SNEX - NASDAQ

Good day, and thank you for standing by. Welcome to the StoneX Group Inc. Q3 Fiscal 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Bill Dunaway, CFO. Please go ahead.

Good morning, and welcome to our earnings conference call for our quarter ended June 30, 2025, our third fiscal quarter. After the market closed yesterday, we issued a press release reporting our results for the quarter, and this release is available on our website at www.stonex.com as well as a slide presentation, which we will refer to during this call. The presentation and an archive of the webcast will also be available on our website after the call's conclusion. Before getting underway, we're required to advise you, and all participants should note that the following discussion should be considered in conjunction with the most recent financial statements filed and notes thereto as well as the Form 10-Q to be filed with the SEC. This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC. Although the company believes that forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there could be no assurances that the company's actual results will not differ materially from any results expressed or implied by the company's forward-looking statements. The company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance. I'll begin with the financial overview of the quarter and we will be starting with Slide #4 in the slide deck. Third quarter net income came in at $63.4 million with diluted earnings per share of $1.22, which represents 2% net income growth, but a 2% decline in diluted EPS versus the prior year quarter due to additional shares outstanding. The current quarter includes pretax acquisition-related charges of approximately $8.9 million, including $6.5 million of the immediately preceding quarter. As a reminder, our operating revenues include not only interest and fees earned on client balances, but also carried interest that is related to our fixed income trading activities. Net operating revenues, which nets off interest expense, including that, which is associated with our fixed income trading activities as well as introducing broker commissions and clearing fees, were up 4% versus a year ago and flat versus the immediately preceding quarter. Total compensation and other expenses were up 5% versus the prior year quarter and 3% versus the immediately preceding quarter. Fixed compensation and related costs were up 6% versus a year ago and 2% or $3 million versus the immediately preceding quarter. The increase versus the prior year was primarily related to merit increases at the beginning of the calendar year, a 7% increase in head count as well as an increase in share-based compensation with the increase versus the immediately preceding quarter, also primarily related to the increase in share-based compensation. Professional fees increased $3.9 million versus the prior year, with $2.4 million of that increase related to the acquisitions, as I noted before. It is of note that the income before tax for the current quarter includes a $2.3 million loss on the disposal of capitalized hardware, partially offset by a gain of $1 million related to class action settlements received while the prior year quarter included gains of $1.8 million related to class action settlements received, all of which are included in the other losses and gains on the financial statements. Looking at it from a longer standpoint, our trailing 12 months results show operating revenues up 17%. Net income was $296.9 million, up 26%, with earnings per share of $5.87 and a return on equity of 16.6% for the trailing 12-month period, well above our target of 15%. We ended the third quarter of fiscal 2025 with a book value per share of $40.36. Turning to Slide #5 in the earnings deck, which compares quarterly operating revenues by product as well as key operating metrics versus a year ago, we experienced growth in securities, payments and FX CFDs which was partially offset by declines in listed in OTC derivatives, physical contracts and interest and fee income on client balances. Transactional volumes were up across all of our product offerings. However, diminished volatility, combined with client mix, drove a decline in spread and rate capture with the exception of securities, which were up 15% and FX and CFDs, which were flat. Just touching on a few highlights for the third quarter. We saw operating revenues derived from physical contracts were down 17% versus the prior year, primarily related to the effect of tariff-related uncertainties on client activity as well as the prior year comparable period, including an $8.4 million realized gain on physical inventories held at the lower of cost or market. Operating revenues derived from physical contracts were down 23% versus the immediately preceding quarter. Operating revenues derived from listed derivatives were down 3% versus the prior year and down 2% versus the immediately preceding quarter, primarily driven by our Commercial segment. Operating revenues derived from OTC derivatives were down 11% versus the prior year and 2% versus the immediately preceding quarter, primarily as a result of declines in the average rate per contract due to diminished commodity volatility. Securities operating revenues were up 30% as volumes were up 25% and the rate per million increased 15% versus the prior year, with the improvement driven by significant improvement in our equity businesses, driven by increased volatility and client engagement. Security-related operating revenues were up 14% versus the immediately preceding quarter. Payments revenues were up 5% versus the year ago quarter and up 6% versus the immediately preceding quarter. FX CFD revenues were up 14%, resulting from an increase of 12% in average daily volume while the RPM was flat. This also represented an increase of 23% versus the immediately preceding quarter. Our interest and fee income earned on our aggregate client float including both listed derivative client equity and the money market and FDIC sweep balances decreased 11% versus the prior year, resulting primarily from lower short-term interest rates, which were partially offset by 10% growth in client balances. However, this is modestly higher versus the immediately preceding quarter. Turning to Slide 6. This depicts a waterfall by product of net operating revenues from both the prior year quarter to the current one, as well as the same for the trailing 12-month period. Just a reminder, net operating revenues represent operating revenues less introducing broker commissions, clearing fees and interest expense. For the quarter, net operating revenues increased 4%, principally coming from securities up $39.3 million and FX and CFDs, which were up $9.8 million, partially offset by declines in physical contracts, listed derivatives and OTC derivatives of $22.5 million, $8.4 million and $7.4 million, respectively. On a net basis, interest and fee income on client balances decreased $12.5 million. Looking at the bottom graph for the trailing 12-month period, it shows a slightly different picture as in addition to very strong growth in securities, we saw large increases in interest and fee income, physical contracts, listed derivatives and FX and CFD contracts, slightly offset by declines in payments and OTC derivatives. Moving on to Slide #7. I'll do a quick review of our segment performance. Our Commercial segment net operating revenues declined 24%, primarily resulting from a 44% decline in physical contracts driven by a decline in client activity and increased interest expense related to our precious metals activities as well as declines of 18% and 11% enlisted in OTC derivatives, respectively. Segment income was down 36%. On a sequential basis, net operating revenues were down 13% and segment income was down 17%. Our institutional segment saw record net operating revenues and segment income with growth of 27% and 41%, respectively. The growth of net operating revenues was principally driven by a $38.9 million increase in securities revenues, in particular in equity markets, particularly -- partially offsetting the net operating revenue growth, nonvariable direct expenses increased 10%. On a sequential basis, net operating revenues and segment income were up 5% and 1%, respectively. In our self-directed retail segment, net operating revenues were up 18% and segment income was up 49%, which demonstrates the operating leverage in this business. This was primarily driven by a 34% increase in average daily volume and FX CFD contracts, which was partially offset by a 13% decline in rate per million. On a sequential basis, net operating revenues were up 26% and segment income was up 87% in this segment. In our Payments segment, net operating revenues were up 3% and segment income was flat. Rate per million was down 6% versus the prior year. However, it was relatively consistent with the immediately preceding quarter. Average daily volume was up 16% versus the prior year and up 4% versus the immediately preceding quarter. Moving on to Slide #8. Looking at segment performance for the trailing 12 months, we saw a strong growth in Institutional segment with net operating revenues up 26% and segment income increasing 35%. In addition, our self-directed retail segment increased net operating revenues in segment income 14% and 28%, respectively. Our Commercial segment net operating revenues increased modestly, while segment income declined 5%. Payments decreased net operating revenues in segment income 3% and 7%, respectively. Finally, moving on to Slide #9, which depicts our interest and fees earned on client balances by quarter as well as a table, which shows the annualized interest rate sensitivity for a change in short-term interest rates. The interest/fee income, net of interest paid to clients and the effect of interest rate swaps declined $12.5 million to $73.9 million in the current period. This represents a $600,000 decline from the immediately preceding quarter. As noted in the table, we estimated 100 basis point change in short-term interest rates either up or down, could result in a change in net income by roughly $27 million or $0.54 per share on an annualized basis. With that, I will hand you over to Sean O'Connor, our Vice Chairman, for a strategy discussion.

Thanks, Bill. Good morning, everyone. So I'm starting here on Slide 11. As you no doubt saw, we closed the RJO and the Benchmark acquisition after the close of business last Thursday, July 31. We have covered a lot of the background of this transaction in both a separate call and during last quarter's earnings call, but perhaps just a quick refresh on both given that we are now fully in execution mode. RJO is the largest and most consequential transaction we have ever undertaken. We believe that this is a transformational transaction that positions StoneX as a market leader in global derivatives and reinforces our position as an integral part of the global financial market infrastructure. With institutional great global market access, end-to-end clearing and execution capabilities, [Technical Difficulty] franchise. It supports our goal of becoming the counterparty of choice for clients across all asset classes, embedding our integrated offering into long-term trusted relationships. R.J. O'Brien has been a leading FCM in the industry with a stellar reputation and culture matching our own. And while we are active in the same derivative markets, we have a limited amount of customer overlap. RJO segments its business into commercial, introducing brokers, institutional and retail. The commercial segment consists of large commodity clients, similar in nature to those in our own commercial segment and this accounted for approximately 11% of RJO revenues in 2024. We believe that StoneX has the best-in-class toolkit to provide additional services to these clients, including our extensive OTC and structured product capabilities as well as our physical and logistics servicing capabilities, allowing us to provide additional value-added services. RJO is the best-in-class service provider to introducing brokers in the listed derivative industry, providing these IBs with execution and clearing they need to service their clients. RJO has over 250 IB relationships and we have just over 100. This dramatically expands our overall market footprint as these firms add aggregate [Technical Difficulty]. RJO is also a market leader in providing interest rate hedging products to institutional clients, mainly banks looking to manage their interest rate risk, an area that has not been a core focus for StoneX to date. This aligns directly with our own fixed income business. Combining these complementary capabilities will provide us with a compelling ability to service the needs of these banks around the world. As we continue to spend time with the RJO folks over the last couple of months, we have become even more enthusiastic about this transaction. As the transaction is now closed, we'll start to see the financial impact on our results, starting with Q4. As we have said from the outset, this transaction will be materially accretive to earnings and to EPS as well as enhancing our margins and fully integrated. Unfortunately, RJO [Technical Difficulty] has not reported its 2025 financials, but they are roughly in line with our expectations at the time of the transaction and in line with its 2024 results. Looking at the pro forma 2024 metrics we disclosed when we announced the transaction, RJO generated $766 million in revenue and approximately $170 million in EBITDA during calendar 2024. We issued around 3.1 million shares as part of the purchase price, which increases our share count by approximately 6%. This transaction is expected to immediately enhance EPS and return on equity with the addition of nearly $6 billion in client float as well as enhancing our margins over time. We are now able to refine our synergy analysis specifically around execution time lines. Broadly speaking, we believe that the integration and related synergies of the international components of RJO could be completed in the next 3 to 6 months with the balance related to the U.S., which is larger and more complex, likely to take 9 to 12 months to realize. But more to come on this once we have finalized our detailed work. In late June, we went ahead and raised the debt forecast [Technical Difficulty]. But in spite of the market [Technical Difficulty] from tariff uncertainty and the geopolitical effects of the U.S. strike against Iran, the issue was very well received, and we priced inside of one day were multiple times oversubscribed, and more importantly, price significantly tighter than our recent refinancing 1 year ago. The notes have also traded very well since we settled the issue in early July. Now moving to Slide 12. We also closed The Benchmark acquisition on July 31. Benchmark is a full-service investment banking firm, offering robust sales and trading platform, award-winning research and a highly experienced investment banking team. Benchmark provides research coverage on over 400 companies, brings broad relationships with over 800 institutional accounts to StoneX, which we believe we can leverage across StoneX broader product offering and the new investment banking capabilities, which we believe we can leverage into our client base, both for equity and debt capital markets. We believe this is an important transaction that will be accretive to both our ecosystem as well as our bottom line earnings. So a very eventful and consequential July 31 for us at StoneX and the beginning of a very exciting new chapter. I would now like to introduce Charles Lyon, our President, who together with Philip has taken over the day-to-day running of StoneX. Charles technically has been at StoneX longer than I have. He was already working at the company when I took a position in it 23 years ago. Charles is especially focused on the trading and technology parts of our business. I've asked Charles to give you all an update on the clearing and custody side of our business, which is in many ways at the heart of our business. When we decided to start StoneX 23 years ago, we decided early on that we didn't just want to be an executing broker, but wanted a deeper, more meaningful and integrated relationship with our clients, which comes from clearing and holding client assets. In most instances, opening a new brokerage arrangement is a decision made by our clients on the trading desk. A clearing of custody arrangement is a C-level decision. However, becoming a clearer and a custodian requires a pretty heavy lift in terms of regulation, capital and infrastructure, but does put a very attractive moat around your business. So Charles, over to you.

Thank you, Sean. Today, we are pleased to highlight another cornerstone of our global infrastructure, custody and clearing. This business is a critical enabler for our clients' trading, financing and investment strategies delivering secure, scalable and integrated post-trade solutions across our global footprint. With the breadth of capabilities and the scale of our offering, we believe it is important to dedicate time today to highlight the strength, performance and strategy of this business area. Please refer to Slide 14 in the deck. Custody and clearing is core to the StoneX ecosystem. StoneX's custody and clearing platform delivers a comprehensive suite of services to institutional clients across the Americas, EMEA and APAC regions. Anchored by our self-clearing capabilities, enhanced through strategic custodian partnerships and powered by advanced infrastructure, we are trusted by a wide spectrum of market participants from hedge funds, mutual funds and proprietary trading firms to ETF issuers, family offices, introducing brokers and corporate clients. Our global team operates from key centers, including Birmingham, New York, Chicago, London, Dublin, Sao Paulo, Buenos Aires, Singapore and Hong Kong, ensuring continuous coverage and access across time zones and asset classes. Let me summarize the key services we deliver across our platform. In the U.S., we provide fully self-cleared equities, options and fixed income alongside futures and commodities clearing across all major exchanges. We support 1940 Act funds through the trading and custody of derivatives for actively managed ETFs and mutual funds. Our securities lending and margin financing programs enable clients to realize enhanced income opportunities and optimize capital efficiency. Internationally, in EMEA and APAC, we provide cross-border clearing and settlement, multicurrency collateral management and segregated custody for institutional managers. In Q4, we will broaden our digital asset custody capabilities to include regulated custody for cryptocurrencies, tokenized securities, stable coins and real-world assets. Our integrated platform allows clients to consolidate post-trade workflows across asset classes and jurisdictions, supporting efficient capital deployment and risk control. Our custody and clearing platform serves a broad and growing global client base, a diverse mix that ensures resiliency and balance across our franchise, spanning institutional, wealth and digital clients. Our client segments include registered investment advisers and broker dealers, leveraging custody and execution through integrated solutions, StoneX's self-clearing infrastructure and external custodians. Hedge funds and proprietary trading firms, utilizing cross- asset analytics, capital efficiency and margin solutions, 1940 Act funds, actively managed ETFs and mutual funds, family offices and private wealth channels accessing multicustody architecture, performance reporting and StoneX's global reach for diversified portfolios. Fintechs and API native platforms, embedded custody as a service with real-time clearing data, compliance automation and scalability for retail flow, digital asset managers and tokenized funds benefiting from our expanding secure and compliant custody solutions that are designed for institutional clients. What distinguishes StoneX is that we meet clients wherever they are in their growth cycle, from emerging managers seeking turnkey digital custody solutions to large institutional clients requiring global multi-asset clearing capabilities. This flexibility positions us uniquely to capture flows across the evolving marketplace. What have been some of our areas of expansion. The past 12 months, we have seen expansion across all major business lines, correspondent clearing balances surpassed $24 billion, a 27% year-over-year increase, driven by regional broker-dealers, RIAs and a broader geographical focus. The enhancements moving forward will include API-driven onboarding and customizable plug-and-play integration for our introducing firms. FCM servicing, average client equity balances increased 15% year-over-year to $6.8 billion. This increase was fueled by interest rate futures, energy derivatives and FX markets, supported by enhanced cross margin programs for capital efficiency, mutual funds and ETFs. Since 2018, we've made substantial investments in automation and infrastructure to support 1940 Act regulated funds. These efforts have positioned us to capitalize on the rapid expansion of the ETF space and we are now seeing strong growth across the client segment. Digital custody. This year, we were approved to operate as a virtual asset service provider or VAS by the Central Bank of Ireland and began offering regulated custody for digital assets. In Q4 2025, we will launch lending and collateral management tools for digital assets addressing a growing institutional demand. Together, these expansions reflect StoneX's ability to adapt to evolving client needs, regulatory change and the accelerating pace of digitization. How did custody and clearing perform Q3 2025? The third quarter of fiscal year '25 saw heightened demand for integrated custody and clearing solutions and our business delivered outstanding results. In addition to the 15% growth in SCM average client equity balances noted earlier, we grew FDIC suite balances by 25% versus the prior year, further reinforcing our position as a leading global provider. We onboarded a record number of new institutional clients, including hedge funds, ETFs and proprietary trading firms. Our EMEA and APAC custody businesses achieved a 66% increase and net operating revenue in Q3 with balanced growth of 51% Q- over-Q with momentum coming predominantly from fixed income managers and cross-border funds. These results highlight both the resiliency of our platform and the trust we've earned as clients -- partners capable of delivering scale, security and transparency in a rapidly evolving market landscape. How do we protect our client assets? Protecting client assets is a cornerstone of our offering. We have built a layered protection framework designed to deliver both security and transparency. FDIC insured sweep programs designed to provide U.S. dollar cash coverage, SIPC coverage ensuring robust protection for cash and securities complemented by an additional excess insurance through Lloyd's of London, segregation of client assets from firm assets to mitigate counterparty risk, custody relationships with DTC, Euroclear and BNY Pershing among the most trusted global depositories. Clients placed greater emphasis on regulatory controls with digital assets. Accordingly, this business now operates as a VAS under the Central Bank of Ireland. By the end of Q1 '26, we expect it to be regulated under the European Securities and Markets Authority as a crypto asset service provider, and we will continue to expand our regulatory footprint globally thereafter. This robust set of protection gives our clients the confidence that our assets are safeguarded when remaining accessible to meet trading and investment needs. What differentiates StoneX in the space? Turning now to Slide 15. StoneX is positioned as one of the leading nonbank financial services firms serving mid-tier institutions, delivering a powerful combination of global scale, flexibility and technology. Our differentiators include self-clearing infrastructure across multiple asset classes, including equities, fixed income, futures, options, FX and digital assets. Global multicustody reach with operational hubs in North America, Latin America, EMEA and APAC, institutional approach to risk management, supported by cross product margin and collateral optimization, flexible API workflow solutions tailored to support the evolving needs of broker-dealers, fintechs and financial institutions. Our approach is client-centric, aligning solutions and pricing with each client's growth stage and workflow needs rather than applying rigid thresholds. By integrating these capabilities within a single platform, StoneX provides clients with a seamless post-trade solution that stands apart in today's market. As the clearing market consolidates and traditional providers retrench, we continue to invest in the operational infrastructure that supports client execution, financing and asset servicing, ensuring we remain a long-term trusted partner to our clients. Our strategic priorities going forward. Turning to Slide 16. Looking ahead, we remain focused on 3 strategic priorities that will drive the continued growth and success in this business, building our ecosystem, implementing a multicurrency margin engine, scaling digital custody for tokenized funds and stable coins and piloting embedded clearing APIs with select fintech partners, growing and diversifying our client base, expanding corresponding clearing with regional broker-dealers and RIAs, capturing flows from clients that are leaving bank affiliated SCMs and deepening our presence with family offices and sovereign wealth funds, digitizing our business, advancing toward a singular custody and clearing access point for clients as part of our long-term vision, while automating our onboarding experience and building out our real-time dashboards for intraday stress testing and scenario modeling. These initiatives underscore our commitment to continuous innovation, operational excellence and strengthening our role as a trusted partner across markets. In summary, custody and clearing continues to be a high-growth, high-impact business line that strengthens our global franchise and positions us for the future post trade infrastructure. With a substantial and growing base of client assets exceeding $60 billion this last quarter, industry-leading protections, innovative services and a fast-growing digital custody suite, we are now setting a new standard for institutional-grade custody and clearing. We are very proud of the exceptional work our teams deliver every day and remain excited about the opportunities ahead. Back to you, Sean, for the wrap-up.

So moving on to Slide 17. This quarter continued a series of quarters exhibiting year-on-year growth and was one that showcased the diversity and resilience of our business, with significant growth in our institutional segment and especially in equity trading, offset weakness in our commercial business due to diminished volatility and tariff-related uncertainties. This resulted in modest gross in net income versus the prior year despite $8.9 million acquisition-related charges in the current quarter, which are related to roughly $0.12 in EPS. We achieved earnings of $63.4 million and diluted EPS of $1.22, down very slightly versus the prior year due to additional shares outstanding. We were down versus our strong immediately preceding second quarter although excluding the acquisition-related charges, the results were roughly comparable. The addition of RJO and Benchmark, we believe, will be significantly accretive to our earnings and our franchise generally, and we believe these acquisitions will further accelerate our current growth trajectory. This is a very exciting time for us as we now move forward with what are significant and transformational acquisitions for StoneX. We are now positioned as a global counterparty of choice for clients looking to execute, clear and custody financial assets across the spectrum. We are now even better positioned to capitalize on the ongoing industry transformation driven by regulatory changes and market consolidation, which will continue to create significant opportunities for StoneX to expand its market share and will provide a substantial runway for growth. Our ecosystem, which is unparalleled, is underpinned by a fortress balance sheet, broad capabilities and diverse offerings enables us to deliver innovative solutions that provide clients with access to markets, expands their market reach and creates long-term value. One thing will always be consistent for the StoneX team. We will continue to dedicate ourselves to better serve our growing client footprint around the world by providing them with the best financial ecosystem and the best client service to access the global financial markets. The executive team and I are extremely proud of the talented StoneX team who continue to propel us to new heights. Operator, time for questions. Let's open the line.

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

Could you maybe go into more detail on the weakness in the commercial segment just in terms of trading volumes. Were you surprised to see hedging activity down? I mean I think volatility was still up more than you typically see in a quarter. So just curious what your thoughts were?

Well, obviously, the segment you're talking about, just to be clear, is the commercial segment, which are sort of real companies looking to hedge their risk, primarily commodity risk. So when one is talking about volatility, you sort of have to pass it out to the underlying sort of verticals. Metals volatility is sometimes different from grains volatility and so on. The real reason, if you just look at the analysis in the slides there, where we set out our ADVs and the revenue sort of by product type, physical business was really hurt. And that was largely driven by the sort of tariff uncertainty. So that's the lion's share of it. The second part of it was the OTC business, and while the OTC business was strong, our revenue capture was down largely due to a lack of volatility. And that business is primarily focused on the ag sector. So I would say the 2 things that drove that weakness were lack of volatility in the ag space, which hurt us on the OTC side with rate capture. And then on the physical side, it was a difficult quarter for us just given all the uncertainty here, you're talking about people moving commodities across cross borders and so tariffs becomes very important in that role. So Bill, do you want to add anything? I think that covers it, but anything else, Bill?

Yes, I know. I think that was well said, Sean. I think that the tariff uncertainty just the lack of transparency as to what will eventually happen kind of drove that. And also, we had some additional interest expense moving metals around the globe that dampened the performance in the quarter. And I think you touched on it, I think, while there was a lot of volatility in certain markets, the key agricultural and soft markets that we do a lot of OTC and a lot of listed derivatives particularly in the Americas remains kind of dampened during that quarter. So it kind of drove down that overall spread captures.

I would say the one other factor to mention as well, Jeff, was there are a couple of mandates relating to sort of renewable fuels and things like that have sort of elapsed or close to elapsing. And I think there's a lot of uncertainty as to what the new administration is going to do. So that was also a complicating factor for us there.

Okay. That's helpful. And then any updates you could provide on revenue synergies for RJO now that it's closed? And maybe if you could refresh us on what you see is the biggest opportunities there in terms of cross-selling now that you've had more time with the company?

Yes. So as we said previously, it was difficult for us to with a high degree of certainty, quantify the revenue synergies because up until closing, we just weren't able to get access to sort of clients and find revenues and who the clients were, which, obviously, we need to make that assessment. We only got hold of that information yesterday. So as of yet, aren't any smarter than we were when we last spoke. But I think we continue to believe and I certainly personally believe, based on the sort of high-level conversations we've had with the team, understand -- with RJO team, understanding the RJO capabilities, looking at sort of how we interface with similar type customers and the revenue we can generate from our expanded toolkit. My sort of starting point is, I think the revenue synergies over time will be multiples of the cost synergies. I continue to believe that. I think the synergies really start on the commercial segments. Now even though the RJO Commercial segment is only 11% of revenues, in their IB segment, they have a lot of IBs that have commercial clients. So within the IB segment, there is a big pool of commercial clients. And those are the clients where we know we have the best toolkit in the business. Not only can we do futures, which is all that RJO does, but we can do OTC, we can do structured products, we can help people with margin relief, we can help them with physical, we could help them on logistics. So we have very good empirical evidence that our commercial clients use us for a lot of those services and that expands both our touch points with the clients and the revenue. So that's kind of one big chunk of the revenue synergies and probably the biggest piece of it. And then secondly, they have a very strong interest rate franchise where they are dealing with institutional clients, mainly banks, helping them hedge their interest rate exposure. And in our fixed income business, we are actually trading with some of those same counterparties actually executing the trades on the underlying cash instruments. By bringing both of those 2 things together, I think we'll have a much more powerful offering. And of course, we'll be able to offer those services mutually to the clients that we don't both cover. So I think that's the sort of second big piece of revenue synergies. So between those 2, I think that's going to add up to a fairly material number. But we will update you as we start to do more work on that, but I guess our working assumption, we highlighted sort of 3 months ago hasn't changed. And I think if anything has been validated through the conversations we've had, but we now need to put more work into that. Anything else?

Well, I had one on your longer-term plans of the retail segment. And sort of where are you at in that process of building that out, adding additional products, kind of transforming that beyond an FX broker?

Okay. Well, I'm going to -- I'll give you a quick overview here, and then I'm going to pass off to Charles because this is near and dear to his heart. But I think as we said a couple of times, we acquired GAIN, which gave us this tremendous platform, which was really trading cash settled derivatives, right? They called sort of CFDs everywhere. But they really just mimic derivative contracts and they're all sort of cash settled. So you don't have to deal with exchanges and clearing houses. So the platform is pretty simple. And the offering was pretty simple, right? Those derivatives cover lots of different asset classes, but GAIN never got involved beyond that. And one of the opportunities we saw when we acquired GAIN was we're very active in trading all of those underlying asset classes, and we have all the infrastructure to handle that, which GAIN didn't have. We can clear those asset classes. We can custody those assets. So the idea was always to change that to a multi-asset class offering to look something a little more like, say, an interactive brokers. And it's been a challenge because we sort of went straight into COVID, the business did extremely well. But I'll hand over to Charles and maybe he can give you some thoughts on sort of where we stand. Charles, do you want to take that?

Sure. And I think it's a fair point around the COVID times where certainly had some challenges on just making sure that we were able to keep the business operating at a very high level through an integration. So I think that was sort of 4 years ago was our main focus. And since then, we've laid out a road map for not only a technology, but also for laying the groundwork for product expansion. And part of the reason why we had been so methodical about it, it's incredibly important as you build out listed derivatives as well as securities, cash securities, funds and our full securities offering that we make sure that it's scalable and it's appropriate for the user base. So we are undergoing an infrastructural rebuilding that is going to be completed sort of towards the end of the year in our fiscal Q2. That will enable us to bring on the retail clients into the security spectrum over time, starting at that point. So that's going to be the time line. We are already offering some derivatives products on the future side, which we see as a really growing space, and we'll continue to grow that out next quarter. And so you'll see that happening over the next fiscal year through fiscal '26 which starts in a month. You'll start seeing that happen in stages, and we'll keep you updated and informed as those products roll out.

[Operator Instructions] Our next question comes from the line of Dan Fannon with Jefferies LLC.

I wanted to follow up on R.J. O'Brien. And just the -- if we think about -- obviously, you've only closed it for a week here, but just the priorities over the first 3, 6, kind of 9 months in terms of what we should be expecting from an update as this integration unfolds?

Well, we'll certainly be updating you with a sort of a more detailed synergy timetable. We have done a lot of work on that previously, but obviously needed to fine-tune that once we could access sort of the information we didn't have originally. So we'll be able to provide that to you. And I think we'll also start giving you some better indications perhaps of revenue synergies. So that's the plan. So I think when we next talk, we might have some more information for you on that, but we still feel pretty good about our aggregate revenue -- sorry, our aggregate cost synergy number. As I said in my part of the call, the -- what we have agreed is the focus initially is going to be on the international side of R.J. O'Brien. We tend to have larger entities than they do. And I think we can quickly absorb that business and realize those synergies. That's about 40% to 45% of the total synergies, and we think we can achieve that pretty quickly. So I think we're going to have some nice quick wins there. We'll then move our attention -- well, we'll do both of these at the same time. But the U.S. integration is going to take longer. There's -- it's a much bigger business, many more clients. We got to make sure that this is a seamless process for clients. We've got to make sure all those touch points that their systems have with their books and record system, we deal with appropriately. So when we combine the businesses onto one system, we don't have any fallout. So that's more like a 9- to 12-month process. So what I'm anticipating is we'll see something like 40% to 50% of these synergies pretty quickly and then the rest will come kind of in the back end of 2026 is sort of how we're thinking about it now. But we'll give you a clearer update in due course.

Okay. That's helpful. And then just following up on your previous comments just around the commercial segment and the environment and the lingering impacts from tariffs. I guess as we start to get more clarity around the macro, are you seeing behavior change? Are you seeing clients being more active here as we've kind of gotten, I don't know, more clarity around certain things here as the quarter progressed and into July? Or is this something when we think about the overall backdrop, one that could continue to be more on the slower side?

Well, Dan, can you tell me what you think the administration is going to do in the next like 2 years. I think we're living in a very volatile environment from the administration point of view, and that's where a lot of this uncertainty starts, right? Obviously, they're attempting to rework a lot of the sort of global trade arrangements and this stuff is bumpy when it happens. So I think our clients are much like everyone else. They're trying to deal and react as things happen, but it's really hard to predict on a go-forward basis, when this is going to happen or when it's going to stop happening. So I think it's just a moment of uncertainty, and I think it's going to continue for some time. That uncertainty is generally good for most of our businesses because it creates volatility. It's not so great in the physical business because as I said in my remarks is, people are trying to move commodities across border. They're trying to figure out what are the costs and what are the tariff implications. So that part of our business is going to be a little bit challenged in that environment. But the rest of the trading business, the uncertainty, I think, is generally a good thing. Anyway, I'll stop there and see if Charles or Bill have anything to add?

No, I agree. I think, Sean part of -- there's a lot of different complexes. And for some, it's -- there's positive knock-on impacts. And for others, it creates sort of challenges around folks thinking about their logistics and so forth because we are dealing with end users often. And so uncertainty -- well, volatility is lumpy, but really, you want to see folks to be able to make a sort of future decisions around pricing. And when folks are reluctant to do that, you can see front-end volatility, but our clients really were very client-driven, client- centric and end user-centric in this space. So it's a much more difficult environment when they don't know what to do. We're starting to see a little more clarity coming through and kind of getting some deals done. But to Sean's point, it's very hard. The crystal ball doesn't really work in this type of environment.

Understood. That's helpful. And then just more broadly on the FCM business, banks have for years been pulling back and diverting resources elsewhere. But now obviously, regulatory environment seems to be changing for them with excess capital and more to come. Are you seeing any behavior changes by the largest financial institutions and looking to invest in this business more or allocate more capital or bring up risk profiles. Anything on the margin that's different than, say, a year ago?

Certainly, my conversations with clients and our guys, I don't think we've noticed any particular change, to be honest with you. And I think the banks, to a large extent, have sort of moved on and are doing different things now. I just don't think this is a strategic imperative for them. I mean, they'll obviously welcome the regulatory sort of posture being more positive. But I haven't yet seen them sort of rededicate themselves to these sort of activities. So it may happen. I kind of doubt it, but that's certainly the information I have, sort of no real change. But I don't know, Charles, do you think any different?

No, I mean, just like you, I have seen no evidence of any cost or change at all around the space, Dan.

Okay. Helpful. And then I guess, Bill, from a modeling perspective, the Benchmark business. Where is that going to show up? And I think I want to make sure you guys think that business is accretive as well just upon close in the first year. And any sense around numbers for that business would be helpful?

It's a lot smaller business, obviously, than RJO, right? So it's sort of a much lower threshold. But anyway, Bill, why don't you go ahead?

Yes, sure. Thanks, Sean. So I mean, the Benchmark business, obviously exciting and certainly Charles, once again can chime in here. He was integral in the business acquisition and the promise behind it. I think that is a business we'll be reporting, it fits in nicely in our institutional segment. So we'll slot that in there. And as far as like size, this is like Charles or Sean noted this is more of a single-digit million type of business, but I think something that we -- from a bottom line, but something that we're excited to grow and add to our capabilities.

Yes. Bill, I think that's fair, you'll see it in the securities segment of institutional. And we really think this is an opportunity for us to expand having coverage of strategic clients and really growing. And the team here really led this initiative with Mr. Messina to bring this business and did a terrific job. Rarely do you see the type of excitement and alignment. And once again, it's under 100 people. So it's not quite as large and complicated per se to move as RJO is, but you rarely see the type of alignment and excitement around a deal, as I've seen here. So real kudos to the team at Benchmark and our internal team for bringing that together. They've done a really nice job at the early stage here getting prepared.

I am showing no further questions at this time. I would like to turn it back to Sean O'Connor for closing remarks.

All right. Well, thanks, everyone, for taking the time to listen to our call. As you can tell, this is a really exciting stage for us. We have a busy rest of summer ahead of us, and we look forward to speaking to you again for our year-end results in early December. Thank you.