TradeStation Group, Inc. Q3 2008 Earnings Call Transcript

Executives

Salomon Sredni – Chief Executive Officer

David Fleishman –Chief Financial Officer

Analysts

Rich Repetto - Sandler O’neill

Mike Vinciquerra - BMO Capital Markets

William Tanona - Goldman Sachs

Edward Ditmire - Fox-Pitt Kelton

Justin Hughes - Philadelphia Financial

TradeStation Group, Inc. (TRAD) Q3 2008 Earnings Call October 23, 2008 11:00 AM ET

Operator

Good morning. My name is Mindy and I will be your conference operator today. At this time, I would like to welcome everyone to the TradeStation Group third quarter 2008 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session.(Operator instructions)

Thank you Mr. David Fleischmann, you may begin your call.

David Fleishmann

Thank you Mindy. Good morning and welcome to the TradeStation Group third quarter 2008 conference call. Today’s conference call is being broadcast live over the internet and will be archived for the next 90 days at www.tradestation.com. We would like to thank all of our listeners, including shareholders, customers and analysts for joining us this morning.

My name is David Fleischmann, Chief Financial Officer of TradeStation Group. Here with me today is Salomon Sredni, our Chief Executive Officer. By now, you should have seen our financial results released this morning. If you have not, they are available at our Company website, www.tradestation.com in the Investors Relations section. Also, if you are accessing this call through our website, please note that some of the prepared comments you are about to hear are accompanied by graphs and charts and we invite you to view them as you listen.

Before I start, I would like to emphasize that this conference call will include statements that are forward-looking and are made pursuant to the Safe Harbor provisions of the Private Security Litigation Reform Act. All forward-looking statements are based on current expectations and beliefs and actual results may differ materially from the results suggested in this conference call. Factors that may cause or contribute to such differences include those reports included in today’s earnings release and in the Company’s filings with the Securities and Exchange Commission. Please note that the Company undertakes no obligation to update any information presented in this conference call.

With that said, it is my pleasure to hand over the call to Salomon Sredni, Chief Executive Officer of TradeStation Group.

Salomon Sredni

Thank you David and good morning everyone. Our 2008third quarter results have once again shown the impact that high market volatility has on our client base. Despite the challenges presented by decreased interest income from falling interest rates, TradeStation has record new revenues and record brokerage commission and fees in the 2008 third quarter. This increase is attributable to increased trading by our customer base.

Our brokerage commission and fees, year over year, increased by 22%, this impressive increase in brokerage commission and fees was driven by our large year over year 23% increase in our customer’s Daily Average Revenue Trades, or as everybody knows, DARTs. DARTs in 2008 third quarter were over 108,000 which as I just mentioned is a 23% increase when compared to the third quarter of 2007. The second-highest quarterly DARTs numbers ever posted. When compared to the 2008 second quarter, our DARTs were also up an impressive 19%. DARTs in the month of September were a record 124,000, the highest since launching our TradeStation brokerage business in 2001. And this month, our DARTs are even higher. October may well be another record month. Through October 21, our DARTs were over 145,000. Our customary activity were client-based at a time when market volatility has reached an all-time high. Again, October DARTs to October 21 are 145,000.

Please keep in perspective that DARTs were produced by roughly just 41,000 accounts, a powerful indicator of the leverage of our active trader business model. That is obviously a small fraction of the number of accounts that our larger competitors require to produce that many trades. We once again attribute that continued DART growth to the diversity of our offering and robustness of our business model, particularly when market volatility is high.

Let us now spend a moment on brokerage accounts. Our new net account in the 2008 third quarter have brought us to nearly 41,500 total accounts, a record total and an 18% increase in the size of our customer base, year over year. As mentioned in the last earnings conference call, we expected our attrition to be higher in the 2008 third quarter and it was. That increased attrition, led to lower net new account adds than we were used to experiencing. There is no way, of course, of predicting the impact that market and economic conditions may have on new net account growth over the next six to nine months.

The numbers of brokerage accounts generated are once again among the very best in the industry. During the 2008 third quarter, on an annualized basis, our average account traded over 655 times and the average account produced nearly $1,300 of revenue. Both numbers are substantially higher than those produced by a majority of our competitors. And both of these metrics were substantial increases from the 2008 second quarter.

At this time, I would like to turn the call over to David who will review our third quarter 2008 performance from a financial perspective and then I will come back to review some more points. David.

David Fleishmann

Thank you, Sal. When the quarter ended September 30, 2008, TradeStation Group had a net income of $ 8.7 million or a $0.20 per share. The Company’s business outlook, published on July 24, 2008, estimated earnings per share range of $0.15 to $0.19. Increased trading as a result, we believe, have increased market volatility, helped generate record brokerage commissions and fees of $33.5 million and net revenues of $41.8 million.

TradeStation Group’s 2008 third quarter net income of $8.7 million or $0.20 per share, compared to 2007 third quarter net income of $9.7 million or $0.22 per share and 2008 second quarter net income of $6.1 million or 14 cents per share. When comparing the 2008 third quarter reported results with the 2008 second quarter, the variance is primarily the result of increased brokerage commissions and fees in the 2008 third quarter due to increased volatility in the markets and in the 2008 second quarter a net reduction to income before income taxes of approximately $575,000 related to one-time items. As compared to the 2007 third quarter, the variance was primarily the result of lower net interest income of $4.5 million year over year reduction due to reduced interest rates and increased expenses due to increased employee cost and clearing and execution fees.

Third quarter 2008 net revenues of $41.8 million increased by 4% when compared to third quarter 2007 net revenues of $40.3 million and increased by 14% when compared to 2008 second quarter net revenues of $36.6 million. Compared to the 2008 second quarter, the variance was primarily the result of increased commissions and fees due to increased volatility in the market. During the 2008 third quarter, the average closing of the VIX was 25.5, a 24% increase from the second quarter 2008 average of 20.6. Compared to 2007 third quarter, the increase in net revenues was the result primarily of increased commissions and fees due primarily to increased market volatility and account growth, partially offset by lower net interest income due to reduced interest rates.

Brokerage commissions and fees of $33.5 million were an increase of 22% from third quarter 2007. Brokerage commissions and fees of $27.3 million, increased market volatility, having a multi-asset offering and continued account growth were important factors in helping us achieve this 22% increase. Third quarter 2008 net interest income of $6.3 million was a 42% decrease from third quarter 2007 net interest income of $10.8 million and a 1% increase from second quarter 2008 net interest income of $6.2 million. The decrease from the third quarter 2007 was the result of lower interest rates.

On October 8, 2008, the federal funds target rate of interest was further reduced by another 50 basis points to its current rate of 1.5%. Most of our interest income is tied to the federal funds daily and target rates of interest. We estimate that based on size and nature of our customer assets as of September 30, 2008 that each basis point increase or decrease in the federal funds target rate of interest impacts our annual net income by approximately $69,000. Increases or decreases in our aggregate customer cash balances will also affect our net interest income.

Also, for equity accounts, customer margin balances during the first half of October have been substantially lower than historical levels, which if it continues, will reduce our margin interest income. This possible trend in margin balances had been incorporated into our 2008 fourth quarter business outlook In preparing our 2008 fourth quarter business outlook that was published today, we assumed there will be no further third quarter increases or decreases to the federal funds target rate of interest for the remainder of 2008 and that the average daily rate will track closely to the target rate.

TradeStation’s third quarter 2008 brokerage commissions and fees per employee which were approximately $98,000 were about 54% higher in TD Ameritrade and about 71% higher than E-Trade’s brokerage commissions and fees per employee. This highlights the scalability and leverage of our business model.

During the 2008 third quarter, total expenses were $27.8 million, 66% of net revenues, as compared to $25.1 million, 62% of net revenues in the 2007 third quarter and $26.5 million, and 73% of net revenues, in the 2008 second quarter. Compare them to the 2007 third quarter, the dollar amount increase of total expenses was primarily the result of increased execution cost, due to a higher number of customer trades and as we continue to grow our accounts and revenues, our increased investment in people and infrastructure. Compared to the 2008 second quarter, the dollar amount increase was the result primarily of increased execution cost, partially offset by decreased stock compensation cost. As compared to the 2007 third quarter, the increase of total expenses as a percentage of net revenues was caused mainly by our decrease in net interest income, which has no corresponding cost. As compared to the 2008 second quarter, the decrease of total expenses as a percentage of net revenues was primarily the result of the 19% increase in brokerage commissions and fees.

For the 2008 third quarter, employees’ compensation and benefits was $9.9 million as compared to $8.7 million in the 2007 third quarter due primarily to increased employee headcount. As of September 30, 2008, the Company has 344 employees as compared to 318 employees as of September 30, 2007. As discussed in previous conference calls in 2008, we had planned and it is our intention to continue to increase our employee headcount primarily in product development. For the 2008 third quarter, clearing and execution of $10.2 million, 30% of brokerage commissions and fees, compared to 2007 third quarter clearing and execution of $9.1 million, 33% of brokerage commissions and fees. Increased trading volume and amidst the business, accounted for the dollar and percentage variances in the 2008 third quarter.

Third quarter 2008 data centers and communication costs, advertising, professional services, occupancy and equipment and depreciation costs were approximately the same as the 2007 third quarter.

Third quarter 2008 other costs were $1.6 million as compared to $1.1 million in the 2007 third quarter. The variances is primarily the result of the Company incurring increased customer debits and errors in regulatory fees and expenses partially offset by a gain recorded upon the completion of the acquisition of the Philadelphia Stock Exchange and the associated memberships by the NASDAQ-OMX.

In the 2008 third quarter, the Company pursuant to its stock buy-back plan spent approximately $3.7 million to purchase approximately 370,000 shares of its common stock. Since buying under the plan began on November 13, 2006 through September 30, 2008. The company has spent approximately $28.2 million to purchase approximately 2.5 million shares.

In this morning’s earnings release, we issued our business outlook for the 2008 fourth quarter. We are estimating for the 2008 fourth quarter that net revenues will range from $39 million to $43 million and earnings per share will range from $0.17 to $0.19. When preparing our accounts business outlook, we assumed, among other things that accounts will average for the balance of this quarter, daily revenue per account for each asset class at approximately the same level they averaged during the nine-month period ending September 30, 2008 and that for the remainder of 2008, there will be no further changes to the federal funds target rate of interest, currently at 1.5% and that the daily rate will closely track the target rate. Variations of these or other assumptions will likely result in material differences to the estimated results in the business outlook.

That concludes my prepared remarks today concerning our financial statement. I will now turn the call back to Sal.

Salomon Sredni

Thank you, David. I am happy to announce that we have began the rollout or TradeStation version 8.4 this week. This version of TradeStation has several viable new features which we believe will further enhance our leadership in the after-trader market. Included in the TradeStation 8.4 is the new TradeStation scanner. Using this new functionality, a trader will now be able to specify virtually unlimited sets of technical and fundamental data criteria and then in just a few seconds, scan the entire stock, features, options and markets an instantaneously produce a list of opportunities that meets the criteria. But that is not all. The trader is not limited to the menu of the criteria we provide. He can customize that criteria based on his own logic and his own rules with virtually no limitations and then scan the market space from that custom criteria. We believe this stepped-up functionality is not available anywhere else in the retail market today.

We see the TradeStation Scanner as an incredibly powerful new tool for traders to search across entire markets to identify securities that meet the rules and strategies to buy or sell. In this new version of TradeStation, we have also dramatically enhanced our Hardlist feature. Hardlist are ranked list of securities based on predetermined criteria such as a 52-week high or a 52-week low. Until now, these criteria have been tied solely to price. Now, with Version 8.4, over 50 new fields of criteria have been added that covered not only price indicators to securities, but also indicated their relative volume, volatility and options. For the trader who does not want to do a more detailed customized criteria search, you do the TradeStation scanner, this new Hardlist feature provides a diverse, easy-to-use menu that enables the trader to instantaneously rank all securities that meet numerous different kinds of trading rules the trader wants to use to find buy or sell opportunities.

We have also included in Version 8.4 a new learning center inside the TradeStation platform. With the new learning center, customers will no longer need to visit our website support center to see basic tutorials about how to get started with a new TradeStation platform. Now, once a new existing customer logs on to the platform to begin using it, he will be able to click on a menu of visual-audio tutorials that will lead him through the use of the functionality he has selected. This will include a weekly release, real time trading simulator, real time, real world examples of how to use the platform’s functionality. We see this enhancement as an important step to help our new account customers get up and running and trading sooner and to more quickly educate both new and existing customers on the valuable analysis and trading features of our trading platform.

We continue to be excited of our potential for growth and further penetration of the US active equity trader market. We recently launched our flat-fee commission plan that targets active equity traders who trade a higher number of shares per ticket, the 1500 to 5000 share range. We believe that our larger older brokerage competitors the average customer trade has historically traded about 2000 shares per trade and we look forward to providing to active traders and those firms who make those size trades, attractive competitive commissions to take advantage of our superior offering. With our new flat-fee commission plan, those traders can now pay flat commissions as low as $6.99 depending on how frequently they trade even when they are trading as many as 5000 shares in that trade.

A lot of the customer equities trade has been around 400 to 500 shares so we need this new commission plan offering has the potential to attract us an entirely new segment of the actuarial equities markets. Earlier results have shown a high number of average shares per trade and a high number of average trades per account for customers who have signed up for this plan. While we believe it is still too early to gauge its success or likely success, we look forward to building up interest and new accounts to the flat-fee plan as we continue to talk about it in our advertising and a number of our product offering for the balance of this year and next year. By offering our customers a choice of which plan suits them best, we further enhance one of the main attractions of our brokerage firm empowering our customers to trade the way they want to trade.

To help ensure we continue to remain ahead of our competition, we also have several other enhancements and new features in the works. I look forward to sharing those enhancements with you, as we get closer to our release.

Before concluding my remarks, I deem it important to spend a little time talking about where TradeStation sits with respect to the economic crisis that the world now faces. Many companies in our financial services sectors have failed or they needed to be built up by the government or taken over by large institutions to avoid failure. And some of our competitors have experience with management system problems that have caused the unsecured customers debits or bad debts to rise.

First, I want to be clear that TradeStation has never engaged in and has no plans to engage in the business of creating, buying, or selling mortgages, mortgaged-backed securities, _____ swaps or any banking or insurance related activities. Also, TradeStation does not engage in proprietary trading and therefore our cash assets are not put at risk to bad trading decisions or sudden market movements. All of our available cash is invested in either cash and through cash securities investments.

Finally, as all of you have seen, we have a healthy amount of available cash in our balance sheet and virtually no long-term debt. A very strong position in these times, where obtaining needed lending is difficult, and both customers and other parties whom we deal with are looking for a strong balance sheet. And so far, our risk management systems has worked as designed and we have not experienced rising customer debits or bad debts.

All these facts, together with the nature of our client base, and the cost-efficiencies of our business model put us, we believe, in an excellent position in these economically troubling times. I believe the current market conditions create opportunities for companies like ours and we certainly will do our best to leverage our strength in times like this. As I share with you before, we continue to believe that electronic, automated, rule-based-trading, the core of our award-winning service offering and a unique selling proposition has huge appeal to the special demand of the active trader market. Rule-based trading is open to all serious traders and most serious and active traders today do use rules over one kind or another to make trading decision.

While we also believe better than anyone else is a platform that helps rule-based traders become more disciplined rule-based traders which we think improves both the trading confidence and abilities, at least now, in this economic times, perhaps more important than ever before. We intend to, as I said, continue to emphasize this point as we capitalize on what we believe to be a significant opportunity. Within that, our market will expand as more and more traders, both domestically and abroad, see the value of becoming more disciplined rule-based traders.

I genuinely thank our employees for outstanding achievements and their continued dedication and focus. I continue to be extremely excited by our team and the potential we have to grow this Company to a new level.

That concludes my prepared remarks for today’s presentation and will now ask the operator to open the floor for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Rich Repetto from Sanler O’Neill

Rich Repetto – Sandler O’Neill & Partners

Good morning, Salomon. Good morning David.

Salomon Sredni

Good morning, Rich. How are you?

Rich Repetto – Sandler O’Neill & Partners

Good. Good. I guess my first question is that I am just looking at the cash and the cash equivalents. It went down a little bit still over a hundred million and the restricted cash went up materially. And I am just trying to see what was going on, was it just a point in time, snapshot, or what is going on there?

Salomon Sredni

I, well, first of all, it is a point in time. And, as you know, the calculation of what we have to put in to the reserved account, it will move around. One of the things we have seen, and this is actually after the end of the quarter, we have actually seen our debit balances go down and that means that more money will be going back into the reserved account, as a basis of that calculations. So, that is just a function of the economic times, I think, we are in.

Rich Repetto – Sandler O’Neill & Partners

Oh, okay. Because I, well here, the question is, because I did see them even if you look at your accounts receivable they went out, I mean, as a proxy, if that is a proxy of your debt margin debt. That was down 22.5% within the quarter, too.

Salomon Sredni

Rich, that is a proxy and what you would see in those cash movement is really the operations of a broker/dealer and settling trades of our customer base, so, that is all the ins and outs of basically operating the broker/dealer.

Rich Repetto – Sandler O’Neill & Partners

Oh, okay, I understand. And then some of your peers are reporting that, you did make mention that margin balances come down after the quarter end Ameritrade just talked about a third, a 33% decline. Is that in the ballpark or realm of range of what you are experiencing, too?

Salomon Sredni

Yeah, well we have seen since September 30, it is coming down about a half, about 50%.

Rich Repetto – Sandler O’Neill & Partners

Okay, and I believe there are some more volatility. Anyways, -

Salomon Sredni

Yes.

Rich Repetto – Sandler O’Neill & Partners

Okay. And I guess the last question is, and I may have missed this, why on professional services, you did have a probably more related to the dip in 2Q but it went for 3Q’s level is higher than 2Q but much less than 1Q but just trying to see what is in the professional services and the increase in 3Q.

Salomon Sredni

Yes, in the last quarter we received money back from our, on the settlement or the finality of the trials and the claims that we had. So we are in a recovery in 2Q, about $625,000.

Rich Repetto – Sandler O’Neill & Partners

And in Q1, you saw some of the cost of defending the lawsuit which we prevailed, got money back from Q2 and Q3 should be a more normalized rate.

Salomon Sredni

Right.

Rich Repetto – Sandler O’Neill & Partners

Got you. That is very helpful. Thanks. I will get back in the queue.

Operator

Your next question comes from Mike Vinciquerra, from BMO Capital Markets. Your line is open.

Mike Vinciquerra – BMO Capital Markets

Hi David. Hello. I would just want to clarify on your rate sensitivity, David. You said $69,000 per basis point and that is on an annualized basis, correct?

David Fleischman

That is an after tax number.

Mike Vinciquerra – BMO Capital Markets

The after tax, okay. So, we are talking about maybe a penny to a half or two pennies for the 50 basis point cut we have seen so far this quarter versus the September quarter?

David Fleischman

Yes, I mean, I think the answer is yes. I have to do the math but yes.

Mike Vinciquerra – BMO Capital Markets

Okay, well, I guess the question I am getting at is when I look at your outlook given where your trading activity is and we would like to assume it is a two-cent figure that we need to trim off of the run rate from the third quarter. That would put you on 18. I am surprised that some kind of the mid-point of your range given that your trading is so far above. Can you just talk about some of the underlying assumptions in terms of getting into your fourth quarter outlook?

David Fleischman

Well, first of all, let me just say that I think it is less than a penny in earnings in the fourth quarter.

Mike Vinciquerra – BMO Capital Markets

Less than a penny, okay.

Salomon Sredni

The actual question is that as we build the outlook, what we took into account is the basically DARTs for the first nine months of the year. It is very difficult to predict what kind of activity it is going to be. So, it is not fair to correlate current customer activity with where the quarter’s going to end up.

David Fleischman

First, let me correct myself. It is about two cents. Okay, I just want to correct that. But as Sal said, what we have done is we have used the average revenue, trades and so on from the first nine months and when we had some of the October in there already. So, and that is just how the numbers work through.

Mike Vinciquerra – BMO Capital Markets

Okay, so fair enough. That is fine. I am just trying to get sense for the assumptions embedded there. Now, when we look at your expenses, you mentioned that as far as employee compensation being down a bit as percent of revenues stock-based comp, you had, I think, lower bonus accruals. Can you give us a sense, David, for what is your base level of compensations and benefits are, aside from bonuses in the quarter?

David Fleischman

Yes, well, first of all, what happened was it is down now compared to the last quarter. Because last quarter, if you recall, we had a one-time event, that where we take up additional stock compensation having to do with the testing of certain options to certain people. I think that this quarter, being the third quarter, is a much truer quarter and is a better run rate. Again, you have to take into account that we do believe that we will be increasing our the technology development staff.

Mike Vinciquerra – BMO Capital Markets

Is there any kind of base in terms of fixed cost from that one that you might be able to share with us?

David Fleischman

I do not think that there is anything that I can share. I mean, most of the number, the majority of the number is just compensation, not necessarily bonus accrual. The bonus accrual is not that high. So–

Mike Vinciquerra – BMO Capital Markets

Okay.

David Fleischman

Those are published numbers so our bonuses are not that great.

Mike Vinciquerra – BMO Capital Markets

Fair enough. Okay. And then just the clearing line, are you expecting to see any sort of refund due to the extreme volumes that we have seen from either the DTC or the OCC starting in the fourth quarter or most of any benefits come next year?

David Fleischman

Well I do not think we will see anything in the fourth quarter.

Mike Vinciquerra – BMO Capital Markets

Okay. So that kind of threw up in Q1 of the following year usually?

David Fleischman

Maybe.

Mike Vinciquerra – BMO Capital Markets

Okay. And then just one final question, the stock price is down a fair amount recently as well as the rest of the sector but any possibility that the 10B1 programs from the Cruz brothers will be put on hold temporarily, obviously that rather have some effect obviously in the price you stocked just that consistent selling we talked about. Just curious, if there would be any change in this plan that you are aware of?

Salomon Sredni

First of all, those are personal plans that (32:23) That is not in our control or do we, that is a personal choice to make. But I am not aware of any plan that is in place right now I think that whatever they add has been fully executed.

Operator

For our next question comes from William Tanona from Goldman Sachs. Your line is open.

William Tanona - Goldman Sachs

Great. Good afternoon, guys. The customer, the net new assets, obviously it is the lowest that we have seen as far as I can look back. I know you talked about attrition but just trying to get a better sense as to, why the customers were leaving or why exactly that the number was so well?

Salomon Sredni

Yes, Bill. We actually had a pretty decent quarter from a gross account prospective even despite these turbulent times what impacted the kind of growth this quarter, is was that, as they have said, an increased attrition. Now, as you know, we cannot account out when they are not trading or below $200 for six months so what is flowing through our account count now is accounts that are treated basically or accounts that fell below those levels in the first quarter and as, if you go back historically this quarter has been a fairly high quarter for attrition. As we look through issues for attrition this really is not in the pop-sided issues, no more in and out of our accounts especially the beginning of the year we will be for changing accounts now when we have high gross accounts and we see the attrition coming through the third quarter. We do expect attrition to go down next quarter and the quarter after that as compared to this quarter.

William Tanona, Goldman Sachs

Okay. And then in terms of just reading through some of the risk factors that you guys have you don’t have any redundant backup systems, I am just trying to get your thoughts, as to why that is, and what your thoughts are in terms of creating one.

Salomon Sredni

We do have two server farms what Risk Factor 8000 ,it has been there for a long time, is that it is not seamless. We are running harder out of two farms so we take it. If we are to bring down one side, what we do is we basically have to bring one side down in order to bring the other side up. But what we try to do is never to be in opposition and we build quite a few redundancy in each center so that if one line fails or one computer or one server fails that within the farm that is all seamless. If you have to go to our second farm that requires a manual intervention.

William Tanona, Goldman Sachs

Okay, that is helpful. And then I guess just lastly, and it does not sound like there is any change, given the strong level of activity, although, we did see that the margin balances decline pretty dramatically but, have you noticed any changes in customer behavior as it relates to the trading activity that we are seeing or the type of trading that they are implementing as a result of this heightened level of volatility and uncertainty in the market place?

Salomon Sredni

Yes, Bill. I talked about October DARTs and we see have been fairly high. We have seen and it is way too early, quite frankly, to know exactly what it means but we have seen it is customers that do not create as often or has smaller balances in general or in average compared to our client base. Some of those customers getting whiplashed by this volatility and certainly people who do not have bigger balances, people who do not trade that often when we see those as accounts fall below 200 here in October but, honest to goodness, it is way too early to know whether they are completely out or whether computer trade. But obviously that reflect in our high DARTs account activity that we reported for this quarter so for the most part it is smaller account who do not trade as often.

William Tanona, Goldman Sachs

And is there any correlation between the customers who are using margin and the customers who are most active?

Salomon Sredni

I am not sure I can give you the correlation. I mean, I think in general customers find whatever opportunity they have to trade and if the market is going one way, it goes one way. And if the market goes the other way, they do. Remember that a lot of our customers trade in per day so the only thing that shows up in margin is positions that are held overnight. A majority of our business are people who are in and out during the day.

William Tanona, Goldman Sachs

Understood. Thank you.

Salomon Sredni

No problem. Thank you.

Operator

To our next question comes from Edward Ditmire from Fox-Pitt Kelton. Your line is open.

Edward Ditmire – Fox-Pitt Kelton

Good morning guys. When you talk about your goals for hiring more developers and understanding that it is probably a very good time to scan the market for those kind of professionals. Can you talk about what specific goals you have in mind for a bolstered development force?

Salomon Sredni

Ed, overtime the percentage of headcount in our Company that has been dedicated to technology has decreased. From a high of about 30% and a low, and I can get you the exact number but somewhere in the 20s, if I remember right. And the issue of complexity of our networks and our systems has increased so now we have people not only developing the technology but also maintaining the systems. So, the challenge is really hiring the right people are increasing to account pool and my goals is in trying the ability to absorb and to redefine this type of talent in the marketplace. But I am hoping that over the course of the next year or a year and a half, we can increase our technology base probably somewhere around the 30% to 40% number. But again, that assumption I think we are talking in general probably about 30 people over the course of the next year or so.

Edward Ditmire – Fox-Pitt Kelton

And then do you think any of these people help you attack new customer groups or new segments?

Salomon Sredni

I hope so. Yes, we always we have a very exciting development plan and very focused team, we are making investments there, in technology and certainly we hope to continue our leverage our offering, as we grow.

Operator

Your next question comes from Justin Hughes from Philadelphia Financial. Your line is open.