Interactive Brokers Group Inc (IBKR) Q3 2018 Earnings Conference Call Transcript
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Interactive Brokers Group Inc. (NYSEMKT: IBKR)
Q3 2018 Earnings Conference Call
Oct. 16, 2018, 4:30 p.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good day ladies and gentlemen and welcome to the Interactive Brokers Group, Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time.
(Operator Instructions). As a reminder, today's program may be recorded. And now I'd like to introduce your host for today's program, Nancy Stuebe, Director of Investor Relations for Interactive Brokers. Please go ahead.
Nancy Stuebe -- Director of Investor Relations
Good afternoon everyone. Thank you for joining us to review our 2018 third quarter performance. 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 reports filed with the SEC.
This quarter saw several new developments in Interactive Brokers. I will start with our decision to move our primary listing to the IEX Exchange. I want to emphasize that our stock continues to trade at all the exchanges it did before. But by moving our primary listing to IEX, we believe investors buying or selling our shares will get better prices.
Typically, executions on the IEX are done at the midpoint of the bid/ask spread, which is better than where they are done on other exchanges. This is because the IEX has a discretionary midpoint peg order that allows traders to post limit orders at the midpoint and give the exchange the discretion to cancel the order for 3 milliseconds at the time when limit orders at other exchanges are crumbling, and then reinstate the order at the new midpoint.
So it is the combination of the exchange of speed bump with their crumbling order software routine that makes us an effective order type where(ph)the limit order gets picked off much less often. Anyone interested should go to the IEX website and read up on this facility. IEX's signature feature, a speed bump of a few milliseconds is better for investors because high frequency traders, the traders who buy retail order flow from other brokers cannot take advantage of the order.
When there are middlemen involved, as they are another mouth to feed, costs are raised, not reduced. It is our goal to make sure the cost to invest is as low as possible, and then to give that benefit to the investor. We do not want that benefit to go to the middle man who buy order flow and then trade against it.
We are pleased to be the first company to list on IEX and we expect many more companies to follow us. Once again, in this quarter, we set new records in our brokerage business. Our customer equity reached 142.5 billion, up 23% while we also hit an all-time high in customer accounts up 26% to 576,000.
Margin lending at $30.7 billion outstanding was up 22% from the year ago quarter and was also up sequentially. This growth led to a net revenue increase of 21% on our brokerage business, with its pre-tax margin reaching 66% for the quarter.
DARTs this quarter were 763,000, up 10% over last year, so they were down from the more active first and second quarters. Market volatility, as measured by the VIX, slowed to an average of 13 in September and was coming down steadily from its 2018 monthly average high of 22 in February. Since quarter-end, the VIX has risen again. Our DARTs increase comes from our consistent account growth and not from making acquisitions.
We expanded the range of financial services we offer to our customers this quarter. Through our integrated investment management program, we support many different types of transactions from one account. First, our clients are in the best interest rates in their available cash currently 1.68% on US dollars and qualified accounts without having to transfer from one account to another.
Given that many banks and brokers pay only a small fraction of 1%, we see this as a huge opportunity to bring in new customers and new deposits and we keep pushing this message in our advertising.
Customers can now also deposit their paycheck directly into their IBKR account and immediately start to earn those high rates and use our newly introduced bill pay function to pay bills. Our debit Mastercard allows our customers to pay expenses or make purchases where they can borrow against their account at our industry low interest rates.
And they can do all this, as well as invest in securities in over 120 market centers worldwide at low cost seamlessly from one account. The greener grass syndrome is spreading through the industry. JP Morgan is offering free trades by selling their customers orders to high frequency traders, while we are offering high rates on deposits, we've got more to gain or lose. I like our position.
We'll have more to say about zero commissions in our coming advertisements. I am asked many times how it is that we continue to grow at such high rates and when will it stop? The answer is, it will continue as long as we adhere to our commitment to focus on building automation. This enables us to continue to compete on price, to offer ever broader account capabilities and geographies, low commissions and low interest rates on margin borrowing, high interest rates on cash and best price execution on trades.
Individually and collectively, these capabilities attract prospective clients and contribute to the growth of our business.
Further, many of the market segments we operate in are large, global and growing. Potential customers are well aware of the importance of keeping costs down and revenues up especially in an environment where there is downward pressure on fees.
So the prices we charge versus our competitors and the interest we pay on cash balances, along with the international access on technology we offer are important points of differentiation that we talk to many potential customers about worldwide.
To reach them, we advertise in Business Media and in locations that reach the selected customers we target as well as on social media. We also have 40 experienced sales people who are well versed in our products, a team that we grew over decades. It takes more than a year to train someone who is experienced in the field in all that our platform can do across multiple customer types in multiple countries, which have different demands and requirements.
Our salespeople are located around the world, may do everything from attending conferences and industry events to keeping track of a new asset manager's launching, to maintaining contact with both existing firms who may be looking to make a change and with existing clients who recommend us to friends and colleagues.
About half of our business comes from word of mouth, so the bigger we grow and the more people that are on our platform, the more people there are who talk about us and what we can do for a trader or investor.
Pretax profit for the quarter was 276 million, adding back the 23 million for this quarter's unfavorable currency impact, net of treasury mark gains gives us 299 million or 65% pre-tax margin. Brokerage was 291 million of this and achieved a 66% pre-tax margin. Now for the breakdown by customer of how our brokerage business is evolving.
Once again, in all our customer segments, we saw strong growth in accounts, client equity and commissions. For the third quarter, hedge funds of proprietary trading firms were 4% of our accounts, up 11%, 19% of our client equity, up 12% and 25% of our commissions, up 16%.
Our low margin rates and high cash interest continue to attract institutions in a competitive space, which is highly focused on execution price and overall cost. Growth in this area was strong and both developed and developing geographical markets.
Individual customers made up 49% of the accounts up 19%; 35% of customer equity, up 22%; and 50% of commissions, up 18%. Customer equity was driven by double-digit strength in all geographic regions, particularly in developed markets internationally as word of mouth about our platform has spread. While market volatility was down sequentially, commission benefited from higher volatility in account growth versus last year's third quarter.
Investors continue to become more aware of the practice of brokers selling their customers orders to high frequency traders, which is now part of a class action suit. This is a practice that gives investors lower prices on their sell orders and forces them to pay higher prices on their buy and is something we at Interactive Brokers do not do with our customers orders.
We also see individuals who want global access and low(ph)cost not only on commissions and margin financing, but also on FX as they trade internationally, which all plays to our strength.
Registered investment advisors represent 17% of our accounts, which is up 16%, 24% of our customer equity, up 24% and 17% of our commissions, up 16%. The RIA segment is benefiting from our new products, our easy-to-use account (inaudible) capability, low commission rates and high interest on cash balances as well as the important fact that we do not charge a RIA multiple fees to allocate a trade among multiple customer account.
We also offer free customer relationship management, or CRM software as well as reporting tools that need a RIA does not have to pay for third party services. In an environment with downward pressure on fees, our ability to saving advisor money while providing excellent performance, reporting and functionality, has grown increasingly important.
Finally, introducing brokers representing 31% of our customer accounts up 48%; 21% of our customer equity, up 36% and 9% of our commission income up 37%. As we discussed last quarter, our introducing broker segment continues to benefit from the tailwind of two major trends. The increasing regulatory burden worldwide, which makes outsourcing your back office the best solution and the growth of a new investor class in developing countries, many of whom want to trade internationally.
This quarter, we introduced our integrated investment management program which consolidates the variety of financial transactions you can do from a single Interactive Broker's account. Without having to transfer funds between accounts, customers automatically get the best interest rates on both their cash, earning market rate interest on idle balances and on their securities, earning extra income by lending out their fully paid shares.
Integrated Investment Management also includes our Debit Mastercard, our new bill pay function and payroll direct deposits, giving our customers more reasons to stay in our platform to transact their financial business.
Our insured bank deposit suit program which offers customers up to $2.75 million in SIPC-and FDIC-insured deposits continues to grow and reached $1.6 billion this quarter. Finally, we are looking forward to announcing access to Israel on our platform in the four quarter.
And now, Paul Brody will take you through the numbers. Paul?
Paul J. Brody -- Chief Financial Officer
Thank you, Nancy. Welcome everyone to the call. Thank you for dialing-in. I'm going to review our results as usual and then we'll go into some detail on the drivers behind the numbers and then we'll take questions. Let me begin by highlighting that our headline numbers for net revenues and pre-tax income imply a 3% year-over-year increase for both of those measures.
But when we remove the effects of non-core operating items, primarily from our currency diversification strategy and the sale of our US market making business in 2017, those numbers rise to 19% and 29% respectively. And I'll give more detail on this in my review of the financials.
So let's turn first to the operating metrics, which reflected a strong growth in customer accounts, equity and cash balances while trading volume were generally in line with market volatility. The volatility, as measured by the average VIX, rose to 12.9 this quarter, up 18% from 11 in last year's third quarter. Sequentially however, this quarter's average VIX declined from 15.4 in the second quarter and from 17.2 in the first quarter after a particularly volatile February and March.
The increased volatility over the year ago quarter led to an 8% rise in options trading volume while futures and stocks volumes were off 4% and 20% respectively. The decline in stock trade volumes was due to lighter trading in the low price stocks and an increase in the proportion of trading in higher priced stocks.
As a result of this shift, while the number of shares traded declined, as the DARTs and the commissions on stocks both rose.
Finally, foreign exchange volume was down as well. Total accounts grew to 576,000, up 26%, which contributed to customer equity growth of 23% to $142.5 billion. We saw growth in all customer segments, particularly in introducing brokers and financial advisors.
With the continued tailwind from new account growth, our quarterly total DARTs were up 10% versus last year. Our overall average cleared commission per DART fell 5% year-on-year to $3.78 on a product mix that featured smaller average trade sizes in stocks options and ForEx and slightly higher in futures.
Moving on to net interest margin table. Our net interest margin widened to 1.68% from 1.31% in the third quarter last year. The Federal Reserve raised rates again this quarter in late September, making a total of 4 increases in the fed fund's target rate since December 2017.
Due to careful management of our short duration portfolio, we recorded a modest mark-to-market gain of about $1 million on our holdings of US treasuries. As always, we plan to hold these securities to maturity, but as brokers, unlike banks, GAAP rules require us to mark them to market in our financial reporting.
US rate increases together with increased customer balances generated more net interest income on cash balances. We believe our continued success in asset gathering should lead to larger contributions from interest sensitive assets going forward.
Our FDIC Insured Bank's Deposits Sweep Program introduced late last year continues to grow and reached $1.6 billion. Margin lending and segregated cash management were the most significant contributors to our net interest margin.
Average margin loan balances grew 22% versus last year, which combined with higher interest rates led to margin interest growth of 72%. Our segregated cash interest income rose 52% primarily on Fed hikes to US interest rates. Two factors caused the yields on our segregated cash to not precisely match the increases in Fed funds rates.
First, currently about 15% is held in other currencies, although recently 11% of that is held in currencies that also showed various elevated interest rates during the quarter. And second, given the current average duration of investment in treasuries of slightly under 90 days, and given that, about 18% of the portfolio does not pick up the new yield until the subsequent quarter, these amounts would not be expected to follow a Fed hike immediately.
The year-over-year decline in segregated cash balances is a function of increase in margin loans, of cash swept to our FDIC sweep program, and as more customer cash being put to work in the securities markets. Starting with the month of September, we began to break out in our metrics the FDIC sweep program now $1.6 billion, which for accounting purposes removed funds that would otherwise be included in our segregated cash balances on our balance sheet.
Securities lending interest income was lower this quarter as there were fewer of the highest rate hard to borrow lending opportunities in the market than in prior periods. Now for our estimate of the impact of the next 25 basis point increase in rates, with the continued growth in our customer assets, the investment opportunities available to us at new product introductions are well positioned to maximize our net interest income.
Expectations of further rate increases are typically already reflected in the yields of the instruments in which we invest. Therefore in our calculation, we attempt to isolate the impact of an unexpected rise in rates, separate from the impact of rate hikes that have already been baked into the prices of these instruments.
With that assumption, we would expect the next 25 basis point unanticipated rise in rates to produce an additional $19.5 million in net interest income on customer balances over the next four quarters, and $21.4 million as the yearly run rate. That run rate includes the reinvestment of all of our present holdings at the new, higher rate.
Turning to segments. Electronic Brokerage turned in a solid performance with gains in both commissions and net interest income. Net revenues were $444 million for the quarter, up 21%. Pretax income was $292 million, up 30%, for a 66% pre-tax margin.
The Treasury marks at $1 million were not material to segment results. We received a $3 million currency rebate this quarter versus $1.5 million in the year ago quarter, these are accounted for as decreases in execution and clearing expense. Without these rebates, the execution and clearing expenses would have been up about 1%.
Fixed expenses in brokerage were $99 million, up 14%. The primary reasons for this increase were previously disclosed migration of expenses related to winding down of market making, also to increased legal and compliance expenses and also contributions to reserves.
Customer bad debt expense was a small gain this quarter, reflecting immaterial new debts and our successful efforts to collect on some debts from prior periods. This is a demonstration of the continued effectiveness of our risk management systems in limiting customer default.
Market making continues to consist of customer facilitation activities and options market making in a small number of profitable markets outside the US, which we will operate for the time being, as we continue to evaluate them.
Net revenues were $16 million of which $7 million were trading gains and the bulk of the remainder was net interest income. Market making pre-tax income was $7 million. We remained at about 95% absorption of the $40 million of expenses that were projected to migrate to brokerage, and we expect to reach a full absorption in the fourth quarter.
Corporate segment reflects the effects of our currency diversification strategy. We carry our equity in proportion to a basket of 14 currencies, we call it Global, to best reflect the international scope of our business. As the US dollar strengthened against most other major currencies this quarter, we incurred an overall loss from our strategy of $27 million of which $3 million is reported as Other Comprehensive Income or OCI and $24 million is included in the earnings.
We estimate the total decrease in comprehensive earnings per share from these currency effects to be $0.06 with $0.05 reported in other income and $0.01 as OCI. Turning to the income statement, net revenues were $439 million up 3% over the year ago quarter, and adding back the $24 million loss on our currency strategy, net of the $1 million gain from marking our treasury portfolio to market, results in adjusted net revenues of $462 million for the quarter, up 19% over last year's $388 million after adjusting for these items and also adjusting an $11 million gain on the sale of our US market making business last year.
Commission revenue rose 2% on higher volume and options, and as I mentioned before, higher DARTs in stocks, partially offset by lower average trade sizes in most product categories. As we noted earlier, the decline of our overall average cleared commission per DART hit $2.78 reflected this mix. Of the $244 million net interest income, brokerage produced $235 million, Market Making $7, and Corporate the remainder.
Other Income which includes our Global currency strategy, Treasury marks and other fees and income we received was $21 million. Besides from the decline in the Global and the absence of last year's one-time gain on the transfer of our US market making business, nearly all areas of other income showed increases.
Non-interest expenses were $163 million for the quarter, up 3% from last year, the primary drivers were $10 million higher general administrative expenses, largely stemming from legal and compliance costs and reserves.
As a note, G&A expenses in the year ago quarter contained a $3 million recovery of a tax reserve, so the increase would have been $7 million or 39% otherwise. The G&A increase was partially offset by a lower execution and clearing expenses aided partly by the higher clearing fee rebate mentioned earlier as well as the discontinuation of our US options market making business.
Also acting to offset the increase were lower employee compensation and benefits expenses, which include regular adjustments to year-to-date budgeting for bonus accruals. At quarter end, our total headcount stood at 1,380, up 15% from last year, we have been hiring most aggressively in the areas of client services, legal and compliance and software development.
And to this end, we continue to build up our operations in India. Pre-tax income of $276 million was up 3% and represented 63% pre-tax margin. Adjusted for the non-core items I mentioned previously, pre-tax income was $299 million, up 29% over last year's pre-tax income of $231 million on an adjusted basis, representing an adjusted pre-tax margin of 65%.
Diluted earnings per share were $0.51 for the quarter, versus $0.43 for the same period in 2017, comprehensive diluted earnings per share, which includes all currency effects were $0.50 for the quarter versus $0.44 last year. Without the impact from currencies and treasury marks, diluted EPS would have been $0.56, so $0.05 higher than the reported EPS for the quarter.
To help investors better understand our earnings, the split between public shareholders and the non-controlling interest is as follows. First, as a preface, the reclassification of one of our foreign entities resulted in additional reported one-time income tax expense of $4 million and partially offsetting other income of $3 million. These entries effect the public company only and they are similar to those we reported at year-end, which were related to the Tax Act. The additional tax is a non-cash item that affects our reported income only and not actual taxes paid.
So starting with income before income taxes of $276 million, we first deduct $3 million of other income related only to the public company, leaving $273 million of operating company's income. We then deducts $6 million for -- mostly foreign income taxes paid by our operating companies, that leaves $267 million, of which 82% or about 219 million reported on our income statement is attributable to non-controlling interest.
The remaining 18% or 48 million is available for the public company shareholders, but as this is a non-GAAP measure, it's not reported on our income statement. After we add back that $3 million of other income to the $48 million, totaling $51 million and deduct the remaining taxes at $12 million, public company's net income available for common stockholders is the $39 million you see reported on our income statement. The $12 million contains the one-time $4 million tax expense related to the reclassification I mentioned and that is without this item, the public company tax would have been 8 million.
Our income tax expense total of $18 million consist of this $12 million, plus the $6 million of taxes paid by the operating companies.
Turning to the balance sheet, it consistently remains highly liquid with low leverage, or extremely well capitalized from a regulatory standpoint, and we continue to deploy our equity capital in a growing brokerage business. We hold excess capital in order to take advantage of opportunities as well as to emphasize the strength and depth of our balance sheet, and we continue to carry no long-term debt.
At September 30th, margin debits were $30.7 billion, an increase of 22% over last year. Our compelling margin lending rates which become increasingly noticable versus our peers as the interest rates rise, plus our customer's willingness to take on the leverage and Interactive Broker's capacity to satisfy it have contributed to this growth.
This figure may show more swings than in past years due to our success in attracting institutional hedge fund customers who are more opportunistic in taking on leverage. Our conservative balance sheet management supports a growing margin lending business.
Our consolidated equity capital at September 30th, 2018 was $6.9 billion, $5.5 billion was held in brokerage, $1.1 billion in market making and customer facilitation activities and the remainder in corporate. Now, I'd like to turn the call back over to the moderator, and we will be happy to take some questions.
Questions and Answers:
Operator
Certainly. (Operator Instructions). Our first question comes from the line of Rich Repetto from Sandler O'Neill. Your question please.
Rich Repetto -- Sandler O'Neill -- Analyst
Yeah, good evening Thomas, good evening Paul. The first question is on the growth rates, Thomas, you can still report the highest growth in the industry, but if you look back compared to last year, it has moderated somewhat from the high 30%, 40% in growth year-over-year in equity and margin loan balances, et cetera. I guess I'm trying to see is, is that -- has the growth been again still tops in the industry, but has it been sold by in any way Asia and what's going on in the Asian markets, or could you attribute it -- what would you attribute it to? The change?
Thomas Peterffy -- Chief Executive Officer
So last year, the growth was higher, because the markets went up, and many of our customers were invested, so their assets -- the volume of their assets has increased. This year, up to the end of September, our customer's total profit was only about $1.1 billion.
So all the growth we had this year were due to new assets.
Rich Repetto -- Sandler O'Neill -- Analyst
And then in the past you haven't quantified it, but you just said the fastest growing area was Asia. Is that still -- does that still hold true now?
Thomas Peterffy -- Chief Executive Officer
Yeah. That is still -- holds true, yes.
Rich Repetto -- Sandler O'Neill -- Analyst
Okay. Thank you. And then the next question is on the shares per trade, you know, we understand it's lower trading in the low price stocks and you made up for it nicely in proportion, people trading higher priced stocks and with the commission, but I guess what we're not seeing is at least from what channel checks I've done is, other brokers being impacted in the low price, trading in low price stocks. Have I got that wrong or -- ?
Thomas Peterffy -- Chief Executive Officer
If you remember, it was a pure(ph)conference and I asked Chairman Clayton about whether the SEC is going to issue any clarification on their low price stock campaign. They are basically, in so many ways telling us that we shouldn't take low -- we shouldn't take customers who want to bring in low-priced stocks and when they sell it through us, unless we jump through several hoops, but they don't tell us what the hoops are. So I asked him at that time whether they plan to clarify this, and he said they are working on it.
But I haven't heard anything yet. So we just tightened up on the circumstances under which we -- our customers who trade low price stocks.
Rich Repetto -- Sandler O'Neill -- Analyst
Okay. That I understand. Thank you. That's helpful, Thomas. Thanks. That's all I have.
Operator
Thank you. Our next question comes from the line of Kyle Voigt from KBW. Your question please.
Kyle Voigt -- Keefe, Bruyette, & Woods -- Analyst
Hi. Just a couple of questions on margin lending first. First just the sequential increase in the yield on customer margin, I think it was 26 basis points. I think you said that the second consecutive quarter really outpaced our expectations. Just wondering if you're seeing some client mix within the margin balances that's been helpful for the overall yield, I guess, in other words, a larger portion of the margin balance is coming from those lower balance and higher price tiers?
Thomas Peterffy -- Chief Executive Officer
Yeah, there won't be any other explanation for that.
Kyle Voigt -- Keefe, Bruyette, & Woods -- Analyst
Okay. And just a follow-up there. Earlier this year you raised pricing on the upper tier of margin balances by about 5 basis points, and in that press release, you've set 30 billion as sort of a threshold or benchmark that you were monitoring previously.
Just curious now that margin balances have exceeded that 30 billion mark in September, are you comfortable with the level of customer margin that you have right now or will you continue to do some pricing adjustments?
Thomas Peterffy -- Chief Executive Officer
Yeah, we are comfortable, because credit balance is also a reason in parallel.
Kyle Voigt -- Keefe, Bruyette, & Woods -- Analyst
Okay, all right, thanks. And last one from me. It's just on the -- I mean, you've launched a number of solutions over the past, really 1 year or 18 months that really seem targeted at trying to increase your share of your client's wallet. So this integrated investment management offering with a debit card, indirect deposit, I'm just wondering, since it's been rolled out, do you think that you're having success in increasing that share of wallet and are there metrics that you track internally, I guess that would suggest that you're having success there. Thanks.
Thomas Peterffy -- Chief Executive Officer
As we say, we have roughly $61 billion of cash which is more than a third of all of our assets. So I wouldn't know how to ascribe it to anything else, but to(ph)the high interest will pay.
Kyle Voigt -- Keefe, Bruyette, & Woods -- Analyst
Okay, all right, thanks.
Operator
Thank you. Our next question comes from the line of Mac Sykes from Gabelli. Your question please.
Macrae Sykes -- Gabelli & Company, Inc. -- Analyst
Good afternoon, everyone. I did appreciate Nancy's comments on the free trading and your initiatives there, but maybe you could talk a little bit more about this topic of free trading. It seems like some of the customer agreements from some of your competitors actually have hidden costs in them.
And I just wanted to get your thoughts on sort of advertising free trading and whether that's truly the case, and then secondly, have you gotten any feedback from your customers given that you are a low cost offering in terms of customer feedback around free trading and honestly(ph)complaints or just questions around that and what you may be doing about it?
Thomas Peterffy -- Chief Executive Officer
So this is a serious issue for us. Now that JP Morgan has joined Robinhood in offering free trades. We have to -- we have to take this very seriously, as a threat. And we are currently working on commercial to explain to people why that is bad for them.
And, but the fact is that, if you look at our ATEX(ph)for example, we regularly gain customers 2, 3, 4 customers a day from Robinhood, and I've never seen a customer who went from us to Robinhood.
Macrae Sykes -- Gabelli & Company, Inc. -- Analyst
Okay. And you talked a little bit about market reform on the small cap stocks. But could you just talk about maybe market reform in terms of maker-taker model going forward, your partnership with IEX and where you see that maybe changing over the next five years or so?
Thomas Peterffy -- Chief Executive Officer
Well, we have no idea what is going to happen. I really don't know, it's hard to get anything from the SEC and in the case, they must be very busy because it's -- we are not successful in trying to talk to them about anything.
Macrae Sykes -- Gabelli & Company, Inc. -- Analyst
Thank you for taking my questions.
Operator
Thank you. Our next question comes from the line of Chris Harris from Wells Fargo. Your question, please.
Chris Harris -- Wells Fargo Securities -- Analyst
Thanks. I just want to follow back up on the -- the point about industry fee cuts, pricing pressures. Are you getting inquiries from customers about JP Morgan, about Robinhood. I mean, it sounds great that nobody is transferring out, but (Multiple Speaker) --
Thomas Peterffy -- Chief Executive Officer
We have not heard, no one has asked us anything. But we have a more sophisticated customer base. They understand. They understand what goes on here. So, I mean, we always tell them how much money the brokers earn in payments or order flow and they understand where that comes from.
Chris Harris -- Wells Fargo Securities -- Analyst
Got it. OK.
Thomas Peterffy -- Chief Executive Officer
And (Multiple Speaker) saying -- could you do my Trade Commission free(ph). No, that has not happened.
Chris Harris -- Wells Fargo Securities -- Analyst
Yeah, OK. I mean, you clearly have a well documented value proposition, it sounds like your customers get it. I just wanted to clarify that point. Okay, another topic in terms of interest earning asset balances, you've got the FDIC sweep program now and I'm wondering if you guys have thought or internally about what the opportunity for that could potentially be?
How many of your customers you think might want to take advantage of that program? I know it's early days, but clearly you guys get pretty nice economics there, so maybe you could elaborate on that if you could for us.
Thomas Peterffy -- Chief Executive Officer
Paul you want to answer(ph)this?
Paul J. Brody -- Chief Financial Officer
Yeah, sure. So we began to roll it out last -- the fourth quarter of last year, and we fairly and quickly made it available to the various customer groups who would be eligible for it. We haven't quite covered them all.
We estimate that if we had full participation, maybe the balances would be probably a little more than double what they are, so we've got pretty good take up on it right now, it's -- we are happy with it. Our own earnings are at or maybe a little bit better than our other investment rates -- other investment rates at banks without taking advantage of the yield curve, of course.
So it's operating quite well. We're happy with it at the level of that, we think it grows steadily as customers pick up on it and I think new customers, we made efforts to present it to them, sort of on their way in. So there's probably more take up there than there was before, and it's a good program.
Chris Harris -- Wells Fargo Securities -- Analyst
Okay, great. Thank you very much.
Operator
Thank you. Our next question comes from the line of Brian Perry(ph)from Reed Street(ph). Your question, please.
Unidentified Participant -- -- Analyst
Hey, good afternoon and thanks for taking my questions. First question is a follow-up on Richard's remarks about trading activity and low priced shares. I am wondering if you could give little more color on what types of operational changes you made to achieve the curtailment of trading in low priced shares among your existing customers?
And then for this quarter just approximately, what impact you think that curtailment had on your DARTs? Thank you. That's my first question.
Thomas Peterffy -- Chief Executive Officer
So we have -- our compliance department issued a new regulations which we use internally that strictly describes what kind of trades we can and cannot accept, what kind of orders we can accept and what kind of orders we cannot accept.
The upset on the part of customers was substantial, we said there is nothing that we will do about that and if they don't like it, we are sorry, but we cannot have them and a number of them have gone to see -- to look for other brokers and that's all I can tell you. So I did not do the work to figure out how many low price stock trades we have lost per day, for example. Have you Paul, you had some?
Paul J. Brody -- Chief Financial Officer
I don't have the detail at that level, no.
Unidentified Participant -- -- Analyst
Got it. I mean, the reason I was asking was volatility was up almost 18% year-over-year and your account closes in mid '20s with DARTs growth of just about 10%, I'm wondering if there's any way to size, it's an effect that you'll probably lap in a year, I'm guessing and so interest in any weight or ballpark that affect that you'll presumably lap in, I don't know in nine months or something?
Thomas Peterffy -- Chief Executive Officer
Well, no, I'm sorry, I do not think that -- I think a greater impact is that what is coming from the fact that more of our new accounts are introduced in broker accounts and those accounts tend to trade less than our original customer base which is the sophisticated trader -- the traders. When we started the business we originally addressed ourselves to floor traders and people who were trading for a living, right? So that's why we still have -- our basic customer is still that, but that's where the bulk of our volumes come from, but those people are getting old, as I know.
Unidentified Participant -- -- Analyst
Appreciate the color. And second question, if I could. So customer credits represented about 36% of customer equity in this quarter and that's inclusive of sweeps. I'm wondering how different that number looks for your new customers, for incoming assets?
Paul J. Brody -- Chief Financial Officer
I think we measure it separately for the incoming customers, but you have to understand and perhaps not put too much weight on the credit number itself, because as I mentioned before in my talk, that we've got a very steady stream of customer money and asset transfers coming in all the time.
But, you know, the credit balances are subject to what happens to them after that, so they become invested, depending on what the market is doing customers actually become more or less invested in stocks that's one primary factor.
Certainly on an aggregate basis for us as a broker, we take customer credits and lend it to other customers who are doing secure margin lending and that has certainly gone up quite rapidly. So that leaves us with less to invest on the Street, but customer credits are still going up.
So all of these factors contribute to, obviously they all work their way into the net interest margin in one way or another, but you have to understand about the customers being invested in the market, which is certainly not under our control.
Unidentified Participant -- -- Analyst
Got it. And it sounds like it's not a number you track or have the ability to track, it's just the point you made, it's really important input in projecting what net interest income will grow at over the longer term is just, how intense new clients are in terms of their cash balance.
Thomas Peterffy -- Chief Executive Officer
Yeah. But you have to remember that these clients, at least the ones that had more than $100,000 with us -- dollars worth of assets with us are getting paid interest and so what we earn on these balances is (inaudible).
Unidentified Participant -- -- Analyst
Yes, I mean it adds up it's more -- it's like larger than your commission revenue now.
Thomas Peterffy -- Chief Executive Officer
Right.
Unidentified Participant -- -- Analyst
Okay, thanks. Thanks for the color. I do appreciate it.
Operator
Thank you. (Operator Instructions). Our next question is a follow-up from the line of Mac Sykes from Gabelli. Your question please.
Macrae Sykes -- Gabelli & Company, Inc. -- Analyst
Hi. I wanted to just dig into, if I were to have, say a $100,000 account at the firm fully invested in S&P securities, how much I would hope to make just on the collateral that could be used in the portfolio?
Paul J. Brody -- Chief Financial Officer
So it's interesting that you picked S&P securities, because those tend to be what we would call general collateral, meaning blue chips and fairly uninteresting from a lending standpoint as far as the demand on the Street.
If you had picked another index that had more, what we call hard to borrow stocks, more esoteric names, more stocks in greater demand, you could certainly see substantial earnings from participating in the fully paid lending program. But -- and those numbers are all over the line, and they're coming out. That's why the securities lending revenue is very much a function of which stocks get hot at certain times.
We've had -- we've seen Tesla come and go, sort of in terms of its demand for shares on the Street, that's just one name, and our job is and we have built tools to take advantage and optimize the lending when the stocks go into a range where their rates get very high.
Macrae Sykes -- Gabelli & Company, Inc. -- Analyst
And just to clarify on GC, what's the yield I guess are there earnings on that?
Thomas Peterffy -- Chief Executive Officer
There is no yield on GC.
Paul J. Brody -- Chief Financial Officer
Right, we don't even lend out GC because it doesn't produce any yield. But if you are a customer, I can tell you that, you can look into a report that we would deliver to you that would tell you what the indicated earnings would be on the portfolio that you're actually holding in your account to try to interest you or say at least, get you to see what the value of participating in the program might be.
So we have very good participation in the program, because we do a good job of lending shares out.
Macrae Sykes -- Gabelli & Company, Inc. -- Analyst
Great, thank you.
Operator
Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Nancy Stuebe for any further remarks.
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. We will also be posting a clean version of our transcript on our site tomorrow. Thank you again, we will talk to you next quarter end.
Operator
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Duration: 49 minutes
Call participants:
Nancy Stuebe -- Director of Investor Relations
Paul J. Brody -- Chief Financial Officer
Rich Repetto -- Sandler O'Neill -- Analyst
Thomas Peterffy -- Chief Executive Officer
Kyle Voigt -- Keefe, Bruyette, & Woods -- Analyst
Macrae Sykes -- Gabelli & Company, Inc. -- Analyst
Chris Harris -- Wells Fargo Securities -- Analyst
Unidentified Participant -- -- Analyst
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