Good day, everyone, and welcome to the TD Ameritrade Holding Corporation's December Quarter Earnings Results Conference Call. This call is being recorded. With us today from the company is President and Chief Executive Officer, Tim Hockey; and Chief Financial Officer, Steve Boyle. At this time, I'd like to turn the call over to Jeff Goeser, Director of Investor Relations. Please go ahead, sir.

Good morning, everyone, and welcome to our first quarter fiscal 2018 conference call. You can find everything related to this morning's announcement on our corporate website, amtd.com, including our press release, the prepared remarks for today's call, an updated fiscal 2018 outlook statement and a new financial factsheet with supplemental information. Just click on Investor Relations. The outlook statement and financial factsheet include our safe harbor statement and the reconciliation of certain non-GAAP financial measures to our most comparable GAAP financial measures. Information about relevant risk factors can be found in our Forms 10-Q and 10-K, which are also available online. This call is intended for investors and analysts. Questions from reporters can be directed to our Media Relations team, or you can follow our Twitter handle @TDAmeritradePR, which will be live tweeting this morning's call. We have a large number of covering analysts, so for those of you planning to participate in the Q&A, we ask that you limit your questions to 1 or 2, so that we can get to as many of you as possible. And now, I'd like to turn the call over to TD Ameritrade President and CEO, Tim Hockey. Tim?

Thanks, Jeff. Good morning, everyone, and welcome to 2018. We are very pleased with the results from our first quarter. This was, as you recall, our first full quarter with Scottrade results, following the September acquisition. We made a great deal of progress in preparation for our upcoming client or clearing conversion. Big wins included standing up a service center in St. Louis, redirecting Scottrade's online account openings to TD Ameritrade, and introducing some enhancements on the TD Ameritrade side that will help smooth the transition for Scottrade clients. The conversion remains on track for completion this quarter. We're seeing positive trends with respect to client retention, and we like the progress we're seeing on achieving synergy targets. We have all hands on deck to deliver a positive experience, both operationally for our clients and culturally for our associates. We're learning a lot from each other. And while we've been very focused on the tactical elements surrounding the integration, we've also spent a fair bit of time over the last 12 months discussing something much more foundational. TD Ameritrade and Scottrade are two companies with equally proud legacies of changing lives through investing. And as we came together through this integration, we really wanted to get down to that one thing that unites us, something that recognizes the work we've done and inspires the work we have yet to do. That one thing, after looking inward at our own cultures and outward at others, is transformation. TD Ameritrade exists to transform lives and investing for the better. Whether it's something more short-term, like delivering on the Scottrade integration or something bigger and all encompassing, like competing on the client experience, everything we do ultimately ladders back up to that one thing, transformation. It's this purpose that acknowledges the history of disruption and innovation that lies within our DNA, as well as the passion we have to continually up our game. And so as we consider our performance and our plans to build upon the strong growth momentum we're here to talk about today, know that we're doing so with this purpose in mind. Our first quarter of fiscal 2018 was very strong. We see financial strength continuing across all core metrics, starting with a record $1.3 billion in net revenue. Client engagement was up significantly across both the legacy TD Ameritrade and Scottrade client basis. Client logins, accounts trading and DARTs all posted healthy increases, and retail clients were net buyers of $6.9 billion. This resulted in very strong trading, 726,000 trades per day on average, which is up 49% from a year ago. In fact, activity in January had been even stronger, with 975,000 trades per day on average through the '17. Asset gathering was also strong. We ended the quarter with $26.5 billion in net new client assets, or a 9% annualized growth rate, a great result up a much higher base. New business on the retail side is doing well, with record levels of new accounts. We're seeing an increase in new business across all age groups, but growth among investors under 35 is up considerably, up 72% from last year. One trend that was more pronounced at the end of the quarter and has continued in recent weeks is increased interest in cannabis and blockchain-related securities, as well as cryptocurrencies in general. This doesn't surprise us given the significant media coverage on these topics. Bitcoin and blockchain-related stocks have been more frequently among our clients' top traded stocks since November. And we are among the first to make the CBOE bitcoin futures products available for trading for qualified retail clients. We have been monitoring the market closely, facing in access over time as it matures, to help both our clients and the firm manage risk. A significant portion of new clients have indicated they are new to investing, which reinforces the importance of quality investor education. Late last year, we made the decision to take our premium education services, previously offered through Investools, and built them into our broader, more comprehensive education offering. We also made it free to all our clients. Since our soft launch in October, usage has increased 30%. We believe education is core to a positive investing experience and sustained investor engagement, and we will continue to invest in its development to make sure it remains relevant to the needs of our clients. Our institutional channel continues to thrive, again contributing approximately 80% of the net new assets in the quarter. Growth was quite diverse coming from existing advisers, new RIA relationships, as well as breakaway brokers. Client experience scores remained near best-in-class for B2B firms, and we continue to deploy initiatives that make it easier for our people to deliver the service RIAs have come to expect from us. We launched institutional digital self-service, which makes it easier for associates to research adviser questions, enhancing the efficiency, consistency and accuracy of information given to advisers. We continue to integrate tech vendors into Veo One. And we continue to automate the account opening process. Nearly half of our advisers have used some aspect of this functionality since launch. We have much to talk about when we welcome nearly 2000 advisers to our annual National LINC conference next week in Orlando. Elsewhere on the revenue front, we're seeing good adoption of our digital guidance offering. Retention continues to increase as well. We're also seeing strong adoption of our enhanced ETF Market Center, as balances have grown approximately $8 billion since its relaunch in October. And we launched in Hong Kong. We received regulatory approval in September and are thrilled to be open for business. As the fastest growing wealth hub in Asia, Hong Kong offers a great opportunity with access to a market that is tech savvy, hungry for education and eager to have access to the U.S. capital markets. Our operation in Singapore continues to see strong steady growth, and we expect to see similar trends in Hong Kong over time. Scottrade's domestically focused Asian business provides an additional synergy here, as we combined our legacy operation with our growing Asian footprint. It's this growth on the other side of the globe, combined with the increasing mobility of today's investors, that inspired a brand-new offering I am excited to share with you today. Starting this week, TD Ameritrade will be the first to offer 24-hour trading, five days a week, in select securities through our thinkorswim and TD Ameritrade Mobile Trader platforms. Nearly 70% of the clients who use our research and education resources do so outside of regular trading hours. But they have to wait to place their trades. It's a gap in the client experience that we can fill. Our initial offering includes 12 widely held U.S. listed ETFs that cover a wide range of sectors and can provide exposure to asset classes that are active globally around-the-clock. We are starting small with the intent to expand over time. We see this as a net benefit to our clients, particularly those in Asia, who will, for the first time, have the flexibility of trading during their own daytime hours. This is just one example of the investments we're making in technology and innovation to transform how people invest. It's a strategy that continues to pay off. Throughput remains very strong with the number of technology deliverables more than double what we delivered a year ago. Some of that will flow in Q2 as we focus more efforts on the final stages of the clearing conversion, but we continue to make very good progress. We also continued to stand up more agile teams, on our way to hitting our target of 80% agile by the end of the year. We added to the capabilities of our Amazon Alexa skill, which now includes access to market information and investor education, as well as a visual experience for Echo Show devices. This is a great enhancement leveraging an artificial intelligence as powering a number of other projects, including trading via chatbot on Facebook's Messenger app, which we shared with you last quarter. Identifying scalable ways to take our services and education direct-to-consumer will continue to be a key focus for ongoing innovation efforts. These technologies are transforming communication and commerce, and the role they can play in transforming investing is incredibly exciting. Accessibility and personalization remained the must-haves of any superior client experience, so we're fully engaged in exploring a number of additional opportunities on this front that we hope to share with you in the coming quarters. And now I'm going to turn it over to Steve for some comments on the financials. Steve, over to you.

Thanks, Tim, and good morning, everyone. We had a strong quarter with GAAP diluted earnings per share of $0.52, a non-GAAP diluted earnings per share of $0.80, driven primarily by strong revenue and favorable tax items. The Scottrade acquisition was the primary driver of free tax changes relative to prior periods. So we will focus on items that may have differed from expectations or our trends in the business in general. Transaction revenue exceeded expectations as a result of continued high trading volumes, despite relatively low volatility. Commission rates were near the low end of our fiscal 2018 guidance range at $7.54 per trade, but still within expectations. Mobile represented 22% of total trades and derivatives were 33%, including 26% in options, 6% in futures and 1% in forex. Order routing revenue was $98 million in the quarter, driven by high trading volumes. Blended rates were in line with expectations. Asset-based revenue of $790 million was 63% of net revenues. Bank deposit account or BDA balances, were relatively flat versus the end of last quarter, as new money was offset by heavy client net buying, which was up with client participation in the market. Our BDA net yield declined slightly sequentially following our first full quarter of Scottrade. Our BDA float versus fixed split at the end of the quarter was 24-76, which included approximately $4 billion of excess float that we plan to extend over the next few months. The current overall duration is 1.9 years. As we extend the excess flow over the next few months, we expect to approach our targeted overall duration of 2.1 years. About $1.3 billion in BDA balances matures monthly, where the rate earned on extension is expected to continue to match or exceed maturities. When it comes to deposit betas, we increased our pay rates on December 29, the blended deposits of beta is 16% or 4 basis points. While cash levels are up slightly sequentially to approximately $150 billion, cash as a percentage of total client assets remained at historic lows at 12.7%, down slightly from last quarter due to the growth in the value of investment and as a result of strong net buying from our retail clients. Stock lending was a strong $53 million in the quarter, as short interest increased. Margin revenue was $191 million in the quarter, with an average balance of $17.6 billion. We increased pricing on the negotiated book on December 19. Following the most recent Fed move, and we increased the rack rate book on January 1. Our new rate sensitivity for the next 25 basis point increase is $60 million to $110 million in pretax income, which implies deposit betas of 15% to 25%. We ultimately expect terminal betas to approach 40%, but that will depend on competitive forces and mix, which we're monitoring closely. Fee-based revenue continues to grow nicely, including growth in our advice solutions. Advised assets ended the quarter in excess of $62 billion, including Essential Portfolios at $1.4 billion. Moving to expenses. Operating expenses were $921 million in the quarter. We incurred $179 million in acquisition-related costs comprised mainly of $81 million recorded in employment, $8 million recorded in professional services and $85 million recorded at other operating expenses, which was primarily related to contract terminations. With respect to synergies, we still expect to realize $175 million to $225 million this fiscal year. While we started to realize synergies this quarter related to advertising and some administrative functions, we expect to realize the majority of the synergies following the clearing conversion. As we look to next quarter, certain expenses will increase due to incremental investments in advertising incentives and client service personnel to address the high levels of client engagement. However, expenses are expected to decline in the last 2 quarters of the year as a result of the clearing conversion. Below operating expenses, we incurred $13 million of other expenses, primarily due to the sale of corporate treasuries that are realized loss. Reinvestment yields are higher than the yields of the securities sold, so we expect there will be incremental benefits over time. With the recently enacted Tax Cuts and Jobs Act and decline in the federal corporate tax rate, we are required to use a blended rate pushback to the beginning of the fiscal year. This considers our old tax rate of 37.5%, as well as our new rate of 24%. The blending results and the rate of 27% for each quarter of our 2018 fiscal year, including the December quarter. However, our effective tax rate for the first quarter was even lower at 2%, as we realized approximately $78 million of discreet after-tax benefits or $0.14 earnings per diluted share impact, primarily due to the remeasurement of our deferred tax liabilities. The remainder of the tax benefit in the quarter was due to the movement of our effective rate to 27%. We are expecting a full year 2018 effective tax rate of approximately 22% as a result of 2% in the December quarter and 27% in the remaining 3 quarters. However, 24% is our expected rate for fiscal 2019. We have recast our original fiscal 2018 guidance to reflect just the impact of these new tax rates. The revised GAAP diluted EPS range is now $1.85 to $2.45 and the related non-GAAP diluted EPS range is now $2.55 to $3.05. Finally, regarding capital deployment, we paid $119 million in dividends in the quarter or 26% of non-GAAP net income. We realized that we stand to incur significant benefits as a result of our adjusted tax rates, and there are many ways in which we can put this incremental income to good use. We plan to look at each of them, as well as our broader capital deployment strategy in greater detail once we have successfully completed the Scottrade clearing conversion and substantially realized synergies. With that, I'll turn the call back over to Tim.

Thanks, Steve. Well, we've had an incredibly strong quarter. Revenue and client engagement continues to increase, and we're executing well on many of the things we need to do in order to compete on the client experience. While we're looking ahead as well, considering the role we play in driving transformational change across this industry. For the last 12 to 18 months, we've been laying the groundwork to make these efforts possible. And now that we're here, on the verge of integrating Scottrade and starting to see the operational impact of our many investments, it's a very exciting time to be at TD Ameritrade. Our immediate priority is a successful clearing conversion. We're approaching it with a focus on maintaining high service levels, and we remain confident about hitting our goals. The year has just begun, but it's a great way to start. As always, we have a lot of work left to do, but momentum remains in our favor. And with that, I'll pause and let the operator open up the call for Q&A.

[Operator Instructions]. Our first question comes from the line of Chris Shutler with William Blair.

So first, on the commission rate in the quarter, just maybe, Steve, talk about the factors that drove the commission rate to the lower end. Obviously, it was way more than offset by strong trading activity. But I just -- what drove that? And how confident are you that you'll be in that $7.50 to $7.80 range for the year?

Yes. So, Chris, it's really just mix. And so we have a very heavily driven market in general. And then with Scottrade coming on the first full quarter of Scottrade, they have a heavier equity mix than TD Ameritrade legacy did historically. So we're pretty comfortable that we're right within the range and that the numbers will be consistent going forward if we stay with this kind of market.

Okay. And then the only other one, just based on the current yield curve, is it fair to think that you would be above the high end of the BDA yield guide for the year? Just based on the way things stand today?

So I think we're not changing or giving specific guidance on the BDA. But I would expect it to be towards the high end. It really depends on the beta and what we see for additional rate moves.

Our next question comes from the line of Devin Ryan with JMP Securities.

Maybe one here on expenses. There's a lot of moving parts with Scottrade. But the last quarter, you'd spoken about 4% to 8% I think core expense growth rate. And so the revenue backdrop seems like its developing favorably. And so just trying to think about whether that's still the right range. I get some of the comments that you're looking at kind of increasing some investments into the business. So I'm just trying to think about what are the areas that the investments are going to be in? And then how should we think about that, yes, I guess, expense growth rate range, especially now that you have the benefit from tax reform as well?

Devin, it's Tim. Let me start off and Steve will kick in. So, obviously, a lot of attention on this. So first part of it comes from the tax windfall that everybody is wondering if and when we're going to spend that. Frankly, from our point of view, our operating performance is strong enough that the additional investments that we can make post our Scottrade conversion, which is coming up soon, can all be absorbed by that. So that's sort of the first point. It's going to be noisy. Second quarter, you're going to see our what is the normal Q2 over Q1 sequential expense bump that we always get. Advertising goes up, for example. And given that, that's just post the integration, there's going to be some additional noise in there. But then we're on track for the synergies. Q3 and Q4 will come back down dramatically. So post the actual Scottrade integration, when we've got some cycles back for all the people that are working hard on that, we've always got a list of next-to-fund-type projects that may or may not have been in our original plan based on lower revenue growth. So our anticipation is that in the next few quarters we'll continue to invest. We're not talking hundreds of millions here, we're talking about tens of millions. And my expectation by year-end is that we will still come in towards the high end of our non-GAAP expense growth range for the year. And in terms of the types of things that we're looking to invest in, then they continue to be on the theme of innovation. You've seen some of the launches we've just sum up this last quarter. We're working on more interesting things. And they will be both revenue enhancing, as well as utilizing hopefully new technologies to take out operating expense in future years.

Yes. I guess the only thing I would add, Tim, is I think with this really high level of investor engagement, we're likely to increase our ad spend as well and probably typically the second quarter -- second fiscal quarter is a pretty significant one for ad spend so we'd expect to see some elevated ad spend as well.

Our next question comes from the line of Rich Repetto with Sandler O'Neill.

I guess this is closely related to the last question. But you talked about the significant benefits you're going to receive from tax reform, and you're looking at different ways that you could put this incremental income to use. So I guess trying to distinguish that, I know there's a high level of client engagement, but what would you do with the tax reform? And you said you're going to look at your capital deployment strategy. And will you do anything with tax reform that would impact your margins, I guess, is the question, your pretax margins?

Yes. So on the OpEx spend side, nothing further to answer, Rich, than my last answer. On the capital deployment side, again, post-integration, Steve and I will be sitting down with the board and taking a look at what it is that we're earning on a consistent run rate and make some capital deployment decisions. And so that's what I'd say on that particular topic. On the competitive front, if you're sort of suddenly asking whether the tax change changes that, look, this has been a competitive industry, it always is. We've seen, for example, betas still remaining low in line with our expectations, and we expect that to continue. But all in, we're feeling pretty good about the outlook for the year.

Okay. And a quick follow-up would be, I think you've laid out a pretty clear path on the cost synergy side. But now that you have Scottrade and looking on the revenue synergy side, is the cross-selling underway? Is there anything that you're doing to make headway? And I know the targets for cross-selling are farther out. But in regards to taking up the derivative percentage or payment for order flow or client wallet side of Scottrade, the revenue synergy side?

Yes. I guess the way to think about it, Rich, is that we always anticipated the revenues to start flowing some time after clearing conversion. And so here we are at clearing conversion. It's a little earlier perhaps than we originally anticipated, so that means that brings forward all that revenue stream at about the same pace we originally anticipated. Right now, I can tell you as we're getting ready, we still feel quite confident about the type of clients, the quality of clients, the branches are going through, obviously, significant training to get ready to absorb the additional clients on to our base. So no reason to believe that there is any degradation, of course, to our original revenue projections or the same time frame. We continue to be optimistic and maybe just pull forward 6 months based on the timing of the conversion.

Our next question comes from the line of Dan Fannon with Jefferies.

I guess just a question on the institutional side. Flows continue to be strong. Can you talk about the backlog there? And then I guess just longer term, any -- your views on the change in the broker protocol? And kind of how that may or may not impact flows or demand going forward?

Sure. The short-term answer is, as you say on the institutional side, as it continues to be huge growth story. There's a long-term trend there that is unabated. And it's, I think, amplified by what is a fantastic client service orientation and great technology on our institutional platform and it's been a winning formula for us. The broker protocol, specifically, there's still some sifting out in the marketplace that's happening as, obviously, some firms have opted out. Generally, our breakaway brokers tend to come from the independent broker-dealer space, a, to start; and b, what we've heard from our clients and prospective clients is that they are reassessing in light of this particular change, but it doesn't necessarily change their long-term direction. It's been pretty much a one-way flow. There's not many RIAs that go back to the broker-dealer space. I think we've only ever had one client that's ever done it in our entire history. So it tells you that it's a long-term trend. We would characterize it as maybe a speed bump as those that are considering breaking away are taking a look at the implications. But other than that, the pipeline is still very full and conversations are continuing.

Great. And then, Steve, just a follow-up on the expenses. I guess, can you give us a sense of what synergies have been realized thus far? And I know that you've talked about just the direction of expenses higher than lower. But given all the moving parts, I guess, any more finer point around that would be helpful.

Sure. I think when you look at the synergies that we're seeing early on is just, and some of the administrative areas you're having, folks that are able to leave early, et cetera, et cetera. But for the most part, the major synergies, the back-office staffing, the branch staffing, the closing of branches are all going to happen post-clearing conversion. So you see those towards the second half of the year.

Our next question comes from the line of Conor Fitzgerald with Goldman Sachs.

Steve, just wanted to get your updated thoughts around resuming the buyback if the clearing conversion can happen this quarter? And any way to help us think about the magnitude once the buyback does resume?

Yes. So I think, in general, Conor, we haven't really changed our thought process on capital actions, so we're continuing to target 40% of non-GAAP EPS for our dividend, and then some incremental buybacks on top of that. We said that we're going to wait and assess the clearing conversion and the synergy realization and then we'll have a discussion with our board. So nothing really new.

Our next question comes from the line of Brennan Hawken with UBS.

Just wanted to ask a quick one here on deposit beta. Can you break down, number one, I guess, overall the client asset breakdown at this point, given the strong growth in your institutional business. Like how does both cash and client access assets break down institutional versus retail? And what's the difference in the deposit beta in those 2 cash bouts?

Yes. So we don't give out that specific information. But generally, what we have said is that our institutional business is growing a little bit faster than our retail business. Institutional betas, we would expect would be higher than retail betas over time. We have seen them be pretty rational to date, so far, but we would expect them as rates get higher to be higher. And that in both of our businesses we're seeing historically low levels of cash to assets under management. And I'd say that's consistent across the business.

Okay. And no color on the breakdown of the assets in the different books?

Yes. You know, right now, it's a little bit more than 50-50. The retail with Scottrade is about 55% of our total assets. And then the cash to AUM is higher in the retail business. So the cash numbers would be even bigger than that.

Our next question comes from the line of Steven Chubak from Nomura Instinet.

So Tim, wanted to ask a question regarding your strategy for new investors. You included a couple of interesting stats, including a 72% increase in millennial investors growing interest in bitcoin and cannabis stocks. And I'm just wondering, given the significant volatility in those markets, whether you could speak to your efforts to help those investors manage risks, and you spoke of some of your educational efforts and some of the free offerings you provided whether those efforts are actually helping those investors diversify into other products, helping limited portfolio concentration risk. I guess, there just seems to be a lot of sensitivity around some of those key themes, especially given the growing interest in some of those stocks.

Yes, great. Thanks. Great question. And so yes, as we've announced, we've just launched our free trading platform. Frankly, I believe that we've got a -- sorry, free education platform, sorry, slipped there. We've had the best education on the Street for many years now, but frankly, it has been in our Investools platform for a smaller subset of clients. So we've exposed that now to, and updated it for a more broad-based offering. And the uptick in the education is just staggering. In a month or 2, it's literally gone up 30%. We've launched our TD Ameritrade Network. All of these things are trying to help our clients who are new to investing or trading, get educated on the potential risks and how to best maximize them. On the blockchain and cannabis-related security trading that's happening, I mean, no question that seems to be the theme of the, certainly, the tail end of the quarter. I just wouldn't mind putting in perspective. And first of all, the margin requirements on many of these are first higher and in many cases, there is no margining because they're OTC stocks to start with, it's the first point. Second point is, I just want to put it in perspective to the overall uplift in trade. So for example, we've said in January to date, our trading levels are literally near 1 million. If you zeroed out all of the cannabis and the blockchain-related symbols, you'd still have a number that's just shy of 900,000 in trading. So it really goes to show a number of broad-based retail engagement, people trying to refigure out post the tax changes how to rebalance their portfolio, ever-increasing highs in the marketplace. So there's broad-based engagement. It's not just those 2 sectors.

And maybe just a follow-up to Brennan's earlier question on differences in retail versus institutional. I just wanted to get a better understanding about the operating margin or profitability profile for those two segments, just given the flows are so much stronger on the institutional side, how the operating margins actually compare their versus the retail segment?

Yes, so we don't break out separately the retail versus institutional profitability. Historically, I think in the industry, retail has a higher return on client assets on a higher revenue base, but both businesses have a strong operating margin. And we expect probably at some point in the future, yes, that we will disclose those numbers, but we don't do that currently.

Our next question comes from the line of Jeremy Campbell with Barclays.

Regarding the 24-hour trading. I know it's pretty nascent, there's only several securities on there. But do you guys really expect this to increase engagement in the total number of trades put through? Or is it just a bit more of kind of a convenience form factor for clients that are kind already placing trades, and now they just don't have to wait for the opening to do it?

The short answer is yes. I think it will be both factors. From our point of view, we've seen, for example, many of the market moving events happening outside of regular trading hours. And so, whether it be the Brexit or whether it be the U.S. election, or even as recently, last weekend, as the government shutdown. This all happened on weekends. And so the idea behind 24-hour trading is to allow for out-of-market trading to happen, when you have these -- that's why we chose these 12 particular symbols, because they allow you exposure to very broad swaps of taking positions in the marketplace and sometimes to mitigate the risk. So it will be a trading uptick. The trading so far, literally, it's only been a couple of days, but trading so far has been fairly, fairly tight in terms of range, quite liquid. And we expect that to be an opportunity going forward to enhance trades to some degree, and also give another option to our already active traders.

Great. And then just on the BDAs, if we kind of put a pin to like the rate pickup you got from the $1.3 billion maturing monthly. Is the plan here a little bit to get the third-party banks and TD to compete a little bit? To get a better kind of net yield for you guys? Or are you just going to roll it at the same third-party bank or planning to move that over to TD to kind of generically?

So we have the opportunity to move some uninsured deposits, which is about $10 billion to third parties. But other than that, the rest of the ITA agreement is intact and they're no changes there.

Our next question comes from the line of Kyle Voigt with KBW.

Just a question on the Hong Kong launch. I know it's very early days, but any color on early uptick there? And just the size of the push you're making in terms of allocating resources in advertising budget to that launch? And then maybe you could help us better understand what a potential launch into Mainland China would look like, and the time line around that?

Great. I just came back from that. We're over there visiting for the launch itself. So as you know, we've had our Singapore office for a number of years now, I think 5 or 6. It's been growing very nicely, but again, a very small base. Hong Kong was important to us, because it really is. First of all, it's the largest offshore capital in terms of market in the world, and it is the gateway to Mainland China. And given our license there does give us the opportunity to actually open accounts for the mainland Chinese, without having to get any additional licensing. So that's quite attractive for us. It's a very small investment. It is a -- it's going to have a high, high growth rate, but it's off a very small base. What I like about the combination of both Singapore and China and what was the, in many ways, the hidden gem inside the Scottrade acquisition is that they had a significant-sized domestic Asian-focused business, for example, with the, I think, 6 branches that we're in Asian markets across America. And we're keeping those particular branches and folding that into our broader overall Asian strategy, both to service clients here, as well as there. So again, a relatively small spend, high, high growth rate, but by the same token off a relatively small base.

All right, great. And then just one regulatory question for me. Tim, you put out the 2018 regulatory priorities a couple of weeks ago, and there was a section there focused on best ex. And it seems like they are going to review how brokers manage their conflicts of interest in executing client orders. And also expanding their surveillance program for best ex in 2018. And I know Ameritrade has internal controls to decide which wholesalers to use and where to route orders. But just wondering if you could comment on whether the increased surveillance from FINRA or the examination report they published in December would alter any of the internal surveillance being done in Ameritrade or potentially routing decisions?

Now we're very proud of our best execution policies and practices. And this has been an issue for the industry for many, many, many years. And so we welcome their review and we expect to do very well.

Our next question comes from the line of Mike Carrier with Bank of America.

Tim, just another one on Asia. I don't know if you can size it up how you mentioned on January like the level of trading activity for the crypto and the cannabis just in terms of how big Asia is. But the other thing is that just when you guys look at that market, and the other players that are over there, how are you looking to differentiate with kind of the competitive landscape, what's your guy's niche in terms of taking advantage of that opportunity because you do have some things that others don't?

Right. Great question. We actually think what we have to offer is, if it's right in with the opportunity in China, especially in Mainland China, the first thing is that they are very interested in getting access to U.S. equity markets. And so we're a great conduit for that. They are very interested in cutting edge technology and platforms, and we have the best of those. And I'd say most importantly, they are starved for education. They are -- there is constant interest in the markets globally, especially in the U.S. markets. And as I said a few minutes ago, we have what we expect to be and think is the best education content in the market. And once you build it with some translation and we've done the translation, you can start disseminating it through many of these social networks, which are much more pervasive in the Asian marketplace even than they are in America. And so we think the combination of things we've already invested in, with a very small additional amount of work around translation, it can be served out to an extraordinary large marketplace. And then they will find themselves to riding, if you will, in our Hong Kong branch. And our job is to be able to scale up that operation to service them well. So it really doesn't move the needle at all on the trades to date, but I think you get a sense of why we're excited about the potential future, given the investments we've already made in contents and platforms and our position relative to trading in American markets.

Yes, that makes sense. Then just a quick follow-up. Steve, just on the net interest revenue. You mentioned with the Fed, I think you moved the margin rates. I'm just -- what we should expect there relative maybe the competitive landscape? And then I know like the stock, lending the gap part was active in the quarter. It seems like those trends have continued. But just any color just because that line item tends to be a little bit more volatile and just given the price moves, what do you expect?

Sure. So in terms of the margin, we've been pretty consistently been moving our negotiated book up with each increase. As we think about the non-negotiated book, we're really looking at what the competitors are doing. We've been able to make that move the last couple of times. So we feel pretty good about where the margin book is headed competitively. In terms of stock owned, I agree exactly with what you said. We saw a big uptick in December, which traded a good quarter. We're seeing a continued broad short interest in January. So hopefully, that will continue into next year and has a big impact on the net interest revenue.

Our next question comes from the line of Craig Siegenthaler with Crédit Suisse.

Some more of a macro question here. But just given the very low levels of client cash allocations and then you also have the high DARTs and retail engagement, do you have any thoughts on the broader implications for the U.S. economic cycle? And I'm just wondering when is the last time, historically, we saw this dynamic?

Well, I'm pausing here to say, well, if you're asking this low level of client cash we've never seen. But there is absolutely a cycle that client cash as a percentage of assets goes down, partly because markets go up. And so they take advantage of that, but also it's just a numerator-denominator thing. If you are asking whether markets are at a high end of the cycle, it certainly feels like this bull market is long in the tooth, but by the same token, it doesn't seem to be a catalyst for change, and there seems to be a drifting up with low VIX. So you can really add any other commentary that these market condition -- set of conditions has on that. Steve, anything?

No, I think there's a lot of reasons for investors to be optimistic, and we're certainly seeing them at very high levels of optimism. And so we'll continue to monitor them.

Just one follow-up on the cryptocurrency products. And I'm really thinking about the Cboe bitcoin futures product. This is a new product. There's a lot of volatility there, and there's a lot of retail investors that are probably looking and engaging this product. Are there any different checks and balances on this product? Or anything that may prevent inexperienced investors from going in big and potentially losing money in this product down the road?

Absolutely. The way we launched it was we limited it to a very small number of existing futures traders that have lots of experience. And over time, we're -- as we get more experienced with the product, we're looking to expand it out but slowly. And so as a result, it hasn't really attributed much to the DARTs to date, even in these last few weeks since the launch. And it's not available as yet for broad-based investing. So back to the point of making sure with that risk controls, margin rates and making sure there's good education levels that help our clients be safe as they trade these new interesting asset classes.

Our next question comes from the line of Brian Bedell with Deutsche Bank.

Maybe just along the lines of trading. Tim, as you think about, first of all, year-to-date trends. I'm just trying to gauge to what extent they may have tapered off from the first couple of weeks in terms of the portfolio rebalancing. But as you think about the organic growth initiatives that you have between the 24-hour marketplace and the Hong Kong and Singapore. And then also the long-term synergies from cross-selling more trading services, including options to Scottrade clients. Do you think that would be, even from the highly sort of strong level of DARTs that we're seeing year-to-date, do you think that's something that can potentially keep this level of trading activity up at these levels?

Yes. So first of all, again, if you really want to micro-analyze what's happening, even since the end of the quarter, for example, we've seen a slight curtailing in cryptos as being a percentage of our trades just in the first couple of weeks versus December. December seemed to be the peak. And that feels about right if you think about the news articles we're all seeing around cryptos. Once the number starts to come down a little bit, it became less and less frothy. As I said, having said that, those 2 categories really are only contributing high single digits in our current level versus the 9.75% rate. So there is broad-based engagement. But I don't think anybody really expects this level to continue unabated for the rest of the year. The other factors that you talked about 24/5 trading, Asia, these are literally dripping wet launches from our point of view, and so they won't be significant contributors. But our overall theme is to bring investing and trading closer to where our clients are, whether it'd be our Facebook Messenger app. We've done some things with Amazon's Alexa tool. These are all innovations that our clients are using and starting to put into our daily -- into their daily lives. And so as a result, we want to bring our capabilities to bear to where they are already are. Those will have incremental effects on our business volumes over time, but it won't be any one thing anytime soon.

Okay. Great, that's good color. And then just back to the expenses and the tax benefits. So it sounded like from your comments, the range that you have for total operating expenses in your outlook to $3 point -- a little over $3.3 billion at the high end is more due to the level of activity in the customer engagement than it is to giving back and you are -- or reinvesting any of the tax reform benefits. Just wanted to make sure that I have that right. And then as we think about -- as you guys think about the options of reinvesting to some of that also includes the potential for doing another large online brokerage acquisition down the road?

Yes. So from an OpEx point of view, again reiterate, yes, any additional investments we make between now and year-end, partly, it's just a deal with the higher volumes that we're seeing, and partly, it is to take advantage of the higher revenue rates, assuming it continues to invest, but we're talking relatively small dollars. All of that, we're still seeing 3 quarters out by the end of the year, notwithstanding a spike in the second quarter, that we will be inside but very much towards the high end of the non-GAAP expense range. That's sort of the -- to drive back at all that. Second part of your question, in terms of an acquisition, the tax break are not -- really doesn't have any bearing on our thinking in terms of M&A activity. And, obviously, as usual, we will consider anything that makes strategic and financial sense.

Our next question comes from the line of Chris Harris with Wells Fargo.

I just wanted to follow up on the expenses really quick. In prior years, the March quarter, you tend to have an 8% increase in expenses. And so I just want to confirm, is that a fair rate of change you'd be thinking about for the quarter that we're in now?

Yes. Relative to the second quarter over the first quarter, as we've said, yes, it will be commensurate with that, it's probably a little even a bit more. Again, partly because of the advertising bump we get, the second quarter Scottrade activity and frankly, if it continues at the current rate, we will want to make sure we're taking advantage of the opportunities of the current high level of retail engagement.

Got it. Okay. And then on the 24-hour trading initiative, can you guys talk to us a little bit conceptually on how that's going to work? I guess I'm wondering who's going be making a market in securities? Is it just Ameritrade customers trading amongst themselves? Or something else going on?

No, we've worked with the industry partner. Our primary one is [indiscernible]. We're actually quite interested in others entering this market. Obviously, it makes execution even better for our clients. Frankly, I think a few years from now, we'll all look back and say, wasn't it obvious the 24-hour trading was coming to these capital markets, because it's in every other market we seem to have these days. And so that's how we've set it up so far and what we think others will enter.

Our next question comes from the line of Michael Cyprys with Morgan Stanley.

I just wanted to circle back on the Asia strategy. Just if you could talk about any sort of goals that you have for the international business over the next 3 to 5 years? And if you could talk about your strategy for Mainland China, what sort of investments going to be required to make this more meaningful contribution over time?

So the goal is simple, grow fast. And in terms of investments in Mainland China, again, the beauty of this strategy in today's day and age is that there are already established media channels, networks that, frankly, dwarf the North American equivalents. And they're -- what they are looking for, as I said earlier, is content. We have that content. And so there is a very low, if you will, capital investment that's required to make a presence in Mainland China. So as a result, we look at that as being leveraging off our existing investments, our Hong Kong office, that allows our potential clients to find us with those offerings. And so this is a fast growth environment with limited capital outlay to take advantage of that. But by the same token, it's small today, and so it won't really move the needle in the short term.

Okay. And then just on your distribution strategy overall. You're on Facebook Messenger, Amazon Alexa, I just realized it's still early days for those initiatives. But can you just talk to your overall distribution strategy? How do you see that evolving over the next 3 to 5 years? And what's the roll of these large platform companies that have large customer bases. Do you see this as a way to acquire new clients? Or is it servicing your existing customer base do their pipes?

Yes, great question. So four words around our overall distribution strategy, high tech, right touch. The high tech is, as you've seen, we have the best technology platforms, which we will continue to invest in, and we will iterate with. The right touch, as you know, we are moving to branch network in North America of 364 branches, our two offices in Singapore and Hong Kong and will have, I would say, about 87% of North American wealth covered in those -- in that physical presence. Your question about networks, whether it'd be here or whether it'd be in Asia, is a great one. We think there is a great opportunity to partner with the right players because we have something that their clients will want. And they, of course, have distribution that we would want access to. And so if there is a right opportunity to find the right partnership, absolutely there is an opportunity for client acquisition and servicing our existing clients, as we say, bring investing and trading to where our clients already are.

Our next question comes from the line of Mac Sykes with Gabelli.

I just wanted to expand, I guess, on Michael's comment. I guess, are we starting to see maybe more fundamentally a convergence of the platforms, as you say? I know you're talking about partnerships and so on, but in terms of financial and social. Or are we just reading too much into it at this point?

Good question. The convergence of the platforms, from my point of view, it hasn't really started yet. But I think you will start to see that happening over the next sort of while. It is a bit of a land grab. It is a bit of an opportunity to, if you will, parse out your offerings and perhaps have investing in trading as a service that becomes more available to clients on these social networks, but it's early days.

Your next question comes from the line of Doug Mewhirter from SunTrust.

I just have one additional follow-up on the international, or the Asian expansion, more specifically. But sort of small picture question, a big picture question. The small picture question is, the average, if revenue per trade or the mix or the mix versus stocks versus derivatives, how does that compare to the U.S. for the -- your Asian operations in aggregate?

Yes. So first of all, the price points are similar to our American price points, but compared to the local competitors, who often have both the fee and the basis points charge, it's a great deal. That's my first point. Also the activity rate, the average account size is smaller, but the actual activity rate in terms of trade levels are multiples of what you get in America, that would be the general trend.

Great. And my last part of the question, which is a bigger-picture question is, do you have any kind of idea now, I know it's very, very early, of how big Asia could be as a percentage of your total business? I mean, could it be as big as 25% of your global DARTs or global AUM? Or would there actually be regulatory restrictions, or even sort of business strategy restrictions where you want to put some for the governor? Or is the market not that visible to get to be that big, that part of your global business?

Yes. No projections yet so as to what the absolute percentage size is. As I've said multiple times, it will have a much higher growth rate, I'm expecting, than our existing American business. And I would say our job here in America is to grow at a faster rate to give it a good run for its money. Having said that, to achieve 25% of our overall business in the short term would be stupendous and unlikely. And so I think again, the trick here is to make sure that we are innovating, that we are learning, that we are partnering appropriately and that we have the best opportunity to expand, as I said, given its strategic ability and size of a marketplace without having to make, such extraordinary large initial outlays given the market conditions today. So it is a great option on future growth. And we're looking forward to what it can do for our overall growth rate. But to be an outsized portion of our overall revenues in the short term would be, first of all, a problem to have.

There are no further questions at this time. I'll turn the call back over to you.

Great. Well, thanks, everybody. I know you've all experienced a slight change in our IR process. So I just want to call out our Investor Relations team and Jeff Goeser in particular, an award-winning Investor Relations person, by the way. Thanks to all of you. And so it's been a great quarter for us. We're excited about the levels we're already seeing, about our growth opportunities and all our new announcements. And so we look forward to talking to you again in the second quarter.

This concludes today's conference call. You may now disconnect.