Categories Earnings Call Transcripts, Finance

Interactive Brokers Group, Inc. (IBKR) Q1 2023 Earnings Call Transcript

IBKR Earnings Call - Final Transcript

Interactive Brokers Group, Inc. (NASDAQ: IBKR) Q1 2023 earnings call dated Apr. 18, 2023

Corporate Participants:

Nancy Stuebe — Investor Relations

Paul J. Brody — Chief Financial Officer, Treasurer, Secretary and Director

Thomas Peterffy — Chairman of the Board of Directors

Milan Galik — Chief Executive Officer, President and Director

Analysts:

Richard Repetto — Piper Sandler & Co. — Analyst

Daniel Fannon — Jefferies LLC — Analyst

Craig Siegenthaler — BofA Securities, Inc. — Analyst

Benjamin Budish — Barclays — Analyst

Kyle Voigt — Keefe, Bruyette & Woods, Inc. — Analyst

Chris Allen — Citigroup — Analyst

Presentation:

Operator

Good day and thank you for standing by and welcome to Interactive Brokers Group First Quarter 2023 earnings call. [Operator Closing Remarks] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Nancy Stuebe, Director of Investor Relations. Please go ahead.

Nancy Stuebe — Investor Relations

Good afternoon and thank you for joining us for our first quarter 2023 earnings conference call. Once again, Thomas is on the call but asked me to present his comments on the business. Also joining us today are Milan Galik, our CEO; and Paul Brody, our CFO. After prepared remarks, we will have a Q&A. As a reminder, today’s call may include forward-looking statements, which represent the company’s belief regarding future events, which by their nature are not certain and are outside of the company’s control.

Our actual results and financial condition may differ, possibly materially from what is indicated in these forward-looking statements. We ask that you refer to the disclaimers in our press release. You should also review a description of risk factors contained in our financial reports filed with the SEC. This quarter it IBKR had something for everybody. Account growth was strong. DARTs rose despite uncertain markets and commission revenue was the second highest in our history. Meanwhile, our net interest income reached a record and our reported pre-tax margin reached 72%.

We achieved this using our simple strategy one that seems to be unique in our industry today. We run a conservative balance sheet with ample equity and an extremely short duration portfolio. That means we have over $12 billion in equity and our portfolio’s duration is a matter of three to four weeks, not months, not years. This balance sheet supports the GLOBAL business where we charge the lowest prices on commissions and we pay the highest rates on uninvested client cash. We pay these rates on cash that you can use right now. You don’t have to sweep it out and then wait if you need it back.

With us our clients’ cash can do two things, be available and earn interest at the same time. Because of this we do not and have not seen clients taking cash out of their Interactive Brokers accounts and moving it elsewhere. We do see them using their cash to invest in the markets. Because of our high rates on qualified client cash we are paying more than most if not all banks. We also have active customers who want instant access to the markets. We simply do not see cash and client accounts moving elsewhere on a net basis. More and more investors are looking to the markets to earn a return that will allow them to build their wealth beyond the level of inflation.

And this has been true for us around the world. I still believe inflation is going to stay with us and as it has done, will likely remain above 4%. U.S. government debt is now about $31 trillion, 120% of GDP. This is forecast to grow by $2 trillion a year thanks to rising interest costs that end up adding somewhat to the inflation sparked by extraordinary U.S. government spending during COVID. Now even though they contribute to inflation, we need higher rates to fight it. This is not a short-term state of affairs that will soon result in rate cuts. We are still seeing retail engagement. 12 month commissions for the individual client segment as well as for the hedge fund of proprietary client segments rose this quarter versus last year.

Hedge fund 12 month commissions alone grew 81%. Product wise while stock share volumes did not keep pace with a very active quarter last year futures and options contract volumes continue to rise with both reaching monthly volume records here in March. More activity in futures and options contributed to our higher cleared commission per DART of $3.16 up over 20% as these products carry higher commissions. As a note, higher futures commissions include very high exchange and regulatory fees, which in part explain our higher execution and clearing direct expense.

As clients continue to want to engage with the options markets we have made it even more appealing by introducing a new routing venue for our clients, IB OPT, where our customers can give us an order pegged to the midpoint or to the bid and offer and give us their parameters of how much above the bid or below the offer they’re willing to pay and their options order floats as the bid and offer move. If we get a counter order it gets executed. This is a unique product in this space, one that works, especially well with very active liquid options and allows our customers to act like market makers. This is the heart of what we do automate for client success.

It is the complicated part of what we do. What we see in the future is more of what we already deliver. Our net-new accounts are growing just over 20%. We are still looking to onboard the first of the two large introducing broker accounts this quarter. It will start slowly and we hope to see it completed by the end of the year. We also remain on-track to start onboarding the second large I Broker accounts sometime in the third quarter. We have also focused on appealing to financial advisors with several features. We are soon introducing customized indexing to make it easy for them to build stock portfolios modeled on ETFs but customizable for tax efficiency and investment goals.

Unlike a one size fits all ETF, with customized indexing, clients will own fractional shares of each component stock so an advisor can adjust weightings, capitalize on gains or losses for tax purposes or excludes specific stocks or sectors personalizing as their clients need. We do not require minimums. We have no ticket charges and charge no custodial, technology, software platform or reporting fees. We also save financial advisors money on their mutual fund investments. As just one example, at other firms, if an advisor chooses an allocation to a particular mutual fund for 100 customers that means 100 separately charged ticket fees.

At IBKR, you only pay one commission, $14.95 and no ticket fees no matter how many customers you put into a fund even for a 1,000 customers. And finally, we now offer third-party research from global independent research firm ISI Evercore to our financial advisor clients in the U.S. and several other countries. I have great confidence in Interactive Brokers capabilities and strengths and in the secular trends that are taking place around the world. More people wanting to invest in securities markets, more investors globally looking to gain exposure to different countries, particularly the U.S., rising income levels in developing countries And the acceptance worldwide that investing in the markets is the way to build wealth.

I have less confidence in the response has seen so far to inflation, Bank sector troubles and the mounting cost of U.S. debt service. Interest expense in 2023 on U.S. debt is expected to rise 35% this year to $640 billion and $0.75 trillion next year. This August added to our growing deficit. This means investors around the world look increasingly to the markets to stay ahead of inflation and uncertainty. It is grown clear to more and more people that holding on to cash when it is earning lower or no interest is a losing proposition. We let all investors know that Interactive Brokers pays its clients 4.33% on the cash balances without having to sweep.

We continuously add relevant content to our IBKR campus educational website to make it simple to use and easier for clients to find topics of interest to better understand the world of investing. We will serve our customers in over 200 countries and territories and educate them about their options both our opportunities and the security. We continue to add accounts and are excited about where our position as a leader in international access with a strong and safe balance sheet offering a good deal to people as well as comprehensive educational tools for all will take us.

With that, I will turn the call over to our CFO, Paul Brody, who will go through the numbers for the quarter. Paul?

Paul J. Brody — Chief Financial Officer, Treasurer, Secretary and Director

Thank you, Nancy. Thanks everyone for joining the call. As usual, we’re going to review the first quarter operating results. Then we’ll open it up for questions. Starting with the revenue items on page three of the release; we recorded another strong quarter with record net revenues that exceeded $1 billion in the quarter, the first time with ongoing customer account and balance sheet growth, we continue to expand our potential for both commission and interest revenues in the future. Commissions were strong reaching $357 million despite mixed equity markets worldwide.

Futures and options volumes reached record levels while stock share volumes declined from last year’s quarter, once again driven by a drop in trading of lower priced stock. Net interest income of $637 million reflected higher interest from margin loans and segregated cash owing to increases in benchmark rates and the larger segregated cash portfolio. U.S. benchmark rates have moved from an average effective rate of 12 basis points in the first quarter of last year to 451 basis points this quarter. These gains were partially offset by the higher interest we paid on customer credit balances as our longstanding policy is to pass through rate hikes above 50 basis points to our customers on their qualified funds.

Other fees and services generated $43 million with the biggest contributors being market data fees of $18 million, options exchange liquidity payments of $8 million and risk exposure fee revenue of $6 million. The drop from the prior year quarter was driven primarily by the risk off positioning of customers, which led to a $9 million reduction in risk exposure fees. Other income of $19 million includes gains and losses on our investments, our currency diversification strategy and principal transactions.

Note that many of these noncore items are excluded in our adjusted earnings and without these excluded items, other income was $22 million loss for the quarter as we removed realized and unrealized gains on our U.S. Treasury portfolio. Turning to expenses; execution, clearing and distribution costs rose 34% versus last year, led by higher volumes in options and futures, which carry higher fees, lower liquidity rebates and higher regulatory transaction fees. We find it useful to measure what we call gross transactional profit which is commissions, less the pure volume-driven execution and clearing costs.

As a percent of commission revenues, execution and clearing costs, which are driven by a combination of trading volume, exchange rebates and changing fee schedules were 21% this quarter; in other words, a gross transactional profit of 79%. Market data expense, a pass-through item is included in execution, clearing and distribution fees while the corresponding market data revenue is reported in other fees and services rather than in commission. For this purpose in the first-quarter, we exclude $18 million in primarily market data expense. Compensation and benefits expense rose $17 million or 15% over the prior year driven by hiring in Europe, in APAC and in part by inflation.

While up in dollar terms for the quarter comp and benefits expense fell to 13% of our adjusted net revenues versus 16% last year and somewhat below its historical level. Our headcount at quarter end was 2,872. G&A expenses were down 5% versus last year’s first quarter, primarily on lower advertising and legal expense. Our adjusted pre-tax margin was a record 71% while higher interest rate benefit us, automation remains our key mean of maintaining consistently high margins as well as continued expense control while we hire talented people and invest in the future of our business. Income tax expense of $61 million reflects the sum of the public company’s $31 million and the operating company’s $30 million.

Moving to the balance sheet on page five of the release; our total assets were $119 billion at the end of the quarter with growth over the last year driven by increases in our segregated cash and securities. We maintain a balance sheet aimed at supporting our growing business and providing ample financial resources during volatile markets with maximum flexibility and short term liquidity. We have no long-term debt. The duration of our investment portfolio as of March 31, was 24 days.

Turning to our operating data on pages six and seven of the release; our contract volumes for all customers were strong reaching their highest quarterly level in both options and futures, up 2% and 4% respectively over the year-ago quarter. Stock share volume was down 22% versus last year’s first quarter. And the drop-off was largely attributable to investors moving to higher quality stocks as trading in pink sheet and other very low-priced stocks was impacted most. On page seven, you can see that our account growth remains robust with over 100,000 net account adds in the quarter and total accounts at 2.2 million, up 21% over the prior year.

Total customer DARTs were 2.1 million trades per day, down 19% from the stronger prior year quarter. And our cleared IBKR Pro customers paid an average of $3.16 commission cleared commissionable order, up 23% from last year as our clients’ volume mix included higher per order contributions from all product categories and particularly from stocks and options. Page eight presents our net interest margin numbers. Total GAAP net interest income more than doubled to $637 million on the year-ago quarter, reflecting stronger earnings on segregated cash and margin loan, partially offset by higher interest expense on customer cash balances.

After a series of seven target rate increases in 2022, the Federal Reserve raised interest rates twice this quarter by 25 basis points each in February and March. Many other central banks also raised rates this quarter, this group includes the UK, Canada, Australia and Hong Kong as well as the Eurozone and Switzerland. Net interest on segregated cash was $603 million, primarily due to Federal Reserve rate hikes but also to our managing to short duration on invested funds, which has allowed us to more closely match asset liability maturities and to pick up benchmark rate increases quickly.

At March 31, our U.S. portfolio duration was 24 days so the investments roll over into new higher rates with fairly short lag time. A 38% increase over the year-ago quarter and average segregated cash and securities balances also drove interest income higher. Margin loan interest rose to $477 million, up significantly from $149 million last year despite average margin loan balances declining 17% from last year’s first quarter. Higher rates in the U.S. and internationally have driven higher margin interest income. Securities lending net interest was $88 million, down 20% from the year ago quarter. It’s worth noting that while securities lending opportunities maintain a relatively strong pace it’s also the case that as benchmark rates rise a greater portion of the revenue generated by lending securities is reflected in interest on segregated cash because the cash collateral received is invested as segregated funds.

We estimate this impact to be about $41 million for the quarter versus last year. In other words, without this shift in reporting line item net interest from securities lending would be $129 million, up 18% from the year-ago quarter. Interest on customer credit balances or the interest we pay our customers grew as higher rates in many currencies led to our paying interest on qualifying balances as we pass through rate increases. We paid $653 million to our customers on these balances in the first quarter. Fully rate-sensitive balances were roughly unchanged at about $20 billion. We consider our policy offering clients a full pass-through of all rate hikes after the first 50 basis points on their qualified cash, a significant component in our success and one that sets us apart.

We believe this leads to clients choosing to keep their cash with us, especially active clients who do not want to use sweep programs that prevent them from immediately accessing their cash to invest. As Thomas mentioned, on balance, we do not see clients moving their cash away from us. Now for our estimates of the impact of increases in rates; given market expectations of possibly one or more rate hikes to come we estimate the effects of increases in the Fed funds rate to produce an additional annual net interest income of approximately $50 million for each 25 basis points increase in the benchmark.

Note that our starting point for these estimates is March 31 with Fed funds effective rate at 4.83%, and based on balances at that date. About 26% of our customer cash balances is not in U.S. dollars, so estimates of U.S. rate change effects exclude those currencies. We estimate a 25 basis point increase in all the relevant non USD benchmark rates would produce additional annual net interest income of $26 million and rising to about $100 million at a 100 basis point rate increase.

In conclusion, the company generated a strong performance in the first-quarter in a complex and volatile environment reflecting our continued ability to grow our customer base and deliver our core services to customers, all at a low cost and while offering meaningful cash interest as we manage the business effectively with strong risk and expense controls.

And with that, we’ll open up the line for questions. Thank you.

Questions and Answers:

Operator

And thank you. [Operator Instructions] And for our first question comes from Rich Repetto from Piper Sandler. Your line is now open.

Richard Repetto — Piper Sandler & Co. — Analyst

Yeah, good evening, Thomas. Good evening, Paul. I guess first question sort of the accounting question, an accounting question. And just trying to understand is the $40 million mark that I think you said, Paul that you removed realized and unrealized gains. Is this a one-time thing? I’m just trying to understand whether I’m missing something that you — is this a one-time thing in the quarter or has this been done in other quarters as well?

Paul J. Brody — Chief Financial Officer, Treasurer, Secretary and Director

Sure. So well, this quarter’s effect is a onetime effect. Let me explain it this way. As you know we have considered that our investment in the Treasury portfolio to have temporary mark-to-market fluctuations, which are reflected in our financial statements both the income statement and the balance sheet. By the end of the year the accumulated losses on our Treasury portfolio because of market movement were about $39 million. That was all in the income statement and the balance sheet.

For non-GAAP reporting, which is what we call non-core to our operating results in the release, in the earnings release every quarter we pullout those mark-to-market effect. So cumulatively by the end-of-the year we had a $39 million accumulated loss that we had pulled out for the purposes of the noncore reporting. We had pulled out the losses and that raised the non-core reporting. During the first quarter we liquidated some securities rather than holding them to maturity. And by liquidating them it erases the previous accumulated loss in effect, putting it back in when it was realized upon the sale of those securities. So those were sold. That also played a role in reducing our duration on the remaining portfolio is down to 24 days, extremely short. And we wouldn’t expect much mark-to-market impact at all going forward because it is unlikely to be much on a very short duration portfolio.

Richard Repetto — Piper Sandler & Co. — Analyst

Okay, just one quick follow-up on that point, Paul. So why weren’t these securities held to maturity then?

Paul J. Brody — Chief Financial Officer, Treasurer, Secretary and Director

We make investment decisions from time-to-time based on market conditions. We felt that it made sense to sell a security and reinvest in currently higher rates. And looking-forward, it also reduced fluctuation in our mark-to-market results. Had we hold it to maturity it would have approached — it would have resulted in approaching par value each quarter until what would have been the end of this year. They were not very long-term. And at the end of the year, they would have made it all the way back to par value, and we would have recaptured the exact thing that we declared this quarter all at once we would have done it over four quarters towards maturity.

Thomas Peterffy — Chairman of the Board of Directors

It also allowed us to reduce our taxes a little bit last year.

Richard Repetto — Piper Sandler & Co. — Analyst

Understood, understood. And just one quick question away from that topic. Thomas is on the introducing brokers that — I guess you expected to start this quarter, could you give us an update on I guess — you said it’s going to go gradually. So I guess, is it more the same just dealing with large financial institutions that it’s difficult to deal with? Any other detail on the progress there?

Thomas Peterffy — Chairman of the Board of Directors

Milan, would you like to answer that?

Milan Galik — Chief Executive Officer, President and Director

Sure, so the first of the two I Brokers already started onboarding its employees. The employees are basically testing the quality of the integration going through all the functionality. The aim currently is for them to onboard the entire set of their clients and move them from their existing vendor broker in the summer. So the first I Broker should be fully onboarded in the summer. There could be some delay so maybe late as Q3. The second of the two I Brokers is moving a little slower. That relationship is bigger. It involves more of their entities. They have not yet started onboarding. They will most likely start in Q3.

Richard Repetto — Piper Sandler & Co. — Analyst

Okay. Thank you very much. Thanks Thomas and Paul and Milan.

Operator

And thank you. And one moment for our next question. And our next question comes from Daniel Fannon from Jefferies. Your line is now open.

Daniel Fannon — Jefferies LLC — Analyst

Thanks. I was hoping you could expand upon the Hedge Fund segment. I know you’ve been taking share and growing there, but maybe I think you said, commissions were up 80% year-over-year, but if there’s other stats that you could provide to help us think about the success you’re having and the contribution of that segment?

Thomas Peterffy — Chairman of the Board of Directors

So what other stats do you have in mind?

Daniel Fannon — Jefferies LLC — Analyst

Well, I guess in terms of number of customers, the customer account and the growth. And then I think you have some goals I think you’ve said previously in terms of?

Thomas Peterffy — Chairman of the Board of Directors

Yeah, yeah, yeah. So look [Indecipherable] number six as far as number of hedge funds. We think that we and ahead of us was Credit Suisse, that is not going to be there this quarter so we’ll be number five and ahead of us also Bank of America barely ahead of us by number of hedge funds. So we believe that we’ll be number four or number five the next time between issues, days, stats prime brokers for hedge funds. It will probably be in the four.

Daniel Fannon — Jefferies LLC — Analyst

Okay and in terms of the size of — the sweet-spot where you’re having the most success what’s the average size? And I assume it’s mostly in the U.S., but is it also?

Thomas Peterffy — Chairman of the Board of Directors

The average size is on I think $8 billion. So they are the smaller funds and our hope is, of course, as you know, many of them I mean quite a few of them lose money and quite a few of them make money. So some of them [Indecipherable] and some of them become large, and we hope it does stay with us. We also have a large hedge fund but we are probably the second or third or sometimes fourth prime broker. So they come to us because A, our execution, they like our executions; B, they like the fact that they can see our short inventory and the rate at which they can borrow various equity issues from us. And they compare that to the primary hedge fund, they use our rates to beam them up into giving them a better rate or they actually ask us to borrow the shares from.

Daniel Fannon — Jefferies LLC — Analyst

Understood. And then can you confirm, just the other income, excluding the movements and the one-timers that you talked about with the portfolio and treasuries? What that would be on a kind of a run-rate basis going forward?

Paul J. Brody — Chief Financial Officer, Treasurer, Secretary and Director

Well, other income includes investments in various other things. So it’s a little difficult to say that it has a run rate. No investments will rise and fall over time. And it’s difficult to pin that down.

Daniel Fannon — Jefferies LLC — Analyst

But I guess if I look historically that — there was no a one-time as we look at the $19 million in the fourth quarter or the single digits and for most of the three quarters before that’s — everything was — that’s how we should think about it going forward. Those are the clean numbers.

Paul J. Brody — Chief Financial Officer, Treasurer, Secretary and Director

Yeah, let’s remember that our currency diversification strategy that we call the GLOBAL, the results of currencies versus the dollar going up and down are a component of other income. Sometimes that’s a large component. This quarter it was practically nothing. So that’s at least for you because we disclose the composition of our GLOBAL. That’s for you a predictable number because you can imply exchange rates and make an estimate.

Daniel Fannon — Jefferies LLC — Analyst

Okay, thank you.

Operator

And thank you. And one moment for our next question. And our next question comes from Craig Siegenthaler from Bank of America. Your line is now open.

Craig Siegenthaler — BofA Securities, Inc. — Analyst

Hey, good evening, Thomas.

Thomas Peterffy — Chairman of the Board of Directors

Hi.

Craig Siegenthaler — BofA Securities, Inc. — Analyst

So the Fed provided a nice tailwind for IBKR on the way up. If we start seeing cuts over the next year, is there any reason that the asset sensitivity on the way down would look any different than on the way up just given the short duration of your assets and also the large equity position that partially fund your balance sheet?

Thomas Peterffy — Chairman of the Board of Directors

Well on the way down, we would decreased by the same lines we increased by except for the fact that we are getting more-and-more accounts. So to the extent, we will have more clients to do more trades and to keep with us more cash. It is going to be moderated. But if we then back to zero interest rates, of course, it would be the same as — I mean, our interest income would be very similar to what it was a year ago. But I do not believe that we will get back to zero.

Craig Siegenthaler — BofA Securities, Inc. — Analyst

Great, thank you, Thomas.

Operator

And thank you. And one moment for our next question. And our next question comes from Benjamin Budish from Barclays. Your line is now open.

Benjamin Budish — Barclays — Analyst

Hi, thanks so much for taking the question. I wanted to circle back on the introducing broker clients that are going be onboarding later this year. I think there’s sort of a general understanding that as retail clients that are new to the platform join they sort of become more productive over time, but these are generally existing clients from a previous broker. What’s your sort of expectation in terms of the activity from these customers? Do you think that you could see sort of a step-up over time as they become more familiar with perhaps new options that are offered with IBKR on the back end? And as part of that, how should we think about the cash balances coming over? Should we assume that it’s a lot of fully rate-sensitive cash? Is that a fair assumption?

Thomas Peterffy — Chairman of the Board of Directors

So it is generally due that a new account starts $3 and it grows to $6 in the first year and then goes to $9 after two or three years. So I do not expect these customers to be any different from them.

Benjamin Budish — Barclays — Analyst

Okay, that’s helpful. And then just thinking about sort of the strength in the quarter, particularly in March with futures and options activity. To what degree do you think that’s sustainable? Was a lot of that just sort of in response to the volatility created by the banking crisis or do you think there’s sort of a possibility for this sort of sustained engagement from retail and options and futures to kind of continue over the next several months more taking part of longer term?

Thomas Peterffy — Chairman of the Board of Directors

As a value frankly for the past 10 days or so our commissions are certainly lower than they were in the preceding 10 days. So the banking crisis certainly contributed to some stronger activity that seems to have subsided now. But generally when markets go down the activity increases. And when they stopped going down and start to slowly climb up the activity decreases. So that’s what we are seeing in the commission income side.

Milan Galik — Chief Executive Officer, President and Director

And there is an additional component here. The options trading is getting generally more-and-more popular and the type of clientele that we attract looks towards the option offering that we have as part of our platform. So the expectation is that the options trading and derivatives trading in general is going to be growing over time even as the volatilities drop in the market.

Benjamin Budish — Barclays — Analyst

Got it. That’s helpful. Thanks so much.

Operator

And thank you. And one moment by for our next question. And our next question is Kyle Voigt from KBW. Your line is now open.

Kyle Voigt — Keefe, Bruyette & Woods, Inc. — Analyst

Hi, good evening. Thomas, you started the call in the prepared remarks highlighting the yields you’re paying on idle [Phonetic] cash balances. And we’ve also been noticing that your marketing this recently and comparing your yield to that of other brokers. I guess have you ever — have you seen evidence that clients are consolidating more cash or more assets at IBKR from other brokers or other accounts because of that yield differential and because of some of the marketing push that you’ve been making recently?

Thomas Peterffy — Chairman of the Board of Directors

Well, unfortunately, I did not. So the incoming money is — are about the same as they were a month ago, two months ago, or three months ago. So we have steadily — it’s very, very steady. So we haven’t seen any pickup. We also haven’t seen any drawdowns.

Kyle Voigt — Keefe, Bruyette & Woods, Inc. — Analyst

Understood. I just wanted to follow-up on the prior question. I know you’ve been quite positive on the growth trajectory for options broadly speaking and believe that growth is sustainable over the medium term. But I was wondering if you could comment on some of the growth in this SPX zero day to expiry options trading we’ve seen grow rapidly over the past few quarters. I understand that your customers are one of the larger users of the zero day products. Just wondering if you could give us any detail on which client segments you’re seeing utilize those products within IB? And then also just give us your thoughts broadly on this zero day options trend and whether you see the volume growth in those products as sustainable as we look out over the next few years as well?

Thomas Peterffy — Chairman of the Board of Directors

So it is certainly sustainable because people — it’s less expensive for people to take a position in one day options ahead of — one day ahead of use, right, so whereas previously they have to take a position that would have several days to run even though they would take the position a day ahead of the news. So it is cheaper for them to the use the one day options. Also when people want to take a position in the larger portfolio it’s easier for them to accumulate one day say standard and push options and take the portfolio on the market and close order. And it’s a lot cheaper for them to buy or sell that portfolio.

Kyle Voigt — Keefe, Bruyette & Woods, Inc. — Analyst

Understood. Thank you for that and I just have one follow-up — one last question is just regarding the balance sheet of the company. You now have I think close to $9 billion of capital in excess of your regulatory requirements and that excess capital figure has grown significantly over the past few years. I know you’ve previously stated you wanted that excess capital to help support the prime brokerage operations. And to help customers kind of feel safe custodying assets at IB. But I guess is there some level of excess capital where you’d feel is an adequate level and therefore not needing to continue to build that as rapidly as it has over the past few years? Just updated thoughts there would be great.

Thomas Peterffy — Chairman of the Board of Directors

I think that you should ask that question at the time when many of our peers appears to have institutional demand of capital. So no, we are very proud to have as much capital as we do and we hope to keep growing it.

Kyle Voigt — Keefe, Bruyette & Woods, Inc. — Analyst

Understood. Thanks, Thomas.

Operator

And thank you. [Operator Instructions] And we have one more question. Bear with me. And our next question comes from Chris Allen from Citi. Your line is now open.

Chris Allen — Citigroup — Analyst

Yeah, good evening everyone. Just wanted to touch on — you noted that advertising spending was down year-over-year, helping drive G&A lower. Can you just give us an update on the marketing strategy here? I know in the past you talked about being a targeted marketing strategy. How has that evolved recently? And is the pullback in advertising just the result of the environment or just a less — lower opportunity set?

Thomas Peterffy — Chairman of the Board of Directors

So you will see that maybe you notice our ads cropping up all over the place. We’re trying to advertise our 4.33% interest that we pay on instantly available cash. And so that is certainly — we roughly have doubled our advertising roughly a month ago, so our advising spending. So you will see a much larger advertising spend in the next quarter.

Chris Allen — Citigroup — Analyst

Understood. And then just one more quick one on headcount growth. The pace of growth has been moderating in recent quarters. Is that just because you’re reaching scale in certain areas, whether it’s from a country or regional perspective, or just less just the near term opportunity so just you don’t need to grow as fast you have in the past?

Thomas Peterffy — Chairman of the Board of Directors

I think this is a CEO question.

Milan Galik — Chief Executive Officer, President and Director

So we are obviously paying a lot of attention to our expenses. The human capital costs is significant. What we have seen is, if I compare our numbers to one year ago quarter, the customer service personnel has decreased by 3%. Our compliance team has increased by let’s say 10% and our Information Technology personnel, which is programmers, technicians, system, system administrators and similar, that number went up by 16%. So these numbers are not bad. The fact that we are increasing the size of our Information Technology team just signifies our commitment to being a leader in the financial services technology tools for our investors. So you can expect us to grow the team as we have increasing amount of work.

The customer service, I think that team is at a good level. We are closely paying attention to the wait times of our customers calling us how long they have to stay in the phone queue. And that number is very low single digit minutes. We like that so the size of the team seems to be appropriate to the level of business that we have and the number of accounts that we have. One of the reasons that we do not have to grow that team has to do with the fact that our platform is over time becoming more user friendly and we have done a very good job in providing self-service customer service to various FAQs and chatbots and that type of technology.

As far as a compliance staff, we have to increase it because there is a lot of surveillance that we have to do on both of the assuring transactions that our customers perform, as well as the trading activity. The operators that we that we have, there is a few 100 of them pay attention to the various alerts that our systems generate. And then they check whether those alerts signify a problem, or they’re just false positives. We are putting significant amount of energy into making those alerts more targeted, decreasing the number of false positives, as well as making it easier for the operators to service those alerts.

So I would like the size of that team, the growth of that team to slow down as well. And I believe we will achieve that. So these numbers I think are good. The team is at the right size. Obviously if it was smaller, our profit margin would be greater. And that is what we would like to deliver to our customer — our investors.

Chris Allen — Citigroup — Analyst

Great, great color. Just one quick follow up on the IT personnel side, as the cost of talent that is moderated all, as there’s been more pressure in the tech sector.

Milan Galik — Chief Executive Officer, President and Director

So very lately, it has become easier to hire good technologists. Obviously there have been layoffs. We all can read about them in the news. So that made it easier. We now don’t have to kill ourselves in making oversize offers, including the signup bonuses. So yes, it became easier and we are taking advantage of that. Some of the talent that is available is very good. And we would obviously like to get a hold of that so we can do that.

Chris Allen — Citigroup — Analyst

Great. Thanks a lot, guys.

Milan Galik — Chief Executive Officer, President and Director

Pleasure.

Operator

And thank you. And I am showing no further questions. I would like to turn it back to Nancy Stuebe for closing remarks.

Nancy Stuebe — Investor Relations

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.

Operator

[Operator Closing Remarks]

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