Interactive Brokers Group, Inc (IBKR) Q4 2021 Earnings Call Transcript

Interactive Brokers Group, Inc  (NASDAQ: IBKR) Q4 2021 earnings call dated Jan. 18, 2022

Corporate Participants:

Nancy Stuebe — Director of Investor Relations

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

Thomas Peterffy — Chairman of the Board of Directors

Analysts:

Rich Repetto — Piper Sandler — Analyst

Will Nance — Goldman Sachs — Analyst

Dan Fannon — Jefferies — Analyst

Craig Siegenthaler — Bank of America — Analyst

Kyle Voigt — KBW — Analyst

Chris Allen — Compass Point — Analyst

Mac Sykes — Gabelli — Analyst

Presentation:

Operator

Thank you for standing by and welcome to the Interactive Brokers Group Fourth Quarter Financial Results Conference Call. [Operator Instructions]

I would now like to hand the call over to your host, Director of Investor Relations, Nancy Stuebe. Please go ahead.

Nancy Stuebe — Director of Investor Relations

Thank you. Good afternoon and thank you for joining us for our fourth quarter 2021 earnings call. Once again, Thomas is on the call, but asked me to present his comments on the business. He will handle the 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 statements filed with the SEC.

2021 was a good year for Interactive Brokers. Adjusted revenues were $2.78 billion, up 26% for the year and expenses were well controlled resulting in a pre-tax profit margin that improved from 61% to 67%, by far the highest in the industry. Adjusted diluted earnings per share for the year were $3.37 and that was 35% higher than the previous year. We look back at 2021 as one with unprecedented global investor engagement with the market. The only better year we can see is 2022. Let me explain why?

In 2021, we added more customers, over 600,000, and did more trades over 2.5 million DARTs per day, than we ever have before. We introduced more products and more tools while also expanding many existing ones. And to assist with our continuing growth, we hired and trained nearly 450 new employees around the world. Our year-on-year account growth was 56% this year. I’ve been saying for some time that after this unusually active period we have been experiencing, a period that seems to keep growing longer, we will see account growth closer to between 30% and 40% a year, but that does not mean that we will not do almost anything we can think of to try to keep it above those levels.

We introduced more new products and expanded the capabilities of existing ones. Recognizing our global customer reach, we introduced global analyst which allows our clients to discover undervalued companies from a wide database of global stocks. We introduced our crypto offering, US individuals, RIAs, hedge funds and introducing brokers as well as individuals in over 100 different countries can now all trade crypto through our partner Paxos. Very shortly, we will be offering crypto for our international financial advisors, I brokers, and hedge funds in those countries and we will add more countries continually. We charge just 0.12% to 0.18% of trade value with a minimum $1.75 per trade.

We rolled out our ESG focused impact app, which brings transparency and a streamlined simplified platform to help clients find and invest in companies that share their values, in fact also allows them to make cash donations to thousands of different US charities directly from the app. We also introduced US spot gold trading. And these are just a few of the items we have been working on and we have other exciting products and improvements in various stages in advance of being rolled out. As 2021 drew to a close, IBKR was able to produce its second-best quarter of the year after the hyperactive mean stock events of the first quarter. But the story of the mean stocks will fade in the minds of investors while the most remarkable story of the year, the huge rise in popularity of options and more specifically option spreads will remain.

As someone who has spent the last 50 years trying to automate the options industry, I very much welcome this development. For a long time, Interactive Brokers was alone trying to stir up industry interest to computerize these markets. But now, finally, people are beginning to understand what fantastic versatile instruments options are. I am predicting further growth, especially internationally. Option spreads give traders the opportunity to assume very specific and limited risk-reward profile for specific periods of time. Please visit our Probability Lab and the IBKR website for a fun way to think about, learn about, and play with options.

As the year wore on, listed options on average daily volume of nearly 40 million contracts and Interactive Brokers customers responsible for roughly 10% of daily options volume. This is even more than in equities, we are only about 7%. Execution quality is most important for options traders, especially for options spread traders where profits and losses tend to be limited and every penny matters. Even the minimum price difference of $0.01 amounts to $1 contract and bid offer spreads in the market regularly get as wide as $0.05 to $0.10. Interactive Brokers does not accept payment for order flow for IBKR pro customer orders. We auction off each option order among 16 top market makers. We are always happy to welcome more to this group.

These auctions last something on the order of 100 milliseconds and the winner chooses which exchange it wants to use to trade with order. IBKR then post the order for an exchange option. And if nobody improves on the agreed upon price, the original winner of the auction trades the contract at that price. This may sound like a rather involved process, but in practice, it all happens in a fraction of a second. All participants use automated processes and they automatically feed the amount of price improvement they are interested in competing on for any specific option contracts they trade with at that specific point in time. In this way, our customers can take advantage of a leading edge system designed to get them the best available price.

Having been the largest market makers and options for over 30 years, IBKR is very well versed in these processes, many of which we have retained from a market maker day and we have been keeping them up to date over the years. As new exchanges and new rules are continuously introduced, this is not an easy task and we have a team of programmers regularly engaged in this activity. Imagine if payment for order flow were prohibited and all brokers are forced to execute their own customer orders, sophisticated mechanisms like the ones we developed and use would be expensive and take a long time for others to create. While the idea is interesting to think about, I do not think that is about to happen anytime soon.

Another notable development for IBKR in 2021 was the 40% increase in the margin loans over the course of the year. I think this growth will also continue into the future. With 7% inflation as a background, stock prices will have to rise by 7% just to retain the relative value. I believe inflation will continue at a high rate. There is very little that Fed can do about it. They may raise interest rates to 1% or 2% who would not borrow at that rate and invest in leveraged assets. Even if the Fed funds rate rises to 3%, Interactive Brokers will lend to 3.75% to people who want to buy stock whether or not they combine it with option strategies. The 3% is not likely. A slightly over 3% interest rate would add a trillion dollars to annual US debt service and to deficit spending which would just further increase inflationary pressures. Inflation is here to stay. We’ll have to learn to live with it and margin lending will continue to grow along with it.

We aim to grow our businesses by growing our customer base. We will continue to introduce new platforms, products and research and trading tools to attract new customers of the type that fit our target, serious, hardworking and educated investors who come to us to succeed with the help of our execution quality and products and services.

With that, I will turn the call over to our CFO, Paul Brody. Paul?

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

Thank you, Nancy, and welcome, everyone. [Technical Issues] fourth quarter results and then [Technical Issues]. Starting with revenue items on page 3 on the release. We’re pleased that the record results we achieved this quarter, and we believe, we’ll [Technical Issues]. Commissions continue to be strong returning our second-highest ever quarterly revenue of [Technical Issues]. We saw substantially [Phonetic] higher trading volumes [Technical Issues]. Net interest income was strong generating $295 million of revenue, also our second highest [Technical Issues] and leading to a revenue full year NII of 32% to $115 million [Phonetic]. Margin leading continues to be strong [Technical Issues]. We generated $58 million of revenue from other fees and services [Technical Issues]. I transferred to a headset, I’m hoping that maybe my audio comes over a little bit better. So this quarter, the costs were also reduced by lower regulatory fees as the SEC lowered the rate on US stocks and by a temporary fee holiday on US options by the OCC. Because these benefits are largely passed through to our customers, both costs and commission revenue decreased accordingly.

As a result of our order routing improvements which include utilizing our low cost IBKR ATS for stock execution, a greater portion of our commission revenue goes to the bottom line. Our ratio of compensation and benefits expense to adjusted net revenues was 18% for the quarter and 15% for the year, relatively unchanged from last year despite a 26% increase in the headcount. We continue to focus on expense discipline while improving our strong topline. Our head count at year end was 2,571. G&A expenses were up 27% from the year ago quarter, though down 25% for the full year, reflecting lower legal expenses on litigation, partially offset by higher spending on advertising and required fees. Our adjusted pre-tax margin remained robust 66%. By practicing expense control while also hiring and investing in the business for accelerated growth, we continue to maintain the operating leverage in our business. Finally, on the income tax line of the $35 million shown, the operating companies portion was $19 million and the public companies portion was $16 million.

Moving to our balance sheet on page 5 of the release, our total assets ended the year at $109 billion with growth driven by margin lending to customers. Our consolidated equity capital was $10.2 billion having reached the $10 billion mark for the first time last quarter. We have no long-term debt. We continue to deploy our balance sheet to support our growing client business in particular. More and larger customers want access to margin lending, which our capital base gives us the ability to provide. We opened two offices in Europe in response to Brexit. For those in our other rapidly growing international locations, our capital base provides foundation needed for today’s operations and for future growth. Our capital is also used for numerous other growth and investment opportunities we see worldwide. And finally an ample capital base helps us win business by showing the strength and depth of our balance sheet to current and prospective clients and partners.

Let’s now look briefly at our operating data on pages 6 and 7 of the release. Page 6 shows contract and share volumes for all customers rose 46% in options well above industry growth and 19% in futures. While our stock share volume fell 3%, the product mix produced a 1% increase in commissions. Activity is strong across client types and geographies. In most securities products, our volumes are well above the high average activity level of 2020.

Turning to page 7, account growth remains robust with over 600,000 net new account adds for the year, total accounts reached 1.68 million up 56% over the prior year and 9% over the prior quarter. Customer equity growth reflected strength in new accounts, solid additions to existing accounts and generally supportive market environment. Total customer DARTs reached their second-highest quarterly level at over 2.4 million trades per day. This reflected investor confidence in rising markets, the ongoing global search for yield in zero and negative interest rate environments and more customers on our trading platform.

Commission per cleared commissionable order continues to show our success in capturing rebates paid by exchanges for our clients. When we route IBKR Pro orders directly to exchanges, we realize these exchange rebates and pass the savings on to our clients by lowering their commissions. Our cleared IBKR Pro customers paid $2.38, 3% less per order than they did last year as our order routing system found opportunities to maximize rebates while achieving best price execution. Our clients benefit with lower commission costs as we pass our lower execution and clearing costs onto them, profitability per order to us remains the same.

Turning to net interest margin, we break down our net interest margin on page 8. Total GAAP net interest income was $295 million for the quarter and $1.15 billion for the year, both up over 30% from a year ago, reflecting in particular increases in margin lending and securities lending. Average margin loan balances were up 58% for both the quarter and the full year leading to increases in margin loan interest income of 60% and 41% for the fourth quarter and full year respectively. Investors remain comfortable taking on leverage in the current rising market environment.

Securities lending net interest was up 17%, driven by strong client participation in the markets. As our customer base grows, our opportunities to lend customer shares to other customers who short those stocks also grow. Together with increasing our profitable securities lending to other broker dealers, the model generates expanding revenues. We believe our proprietary system developed in-house for securities lending and operated by our team of specialists, is proficient in identifying and lending out securities and high demand which drives our revenue from this activity.

Moving to net interest from segregated cash and from customer credit balances, this continues to reflect the impact of negative benchmark rates in certain countries. When benchmark rates are very low as they are in the US, we pay no interest to customers on their cash. But in currencies where rates are negative, we earn interest by passing through these negative rates to customers. We earned $8 million on these balances. When benchmark rates are positive, we earn interest on depositing investing our segregated cash balances. But because of negative rates in some currencies, we had a net cost of $5 million on these balances. Taken together, the net interest income from these balances was $3 million for the quarter.

Now our estimate of the impact of an increase in US interest rates, we expect the next 25 basis point rise in rates to produce an additional $165 million annually. The increase from past estimates is driven by higher margin loan balances and also follows our introduction of new interest rate tiers and spread on January 3 of this year. This does not take into account any change in how we may adjust our investment strategy to take advantage of newly higher rates or a change in our assets. About 24% of our customer cash balances are not in US dollars, so estimates of the impact of US rate changes exclude those currencies. As forecasted, Federal Reserve rate consensus for 2022 centers around more than one hike. We can add that a second hike would produce a similar, although somewhat lower annual benefit to the first.

In conclusion, we had a strong quarter to close out a record year reflecting our ability to grow our customer base and product set and that shows the attractiveness of our strategy to automate for growth, expanding what we offer while minimizing what we charge. Given our progress and performance, we are confident in our ability to grow accounts as Thomas has indicated, maintain our expense discipline and to capture future opportunities as they arise.

With that, I’ll turn it back over to the moderator and we will field some questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Rich Repetto of Piper Sandler. Your line is open. Mr. Repetto, please make sure your line isn’t muted. If you’re in a speaker phone, please use handsets.

Rich Repetto — Piper Sandler — Analyst

Sorry. Good evening, Thomas. Good evening, Paul. Can you hear me now?

Thomas Peterffy — Chairman of the Board of Directors

Yeah, we can.

Rich Repetto — Piper Sandler — Analyst

So the stock shares traded quarter to quarter were down, I know only 3% year-over-year, but I think it was 32% quarter-to-quarter. I suspect that was a lot of low price stock trading in 3Q, but could you sort of verify that Thomas? And also do you — go ahead.

Thomas Peterffy — Chairman of the Board of Directors

You’re absolutely right. So many years ago, we put in a commission limit, so that they would never charge more than 50 basis points on a stock trade. And that slowly brought more and more low priced stock traders to us. Eventually it appears that there are some regulatory concerns about that stock trading and we have successfully reduced it. It’s got no income impact whatsoever. It’s — those are very tiny numbers.

Rich Repetto — Piper Sandler — Analyst

Got it, understood. Okay. And then Paul, you sort of touched on this question, but not just three rate hikes in 2022 priced in and three more in 2023. I guess the question is, you said the second rate hike would be similar, but I thought you said similar but lower. Any way you could sort of give us a feel for incremental hikes that — there’s is four to six out there, the impact.

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

Sure. So the way we model it, the one hike was an increase of an expected $165 million for the year. We would model two hikes and by that I mean over the first two quarters and then it remains there each 25 basis points, that should add about another an additional $120 million annually and three hikes in consecutive quarters would add about another $45 million. So you have to understand what — the dynamic here is that at two hikes, so then Fed funds would be around 57 or 58, let’s say, basis points, we start to pay interest to our customers at Fed funds less 50 basis points whereas right now that number is 0.

So therefore after three hikes, we then ratchet up our — the rates that we pay along with Fed funds and the same thing happens on margin lending. So then we have a built-in spread, which is what we all used to have before rates dissolved down to close to zero. So that’s why incrementally benefits us, but less than less and of course this is keeping all other things equal, meaning the current balances, the margin lending and deposits and so forth.

Rich Repetto — Piper Sandler — Analyst

Okay. And the numbers I got and you can correct me, I’m sure one of them is wrong, is $165 million the first; $120 million, the second incrementally; and then the third $45 million.

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

Yeah, those are just estimates, but yes each one is incremental to the previous. Yeah.

Rich Repetto — Piper Sandler — Analyst

And beyond three incrementally $45 million as well?

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

We haven’t modeled it, so don’t hold me to it, but it would be a number no more than that. It depends on where the deposits fall in terms of the tiers? Are they small accounts, are they medium-sized accounts, are they large accounts? And that will dictate what happens as the rates change.

Rich Repetto — Piper Sandler — Analyst

Got it. Thank you very much.

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

Some are more interest rate sensitive than others.

Rich Repetto — Piper Sandler — Analyst

Got it. Thank you very much, Paul.

Operator

Thank you. Our next question comes from the line of Will Nance of Goldman Sachs. Your question please.

Will Nance — Goldman Sachs — Analyst

Hey, guys. Good afternoon.

Thomas Peterffy — Chairman of the Board of Directors

Hi, Will.

Will Nance — Goldman Sachs — Analyst

Maybe I could start with a question on the growth. I think last quarter you talked a little bit about some of the introducing broker accounts that were on a fully disclosed basis and where we’re going to move over to an omnibus structure. I was just wondering if that impacted some of the numbers recently and some of the metrics you guys have put out? And if you could just put a number of ballpark, how many have moved over and how much have left?

Thomas Peterffy — Chairman of the Board of Directors

Yes, I think in December and introducing broker went to omnibus with 2,800 accounts.

Will Nance — Goldman Sachs — Analyst

Got it, appreciate that. Super helpful. And then, appreciate all the color on Richard’s questions around interest rate sensitivity. You mentioned that, that didn’t contemplate any changes in the reinvestment strategy. I was wondering if you could talk kind of more theoretically about what kind of steepness in the yield curve when you guys look to before you would be more — before you would consider taking a little bit more duration risk in the segregated cash portfolio? Are we anywhere near, were that’s something you’ve been thinking about or is that still a far way of?

Thomas Peterffy — Chairman of the Board of Directors

No, we are not. I’m extremely worried about much higher interest rates, not because that Fed will move it there, but people that realized that they had to borrow money and leverage in order to keep up with inflation. And so I think that the Fed will lose control.

Will Nance — Goldman Sachs — Analyst

I appreciate you taking on the question today.

Operator

Thank you. Our next question comes from Dan Fannon of Jefferies. Please go ahead.

Dan Fannon — Jefferies — Analyst

Thanks. I was hoping you could expand upon your confidence around options, activity and the sustainability of it or actually the growth. I think you highlighted that you think will still continue. Maybe — I don’t know if it’s the profile of customer that is using this different than others across our complex or is it education or other factors that you think that are — that give you confidence around the sustainability there?

Thomas Peterffy — Chairman of the Board of Directors

So I think the greatest factor here is that these developments that occurred in the United States tend to be followed by in other countries with some lag and that lag is sometimes quite long like five, 10 years. And so this huge increase in the US recently is certainly going to be followed by customers outside of the US. And it is specifically the discovery by more and more people that option come combined, option combination positions can give you very interesting risk profiles. And there is more and more of that based on fundamental analysis of people tend to figure out that they stuck with the rise between $2 and $5, but not likely more and these type of forecast can be early harvested in the options market and then we just see very big increase in these kinds of trades. And as I said, I expect that to be followed by foreign investors and we are going to be very large beneficiaries of that.

Dan Fannon — Jefferies — Analyst

Okay, that’s helpful. And then last quarter when you reiterated confidence around the account growth and the outlook, you cited some marketing — new marketing programs and targeted I think campaigns that you’re kind of part of that confidence. I guess could you expand a bit upon that if that’s expanded, if you’re allocating more dollars towards it or the [Indecipherable]?

Thomas Peterffy — Chairman of the Board of Directors

We are allocating more dollars, more resources, more brainpower. Yes, that’s where our future lies and we are pushing that very, very hard.

Dan Fannon — Jefferies — Analyst

Okay. And from a budget perspective as we think about 2022 or beyond in terms of the spend, is that something that will be noticeable in the income statement as you spend those dollars?

Thomas Peterffy — Chairman of the Board of Directors

Well, unfortunately, I’m really at — we are willing to spend any amount that makes sense, but we find very difficult — we find it very difficult to find places that we can throw a lot of money at, because anytime we find a new channel and it’s very great for say $1 million, but if you double it, your return only goes up by say 5% or 10%, that’s incredibly frustrating. So we continuously have to look for new channels and put little bits of money in there. And that is what we are doing so far and we hope for a breakthrough, but it hasn’t happened yet.

Dan Fannon — Jefferies — Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from Craig Siegenthaler of Bank of America. Your question please.

Craig Siegenthaler — Bank of America — Analyst

Good evening, Thomas. Hope you’re doing well.

Thomas Peterffy — Chairman of the Board of Directors

Hi. I’m doing well. How are you?

Craig Siegenthaler — Bank of America — Analyst

I’m doing well too. So I want to come back to margin loan balances. I believe there were some pricing adjustments in the quarter, especially on your two highest-tiers, $1 million to $50 million and over $50 million. I wanted to see if you could help us quantify any impact from a revenue or earning standpoint that that could actually drive and when we could see that results?

Thomas Peterffy — Chairman of the Board of Directors

Paul, you take that.

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

Sure, absolutely. So we talked at firstly about the freight rises, but based on the new policy alone, our estimates were — would add annually about $24 million. And some of that’s from putting money into different rate tiers, some of it is treatment of negative rate currencies and there’s pass-through of some of those costs, but that’s our overall estimate.

Craig Siegenthaler — Bank of America — Analyst

Thank you. And I have to ask one on China, just because that a big source of investor inbound. But can you update us in terms of the 4Q revenue contribution from Mainland China or the two largest introducing broker clients that are there? And then based on the evolving stance of the Chinese government around data in foreign firms, how do you expect the size of these relationships to trend over the next year?

Thomas Peterffy — Chairman of the Board of Directors

So, as you know the two largest customers are Futu and Tiger and they are leading us. Futu has practically left us. They had a very few accounts still with us. And Tiger is in the process of doing that. As far as the Chinese, yeah, I don’t have a view on that. I’m very, very confused. Inside the Company they are not in total agreement as to how to attack that, so I can’t really tell you. I mean, some of my colleagues are looking more favorably up the Chinese situation than I do.

Craig Siegenthaler — Bank of America — Analyst

Got it. Thomas, thank you for taking the question.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Kyle Voigt of KBW. Your line is open.

Kyle Voigt — KBW — Analyst

Hi, good evening. Maybe I could ask first question about the impact, the mobile app launch. Just wondering if you could help us quantify kind of the uptake or maybe new account growth that contributed in the quarter — in the fourth quarter? And then also just wondering if you could speak to how we should start to expect revenues related to that to kind of show up? I noticed that in app, you are advertising a bit more the Interactive advisors, the sustainable portfolios that are kind of pre-built in there. So should we think about some asset-based fees as being maybe a bigger driver of revenues that this grows over a longer period of time?

Thomas Peterffy — Chairman of the Board of Directors

Well. No, I mean, our asset base fees, we’re only charging 8 basis points, so that we will not create — that’s more like a bait to get people to come in. As far as the Impact app, I mean we had, we had 40,000 downloads of the Impact app. We are not — we do not breakout the revenues, but I wouldn’t think that they would be substantial.

Kyle Voigt — KBW — Analyst

Understood. Thanks for that, Thomas. And then just had — I just want to go back to the interest rate sensitivity discussion, I believe in the second quarter you had previously disclosed that roughly 40% of the customer credit balances which is about $11 billion at the time were fully rate sensitive or I guess non-interest bearing, some assuming that’s really the cash in those small accounts are below that $10,000 threshold in total cash balances. I guess if that’s still the right percentage to think about and that 14% of total credit balances or maybe you could provide an update to that $11 billion number just as we think about modeling again those kinds of capturing the rate benefit past those first two hikes?

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

Yeah, sure. So the — it’s still in the 14% to 15% range.

Thomas Peterffy — Chairman of the Board of Directors

That’s not right. So the 14% to 15% range are the moneys that where the account has less than $100,000 in it, right?

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

Well, they are in a number of categories under $10,000, for example.

Thomas Peterffy — Chairman of the Board of Directors

But that’s only one of them.

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

Yes, we have a number of categories that total up to about 14.5%.

Thomas Peterffy — Chairman of the Board of Directors

Yeah. But, so the bulk of those folks that have the money gets half interest.

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

It’s only on the one category of under $100,000 — the amount between $10,000 and $100,000 gets a proportionate amount of interest that we would pay.

Thomas Peterffy — Chairman of the Board of Directors

But the bulk of the $11 billion is there.

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

No, the bulk is in the very smallest accounts under $10,000 and commodity accounts where we don’t pay interest actually contribute a non-prevail amount.

Thomas Peterffy — Chairman of the Board of Directors

So you are saying that we have $11 billion on accounts under $10,000?

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

That numbers is about $7 billion out of a total of fully interest rate sensitive balances of about $12 billion.

Thomas Peterffy — Chairman of the Board of Directors

Okay. I won’t argue with you here.

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

Commodity balances they’re almost $3 billion, so between the two of them it’s most of it.

Kyle Voigt — KBW — Analyst

Okay. Thanks for that. Maybe just turn to — if I just turn to expenses and then I’ll jump back in the queue. Can you just help us think about the level of fixed expense growth as we’re looking out into 2022? You mentioned that there is only — you’re only going to invest obviously if there is positive ROI on the marketing spend, so I hear you there, but I guess we are thinking about that fixed expense base as a whole and just hiring and everything else that goes into that. Can you just talk about the pace of growth into ’22?

Operator

Thank you. Our next question comes from Rich Repetto of Piper Sandler. Your line is open.

Rich Repetto — Piper Sandler — Analyst

Yeah, my follow-up I guess has to do with the holiday, the OCC holiday where they didn’t charge you. And I think it was for two months, but I guess, Paul, could you tell us how long the holiday was for the entire quarter? And how much was it? I know it doesn’t impact your profitability at all. And then any way to estimate how it might have impacted — weighed on your average commission?

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

Right. So it wasn’t a very big number. It was last two months of the year. OCC over time has taken various approaches to their fee charging. What they used to do is charge even more about $0.05, $0.055 contract and they rebate it the next year. What they did this past year was they started high and then they cut it in the middle of the year and then they looked at their financials and cut it to zero for the last two months. The number, it’s $2 million plus for us somewhere in that range, so it’s not extensive. You’re right to point out that most of that savings is passed through to customers, however, some of it is not because for customers who choose fixed as opposed to tiered pricing, we would get the benefit of that, but probably most of it is passed through.

Rich Repetto — Piper Sandler — Analyst

Got it. Thank you.

Operator

Thank you. Your next question comes from Chris Allen of Compass Point. Please go ahead.

Chris Allen — Compass Point — Analyst

Evening everyone. Thanks for taking my question. I just wanted to ask on the execution and clearing the fee impact is helpful there. You talked about the impact of the smaller router internalization on your ATS. And then obviously there has been the competitive dynamic among exchanges. I’m wondering if you just talk through maybe over the last two years what’s had the biggest impact in terms of lowering execution clearing fees as a percentage of commissions? Any thoughts in terms of maybe on the exchange side, were there — what the impact would be if some of these pricing we’ve seen now goes way moving forward?

Thomas Peterffy — Chairman of the Board of Directors

I can’t answer you there, but maybe Paul, can you?

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

Yeah, I can give a little bit of color. So one aspect is that our smart routers — the smart router has become better and better at routing orders to places that will still give the best price to the exchange, but give a better rebate. And when we talk about the spread between our commission revenue and our direct costs, these execution and clearing costs going up, that’s because $1 saved or rebated and then passed through to the customer, has a smaller percentage impact on the commission revenue then it does on the expense line, which is smaller to begin with. So each dollar we get, even if we pass the full thing through to the customer, the percentage spread would continue to increase. Of course, the other thing is that as we attract more and more orders to our ATS, there is no external cost to executing those at all and that’s simply reduces the cost line.

Chris Allen — Compass Point — Analyst

Got it. And maybe just one quick one on other fees and services. I know you talked a little bit. We had really hard time understanding some of the details there. If you just repeat that real quick just in terms of what’s about the — what are the key growth drivers on that [Phonetic] year-over-year perspective?

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

Well, over the current period, the drivers were market data. And market data is also offset by an expense and we are in some profit on it, but it’s — when we talk about the other fees and services, that’s the revenue side of it. Exposure fees, so we charge as we’ve talked about in the past. We run stress scenarios on every client account and when they — when the stress scenario which is a more conservative measure of risk than the margin, system would impose. When they reach a certain level, they — the system begins to charge fees, which is intended to encourage the customer to reduce their own risk or carry it at proportion — hopefully proportionately higher fee to us and we collect those fees over time. So, those happen to have gone up. And then the options exchange payments, the programs mandated by the options exchanges go up with volume. And — so that’s the third component — major component of what’s been driving up the other fees and services.

Chris Allen — Compass Point — Analyst

Thank you.

Operator

Thank you. We have a follow-up question from Craig Siegenthaler of Bank of America. Your line is open.

Craig Siegenthaler — Bank of America — Analyst

Thanks, guys. I have a follow-up here on crypto trading and the partnership with Paxos. Can you just update us on your progress to add more coins? And if I think about your 1.7 million accounts, how many of them are active in trading cryptocurrencies today and have you seen how your crypto offering accelerate organic growth?

Thomas Peterffy — Chairman of the Board of Directors

So we are going to add most probably two currencies and possibly two more within a month, the probable ones will be LINK and MATIC and the possible ones will be UV, UNI, and AAVE. We are also working on SOL, but that will not be added until towards the end of the quarter. Your question about…

Craig Siegenthaler — Bank of America — Analyst

And my second question was that your 1.7 million accounts, how many are active and trading crypto today? And then also, are you seeing crypto drive new clients to Interactive Brokers?

Thomas Peterffy — Chairman of the Board of Directors

We are seeing small number of new clients coming to us because of crypto and they take-up among our existing clients is kind of disappointing, so I think that we have not been successful in driving home the message that our commission rates are two thirds lower than the next lower — lowest provider. And/or the problem is that we do not have all the popular currencies and people cannot trade them against each other on our platform.

Craig Siegenthaler — Bank of America — Analyst

Thomas, I just had one follow-up here. And this one may be even better for Paul because it’s more of a financials question. But we’ve seen your clearing execution costs really decline on a long-term basis relative to trading activity and commissions at shifting [Phonetic] some operating leverage and some efficiencies. What is your thoughts on the future of that trend? Will that benefit continue into the future?

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

Well, we certainly hope so. We hope that the marketplace will give us more and better opportunities to have our smart router be better. And we always look for those opportunities and we look to improve on the software. And as I said before, the more volume we can attract into our own ATS that will — there is no associated external cost with those executions and so we hope to be very successful with them.

Craig Siegenthaler — Bank of America — Analyst

Great, thanks for taking all my questions.

Operator

Thank you. Our next question comes from Mac Sykes of Gabelli. Your line is open.

Mac Sykes — Gabelli — Analyst

Good afternoon. I have two questions. I mean your capital generation continues to be amazing and then hopefully the uptick with see interest revenue. And I assume that you have not changed your stance on wanting to bolster your balance sheet. But you had talked in the past about having some more capital for funding foreign margin? Is that still the case? Are you still seeing demand kind of outside either as to be able to fund those margin balances?

Thomas Peterffy — Chairman of the Board of Directors

Yeah, basically the answer is yes.

Mac Sykes — Gabelli — Analyst

And then on crypto for those adopters, what are the policies related to using margin and are you seeing some [Indecipherable]?

Thomas Peterffy — Chairman of the Board of Directors

We are not allowing margin on cryptos. I have heard Mr. Gensler say that if you leverage crypto, then get certainly the security.

Mac Sykes — Gabelli — Analyst

Are you going to be able to offer short abilities for that and financing off of the currency holdings in the future?

Thomas Peterffy — Chairman of the Board of Directors

As I said, we cannot find as crypto. No we will not plan. All right?

Mac Sykes — Gabelli — Analyst

Okay. All right, thank you.

Operator

Thank you. Our next question comes from Dan Fannon of Jefferies. Your question, please.

Dan Fannon — Jefferies — Analyst

Thanks for taking the follow-up. I just, Thomas, wanted to ask about your confidence around the account growth of 32% as we look at the Fed futures outlook for the level of hikes that are currently being contemplated. How do you think that could change your account growth trajectory or as I said earlier confidence around that?

Thomas Peterffy — Chairman of the Board of Directors

I think if markets remain at current levels or go lower by less than 10% and if there is not huge international catastrophe like some war, then I think that this rate of increase will continue.

Dan Fannon — Jefferies — Analyst

Okay, thank you.

Operator

Thank you. Our next question comes from Kyle Voigt of KBW. Your line is open.

Kyle Voigt — KBW — Analyst

Hey, thanks for taking my follow-up. I just wanted to circle back. I don’t know if my audio was coming through previously. I’m just wondering if you could help us think about the one-off liked fixed expense growth heading into 2022? And that’s better for Paul.

Thomas Peterffy — Chairman of the Board of Directors

No, I think assumption of — so we are basically talking about communications, computers, salaries and wages, right. I think about — it would assume 15% growth rate.

Kyle Voigt — KBW — Analyst

Okay.

Thomas Peterffy — Chairman of the Board of Directors

Paul, you have a different opinion?

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

No, I have no other opinion than yours.

Thomas Peterffy — Chairman of the Board of Directors

Yeah.

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

On that topic.

Kyle Voigt — KBW — Analyst

Got it. Thank you. And then just a clarity question on the fourth quarter margin yields. They compressed to about 114 basis points. I think last quarter there were 120 basis points. I’m assuming that was just mix in terms of the balanced years in the fourth quarter. Is that right, Paul?

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

Actually Kyle, last quarter you do mean in the third quarter as a comparative?

Kyle Voigt — KBW — Analyst

Yeah, the third quarter was 120 basis points and this quarter was 114 basis points.

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

I’ve got 113 basis points in the third quarter and 114 basis points in the fourth quarter. Maybe we should both go back and check.

Kyle Voigt — KBW — Analyst

Okay.

Operator

All right. Thank you. At this time, I’d like to turn the call back over to Nancy Stuebe for closing remarks. Nancy?

Nancy Stuebe — Director of 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. Thanks again and we will talk to you next quarter-end.

Operator

[Operator Closing Remarks]