Daniel Fannon: Okay. And then I wanted to follow up on the conversation or topic of M&A. We— you have not been an acquirer previously. So could you talk to what it is you’re looking for, how we should think about the return profile or accretion or economic kind of thresholds that you have for doing a transaction?
Thomas Peterffy: So we believe that by far, we have the most efficient operation and our technology is by far the best. So it would make sense that other firms that have less—that are less automated – would benefit— I mean their overall daily operation would benefit coming onto our platform. So that would be the basic idea.
Milan Galik: One additional strength that we have compared to the other players in this space is that we are global in terms of accessing the markets. So when an Asian or European institution integrates with us, they can serve not only access to the U.S. markets, but to their local markets as well.
Daniel Fannon: And just a follow-up. Is there—from a size or capacity, I mean is there a limit like in terms of what you’re looking at? Are these small acquisition— small potential targets? Is it— just trying to get a sense of how big to think about what type of M&A you would be contemplating.
Milan Galik: It all depends, right? So what we would obviously be looking at is what is the opportunity. Is it an institution that has relatively little automation and we can jump in and generate a lot of cost savings by automating the operations. Is it a large number of active accounts that they have. It all depends. So when we are presented with an opportunity, we look at the economics. We have usually a couple of ideas of how we would go about the integration. What is it that we would be looking for in the final outcome, and that determines the price we’re willing to pay. Unfortunately, in one of the two cases that Thomas mentioned, we were short of the price that the seller was demanding. They haven’t sold yet. They may come back to us, but it’s unclear whether they will.
Operator: Our next question will be coming from Chris Allen of Citi.
Chris Allen: One thing we’ve been watching is margin balances have been trending up nicely, even in September when the markets were down. And you noted the strength and interest income being driven by financial advisers and hedge funds earlier. On the financial adviser front, are you seeing any benefit from the Schwab-Ameritrade integration that’s going on right now? On the hedge fund side, are you— is the existing hedge fund client base expanding in size? Are you winning new hedge fund clients?
Thomas Peterffy: Well, there are certainly— our salespeople speak a lot about the unhappiness of especially Ameritrade clients that had to go over to Schwab on the one hand. On the other, about Ameritrade clients who were Ameritrade clients in addition to Schwab clients because those clients wanted to have two independent brokerage firms and now that they are only one, they are looking for a second. So these are the two types of clients we are getting from this merger. Now your second question was about the hedge funds, what did you actually ask?
Chris Allen: Yes. Just wanted to know on the hedge fund size, are you seeing new hedge fund wins or the existing customer base…
Thomas Peterffy: Definitely. Yes. We definitely see new hedge fund wins, yes. They tend—on balance to be smaller funds in the $10 million to $50 million range, and so we get them regularly and quite often.
Chris Allen: And just a quick follow-up on the M&A discussion. Are you looking at domestic opportunities, overseas, both? Basically what you do see out there?
Thomas Peterffy: It doesn’t matter to us. We’re going either way. We’re happy to; we don’t care whether it’s US or outside.
Operator: Our next question will be coming from James Yaro of Goldman Sachs.
James Yaro: It’s James Yaro. I think it’s quite clear today what the opportunity is in terms of retail trading in Asia. But I think retail trading remains somewhat more subdued in Europe. You are investing in Europe clearly. So maybe you can just speak to your outlook for whether retail trading in Europe will accelerate and potentially over time, look more like what we see in the US and what gives you that sort of confidence?
Thomas Peterffy: Generally, I think that, as you know, the United States is basically the hot seat of capitalism and has a history of 200 years, right? In Europe, it has a somewhat longer history, but much more subdued history. So in Europe, traditionally people who invest in the stock market were a very small layer of society. And we expect that, that will expand just like it has expanded in the United States. On the other hand, the average European person has only about 60% to 70% of the funds that the average American person has.
James Yaro: Okay. That’s very clear. And then if we were to potentially see Fed funds start to come down, and I’m not saying that’s going to happen imminently. But just— maybe you could just speak to…
Thomas Peterffy: Sorry for the laugh. No. I believe that Fed funds will remain in the 5% range indefinitely for the very, very long term. They may come down to 4%, but then they will come up because there is nothing you can do about the ever increasing debt payments. So Fed funds will go to 5%, 6%, 7%, 8%, 10%, 20%, 30%, 40%, 50% until we go into the hole.
James Yaro: Okay. But the market forward curve obviously has cuts. So just— you obviously manage risks very well, Thomas. So I just want to understand how you think about let’s say there’s downside risk and rates do come down. How do you think about hedging that, if at all? Do you extend securities duration or do you need to do something else?
