one question. Questions. Please. Front row here. We'll get you a mic, too, so we can all hear you. Thank you so much. To distract from the bug. So you said earlier no one else thinks about the financial performance of the customers. They think about the financial performance of themselves. So I guess what I'm wondering is you look at how you can automate more and take down your costs in order to lower the cost for your customers. And if you look next five years or so, what is the opportunity to keep doing that, to keep lowering your prices, and to keep opening the distance with your competitors? I don't know if we can lower the prices, but the fact is that today, as I said, execution is a very, very crucial point. Currency conversion is very, very crucial. As you see, most brokers or banks pay somewhere between nothing and 0.5%, right? We pay 0.5% under the Fed funds rates on deposits. We pay interest on short proceeds. Other people don't want to hear about that. We charge lower margin rates than anybody else does. We actually ask our customers if they want to lend out their fully paid shares, and we share the interest income on that. And those are basically the major items. Other than that, we are making serious investments in providing research. Most of that has not come out yet, but it will. Because, as I said, we want to make sure that our customers will be more profitable than the customers of any other broker. We'll do whatever we can in that direction. You could offer them B of A research. Of course. I think one in the back row. I think now you have four and change million accounts. How do you think about the total opportunity? Is it 50 million accounts, 60 million accounts? Maybe you could just, instead of thinking about growth rates, just what is the total opportunity set? I'm sorry, I didn't get that. How do you think about the total number of accounts you essentially have available to go after globally? Now you're at 4.5 million or so. So I guess what is the total opportunity set in the long term? I think this year we're going to have about a million new accounts. Next year, we'll have 1.3 million new accounts. The year after that, we'll have 1.69 million new accounts. If you get my drift, it grows by 30% a year. With that, we are out of time. So Thomas, on behalf of all of us at Bank of America, thank you very much. It's been great seeing you. Thank you very much.