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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes in Item 1, included elsewhere in this report. In addition to historical information, the following discussion also contains forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the Securities Exchange Commission (“SEC”) on February 27, 2025, and elsewhere in this report.
When we use the terms “we,” “us,” “our,” and “IBKR,” we mean IBG, Inc. and its subsidiaries (including IBG LLC) for the periods presented. Unless otherwise indicated, the term “common stock” refers to the Class A common stock of IBG, Inc.
Introduction
Interactive Brokers Group, Inc. (the “Company” or “IBG, Inc.”) is a holding company whose primary asset is its ownership of approximately 25.8% of the membership interests of IBG LLC. The remaining approximately 74.2% of IBG LLC membership interests are held by IBG Holdings LLC (“Holdings”), a holding company that is owned by our founder and Chairman, Mr. Thomas Peterffy and his affiliates, management and other employees of IBG LLC, and certain other members. The table below shows the amount of IBG LLC membership interests held by IBG, Inc. and Holdings as of March 31, 2025.
| IBG, Inc. | Holdings | Total | ||||
| Ownership % | 25.8% | 74.2% | 100.0% | |||
| Membership interests | 108,981,614 | 313,643,354 | 422,624,968 |
We are an automated global electronic broker. We custody and service accounts for hedge and mutual funds, exchange-traded funds (“ETFs”), registered investment advisors, proprietary trading groups, introducing brokers and individual investors. We specialize in routing orders and executing and processing trades in stocks, options, futures, forex, bonds, mutual funds, ETFs and precious metals on more than 160 electronic exchanges and market centers in 36 countries and 28 currencies around the world. In addition, our customers can use our trading platform to trade certain cryptocurrencies through third-party cryptocurrency service providers that execute, clear and custody the cryptocurrencies. We also offer trading in forecast contracts, which are event-based contracts traded on ForecastEx LLC, a CFTC-registered exchange and clearinghouse we established.
As an electronic broker, we execute, clear and settle trades globally for both institutional and individual customers. Capitalizing on our proprietary technology, our systems provide our customers with the capability to monitor multiple markets around the world simultaneously and to execute trades electronically in these markets at a low cost, in multiple products and currencies from a single trading account. The ever-growing complexity of multiple market centers across diverse geographies provides us with ongoing opportunities to build and continuously adapt our order routing software to secure excellent execution prices.
Since our inception in 1977, we have focused on developing proprietary software to automate broker-dealer functions. The proliferation of electronic exchanges and market centers has allowed us to integrate our software with an increasing number of trading venues – as well as with market data sources, securities lending platforms and regulatory reporting facilities – creating one automatically functioning, computerized platform that requires minimal human intervention.
Our customer base is diverse with respect to geography and type. Currently, approximately 84% of our customers reside outside the U.S. in over 200 countries and territories, and a majority of new customers comes from outside the U.S. Over half of our customers’ equity is in institutional accounts such as hedge funds, financial advisors, proprietary trading firms and introducing brokers. Specialized products and services that we have developed successfully attract these accounts. For example, we offer prime brokerage services, including financing and securities lending, to hedge funds; our model portfolio technology and automated share allocation and rebalancing tools are particularly attractive to financial advisors; and our trading platform, global access and low pricing attract introducing brokers.
Business Environment
During the quarter ended March 31, 2025 (“current quarter”), world equities markets were mixed, with Canada, Europe, the United Kingdom (“U.K.”) and Hong Kong up compared to the prior quarter, while the United States (“U.S.”), Japan and Australia registered declines. While central banks in most countries cut their policy rates this quarter, including those in Canada, Europe and the U.K., in the U.S. and Hong Kong they maintained their rates, a contributing factor to the diversity in equity markets results.
Early in the quarter, post-U.S. election enthusiasm helped drive the market to a peak in February. After that, the market declined, with the S&P 500® index closing down 5% from the prior quarter end. The dominance of a small number of technology stocks (the so-called ‘‘Magnificent 7’’), which had driven much of the market’s growth in the previous year, waned as the prices of six of the seven fell
significantly more than the S&P 500® index this quarter. Further, inflationary fears reemerged as a result of new tariff policy proposals, their potential impact on world economies, and the possibility of recession.
The following is a summary of the key economic drivers that affect our business and how they compared to the prior-year quarter:
Global trading volumes. Worldwide, equities volumes at most major trading venues, except for Japan, increased in the current quarter, as most major market indices rose from the prior-year quarter. In the U.S., according to industry data, average daily volume in listed cash equities volume increased by 33%, exchange-listed equity-based options by 21%, and futures by 13%. Options trading volumes have risen with the growing popularity of shorter-dated options contracts. In futures markets, volumes increased across all product segments, particularly in commodities such as the energy and agriculture sectors, as investors sought to mitigate their exposure to ongoing economic and geopolitical uncertainties. Equity index, interest rate and foreign exchange products also increased.
These factors led to strong results across our major product types. Our customers’ options, futures, equities, and foreign exchange volumes were up 25%, 16%, 47% and 35%, respectively, compared to the prior-year quarter.
Note that while U.S. options, futures and cash equities volumes are readily comparable measures, they reflect most but not all of the global volumes that generate our commission revenue. See ‘‘Trading Volumes and Customer Statistics’’ below in this Item 2 for additional details regarding our trade volumes, contract and share volumes, and customer statistics.
Volatility. U.S. market volatility, as measured by the average Chicago Board Options Exchange Volatility Index(‘‘VIX®’’), increased by 35%, from an average of 13.7 in the prior-year quarter to 18.5 in the current quarter. While volatility levels remain below the levels reached in 2020 through 2022, they rose in the quarter to their highest level in nearly two years as the world geopolitical and economic outlook grew more uncertain.
In general, higher volatility typically enhances our performance because it often correlates positively with customer trading activity across product types.
Interest Rates. The U.S. Federal Reserve maintained the benchmark federal funds rate during the current quarter, after cutting it three times in the second half of 2024 (in September, November and December), by a cumulative 100 basis points. The U.S. Treasury yield curve remained inverted through the medium term. As noted above, in several countries with developed financial markets, benchmark interest rates declined during the current quarter as central banks’ inclination to encourage growth overcame apprehensions about inflation, despite increasing concern on the uncertainty of U.S. tariff policy.
Lower U.S. benchmark rates reduce the interest we earn on our segregated cash, the majority of which is invested in short-term U.S. government securities and related instruments. Relatively higher short-term rates, and uncertainty over future U.S. Federal Reserve rate policy, have led us to maintain a short duration portfolio, substantially all of which matured within three months at March 31, 2025, to more closely match our asset and liability maturities on our interest-sensitive assets. Further, our margin balances are tied to benchmark rates, so lower rates also limit the interest we earn on margin lending to our customers. We continue to offer among the lowest rates in the industry on margin lending, and we believe our low rates are an important feature that attracts customers to our platform.
As an offset, lower rates also reduce our interest expense. For example, in U.S. dollars, we pay interest to customers on their qualified cash balances when the federal funds effective rate is above 0.50%, which it is currently. Any rate cuts are passed through to our customers as we maintain a 0.50% spread. We believe the attractive rates we pay on customer cash are among the highest in the industry and are another important feature that draws customers to our platform.
Net interest income on margin loan balances rose 14% compared to the prior-year quarter. This increase was due to the 38% growth in margin loan balances in the current active market environment, somewhat offset by the decline in the average federal funds effective rate to 4.33% in the current quarter from 5.33% in the prior-year quarter, and similar rate cuts in other currencies.
Higher average balances contributed to a 3% rise in net interest income over the prior-year quarter. The combined effect reduced our net interest margin from 2.41% in the prior-year quarter to 2.10% in the current quarter.
Currency fluctuations. As a global electronic broker trading on exchanges around the world in multiple currencies, we are exposed to foreign currency risk. We actively manage this exposure by keeping our equity in proportion to a defined basket of 10 currencies we call the ‘‘GLOBAL’’ to diversify our risk and to align our hedging strategy with the currencies that we use in our business. Because we report our financial results in U.S. dollars, the change in the value of the GLOBAL versus the U.S. dollar affects our earnings. During the current quarter, the value of the GLOBAL, as measured in U.S. dollars, increased 0.75% compared to its value at December 31, 2024, which had a positive impact on our comprehensive earnings for the current quarter. A discussion of our approach for managing foreign currency exposure is contained in Part I, Item 3 of this Quarterly Report on Form 10-Q entitled ‘‘Quantitative and Qualitative Disclosures about Market Risk.’’
Financial Overview
We report non-GAAP financial measures, which exclude certain items that may not be indicative of our core operating results and business outlook and are useful in evaluating the operating performance of our business. See the “Non-GAAP Financial Measures” section below in this Item 2 for additional details.
Diluted earnings per share were $1.94 for the current quarter, compared to diluted earnings per share of $1.61 for the prior-year quarter. Adjusted diluted earnings per share were $1.88 for the current quarter and $1.64 for the prior-year quarter. The calculation of diluted earnings per share is detailed in Note 4 – “Equity and Earnings per Share” to the unaudited condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
For the current quarter, our net revenues were $1,427 million and income before income taxes was $1,055 million, compared to net revenues of $1,203 million and income before income taxes of $866 million in the prior-year quarter. Adjusted net revenues were $1,396 million and adjusted income before income taxes was $1,024 million, compared to adjusted net revenues of $1,216 million and adjusted income before income taxes of $879 million in the prior-year quarter.
Financial highlights for the current quarter (compared to the prior-year quarter):
Commission revenue increased 36% to $514 million on higher customer trading volumes. Customer trading volume in stocks, options and futures increased 47%, 25% and 16%, respectively.
Net interest income increased 3% to $770 million on higher average customer margin loans and customer credit balances.
Other fees and services increased 32% to $78 million, led by increases of $9 million in risk exposure fees and $3 million in payments for order flow from exchange-mandated programs.
Execution, clearing and distribution fees expenses increased 20% to $121 million, driven by a higher SEC fee rate, a new FINRA Consolidated Audit Trail (“CAT”) fee initiated during the fourth quarter of 2024, and higher customer trading volumes in stocks, options and futures.
General and administrative expenses increased 24% to $62 million, driven primarily by an increase of $8 million in advertising expenses.
Pretax profit margin was 74% for the current quarter compared to 72% in the prior-year quarter. Adjusted pretax profit margin for the current quarter was 73% compared to 72% in the prior-year quarter.
Total equity as of March 31, 2025 was $17.5 billion.
In connection with our currency diversification strategy, as of March 31, 2025, approximately 24% of our equity was denominated in currencies other than the U.S. dollar. In the current quarter, our currency diversification strategy increased our comprehensive earnings by $127 million (compared to a decrease of $104 million in the prior-year quarter), as the U.S. dollar value of the GLOBAL increased by approximately 0.75%, compared to its value as of December 31, 2024. The effects of our currency diversification strategy are reported as (1) a component of “Other income” (gain of $20 million) in the consolidated statements of comprehensive income and (2) other comprehensive income (“OCI”) (gain of $107 million) in the consolidated statements of financial condition and the consolidated statements of comprehensive income. The full effect of the GLOBAL is captured in comprehensive income.
Certain Trends and Uncertainties
We believe that our current operations may be favorably or unfavorably impacted by the following trends and uncertainties that may affect our financial condition and results of operations:
- Retail participation in the equity markets has fluctuated in the past due to investor sentiment, market conditions and a variety of other factors. Retail transaction volumes may not be sustainable and are not predictable.
Consolidation among market centers may adversely affect the value of our IB SmartRoutingSM software.
Competition among broker-dealers may continue to intensify.
- Benchmark interest rates tend to fluctuate with economic conditions. Changes in interest rates may not be predictable.
Fiscal and/or monetary policy may change and impact the financial services business and securities markets.
- New legislation or modifications to existing regulations and rules could occur in the future. Scrutiny in the use of artificial intelligence (AI) and information security by regulatory and legislative authorities has increased.
The impact of another pandemic or a public health emergency will depend on numerous evolving factors that cannot be accurately predicted, including the duration and spread of the pandemic, governmental regulations in response to the pandemic, and the effectiveness of vaccinations and other medical advancements.
We continue to be exposed to the risks and uncertainties of doing business in international markets, particularly in the heavily regulated brokerage industry. Such risks and uncertainties include political, economic and financial instability, and foreign policy changes. For example, tensions between the U.S. and China have escalated in recent years, and changes in Chinese governmental oversight of the Chinese and Hong Kong capital markets could result in adverse effects on our business and loss of assets we hold in the region. Additionally, although our direct and indirect exposures to Russia and Ukraine are not material, the war in Ukraine and related sanctions have created substantial uncertainty in the global economy and financial markets.
- Our remaining market making activities, while not material, will continue to be impacted by market structure changes, market conditions, the level of automation of competitors, and the relationship between actual and implied volatility in the equities markets.
See “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K, filed with the SEC on February 27, 2025, and elsewhere in this report for a discussion of other risks that may affect our financial condition and results of operations.
Trading Volumes and Customer Statistics
The tables below present historical trading volumes and customer statistics for our business. Trading volumes are the primary driver in our business. Information on our net interest income can be found elsewhere in this report.
EXECUTED ORDER VOLUMES:
(in thousands, except %)
| Customer | % | Principal | % | Total | % | |||||||
| Period | Orders | Change | Orders | Change | Orders | Change | ||||||
| 2022 | 532,064 | 26,966 | 559,030 | |||||||||
| 2023 | 483,015 | (9%) | 29,712 | 10% | 512,727 | (8%) | ||||||
| 2024 | 661,666 | 37% | 63,348 | 113% | 725,014 | 41% | ||||||
| 1Q2024 | 143,320 | 9,190 | 152,510 | |||||||||
| 1Q2025 | 211,148 | 47% | 28,393 | 209% | 239,541 | 57% | ||||||
| 4Q2024 | 196,433 | 23,220 | 219,653 | |||||||||
| 1Q2025 | 211,148 | 7% | 28,393 | 22% | 239,541 | 9% |
CONTRACT AND SHARE VOLUMES:
(in thousands, except %)
TOTAL
| Options | % | Futures 1 | % | Stocks | % | |||||||
| Period | (contracts) | Change | (contracts) | Change | (shares) | Change | ||||||
| 2022 | 908,415 | 207,138 | 330,035,586 | |||||||||
| 2023 | 1,020,736 | 12% | 209,034 | 1% | 252,742,847 | (23%) | ||||||
| 2024 | 1,344,855 | 32% | 218,327 | 4% | 307,489,711 | 22% | ||||||
| 1Q2024 | 307,593 | 54,046 | 64,027,093 | |||||||||
| 1Q2025 | 383,998 | 25% | 61,869 | 14% | 93,934,241 | 47% | ||||||
| 4Q2024 | 371,683 | 52,285 | 97,610,744 | |||||||||
| 1Q2025 | 383,998 | 3% | 61,869 | 18% | 93,934,241 | (4%) |
CUSTOMER
| Options | % | Futures 1 | % | Stocks | % | |||||||
| Period | (contracts) | Change | (contracts) | Change | (shares) | Change | ||||||
| 2022 | 873,914 | 203,933 | 325,368,714 | |||||||||
| 2023 | 981,172 | 12% | 206,073 | 1% | 248,588,960 | (24%) | ||||||
| 2024 | 1,290,770 | 32% | 214,864 | 4% | 302,040,873 | 22% | ||||||
| 1Q2024 | 296,146 | 53,018 | 62,898,480 | |||||||||
| 1Q2025 | 369,931 | 25% | 61,381 | 16% | 92,763,867 | 47% | ||||||
| 4Q2024 | 356,254 | 51,662 | 95,910,447 | |||||||||
| 1Q2025 | 369,931 | 4% | 61,381 | 19% | 92,763,867 | (3%) |
(1)Futures contract volume includes options on futures.
PRINCIPAL
| Options | % | Futures 1 | % | Stocks | % | |||||||
| Period | (contracts) | Change | (contracts) | Change | (shares) | Change | ||||||
| 2022 | 34,501 | 3,205 | 4,666,872 | |||||||||
| 2023 | 39,564 | 15% | 2,961 | (8%) | 4,153,887 | (11%) | ||||||
| 2024 | 54,085 | 37% | 3,463 | 17% | 5,448,838 | 31% | ||||||
| 1Q2024 | 11,447 | 1,028 | 1,128,613 | |||||||||
| 1Q2025 | 14,067 | 23% | 488 | (53%) | 1,170,374 | 4% | ||||||
| 4Q2024 | 15,429 | 623 | 1,700,297 | |||||||||
| 1Q2025 | 14,067 | (9%) | 488 | (22%) | 1,170,374 | (31%) |
(1)Futures contract volume includes options on futures.
CUSTOMER STATISTICS:
| Year over Year | 1Q2025 | 1Q2024 | % Change | |||||
| Total Accounts (in thousands) | 3,616 | 2,746 | 32% | |||||
| Customer Equity (in billions) 1 | $ | 573.5 | $ | 465.9 | 23% | |||
| Total Customer DARTs (in thousands) 2 | 3,519 | 2,350 | 50% | |||||
| Cleared Customers | ||||||||
| Commission per Cleared Commissionable Order 3 | $ | 2.76 | $ | 2.93 | (6%) | |||
| Cleared Avg. DARTs per Account (Annualized) | 220 | 197 | 12% |
| Consecutive Quarters | 1Q2025 | 4Q2024 | % Change | |||||
| Total Accounts (in thousands) | 3,616 | 3,337 | 8% | |||||
| Customer Equity (in billions) 1 | $ | 573.5 | $ | 568.2 | 1% | |||
| Total Customer DARTs (in thousands) 2 | 3,519 | 3,118 | 13% | |||||
| Cleared Customers | ||||||||
| Commission per Cleared Commissionable Order 3 | $ | 2.76 | $ | 2.72 | 1% | |||
| Cleared Avg. DARTs per Account (Annualized) | 220 | 213 | 3% |
(1)Excludes non-customers.
(2)Daily average revenue trades (“DARTs”) are based on customer orders.
(3)Commissionable order – a customer order that generates commissions.
Results of Operations
The table below presents our consolidated results of operations for the periods indicated. The period-to-period comparisons below of financial results are not necessarily indicative of future results.
| Three Months Ended March 31, | ||||||
| 2025 | 2024 | |||||
| (in millions, except share and per share amounts) | ||||||
| Revenues | ||||||
| Commissions | $ | 514 | $ | 379 | ||
| Other fees and services | 78 | 59 | ||||
| Other income | 65 | 18 | ||||
| Total non-interest income | 657 | 456 | ||||
| Interest income | 1,718 | 1,760 | ||||
| Interest expense | (948) | (1,013) | ||||
| Total net interest income | 770 | 747 | ||||
| Total net revenues | 1,427 | 1,203 | ||||
| Non-interest expenses | ||||||
| Execution, clearing and distribution fees | 121 | 101 | ||||
| Employee compensation and benefits | 154 | 145 | ||||
| Occupancy, depreciation and amortization | 24 | 26 | ||||
| Communications | 10 | 10 | ||||
| General and administrative | 62 | 50 | ||||
| Customer bad debt | 1 | 5 | ||||
| Total non-interest expenses | 372 | 337 | ||||
| Income before income taxes | 1,055 | 866 | ||||
| Income tax expense | 91 | 71 | ||||
| Net income | 964 | 795 | ||||
| Less net income attributable to noncontrolling interests | 751 | 620 | ||||
| Net income available for common stockholders | $ | 213 | $ | 175 | ||
| Earnings per share | ||||||
| Basic | $ | 1.95 | $ | 1.63 | ||
| Diluted | $ | 1.94 | $ | 1.61 | ||
| Weighted average common shares outstanding | ||||||
| Basic | 108,923,381 | 107,070,830 | ||||
| Diluted | 109,865,741 | 108,149,440 | ||||
| Comprehensive income | ||||||
| Net income available for common stockholders | $ | 213 | $ | 175 | ||
| Other comprehensive income | ||||||
| Cumulative translation adjustment, before income taxes | 28 | (26) | ||||
| Income taxes related to items of other comprehensive income | - | - | ||||
| Other comprehensive income (loss), net of tax | 28 | (26) | ||||
| Comprehensive income available for common stockholders | $ | 241 | $ | 149 | ||
| Comprehensive income attributable to noncontrolling interests | ||||||
| Net income attributable to noncontrolling interests | $ | 751 | $ | 620 | ||
| Other comprehensive income - cumulative translation adjustment | 79 | (76) | ||||
| Comprehensive income attributable to noncontrolling interests | $ | 830 | $ | 544 |
Three Months Ended March 31, 2025 (“current quarter”) compared to the Three Months Ended March 31, 2024 (“prior-year quarter”)
Net Revenues
Total net revenues, for the current quarter, increased $224 million, or 19%, compared to the prior-year quarter, to $1,427. The increase in net revenues was due to higher commissions, other income, net interest income, and other fees and services.
Commissions
We earn commissions from our cleared customers for whom we act as an executing and clearing broker and from our non-cleared customers for whom we act as an execution-only broker. Our commission structure allows customers to choose between (1) an all-inclusive fixed, or “bundled”, rate; (2) a tiered, or “unbundled”, rate that offers lower commissions for high volume customers where we pass through regulatory and exchange fees; and (3) our IBKR LiteSM offering, which provides commission-free trades on U.S. exchange-listed stocks and ETFs. IBKR LiteSM trades generate payments from market makers and others to whom we route these orders, which are reported in commissions. Our commissions are geographically diversified.
Commissions, for the current quarter, increased $135 million, or 36%, compared to the prior-year quarter, to $514 million, driven by higher customer trading volumes across all product types. Total customer options and futures contract and stock share volumes increased 25%, 16% and 47%, respectively. Total DARTs for the current quarter increased 50% to 3.5 million, compared to 2.4 million for the prior-year quarter. Average commission per commissionable order for cleared customers, for the current quarter, decreased 6% to $2.76, compared to $2.93 for the prior-year quarter, due to smaller average order sizes across all product classes, lower average commissions per contract in options and futures, and greater capture of liquidity rebates passed through to customers.
Other Fees and Services
We earn fee income on services provided to customers, which includes market data fees, risk exposure fees, payments for order flow from exchange-mandated programs, FDIC sweep fees, and other fees and services charged to customers.
Other fees and services, for the current quarter, increased $19 million, or 32%, compared to the prior-year quarter, to $78 million, driven by a $9 million increase in risk exposure fees as customers exhibited more risk-on behavior, a $3 million increase in payments for order flow from exchange-mandated programs driven by higher customer trading volumes, and a $2 million increase in FDIC sweep fees due to higher customer balances.
Other Income
Other income consists of foreign exchange gains (losses) from our currency diversification strategy, gains (losses) from principal transactions, gains (losses) from our equity method and other investments, and other revenue not directly attributable to our core business offerings. A discussion of our approach to managing foreign currency exposure is contained in Part I, Item 3 of this Quarterly Report on Form 10-Q entitled “Quantitative and Qualitative Disclosures about Market Risk.”
Other income, for the current quarter, increased $47 million, or 261%, compared to the prior-year quarter, to $65 million. This increase was mainly comprised of $22 million related our currency diversification strategy, which gained $20 million in the current quarter compared to a loss of $2 million in the prior-year quarter; and $21 million related to our strategic investment in Up Fintech Holding Limited (“Tiger Brokers”), which gained $11 million in the current quarter compared to a loss of $10 million in the prior-year quarter.
Interest Income and Interest Expense
We earn interest on margin lending to customers that is secured by marketable securities and currency balances these customers hold with us; from our investments in U.S. and foreign government securities; from borrowing and lending securities; on deposits (in positive interest rate currencies) with banks; and on certain customers’ cash balances in negative rate currencies. We pay interest on customer cash balances (in sufficiently positive interest rate currencies); for borrowing and lending securities; on deposits (in negative interest rate currencies) with banks; and on our borrowings.
Net interest income (interest income less interest expense), for the current quarter, increased $23 million, or 3%, compared to the prior-year quarter, to $770 million. The increase in net interest income was driven by higher customer margin loans and customer credit balances, partially offset by lower benchmark interest rates.
Net interest income on customer balances, for the current quarter, increased $60 million compared to the prior-year quarter, driven by a $17.7 billion increase in average customer margin loans and an $18.5 billion increase in average customer credit balances. See the “Business Environment” section above in this Item 2 for a further discussion about the change in interest rates in the current quarter.
The Company measures return on interest-earning assets using net interest margin (“NIM”). NIM is computed by dividing the annualized net interest income by the average interest-earning assets for the period. Interest-earning assets consist of cash and securities segregated for regulatory purposes (including U.S. government securities and securities purchased under agreements to resell), customer margin loans, securities borrowed, other interest-earning assets (solely firm assets) and customer cash balances swept into FDIC-insured banks as part of our Insured Bank Deposit Sweep Program. Interest-bearing liabilities consist of customer credit balances, securities loaned, and other interest-bearing liabilities.
Yields are generally a reflection of benchmark interest rates in each currency in which the Company and its customers hold cash balances. Because a meaningful portion of customer cash and margin loans are denominated in currencies other than the U.S. dollar, changes in U.S. benchmark interest rates do not impact the total amount of segregated cash and securities, customer margin loans and customer credit balances. Furthermore, because interest, when benchmark rates are at sufficiently high levels, is paid only on eligible cash credit balances (i.e., balances over $10 thousand or equivalent, in securities accounts with over $100 thousand in equity, and in smaller accounts at reduced rates), changes in benchmark interest rates are not passed through to the total amount of customer credit balances. Finally, the Company’s policies with respect to currencies with near zero or negative interest rates impact the overall yields on segregated cash and customer credit balances as effective interest rates in those currencies move above or below zero.
We earn income on securities loaned and borrowed to support customer long and short stock holdings in margin accounts.
A securities lending transaction generates (1) net interest earned on lending a security, which is based on supply and demand for that security, and (2) interest earned on the cash collateral deposited for the loan of that security, which is based on benchmark interest rates. Interest on this collateral is reported as net interest on segregated cash, since cash collateral from securities lending is held in specially-designated bank accounts for the benefit of customers, in accordance with U.S. customer protection rules. Generally, as benchmark interest rates rise, while the overall revenue generated from a securities lending transaction may not change, the portion derived from interest earned on the cash collateral, which is classified as net interest income on “Segregated cash and securities, net” increases, while the portion classified as “Securities borrowed and loaned, net” decreases.
In the current quarter, average securities borrowed balances decreased 9%, to $4.9 billion, and average securities loaned balances increased 38%, to $16.1 billion, compared to the prior-year quarter. Net interest earned from securities lending is affected by the level of demand for securities positions held by our customers that investors are looking to sell short. During the current quarter, net interest earned from securities lending transactions decreased $16 million, or 62%, compared to the prior-year quarter, driven by fewer so-called “hard to borrow” stocks industry wide. However, as noted above, the rise in benchmark interest rates from near zero in 2022 has shifted a portion of the interest reported as generated by lending securities to interest income on segregated cash (see further explanation above). It should be noted that securities lending transactions entered into to support customer activity may produce interest income (expense) that is offset by interest expense (income) related to customer balances.
We estimate that if the interest earned and paid on cash collateral related to our securities lending transactions were included under “Securities borrowed and loaned, net” in the table below, the total net interest income related to our securities lending activities would have been $186 million in the current quarter, compared to $167 million in the prior-year quarter. Such additional interest attributed to our securities lending activities would be reclassified from net interest income on “Segregated cash and securities, net” and “Customer credit balances, net” in the table below, so it would have no effect on our overall net interest income or net interest margin.
Our Stock Yield Enhancement Program provides an opportunity for customers with fully-paid stock to allow us to lend it out. We pay customers a rebate on the cash collateral generally equal to 50% of a market-based rate for lending the shares. We place cash and/or U.S. Treasury securities as collateral securing the loans in the customer’s account, which is held in segregated accounts or at an affiliate acting as collateral agent for the benefit of our customer.
The table below presents net interest income information corresponding to interest-earning assets and interest-bearing liabilities for the periods indicated.
| Three Months Ended March 31, | ||||||
| 2025 | 2024 | |||||
| (in millions) | ||||||
| Average interest-earning assets | ||||||
| Segregated cash and securities | $ | 67,044 | $ | 61,132 | ||
| Customer margin loans | 64,363 | 46,653 | ||||
| Securities borrowed | 4,871 | 5,368 | ||||
| Other interest-earning assets | 12,456 | 9,952 | ||||
| FDIC sweeps 1,3 | 4,785 | 3,861 | ||||
| $ | 153,519 | $ | 126,966 | |||
| Average interest-bearing liabilities | ||||||
| Customer credit balances | $ | 118,022 | $ | 99,510 | ||
| Securities loaned | 16,137 | 11,734 | ||||
| Other interest-bearing liabilities | 66 | - | ||||
| $ | 134,225 | $ | 111,244 | |||
| Net interest income | ||||||
| Segregated cash and securities, net | $ | 663 | $ | 764 | ||
| Customer margin loans 2 | 775 | 678 | ||||
| Securities borrowed and loaned, net | 10 | 26 | ||||
| Customer credit balances, net 2 | (817) | (881) | ||||
| Other net interest income 1,3 | 163 | 175 | ||||
| Net interest income 3 | $ | 794 | $ | 762 | ||
| Net interest margin ("NIM") | 2.10% | 2.41% | ||||
| Annualized Yields | ||||||
| Segregated cash and securities | 4.01% | 5.03% | ||||
| Customer margin loans | 4.88% | 5.85% | ||||
| Customer credit balances | 2.81% | 3.56% |
(1)Represents the average amount of customer cash swept into FDIC-insured banks as part of our Insured Bank Deposit Sweep Program. This item is not recorded in the Company's condensed consolidated statements of financial condition. Income derived from program deposits is reported in other net interest income in the table above.
(2)Interest income and interest expense on customer margin loans and customer credit balances, respectively, are calculated on daily cash balances within each customer’s account on a net basis, which may result in an offset of balances across multiple account segments (e.g., between securities and commodities segments).
(3)Includes income from financial instruments that has the same characteristics as interest, but is reported in other fees and services and other income in the Company’s condensed consolidated statements of comprehensive income. For the three months ended March 31, 2025 and 2024, $8 million and $6 million were reported in other fees and services, respectively, and $16 and $9 million were reported in other income, respectively.
Non**-**Interest Expenses
Non-interest expenses, for the current quarter, increased $35 million, or 10%, compared to the prior-year quarter, to $372 million, mainly due to a $20 million increase in execution, clearing and distribution fees, a $12 million increase in general and administrative expenses, and a $9 million increase in employee compensation and benefits; partially offset by a $4 million decrease in customer bad debt expense and $2 million decrease in occupancy, depreciation and amortization expense. As a percentage of total net revenues, non-interest expenses were 26% for the current quarter and 28% for the prior-year quarter.
Execution, Clearing and Distribution Fees
Execution, clearing and distribution fees include the costs of executing and clearing trades, net of liquidity rebates received from various exchanges and market centers, as well as regulatory fees and market data fees. Execution fees are paid primarily to electronic exchanges and market centers on which we trade. Clearing fees are paid to clearing houses and clearing agents. Market data fees, which are associated with market data revenue included in other fees and services, are paid to third parties to receive streaming price quotes and related information.
Execution, clearing and distribution fees, for the current quarter, increased $20 million, or 20%, compared to the prior-year quarter, to $121 million, mainly driven by an $18 million increase in SEC regulatory fees due to an increase in the SEC fee rate effective May 22, 2024, and $3 million due to a new FINRA Consolidated Audit Trail (“CAT”) fee initiated in the fourth quarter of 2024, partially offset by greater capture of liquidity rebates due to higher customer trading volumes. SEC and CAT fees, as with other regulatory fees, are passed through to customers. As a percentage of total net revenues, execution, clearing and distribution fees were 8% for both the current quarter and the prior-year quarter.
Employee Compensation and Benefits
Employee compensation and benefits include salaries, bonuses and other incentive compensation plans, group insurance, contributions to benefit programs and other related employee costs.
Employee compensation and benefits expenses, for the current quarter, increased $9 million, or 6%, compared to the prior-year quarter, to $154 million associated with a combination of staffing increases and inflation. The average number of employees increased 2% to 3,013 for the current quarter, compared to 2,942 for the prior-year quarter. As we continue to grow, our focus on automation has allowed us to maintain a relatively small staff. As a percentage of total net revenues and adjusted net revenues, employee compensation and benefits expenses were both11% for the current quarter and 12% for the prior-year quarter.
Occupancy, Depreciation and Amortization
Occupancy expenses consist primarily of rental payments on office and data center leases and related occupancy costs, such as utilities. Depreciation and amortization expenses result from the depreciation of fixed assets, such as computing and communications hardware, as well as amortization of leasehold improvements and capitalized in-house software development.
Occupancy, depreciation and amortization expenses, for the current quarter, decreased $2 million, or 8%, compared to the prior-year quarter, to $24 million, mainly due to lower depreciation and amortization expense. As a percentage of total net revenues, occupancy, depreciation and amortization expenses were 2% for both the current quarter and the prior-year quarter.
Communications
Communications expenses consist primarily of the cost of voice and data telecommunications lines supporting our business, including connectivity to exchanges and market centers around the world.
Communications expenses, for the current quarter, were unchanged from the prior-year quarter, at $10 million. As a percentage of total net revenues, communications expenses were 1% for both the current quarter and the prior-year quarter.
General and Administrative
General and administrative expenses consist primarily of advertising; professional services expenses, such as legal and audit work; legal and regulatory matters; and other operating expenses.
General and administrative expenses, for the current quarter, increased $12 million, or 24%, compared to the prior-year quarter, to $62 million, primarily due to an $8 million increase in advertising expenses. As a percentage of total net revenues, general and administrative expenses were 4% for both the current quarter and the prior-year quarter.
Customer Bad Debt
Customer bad debt expense consists primarily of losses incurred by customers in excess of their assets with us, net of amounts recovered by us.
Customer bad debt expense, for the current quarter, decreased $4 million, compared to the prior-year quarter, to $1 million.
Income Tax Expense
We pay U.S. federal, state and local income taxes on our taxable income, which is proportional to the percentage we own of IBG LLC. Also, our operating subsidiaries are subject to income tax in the respective jurisdictions in which they operate.
Income tax expense, for the current quarter, increased $20 million, or 28%, compared to the prior-year quarter, to $91 million, primarily due to (1) higher income before taxes at our operating subsidiaries outside the U.S. and a higher income tax rate in a foreign jurisdiction following the adoption of the minimum effective tax rate of 15% on January 1, 2025; (2) higher income before income taxes subject to U.S. income tax at IBG, Inc.; and (3) IBG, Inc.’s higher average ownership percentage of IBG LLC, which rose from 25.4% in the prior-year quarter to 25.8% in the current quarter.
The table below presents information about our income tax expense for the periods indicated.
| Three Months Ended March 31, | |||||
| 2025 | 2024 | ||||
| (in millions, except %) | |||||
| Consolidated | |||||
| Consolidated income before income taxes | $ | 1,055 | $ | 866 | |
| IBG, Inc. stand-alone income before income taxes and eliminations | - | (1) | |||
| Operating subsidiaries income before income taxes | $ | 1,055 | $ | 867 | |
| Operating subsidiaries | |||||
| Income before income taxes | $ | 1,055 | $ | 867 | |
| Income tax expense | 44 | 35 | |||
| Net income available to members | $ | 1,011 | $ | 832 | |
| IBG, Inc. | |||||
| Average ownership percentage in IBG LLC | 25.8% | 25.4% | |||
| Net income available to IBG, Inc. from operating subsidiaries | $ | 260 | $ | 212 | |
| IBG, Inc. stand-alone income before income taxes | - | (1) | |||
| Income before income taxes | 260 | 211 | |||
| Income tax expense | 47 | 36 | |||
| Net income available to common stockholders | $ | 213 | $ | 175 | |
| Consolidated income tax expense | |||||
| Income tax expense attributable to operating subsidiaries | $ | 44 | $ | 35 | |
| Income tax expense attributable to IBG, Inc. | 47 | 36 | |||
| Consolidated income tax expense | $ | 91 | $ | 71 |
Operating Results
Income before income taxes, for the current quarter, increased $189 million, or 22%, compared to the prior-year quarter, to $1,055 million. Pretax profit margin was 74% for the current quarter and 72% for the prior-year quarter.
Comparing our operating results for the current quarter to the prior-year quarter using non-GAAP financial measures, adjusted net revenues were $1,396 million, up 15%; adjusted income before income taxes was $1,024 million, up 16%; and adjusted pre-tax profit margin was 73% for the current quarter compared to 72% for the prior-year quarter. See the “Non-GAAP Financial Measures” section below in this Item 2 for additional details.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures as additional measures to enhance the understanding of our financial results. These non-GAAP financial measures include adjusted net revenues, adjusted income before income taxes, adjusted net income available for common stockholders and adjusted diluted earnings per share (“EPS”). We believe that these non-GAAP financial measures are important measures of our financial performance because they exclude certain items that may not be indicative of our core operating results and business outlook. We believe these non-GAAP financial measures are useful to investors and analysts in evaluating the operating performance of the business.
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We define adjusted net revenues as net revenues adjusted to remove the effect of our currency diversification strategy and our net mark-to-market gains (losses) on investments.
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We define adjusted income before income taxes as income before income taxes adjusted to remove the effect of our currency diversification strategy and our net mark-to-market gains (losses) on investments.
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We define adjusted net income available to common stockholders as net income available for common stockholders adjusted to remove the after-tax effects attributable to IBG, Inc. of our currency diversification strategy and our net mark-to-market gains (losses) on investments.
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We define adjusted diluted EPS as adjusted net income available for common stockholders divided by the diluted weighted average number of shares outstanding for the period.
Mark-to-market on investments represents the net mark-to-market gains (losses) on investments in equity securities that do not qualify for equity method accounting, which are measured at fair value; on our U.S. government and municipal securities portfolios, which are typically held to maturity; and on certain other investments.
We also report compensation and benefits expenses as a percentage of adjusted net revenues, as we believe this measure is useful to investors and analysts in evaluating the growth of our workforce in relation to the growth of our core revenues.
These non-GAAP financial measures should be considered in addition to, rather than as a substitute for, measures of financial performance prepared in accordance with GAAP 1.
(1)Refers to generally accepted accounting principles in the United States.
The tables below present a reconciliation of consolidated GAAP to non-GAAP financial measures for the periods indicated.
| Three Months Ended March 31, | ||||||
| 2025 | 2024 | |||||
| Adjusted net revenues (in millions) | ||||||
| Net revenues - GAAP | $ | 1,427 | $ | 1,203 | ||
| Non-GAAP adjustments | ||||||
| Currency diversification strategy, net | (20) | 2 | ||||
| Mark-to-market on investments | (11) | 11 | ||||
| Total non-GAAP adjustments | (31) | 13 | ||||
| Adjusted net revenues | $ | 1,396 | $ | 1,216 | ||
| Adjusted income before income taxes (in millions) | ||||||
| Income before income taxes - GAAP | $ | 1,055 | $ | 866 | ||
| Non-GAAP adjustments | ||||||
| Currency diversification strategy, net | (20) | 2 | ||||
| Mark-to-market on investments | (11) | 11 | ||||
| Total non-GAAP adjustments | (31) | 13 | ||||
| Adjusted income before income taxes | $ | 1,024 | $ | 879 | ||
| Adjusted pre-tax profit margin | 73% | 72% | ||||
| Adjusted net income available for common stockholders (in millions) | ||||||
| Net income available for common stockholders - GAAP | $ | 213 | $ | 175 | ||
| Non-GAAP adjustments | ||||||
| Currency diversification strategy, net | (5) | 0 | ||||
| Mark-to-market on investments | (3) | 3 | ||||
| Income tax effect of above adjustments 1 | 2 | (1) | ||||
| Total non-GAAP adjustments | (6) | 2 | ||||
| Adjusted net income available for common stockholders | $ | 207 | $ | 177 | ||
| Adjusted diluted EPS (in dollars, except share amounts) | ||||||
| Diluted EPS - GAAP | $ | 1.94 | $ | 1.61 | ||
| Non-GAAP adjustments | ||||||
| Currency diversification strategy, net | (0.05) | 0.00 | ||||
| Mark-to-market on investments | (0.03) | 0.03 | ||||
| Income tax effect of above adjustments 1 | 0.02 | (0.01) | ||||
| Total non-GAAP adjustments | (0.06) | 0.02 | ||||
| Adjusted diluted EPS | $ | 1.88 | $ | 1.64 | ||
| Diluted weighted average common shares outstanding | 109,865,741 | 108,149,440 |
Note: Amounts may not add due to rounding.
(1)The income tax effect is estimated using the statutory income tax rates applicable to the Company.
Liquidity and Capital Resources
We maintain a highly liquid balance sheet. The majority of our assets consists of investments of customer funds, collateralized receivables arising from customer-related and proprietary securities transactions, and exchange-listed marketable securities, which are marked-to-market daily. Collateralized receivables consist primarily of customer margin loans, securities borrowed, and securities purchased under agreements to resell. As of March 31, 2025, total assets were $157.7 billion of which approximately $156.4 billion, or 99.2%, were considered liquid.
Decisions on the allocation of capital are based upon, among other things, prudent risk management guidelines, potential liquidity and cash flow needs for current and future business activities, regulatory capital requirements, and projected profitability. Our Treasury department, Market Risk Committee, Enterprise Risk Management department and other management control groups assist in evaluating, monitoring and controlling the impact that our business activities have on our financial condition, liquidity and capital structure. The objective of these policies is to support our business strategies while ensuring ongoing and sufficient liquidity. Our significant capital comprises an aggregate across our many regulated subsidiaries, and in addition to supporting our current business and future expansion plans we believe this financial strength provides our customers with a source of confidence.
Daily monitoring of liquidity needs and available collateral levels is undertaken to help ensure that an appropriate liquidity cushion, in the form of cash and unpledged collateral, is maintained at all times. We actively manage our excess liquidity and maintain significant borrowing capabilities through the securities lending markets and in the form of credit facilities with banks. As a general practice, we maintain sufficient levels of cash on hand to provide us with a buffer should we need immediately available funds for any reason. In addition, pursuant to our liquidity risk management plan we perform periodic liquidity stress tests, which are designed to identify and reserve liquid assets that would be available under market or idiosyncratic stress events. Based on our current level of operations, we believe our cash flows from operations, available cash and available borrowings will be adequate to meet our future liquidity needs for more than the next twelve months.
As of March 31, 2025, liability balances in connection with securities loaned and payables to customers were higher than their average monthly balances during the current quarter. Short-term borrowing balance was lower than its average monthly balance during the current quarter.
Cash and cash equivalents held by our non-U.S. operating subsidiaries as of March 31, 2025, were $1,632 million ($1,513 million as of December 31, 2024). These funds are primarily intended to finance each individual operating subsidiary’s local operations, and thus would not be available to fund U.S. domestic operations unless repatriated through payment of dividends to IBG LLC. As of March 31, 2025, we had no intention to repatriate any amounts from non-U.S. operating subsidiaries. With the enactment of the U.S. Tax Cuts and Jobs Act on December 22, 2017, we recognized a liability for the one-time transition tax on deemed repatriation of earnings of some of our foreign subsidiaries for the year ended December 31, 2017. As a result, in the event dividends were to be paid to the Company in the future by a non-U.S. operating subsidiaries, the Company would not be required to accrue and pay income taxes on such dividends, except for foreign taxes in the form of dividend withholding tax, and in connection with accumulated other comprehensive income/loss from currency exchange rate changes not previously taxed in the U.S., if any, imposed on the recipient of the distribution or dividend distribution tax imposed on the payor of the distribution.
Historically, our consolidated equity has consisted primarily of accumulated retained earnings, which to date have been sufficient to fund our operations and growth. Our consolidated equity increased 19% to $17.5 billion as of March 31, 2025, from $14.7 billion as of March 31, 2024. This increase is attributable to total comprehensive income, partially offset by distributions and dividends paid during the last four quarters.
Cash Flows
The table below presents our cash flows from operating activities, investing activities and financing activities for the periods indicated.
| Three Months Ended March 31, | ||||||
| 2025 | 2024 | |||||
| (in millions) | ||||||
| Net cash provided by operating activities | $ | 2,584 | $ | 1,683 | ||
| Net cash used in investing activities | (26) | (13) | ||||
| Net cash used in financing activities | (225) | (137) | ||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 107 | (102) | ||||
| Increase in cash, cash equivalents, and restricted cash | $ | 2,440 | $ | 1,431 |
Our cash, cash equivalents, and restricted cash (i.e., cash and cash equivalents that are subject to withdrawal or usage restrictions) increased by $2,440 million to $42.7 billion for the three months ended March 31, 2025.
Operating Activities
Our cash flows from operating activities are largely a reflection of the changes in customer credit and margin loan balances. We raised $2.6 billion in net cash from operating activities mainly driven by customer credit balances which increased $5.3 billion; partially offset by securities purchased under agreements to resell which increased $1.8 billion and investments in securities segregated for regulatory purposes which increased $1.5 billion.
Investing Activities
Our cash flows from investing activities are primarily related to other investments, capitalized internal software development, purchases and sales of memberships, trading rights and shares at exchanges where we trade, and strategic investments where such investments may enable us to offer better execution alternatives to our current and prospective customers, allow us to influence exchanges to provide competing products at better prices using sophisticated technology, or enable us to acquire either technology or customers faster than we could develop them on our own. We used net cash of $26 million in our investing activities primarily for purchases of property, equipment, and intangible assets and other investments.
Financing Activities
Our cash flows from financing activities are comprised of short-term borrowings, capital transactions, and payments made to Holdings under the Tax Receivable Agreement. Short-term borrowings from banks are part of our daily cash management in support of operating activities. Capital transactions consist primarily of quarterly dividends paid to common stockholders and related distributions paid to Holdings. We used net cash of $225 million in our financing activities, primarily for distributions to noncontrolling interests and dividends paid to common stockholders.
Three months Ended March 31, 2024**:** For a discussion of changes in cash flows for the three months ended March 31, 2024 refer to our Quarterly Report on Form 10-Q filed with the SEC on May 6, 2024.
Regulatory Capital Requirements
As of March 31, 2025, all operating subsidiaries were in compliance with their respective regulatory capital requirements. For additional information regarding our regulatory capital requirements see Note 15 – ‘‘Regulatory Requirements’’ to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Capital Expenditures
Our capital expenditures are comprised of compensation costs of our software engineering staff for development of software for internal use and expenditures for computer, networking and communications hardware, and leasehold improvements. These expenditure items are reported as property, equipment, and intangible assets. Capital expenditures for property, equipment, and intangible assets were approximately $16 million and $12 million for the three months ended March 31, 2025 and 2024, respectively. In the future, we plan to meet capital expenditure needs with cash from operations and cash on hand, as we continue our focus on technology infrastructure initiatives to further enhance our competitive position. In response to changing economic conditions, we believe we have the flexibility to modify our capital expenditures by adjusting them (either upward or downward) to match our actual performance. If we pursue any additional strategic acquisitions, we may incur additional capital expenditures.
Seasonality
Our businesses are subject to seasonal fluctuations, reflecting varying numbers of market participants at times during the year, varying numbers of trading days from quarter-to-quarter, and declines in trading activity due to holidays. Typical seasonal trends may be superseded by market or world events, which can have a significant impact on prices and trading volume.
Inflation
Although we cannot accurately anticipate the effects of inflation on our operations, we believe that, for the past several years, inflation may have indirectly had a material impact on our results of operations. Inflation has been one of the factors driving our employee compensation and benefits expenses higher during the current period, although as a percentage of net revenues these expenses remain stable. Inflation may also be a contributing factor to general uncertainty in the markets in the foreseeable future. Statements about future inflation are subject to the risk that actual inflation and its effects may differ, possibly materially, due to, among other things, changes in economic growth, impact of supply chain disruptions, unemployment and consumer demand.
Investments in U.S. Government Securities
We invest in U.S. government securities to satisfy U.S. regulatory requirements. As a broker-dealer, unlike banks, we are required to mark these investments to market even though we intend to hold them to maturity. Sudden increases (decreases) in interest rates will cause mark-to-market losses (gains) on these securities, which are recovered (eliminated) if we hold them to maturity, as currently intended. As of March 31, 2025, substantially all of our U.S. government securities had maturities within three months. The impact of changes in interest rates is further described in Part I, Item 3 of this Quarterly Report on Form 10-Q entitled “Quantitative and Qualitative Disclosures about Market Risk.”
Strategic Investments and Acquisitions
We regularly evaluate potential strategic investments and acquisitions. We hold strategic investments in certain electronic trading exchanges, including BOX Options Exchange, LLC. We also hold strategic investments in certain businesses, including Zero Hash Holdings Ltd. (a crypto-service provider) and Next Securities Corporation (a South Korea-based securities company).
We intend to continue making acquisitions on an opportunistic basis, generally only when the acquisition candidate will, in our opinion, enable us to offer better execution alternatives to our current and prospective customers, allow us to influence exchanges to provide competing products at better prices using sophisticated technology, or enable us to acquire either technology or customers faster than we could develop them on our own.
As of March 31, 2025, there were no definitive agreements with respect to any material acquisition.
Certain Information Concerning Off**-Balance-**Sheet Arrangements
We may be exposed to a risk of loss not reflected in our condensed consolidated financial statements for futures products, which represent our obligations to settle at contracted prices, and which may require us to repurchase or sell in the market at prevailing prices. Accordingly, these transactions result in off-balance sheet risk, as our cost to liquidate such futures contracts may exceed the amounts reported in our condensed consolidated statements of financial condition.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements and accompanying notes. These estimates and assumptions are based on judgment and the best available information at the time. Therefore, actual results could differ materially from those estimates. We believe that the critical policies listed below represent the most significant estimates used in the preparation of our consolidated financial statements. See Note 2 – “Significant Accounting Policies” to the unaudited condensed consolidated financial statements for a summary of our significant accounting policies in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Contingencies
Our policy is to estimate and accrue for potential losses that may arise out of litigation and regulatory proceedings, to the extent that such losses are probable and can be estimated. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different. Our total liability accrued with respect to litigation and regulatory proceedings is determined on a case by case basis and represents an estimate of probable losses based on, among other factors, the progress of each case, our experience with and industry experience with similar cases and the opinions and views of internal and external legal counsel. Given the inherent difficulty of predicting the outcome of litigation and regulatory matters, particularly in cases or proceedings in which substantial or indeterminate damages or fines are sought, or where cases or proceedings are in the early stages, we cannot estimate losses or ranges of losses for cases or proceedings where there is only a reasonable possibility that a loss may be incurred.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits are based on enacted tax laws and reflect management’s best assessment of estimated future taxes to be paid. We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Determining income tax expense requires significant judgment and estimates.
Deferred income tax assets and liabilities arise from temporary differences between the tax and financial statement recognition of the underlying assets and liabilities. In evaluating our ability to recover our deferred tax assets within the jurisdictions from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, historical results are adjusted for changes in accounting policies and incorporate assumptions including the amount of future state, federal and foreign pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, three years of cumulative operating income (loss) are considered. Deferred income taxes have not been provided for U.S. tax liabilities or for additional foreign taxes on the unremitted earnings of foreign subsidiaries that have been indefinitely reinvested.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. For example, on December 15, 2022, the EU formally adopted the EU’s Pillar Two Directive, effective January 1, 2024, which provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Cooperation and Development (“OECD”) Pillar Two Framework. A significant number of other countries have either already or are expected to implement similar legislation with varying effective dates. We record tax liabilities in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 740 and adjust these liabilities when management’s judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in payments that are different from the current estimates of these tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information becomes available.
We recognize that a tax benefit from an uncertain tax position may be recognized only when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. A tax position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement.
Accounting Pronouncements Issued but Not Yet Adopted
For additional information regarding FASB Accounting Standards Updates (“ASU” s) that have been issued but not yet adopted and that may impact the Company, refer to Note 2 – “Significant Accounting Policies” to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on form 10-Q.
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