Hello and thank you for being here. Welcome to the Interactive Brokers Group Second Quarter 2024 earnings call. I will now hand the call over to Nancy Stuebe. You may begin.

Good afternoon, and thank you for joining us for our Second Quarter 2024 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 during the Q&A. As a reminder, today's call may include forward-looking statements, which represent the company's belief regarding future events that, by their nature, are not certain and are outside of the company's control. Our actual results and financial condition may differ 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. This quarter, world markets began to move in divergent ways as stock markets, central banks, and geopolitical crosscurrents played out. The S&P 500 rose this quarter, while other previously strong markets, such as Europe, Canada, Japan, China, and Australia, all declined after positive first-quarter market results. Further differences were seen on the central bank front, as the US Federal Reserve chose to maintain benchmark rates this quarter, while in other developed countries such as Canada, Europe, and Switzerland, central banks started to cut rates, beginning with 25 basis points. One ongoing fact that has not changed is the popularity of investing, with global interest from investors who increasingly want broad portfolios and international access. The secular global investment trend remains that investors allocate some of their portfolio to securities in their home markets but a more significant portion to overseas securities, particularly in the US. Product-wise, industry options contract volumes were ahead of last year, though down against a blistering industry-record first quarter. Similar to options, CME futures volumes, though up 14% versus last year, were down 2% in the quarter for the industry, primarily due to investors trading less actively using interest rate futures on the direction of interest rates than they had in the first quarter. On the equities front, US industry volumes were up versus last year, but down a fraction of a percent in the quarter. In equities, the 'Magnificent Seven' once again were the main drivers of US market performance, contributing nearly all of the S&P’s gain this quarter, with just two stocks – Nvidia and Apple – responsible for three-quarters of that. As in prior recent quarters, we see investors holding onto their positions and not looking to make changes like selling them and buying new names. Industry equities volumes were flat to down again as a result. Against this backdrop, all our volumes were up for both the quarter and the year, as our clients remained active in all product categories. The continuing trend towards global investing across countries and product types by all kinds of clients continues to show up in our numbers. We saw strong account growth as we added more investors to our platform, both institutional and individual, across all geographies. We added 178,000 new accounts this quarter, behind only the meme stock days of the first quarter of 2021 and the first quarter of this year. New accounts meant more cash in those accounts, which helped raise our client credit balances to a record $107.1 billion, even as our volumes show that our clients put their money to work in the markets. Our client equity was up 36% over last year, reaching $497 billion, a figure we ended up exceeding this month. Rising equity markets and the anticipation of lower rates have led clients to feel more comfortable taking on risk, so they took on more assertive positions, which increased our exposure fee revenue; and took on more leverage to bolster their positions, increasing both our margin loans – which reached a record $55 billion this quarter – and our margin interest income. All of which translated into strong financial results. Commission revenue was second only to the meme-stock spike of the first quarter of 2021, and net interest income reached a record, as did total net revenues. We maintained our focus on expenses, meaning our pretax income also reached a record, with our reported pretax profit margin at an industry-leading 72%, and an adjusted pretax margin of 73%. In terms of how the business looked on the client front, our accounts and client equity once again grew fastest in Europe and Asia, similar to what I mentioned earlier, with growing numbers of investors worldwide wanting access to international and particularly US markets. Of our five client segments, the fastest account growth was seen with Individuals, while introducing brokers and proprietary traders were not far behind. Regarding client equity, financial advisors once again grew the fastest, followed by introducing brokers and individuals. Commission growth was fastest for our proprietary traders, while net interest income growth was led by hedge funds, followed by introducing brokers and individuals. Speaking of introducing brokers, our pipeline of potential clients remains healthy. We were pleased that HSBC publicly announced their HSBC WorldTrader offering, powered by Interactive Brokers, in June. There are several other opportunities— about a couple dozen of them - at various stages. Some are in the testing stage; others have started onboarding so-called 'Friends and Family accounts', where they test the waters to ensure that everything is working; while others are in the prospect stage to determine the optimal way for them to interface with us. As we’ve mentioned, this can take time, since we offer a variety of ways for an introducing broker to come onto our platform, some quicker than others, all dependent on what the broker wants. So while we expect growth to continue in this area, predicting the timing of it is not something we can do. In terms of new product introductions, we had a busy quarter. We strengthened our ATS by adding new liquidity providers and order types. Each quarter we are executing more trades on our ATS, connecting our client orders with liquidity providers and helping them save on execution costs. IBKR Trader Workstation remains our premier product for professional clients, yet we understand that different client types have different needs: we see that many Financial Advisors find their needs met by our more streamlined, targeted web platform. The IBKR Financial Advisor Portal has been enhanced with a new Portfolio summary screen and a specialized Order Allocation Tool. Our PortfolioAnalyst online performance analysis tool also added a Retirement Planner for Financial Advisors, individuals, and introducing brokers, to better serve our clients’ long-term plans. We added several trading venues, including Korean derivatives trading on Eurex, CBOE European derivatives, and overnight trading in US corporate and government bonds. We launched securities lending for Swedish stocks, made our crypto offering available in the UK, and launched recurring investment in Canada. We also introduced Conditional Orders on our mobile platform, a feature that can be set to initiate or cancel an order based on various triggers. Auto-FX is now the default setting for clients with cash accounts wishing to trade securities in a currency different from their account's. With Auto-FX, clients can place an order for a security without manually performing a foreign currency conversion. We handle the FX transaction automatically. Although we are not the only broker offering this feature, IBKR's implementation offers significant advantages for cost-conscious and active traders: First, we only charge 3 basis points, compared to up to a full percent by competitors. Second, we charge only if a trade that a client makes results in a negative currency balance. This means that clients who trade multiple times daily can significantly reduce their costs because IBKR does not charge FX conversion on every trade, while other brokers do. Our High Touch Prime Brokerage Service, announced last quarter, has also gotten off to a good start. Clients benefiting from this service have commented on having an easier time interfacing with us and appreciate having their own point person and specialized attention to their particular issues. As one of our new High Touch clients said, 'this service makes the decision to disregard pitches from other prime brokers easier.' We are considering other improvements to make our prime brokerage offering even more compelling. I look forward to continuing the work on the many projects we have lined up. Much is planned for the rest of 2024 and beyond, and we are eager to develop, test, and introduce these initiatives. With that, I will turn the call over to Paul Brody. Paul?

Thank you, Nancy, and welcome everyone to the call. Thanks for joining. Starting with our Revenue items on page 3 of the release, we are pleased with our financial results this quarter, as we produced record net revenues and pretax income. Commissions rose versus last year’s second quarter, reaching $406 million, second only to that of the pandemic-era first quarter of 2021. This quarter, we saw higher trading volumes from our growing base of active customers, with options setting a new quarterly volume record and futures reaching their second-highest volumes ever. Net interest income also reached a quarterly record of $792 million, despite only modestly higher benchmark rates in most major currencies and a recent taste of rate cuts in a few others. A more pronounced risk-on environment this quarter led to a significant increase in margin borrowing. Higher yields on our margin loans and segregated cash portfolios on a year-over-year basis provided tailwinds to these results. These increases were partially offset by the higher interest paid to our customers on their cash balances. Interactive Brokers passes through rate hikes above the first 50 basis points on their qualified funds, which makes us attractive compared to other brokers and banks, and competitive with money market funds. Other fees and services generated $68 million, up 45% from the prior year, driven by the risk-on positioning of customers this quarter. As we report in the Financial Highlights on page 1 of our earnings release, the primary factor was an increase in risk exposure fees, with contributions from payments for order flow from exchange-mandated programs and FDIC sweep fees. 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 a $24 million gain for the quarter. Turning to expenses, Execution, Clearing, and Distribution costs were $115 million in the quarter, up 24% over the year-ago quarter, predominantly from a $9 million increase in the SEC regulatory fee rate that began on May 22nd and on higher volumes in options and futures, which carry higher fees. The SEC fee is a pass-through to customers, so it does not impact our profitability. As a percent of commission revenues, Execution & Clearing costs were 23% in the 2nd quarter for a Gross Transactional Profit margin of 77%. We calculate this by excluding from Execution, Clearing, and Distribution $20 million of non-transaction-based costs, predominantly market data fees, which do not have a direct commission revenue component. Compensation & Benefits expense was $146 million for the quarter, for a ratio of Compensation expense to Adjusted Net Revenues of 11%, down from 13% in last year’s quarter. We remain focused on expense discipline, as reflected in our slowing the staff increase to 1% over the prior year. This year-over-year increase included a decrease in Compliance staff, as we went into full operational mode with our in-house developed Compliance system, offset by increases in client-facing and software development roles. Our headcount at June 30th was 2,951. G&A expenses were $52 million, down from the year-ago quarter. Without last year’s unusual legal reserve, G&A was up 33%, or $13 million, primarily on higher advertising and partly on legal expenses. Our pretax margin was 72% for the quarter as reported, and 73% as adjusted. Income Taxes of $71 million reflects the sum of the public company’s $36 million and the operating companies’ $35 million. The public company’s adjusted effective tax rate was 16.5%, slightly below its usual range. Moving to our balance sheet on page 5 of the Release, our total assets ended the quarter 13% higher than the prior year quarter-end at $137 billion, with growth driven by margin lending to both new and existing customers. New account growth also helped drive our record customer credit balances, and we believe that our strong financial standing and competitive interest rates provide clients with an attractive place to hold their idle cash. We continue to have no long-term debt. Healthy profitability drove our 20% increase in firm equity over the prior year. We maintain a balance sheet geared towards supporting growth in our existing business and helping us win new business by demonstrating our strength to prospective clients and partners. In our operating data, on pages 6 and 7, our customer contract volumes in options rose 35% over the prior-year quarter, well above industry growth, and reached a new record high for IBKR. Futures contract volumes rose by 10%, reflecting our second highest volume ever; and stock share volumes rose by 26%, as they did across the industry. On page 7, you can see that total Customer DARTs were 2.4 million trades per day, up 28% from the prior year and especially strong in options, followed by stocks and futures. Commission per Cleared Commissionable Order of $3.01 was down from last year, due to a mix of smaller average order sizes in stocks and futures and lower average commission per contract in options. Volume and aggregate commissions were higher in all product classes, but the specific contracts traded by our customers have different size and commission characteristics. Page 8 shows our Net Interest Margin numbers. Total GAAP net interest income was $792 million for the quarter, up 14% on the prior year, while our NIM net interest income was $805 million, or $13 million higher. In the NIM computation, we include some income that for GAAP purposes is classified as Other Fees or Other Income, but we believe is more appropriately considered interest. Our Net Interest Income reflects strength in margin loan and segregated cash interest, partially offset by higher interest expense on customer cash balances. Only recently, a few central banks made 25 basis point cuts to their benchmark rates, including Europe and Canada; Switzerland cut its rate both this quarter and last. Others, including the Federal Reserve, held interest rates steady. Reflecting a modest rise in benchmark rates over the year, our segregated cash interest income rose 6% despite a 2% decrease in average balances, while margin loan interest rose by 38% on a 31% increase in average balances. The average duration of our US Treasury portfolio remained at about 30 days. With the US dollar yield curve continuing to be inverted, we have been maximizing what we earn by focusing on higher short-term yields rather than accepting the significantly lower yields of longer maturities. This strategy allows us to maintain a relatively tight maturity match between our assets and liabilities. Securities lending net interest has not been as strong as in prior quarters for three main reasons: First, throughout the industry, overall demand for shorting stocks has fallen. An extremely strong stock market, up in the US well over 20% in the past year, means fewer people are looking to put on shorts when the overall market trend is so soundly upward. Second, there are fewer 'hard to borrow' names industry-wide, not only because the market is rising sharply but also due to weakness in some of the drivers relevant to securities lending, including significantly fewer IPOs, low market volatility, and static merger & acquisition activity. Finally, higher average interest rates versus prior year periods mean more of what we earn from securities lending is classified as interest on segregated cash. To more accurately reflect all the income we earn from our securities lending business, 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 our securities lending business would have been about $194 million for the quarter; versus $190 million in the year-ago quarter; and $167 million in the first quarter of 2024. This additional revenue would be reclassified from interest on segregated cash and interest paid on customer credit balances, so it would have no effect on our overall NIM. Interest on Customer Credit Balances, the interest we pay to our customers on the cash in their accounts, rose on both higher rates in many currencies versus last year and higher balances from new account growth. As we have noted in the past, the high interest rates we pay on customer cash – currently 4.83% on qualified US dollar balances – is a significant driver of new customers. Fully rate-sensitive customer balances were about $18.6 billion this quarter, compared to $17.3 billion in the year-ago quarter. Together with firm equity, most of which consists of interest-earning assets, total fully rate-sensitive balances were approximately $30.7 billion. Now, for our estimates of the impact of changes in rates. Given market expectations of rate cuts sometime in 2024, we estimate the effect of a 25-basis point decrease in the benchmark Fed Funds rate to be a $59 million reduction in annual net interest income. Note that our starting point for this estimate is June 30th, with the Fed Funds effective rate at 5.33%, and balances as of that date. Any growth in our balance sheet and interest-earning assets would reduce this impact. About 25% of our customer cash balances is not in US dollars, so estimates of a US rate change exclude those currencies. We estimate the effect of decreases in all the relevant non-USD benchmark rates would reduce annual net interest income by $18 million for each 25-basis point decrease in those benchmarks. At a high level, a full 1% decrease in all benchmark rates would decrease our annual net interest income by $307 million. This takes into account rate-sensitive customer balances and firm equity. In conclusion, we posted another financially strong quarter in net revenues and pretax margin, reflecting our continued ability to grow our customer base and deliver on our core value proposition to customers while scaling the business. Our business strategy continues to be effective: automating as much of the brokerage business as possible, continuously improving and expanding what we offer while minimizing what we charge. With that, we will now open the line for questions.

Our first question comes from Ben Budish from Barclays.

Hi, good afternoon. Thanks for taking the question. I was wondering if you could unpack the year-to-date account growth a little bit more. You gave some color on the faster-growing customer segments, but in terms of individuals, can you maybe talk a little bit about what the average customer looks like? How do they compare to the back book of customers? It sounds like they're bringing over ample new cash while still deploying into the markets. So just curious if you could discuss the average size, what the activity levels are like. And then maybe, similarly, on the hedge fund side, talk a little about your progress there and what your expectations are over the rest of the year and into ‘25?

Thank you for your question. So usually, the new accounts that we get in each quarter take a little while to bring on all the assets that they intended to bring. So it takes a little while for us to see the full impact. But what can give you some idea is the fact that the new accounts went up by 28%, commissions by 11%, net interest income by 18%, DARTs by 28%, and the assets by 36%. So looking at the S&P 500 year-over-year, it's up 23%, and QQQ is up by 29%. So when you look at all these numbers together, that will give you some idea as to how much in assets and how much cash they brought.

Thanks. That's helpful. If I could ask a follow-up. Just on a comment you made, Paul, I think you mentioned something about $18.6 billion of rate-sensitive cash, but total fully rate-sensitive balances were a little over $30 billion. Could you clarify what you meant there, the difference between the two?

The rest is rate-sensitive firm equity. So our equity is over $15 billion, of which a certain amount is sensitive to interest rates, and that makes up the rest.

Our next question comes from the line of Craig Siegenthaler of Bank of America.

Thank you and good evening, everyone. Congrats on the first HSBC launch in the UAE. Let me just start there. I had a mechanical question on the launch. When this white-labeled offering is launched in a specific region, are you replacing an existing HSBC offering, so there's a large inflow of client equity and client cash with a large number of accounts on day one? Or is it smaller, with the product being cross-sold to existing clients with a longer ramp process?

The answer for the UAE is that we are going to be onboarding their existing business from Pershing. The migration should be happening sometime in August, if everything goes well. We're talking approximately around 10,000 accounts. The other countries that HSBC is going to be onboarding with us do not result in immediate inflow of new accounts. HSBC, as you know, has a significant banking presence in many countries, and their vision is to offer to those banking clients an Interactive Brokers-powered platform. So these are greenfield businesses. So 10,000 coming from the UAE existing migration, and then going up gradually. Other countries going gradually, up from zero.

Thank you, Milan. Just as my follow-up on the same topic. Nancy referenced that there's a couple of dozen regions that are currently testing or onboarding 'Friends and Family.' I was curious, what percentage of the total accounts that you expect to win? Does this first batch that includes the couple of dozen regions represent? Or does this couple of dozen regions, is that the total account package that you expect to win through this HSBC relationship?

Nancy was talking about the couple of dozen introducing broker prospects, and she explained how they are all in various stages. It's probably a handful, maybe a little more, are prospects; some have already opened accounts and are doing connectivity tests, others are in this 'Friends and Family' stage. I would expect us to win most of the prospects. We have been very successful in winning them. The conversations we have progressed well, typically about the methodology that is going to be used to onboard them—whether they will be fully disclosed or one-way disclosed, whether it will be an omnibus. So the ones we count in this funnel are serious conversations. Maybe one or two will not materialize, but most of them will.

Our next question comes from the line of James Yaro with Goldman Sachs.

Good afternoon and thanks for taking my question. I just wanted to touch on the enhanced offerings for hedge funds. I think in April you announced the High-Touch Prime and global outsourced trading. Could you just touch on how those initiatives have gone, the early readings from that? Has it accelerated your growth rate with hedge funds so far? And then when you talk about other enhancements to your prime brokerage offering, would these be more high-touch offerings, tech-enabled, or a mix of both? Should we consider any ramifications from those to your margins?

The enhancement was very well received. We have onboarded approximately 30 hedge funds onto this white-glove enhanced service. The feedback is good. The hedge funds really enjoy having a point person that they can talk to. They get access to various experts within our organization through this single point of contact. So they appreciate the experience. We cannot see any change in the numbers, and we did not expect to see one. You may recall that the reason we did this was to increase the likelihood that hedge funds crossing the $100 million threshold, the magical number when large primes become interested in them, would stay with us. Time will tell whether this was a good bet; I'm hopeful that it was.

Okay, great. That's very clear. Maybe just one other follow-up related to hedge funds. I think prime brokerage net leverage at the very largest banks is up substantially. But securities lending for you and certain other retail-skewed brokers has remained fairly soft. Any views on why there is that dichotomy? Is it that retail short-selling activity is light, whereas large hedge funds are perhaps adding to shorts? And if you don't have a view on that one, when you look at your hedge fund business—your prime brokerage business, has there been increased short selling activity for those clients?

I do not personally look at this broken down. Maybe Paul has some color that he can share with you. What I can tell you is that the hedge funds on our platform increased their leverage. They borrowed a larger amount of money from us, which is partially the reason why net interest income is up, and obviously the balances increased to $55 billion this quarter.

Our next question comes from the line of Dan Fannon with Jefferies.

Hi, thanks. Good afternoon. Just another question on the backlog with the introducing brokers—the couple of dozen that was cited. How would that compare to, say, a year ago? And then generally, who are you competing with to win this business? Is it just internal offerings, or are there other peers that you typically go up against?

The pipeline looks pretty much the same size. I think a year ago it was roughly the same number. As to whom we are competing with, our offering is very unique. We cover the world in terms of access to exchanges in various countries. The introducing brokers or introducing broker prospects they like that. They appreciate our ability to offer them access to local markets, regional markets, overseas, and especially the United States. There are some competitors in this space, especially in Asia and Europe, those are our competitors.

Okay, that's helpful. A couple of quarters ago, Thomas talked about declining interest rates maybe being pro-growth for your business in terms of utilization of margin, account growth, and trading. Given the run we've had this year in the market, the growth in accounts, and growth in margin balances, does that view still hold if we do get some Fed cuts going forward or have we maybe overshot here in the context of how your client base is performing currently?

It's difficult to tell what will happen. What I can tell you is that if the Fed lowers the interest rate by 25 basis points as is widely expected at this point, our annual net interest income will decrease by $77 million. The lower interest rates will spur economic growth, but there is a lot of uncertainty. We still have two wars ongoing in the Middle East and in Europe. There is election season, and we are going to have a new administration. There is a lot of uncertainty about how that will play out or what impact it will have. Even if the Trump ticket wins the election, it's unclear what the impact will be, as there is chatter about increased tariffs which can turn into inflation. So there is a lot of uncertainty, and uncertainty usually results in volatility and higher trading volumes as customers want to take on risky positions or hedge or sell out their winners. So it's tough to predict, but I do not see a good reason to believe that trading activity will dramatically slow down.

Our next question comes from the line of Kyle Voigt with KBW.

Hi, good morning—sorry, good evening. First one just on ForecastEx. I know that received CFTC approval last month, but I think there were some subsequent press around saying the launch may be delayed. Just wondering if there's any update on the timing of a launch there? And then maybe just speak about the opportunity you see for forecast contracts more broadly and the size and opportunity a bit for us.

Yes, there is a slight delay. We realized that there is a little bit more work that we need to do, bookkeeping work that has to do with the booking of swaps. That is the license that the CFTC granted to ForecastEx, so there is more work needed. We're hoping to launch in mid-August. Regarding the opportunity, we are hopeful for a similar outcome to what we witnessed in the area of equity options when it started back over 40 years ago. Today it is a massive industry—betting on economic indicators, climate events, and other events that can affect the performance of your portfolio and that our customers may want to hedge against. We believe that over time, this will become a popular and growing area.

Great. Thank you for that. And then I just had one follow-up for Paul. Just to be super clear about the new securities lending disclosures that you provided today. Hypothetically, if we retroactively applied a 0% benchmark rate globally to the entirety of the second quarter, I want to know that the securities revenues that you would have reported would have been $194 million instead of $25 million. Is that correct, or formulaically is that how the pricing methodology would work? It would just shift the bucket into sec lending from seg cash revenue?

It's a slightly more complicated question. But if you assume a zero benchmark, then all of the securities lending trading itself becomes just the borrow fee, which is high for hard-to-borrow stocks and low for general collateral stocks. Likewise, when we lend a customer stock and take in cash collateral, if we reinvest it in a very low interest rate environment, that cash collateral earns very little. One of the reasons we decided to offer this presentation is that it didn't matter much when the rates were near zero; it didn't make much difference. But now that rates are above 5%, it's more helpful to see all sides of the equation related to securities lending. The simplest example being we lend a customer stock; we take in the cash collateral. Now when we reinvest it, it's around 5.4%, which obviously plays a role. Up until now, we have included this in our net interest margin presentation that shows up in segregated cash and securities. But one could think of it as being related to securities lending. All we're discussing is reclassifying it from a management perspective - it's a different way to look at it.

Our next question comes from the line of Patrick Moley with Piper Sandler.

Yes, hello. Thanks for taking my question. I had one on options. Options volumes for you were up 36% year over year in the second quarter, I think. Can you just speak through the growth you're seeing there and maybe break it out to help us understand, looking across geographies where that growth is coming from? I think Thomas has spoken in the past about expecting higher derivatives volume growth overseas. How big of a driver do you think that can be for your business, and what kind of advantage do you think you have over some of your publicly traded peers here in the US who have recently spoken about being more deliberate with their efforts overseas?

The zero-day to expiration option is where a lot of volume has been. Weekly options have also seen a lot of volume. In terms of the zero-day options, it’s the cash-settled index options. We have seen Eurex adding shorter-term options, and I believe other exchanges will follow. This phenomenon will increase in other regions, not only in the United States. In terms of geography, US options volumes are dominant; there is trading in Asia and Europe, but the US still leads. Even our overseas investors gravitate towards these instruments. It's partly the job of regional exchanges to make the contracts popular, increase the offering and the volumes. Our technology is in place, we have the connectivity and access to clients, so we are making them available to clients. Regarding our platform, it was originally designed for professional and active traders, and it delivers results. The very active traders on our platform attest to it. We have since implemented excellent screens on the mobile trader as well as on the web platform, covering the entire spectrum of clientele from active traders to beginners. We have tools to help our clients initiate positions, including a wizard that helps clients who are new to options trading by suggesting various strategies based on their forecasts.

That's great. That’s a great color. And then just a quick follow-up on the NYSE loss. Can you speak—was there any impact on the tax rate this quarter from that? Looking forward, is there any possibility at all that any of that could be recovered?

As far as recovery, the answer is unfortunately no. We have looked at what can be done. When the mishap took place, we immediately contacted the exchange and requested that the purchases at extremely high prices be busted, but unfortunately, the industry rules are written such that the New York Stock Exchange was unable to bust those trades. We also pursued the opportunity to ask for a compensation payment under Rule 18, which has limitations on how much can be paid in terms of compensation. We have looked at other avenues and decided that we are very unlikely to be successful in recovering the money that we lost. What we will do is propose changes to how such events should be handled in the future, as we believe that not only the New York Stock Exchange but also the lead market maker handling Berkshire Hathaway did not do an adequate job, and some rule changes need to be made. We're in the process of drafting a letter to the SEC proposing specific modifications to the rules that would benefit not only us but the entire industry. We will post the letter on our website once it's written. In terms of tax implications, Paul, maybe you can reply to that one.

Could you repeat the question on the taxes?

Yes. Just if there was any tax implications from the loss or anything worth calling out this quarter going forward?

It just flows into gains and losses, so there's nothing about it that would not be taxable as a general expense. And there were no notable items this quarter. Every quarter, there are tax items that may not apply directly to the current quarter, like tax credits. These come and go, which causes minor fluctuations in our overall effective tax rate.

Our next question comes from the line of Macraes Sykes with GAMCO.

Oh great. Thank you. I have two questions about the IBDs, and I'll just ask them together. I was wondering if you could give us an update on the TAM around the IBDs, whether you know how many IBDs are out there globally, how much they custody? Anything to point to the opportunity there, as I know it's evolving. The second thing is regarding working with these new relationships. Is there any difference in setting up a white-label operation with a company like HSBC in terms of costs or economics? So is there a difference between handling a 10,000 account IBD or one that's 50,000? Are there any dis-synergies with your platform when handling a more bespoke operation?

I believe there are many prospects out there— introducing broker prospects. Investment companies, especially banks, have large client bases and are seeking to offer brokerage services to them. Some tried to go it alone and a small number succeed, while some that give up when the undertaking is greater than they expected turn to Interactive Brokers or a competitor for help. We also see brokers starting from zero, recognizing the opportunity to provide localized services to clients in specific countries. I believe there will continue to be a large number of these. Regarding economics and scalability, that varies. We onboard some introducing brokers as an omnibus account relationship, meaning it's one single account or up to 10 different accounts separating by the residence of the clientele, whether margin or cash accounts. So it's a small number of accounts covering many individual accounts on their platform. The other extreme is that we manage specific accounts per end client, which incurs different economics. Omnibus accounts obviously tax our infrastructure much less since we don't handle KYC and AML for individual clients, which incurs more computing power and customer service intervention.

Our next question comes from the line of Chris Allen with Citi.

Yeah, evening everyone. A little bit of a cleanup question. Just on the NII sensitivity to rate cuts. I believe, Paul, it's a $59 million reduction, but Milan noted it was $77 million. So just wondering which is correct. Maybe $77 million includes all global rates, or the $59 million is just the US? Any color there would be helpful.

Yes, that's exactly right, Chris. The $59 million is an assumption that only the Fed moves the US dollar rate, and the $77 million assumes that rates in all currencies are reduced.

Just a quick one on expenses. Noted the decrease in compliance staff as you moved into full operational mode with the new compliance system. Just wondering how much efficiencies that would generate or you're redeploying into other investment areas. What are the other incremental opportunities you're working on to reduce inefficiencies moving forward?

If you look at our overall headcount, you'll see it didn't change compared to a year ago. We are at 2,950 employees. There are small changes in individual departments, but we're not talking large numbers. Our goal is to use technology to the maximum extent possible. Ideally, we would be able to onboard new accounts without adding additional staff. We were quite successful in that over the last year, as we did not add employees while having significant growth in the number of accounts; though it won't always be like this. We're monitoring customer service metrics closely. If wait times exceed a certain threshold, we may increase the number of representatives, as we just did, employing several dozens of new customer service representatives in lower-cost countries. With advances in AI, it should be easier to achieve our goal of scalability without adding personnel, but it's challenging.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Nancy for closing remarks.

Thank you, everyone, for participating today. As a reminder, this call will be available for replay on our website, and we will also be posting a clean version of our transcript on the site tomorrow. Thank you again, and we will talk to you next quarter end.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.