StoneX Group Q3 2026 Earnings Call Transcript

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Provided by Quartr
August 6, 2026

Key Takeaways

  • Positive Sentiment: Strong third-quarter results: Net operating revenue rose 47% year over year to $719.7 million, while net income more than doubled to $127.9 million and diluted EPS increased 85% to $1.00. Return on equity was 18.4%, above the company’s 15% target.
  • Positive Sentiment: Commercial and Institutional segments drove growth, with net operating revenue up 90% and 56%, respectively. Physical contracts, OTC derivatives, and listed derivatives all posted double-digit gains, while securities average daily volume reached a record, up 33% year over year.
  • Positive Sentiment: The R.J. O’Brien integration remains on schedule, with nearly all remaining U.S. client migrations completed and required client assets approaching $13 billion. Annualized cost synergies increased to approximately $37 million-$38 million, with management still targeting $45 million-$46 million by fiscal year-end and $50 million thereafter.
  • Neutral Sentiment: Payments continued to scale, with average daily volume up 20% to a record $96 million, although revenue per million remains pressured by a shift toward larger-volume, lower-value transactions. Management expects this mix trend to continue while emphasizing the scalability of its XPay platform and a new partnership with Shinhan Bank.
  • Positive Sentiment: Management highlighted Global Prime Services as a major long-term growth opportunity, with more than $16 billion in client balances, over 700 accounts, and nearly $140 million in trailing-12-month net operating revenue. The company plans to expand financing, outsourced trading, cross-selling, and multi-product integration, while remaining open to disciplined acquisitions.
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Earnings Conference Call
StoneX Group Q3 2026
00:00 / 00:00

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Operator

Good day, and thank you for standing by. Welcome to the StoneX Group Inc. Q3 FY 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star one one on your telephone, and you will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised 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, Bill.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Good morning. Welcome to our earnings conference call for our quarter ended June 30th, 2026, our third quarter of fiscal 2026. After the market closed yesterday, we issued a press release reporting our results for the quarter. This press 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 are required to advise you, and all participants should note that the following discussion should be considered in conjunction with the most recent financial statements and notes thereto, as well as the Form 10-Q filed with the SEC.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

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 its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can 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.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

With that, I will now turn the call over to Philip Smith, the company's Chief Executive Officer, for a brief introduction.

Philip Smith
Philip Smith
CEO at StoneX Group

Thank you, Bill. Good morning, everyone. Thank you for joining our third quarter earnings call for fiscal year 2026. While there's been a moderation in volatility this quarter, I'm pleased to report our third quarter results. Total net operating revenues of $719.7 million were up 47% versus a prior year, alongside net income of $127.9 million, up 102% year-on-year. We also recorded a diluted EPS of $1 per share, an 85% increase versus the previous year, taking our year-to-date EPS to $3.49 per share, up 82% against prior year. This quarter was driven by strong performance across our Commercial and Institutional segments, which reported a 90% and 56% increase, respectively, in net operating revenue year-on-year, underscoring our increasing relevance to a diverse set of clients.

Philip Smith
Philip Smith
CEO at StoneX Group

In the Commercial segment, strong performance in our global hedging business helped drive this quarter's results. Pleasingly, net operating revenue across all our products recorded double-digit growth, partly driven by the impact of the RJO and Benchmark acquisitions, as well as organic growth. This included listed derivatives up 62% to $68.6 million, OTC derivatives up 73% to $101.9 million, and physical contracts up 162% to $87.4 million. In the Institutional segment, we recorded our highest-ever volumes in securities, with average daily volume up 33% versus last year, driven by the exceptional performances in our equities market-making business, a segment which we had highlighted last quarter with growth in both ADRs as well as U.S.-listed equities. Also bolstering our Institutional segment, the acquired business of The Benchmark Company contributed $29.5 million in net operating revenues for the quarter, their best quarterly performance to date.

Philip Smith
Philip Smith
CEO at StoneX Group

In the Payment segment, we reported a 12% increase in net operating revenue and a 20% increase in ADV year-on-year to a record $96 million. In addition, we recorded the highest number of transactions going through the platform this quarter, validating our continued investment in proprietary technology and reinforcing our belief that the platform can support significantly higher volumes without material increases to our expense base. This scalability positions us to support large financial institutions like Shinhan Bank, where we recently announced a strategic partnership with one of South Korea's oldest and systemically important banks to leverage our global network for complex cross-border payments. Lastly, I wanted to give an update on the progress of R.J. O'Brien. The U.S. FCM consolidation work remains on track to be substantially completed later this fiscal year.

Philip Smith
Philip Smith
CEO at StoneX Group

We completed the vast majority of RJO's remaining U.S.-based client migration this quarter, as of the end of the quarter, hold nearly $13 billion in required client assets, further strengthening our position as the number one non-bank FCM in the United States. More broadly, as anticipated, volatility moderated from the exceptional levels of the second quarter. Even so, client activity remains strong, supported by continued client engagement and pockets of elevated volatility, resulting in nearly all of our products delivering double-digit growth, reflecting the strength of our diversified business model, the investments we have made across our platform, and the scale of the ecosystem we have built. I will turn over to Bill for a more detailed discussion on our financials this quarter. Over to you, Bill.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Thank you, Philip. I'll start with slide five in the deck. Just a reminder, in July, we completed a three-for-two split of our common stock, and our shares began to trade on a split-adjusted basis at the market open on July 20, 2026. Because the stock split was effective prior to our release of the Q3 financial statements, all per-share metrics on this call will be on a split-adjusted basis. As Philip noted, we delivered strong third quarter results, generating net income of $127.9 million, an increase of 102% compared with the prior year. This performance translated into a return on equity of 18.4%, significantly above our 15% ROE target, despite a 77% increase in book value over the last two years. On a tangible book value basis, we achieved a return on tangible equity of 25% for the quarter.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

While third quarter net income was 27% lower than the record earnings reported in the immediately preceding second quarter, our results continue to reflect the strength, scale, and diversity of our business. We had operating revenues of approximately $1.47 billion, up 43% versus the prior year. As a reminder, our operating revenues include not only interest and fees earned on our 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 to $231.4 million or 47% versus a year ago, while down 13% versus the immediately preceding quarter.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Total fixed compensation and other expenses were up $58.1 million or 22% versus the prior year quarter, with $48.5 million of this attributable to the acquisitions made over the last 12 months, most notably R.J. O'Brien and Benchmark. This increase was partially offset by an $18 million decrease in professional fees, largely due to the recovery of legal fees through insurance and reduced legal defense costs related to the BTIG matter. Total fixed compensation and other expenses, excluding bad debt expense, were down 7% or $23.2 million versus the immediately preceding quarter. Fixed compensation and benefits were up 21% versus a year ago, primarily as a result of the acquisitions noted, and include $4.2 million in severance and retention costs.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Fixed compensation and benefits were down 6% or $8.9 million versus the immediately preceding quarter, driven by a $6.9 million decline in severance and retention costs, a decrease in back-office and administrative salaries, along with a decrease in payroll taxes. Moving on, I've mentioned the acquisitions over the last 12 months and wanted to touch on the revenue contribution for two of them, R.J. O'Brien and Benchmark. The acquisition of R.J. O'Brien contributed $78.8 million in net operating revenues for the quarter, net of unrealized negative mark-to-market adjustment on their investment portfolio and exchange common stock of $9.8 million. While Benchmark contributed $29.5 million for the third quarter, as Philip noted, their best performance to date. Looking at it from a longer standpoint, our trailing 12 months results show operating revenues were up 48% to nearly $5.7 billion.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Net income was a record $526.9 million, up 77%, with diluted earnings per share of $4.19 and an ROE of 20.8% for the trailing 12-month period. For the third quarter, our average client equity and FDIC suite balances were $16.2 billion, up 108% versus the prior year and up 7% versus the immediately preceding quarter. Finally, we ended the third quarter of fiscal 2026 with a book value per share of $23.70. Turning to slide number six in the earnings deck, which compares quarterly operating revenues by product as well as key operating metrics versus a year ago. We experienced operating revenue growth across all products versus the prior year, with the exception of FX and CFDs, down 19%.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Transactional volumes were up across all of our product offerings, with the exception of FX CFDs, down 12%, and the spread in rate capture increased in listed derivative securities, while OTC derivatives, payments, and FX CFDs declined. Just touching on a few key highlights for the third quarter. We saw operating revenues derived from listed derivatives increase to $157.9 million or 125% versus the prior year, primarily due to the acquisition of RJO, which contributed $132.3 million, as well as a $10.4 million increase in base metals listed derivative revenues on LME markets versus the prior year. Listed derivative operating revenues decreased 11% versus the immediately preceding quarter. Operating revenues derived from OTC derivatives increased 73% versus the prior year, driven by an 89% increase in OTC derivative contract volumes.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

This significant increase in client activity was most prevalent in agricultural, renewable fuel, and soft commodity markets, as well as continued increasing volumes associated with our automated trading platforms, which have allowed for more efficient processing and hedging of OTC transactions. OTC derivative operating revenues declined 15% versus the immediately preceding quarter, which had benefited from the widening of spreads in the immediately preceding quarter due to the onset of the U.S.-Iran conflict. We had another strong performance in our physical business, with operating revenues derived from physical contracts increasing 106% versus the prior year, primarily driven by a $40.5 million increase in precious metals operating revenues, as well as an $18.7 million increase in physical supply and trading operating revenues. Operating revenues derived from physical contracts declined 39% versus an immediately preceding record second quarter, which was highlighted by extremely strong performance in precious metals.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Securities operating revenues were up 24%, as average daily volumes increased 33% versus the prior year, and the average rate per million increased 9%. The increase in ADV was driven by strong performance in equities, both in ADRs and U.S.-listed markets, while the increase in rate per million was driven by improved spread capture in fixed income markets. Securities operating revenues were up 3% versus the immediately preceding quarter. Payment revenues increased 13% versus the prior year quarter due to a strong 20% increase in ADV, partially offset by lower RPM. Payments revenues were up 6% versus the immediately preceding quarter. FX CFD revenues were down 19% versus a strong prior year quarter, which had benefited from heightened client activity, most notably in FX markets following Liberation Day tariff announcements, with ADV and rate per million declining 12% and 8%, respectively.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

FX CFD revenues declined 9% versus the immediately preceding quarter. Our interest and fee income earned on our aggregate client float, including both listed derivative client equity and money market and FDIC sweep balances, increased to $66.1 million, or 64% versus the prior year, with the acquisition of RJO contributing $56.9 million. Average client equity increased 129% as RJO contributed $6.6 million in average client equity for the quarter, and the average money market FDIC sweep client balances declined 2%. Moving on to slide number seven, I'll do a quick review of our segment performance. Our Commercial segment increased net operating revenues 90% versus the prior year, primarily resulting for the performance in our physical businesses, which increased $54.1 million, and OTC derivatives, which added $43.1 million.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

In addition, as a result of the increase in legacy client activity, as well as the acquisition of RJO, listed derivatives and net interest income increased $26.3 million and $31.7 million, respectively, versus the prior year. Segment income increased 119% versus the prior year, while on a sequential basis, net operating revenues were down 20% and segment income was down 26% off the record second quarter performance. Our Institutional segment also saw strong growth in net operating revenues and segment income, up 56% and 49%, respectively. The growth in net operating revenues was principally driven by a $45 million increase in securities revenues. In addition, listed derivatives and interest in fee income increased $38 million and $6.2 million, respectively, primarily driven by the acquisition of RJO.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Also, other net operating revenues increased $24.6 million, with the acquisition of Benchmark contributing $29.5 million, which was partially offset by declines in legacy activities. On a sequential basis, net operating revenues declined 1%. However, segment income increased 7%. In our self-directed retail segment, net operating revenues decreased 17% and segment income was down 36%. These decreases were driven by a 27% decrease in average daily volumes in FX CFD contracts, which was partially offset by an 11% increase in rate per million captured. On a sequential basis, net operating revenues declined 11% and segment income decreased 18% in this segment. Our Payment segment net operating revenues were up 12%, and segment income increased 22%. Average daily volume was up 20% versus the prior year, while rate per million was down 7%. Versus the immediately preceding quarter, payment net operating revenues increased 7% and segment income increased 8%.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Moving on to slide number eight, looking at segment performance for the trailing 12 months, we saw strong growth in our commercial and institutional segments, with net operating revenues up 74% and 68%, respectively, and segment income increasing 92% and 59%, respectively. Our payment segment added 6% in net operating revenues and 17% in segment income. Our self-directed retail segment reported a 20% decline in net operating revenues and a 39% decline in segment income. Finally, moving on to slide number nine, which depicts our interest in fee 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 in fee income, net of interest paid to clients, and the effect of interest rate swaps increased to $38 million to $111.9 million in the current period, with the acquisition of R.J. O'Brien

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

contributing $30 million in net interest in the current quarter. On a sequential basis, interest in fee income, net of interest paid to clients, and the effect of interest rate swaps increased $4.2 million as the average client equity and FDIC sweep client balances increased 7%. During the third quarter of FY 2026, we entered into an additional $750 million in fixed-rate SOFR swaps to hedge our aggregate interest rate exposure, which brings our aggregate swap position to $2.55 billion, with an average duration of approximately 1.5 years and an average rate of 3.51%. These swaps are reflected in the interest rate sensitivity table on this slide. As shown, we now estimate a 100-basis-point change in short-term interest rates, either up or down, would result in a change to net income by $46.9 million or $0.38 per share on an annualized basis.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

With that, I will hand you back to Philip for a product spotlight on our Global Prime Services business.

Philip Smith
Philip Smith
CEO at StoneX Group

Thank you, Bill. As we do each quarter, and turning to slide 11, we'd like to spotlight one of the business lines driving our growth, and this quarter I'll turn to our Global Prime Services. Our Prime Services is a global, fully integrated prime brokerage platform operating from London, Singapore, Atlanta, New York, and Park City, Utah. From essentially a standing start in 2018, we now serve more than 700 accounts globally, with over $16 billion in client balances on the platform, generating nearly $140 million in net operating revenue in the last 12 months. Prime has become one of the strongest growth stories in the firm, having grown at a 60% plus CAGR over the last seven years, and is one of the clearest examples of our ecosystem at work. The thesis was straightforward and is the same thesis that runs through everything StoneX does.

Philip Smith
Philip Smith
CEO at StoneX Group

We serve mid-market clients who need institutional-grade capabilities but have been historically underserved by the large global banks and broker-dealers. As bulge bracket firms imposed return on capital and revenue minimums, we stepped in as the partner of choice, offering flexible, cost-effective, and scalable solutions combined with the risk discipline and balance sheet strength that institutional clients expect. Turning to the next slide 12. We have built a modular platform designed specifically around the mid-market segment, drawing on the core infrastructure StoneX has developed across execution, clearing, custody, and finance, and of course, backed by the StoneX balance sheet. Clients access the capabilities they need, supported by the scale and stability of the broader franchise. In the United States, our platform covers trading and financing across equities, fixed income, and options through both fully self-clearing and introducing clearing models.

Philip Smith
Philip Smith
CEO at StoneX Group

Our hedge fund segment has grown steadily, with recent volatility driving increased engagement in options and future strategies. Our investment and automation leave us well-positioned for the rapid expansion in the ETF space, and our multi-custodian, multi-asset capabilities have gained meaningful traction with both single and multi-family offices. Securities financing and lending are also central to our U.S. offering. We help clients finance and margin their positions and cover short sales, drawing on our own inventory and an extensive lending network to source hard-to-borrow securities. Our match book securities lending activities earns a spread-based return on over $2 billion in balances, and we help clients earn incremental income via our securities lending desk. Outside the U.S., we have seen rapid growth since launching three years ago. For hedge funds, institutional managers, and digital asset participants, we provide execution, custody, financing, and hedging across both equities and fixed income.

Philip Smith
Philip Smith
CEO at StoneX Group

A key differentiator is in fixed income, where we offer repo financing at an individual security level rather than a blended portfolio rate that is underpinned by a U.K. custody solution that gives clients confidence their assets are held securely within a fully regulated framework. For digital asset funds, we provide institutional-grade execution and custody across both crypto and traditional assets, along with collateralized lending within the digital asset ecosystem. Managers can hold fiat or fixed income collateral separately from their crypto exposure while financing their traditional assets on the same platform. Today, in addition to the digital assets we custody, Prime holds nearly $1.5 billion in traditional assets on behalf of those clients. Lastly, StoneX's existing relationships provide a natural cross-selling opportunity for Global Prime. This includes clients in our commercial segment whose treasury function can leverage Prime's custody capabilities and earn a return on excess cash balances.

Philip Smith
Philip Smith
CEO at StoneX Group

On slide 13, you can see the results of these efforts. Since 2019, client balances have grown from less than $1 billion to more than $16 billion today, generating nearly $140 million of net operating revenue on a trailing 12-month basis. The growth since inception has been rapid, with much of the growth coming in the last three years, with client assets growing at a CAGR of over 65% since 2023. This growth has been broad-based across the clients we serve, including hedge funds, ETF and mutual fund providers, and family offices. Despite this growth, our share of the addressable market remains relatively modest. We believe the combination of a large market opportunity, increasing demand for multi-asset prime service providers, and our disciplined approach to execution provides a substantial runway for growth. On the next slide, I will go through Prime's priorities and outlook.

Philip Smith
Philip Smith
CEO at StoneX Group

A core priority for StoneX is to remain relevant to our clients through the products we offer, the markets we operate in, and the depth of relationships we build. For Global Prime, this means the following. First, we are extending our financing suite to include U.S. equity swaps, fixed income total return swaps, and fixed income private brokerage. Capabilities we have always proven in EMEA and are now bringing to the United States. We are also investing in capabilities that span global markets. Our outsourced trading business, where we provide clients with a fully embedded trading desk, has recently expanded into Asia, where early momentum is being built. Second, we are growing the client base organically, inorganically through M&A, and by engaging funds earlier in their life cycle.

Philip Smith
Philip Smith
CEO at StoneX Group

Our Prime consultancy business, which includes capital introduction, helps us build relationships with emerging managers as they launch and scale their funds, creating an early entry point into the relationship. Lastly, as we finalize the integration of Benchmark and R.J. O'Brien, we expect significant cross-sell opportunities through clients who are beginning their relationship with StoneX. Finally, we are focused on making the platform more valuable for clients who choose to do more business with StoneX. Through cross-product margining and collateral relief, integrated coverage teams, and consolidated reporting, we are making it easier for clients to access the full breadth of the ecosystem through a single relationship. This is evidenced by clients engaging with us across multiple capabilities from the beginning, and in some cases, we have clients on board across seven products simultaneously.

Philip Smith
Philip Smith
CEO at StoneX Group

We believe these initiatives will drive greater client engagement, strengthen retention, and create a compounding opportunity to deepen relationships over time. Turning to the last slide of the section, slide 15, the most important point I want to leave with you is that Global Prime Services does not sit in isolation. It is the connective tissue of the StoneX ecosystem. Prime brings together custody, financing, execution, hedging capabilities that often form the foundation of a client relationship. From there, those same clients can access a broader range of products and capabilities across our ecosystem, whether through FX, payments, clearing, market making, and other products and services. As clients engage more, relationships deepen, wallet share expands, and the client becomes stickier.

Philip Smith
Philip Smith
CEO at StoneX Group

In that sense, Prime is not only a growing business in its own right, but also a driver of growth across the broader StoneX platform, with the value of the ecosystem compounding as clients do more business with us over time. To close, this was another strong quarter in spite of the moderation and volatility with net income of $127.9 million and diluted EPS of $1. Trailing 12 months net income was $526.9 million, up 77% versus the prior year. Our return on equity for the quarter was 18.4%, and on the trailing 12 months, it's 20.8%, both well above our 15% target. On a tangible book value basis, return on tangible equity was 25% for the third quarter and 28.7% on a trailing 12-month basis, with book value per share of $23.70, up $5.76 or 32% versus the prior year.

Philip Smith
Philip Smith
CEO at StoneX Group

Our performance to date reflects the power and scale of the ecosystem we have built at StoneX and the compounding effect of the investments we have made in technology, people, and products. We continue to see a significant total addressable market ahead of us, and we remain excited about the growth prospects of the company and the continued expansion of that ecosystem. With that, operator, would you kindly open the line for questions?

Operator

Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you need to press star one one on your telephone and wait for your name to be announced. To withdraw your question please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Dan Fannon from Jefferies. Please go ahead, Dan.

Dan Fannon
Dan Fannon
Analyst at Jefferies

Thanks. Good morning.

Philip Smith
Philip Smith
CEO at StoneX Group

Good morning, Dan.

Dan Fannon
Dan Fannon
Analyst at Jefferies

Phil, wanted to just follow up on the comments around just the physicals market, which has been so strong for you year-to-date. Just wanting to get a little bit more color around the underlying activity, what's driving that. We've also read about Project Vault. We're curious if that is something which the government's doing is having an impact on kind of the growth of that business.

Philip Smith
Philip Smith
CEO at StoneX Group

Sure, Dan. Our physical business, as you know, is separated between metals and non-metals, and it's very much precious metals versus non-precious metals, more on the commodities, agricultural, and such. We've seen over, I guess, the last two quarters where the metals, the precious metals physical business has just outperformed and done incredibly well and exceeded expectations. A lot of it was driven by just dislocations in various markets between location A and location B. I think I went into that in quite a lot of detail in the last two earnings calls. With regards to domestic and non-metals business, that physical business continues to grow.

Philip Smith
Philip Smith
CEO at StoneX Group

We continue to build out market share, and very much as we set out when we made certain acquisitions, such as CDI, which put us into the physical cotton business and very much into the expansion into physical coffee and physical cocoa. These are areas where our financial business is very strong, and our client base is very deep. When we look to expand into those areas, we do take a certain level of comfort in the fact that we are then extending the product offering, extending the ecosystem within that space, but from a very strong position within our financial space. Where we had continued success in building out those businesses is where we've been able to work very closely with our financial business, our financial-based clients, and being able to offer them the additional level of service.

Philip Smith
Philip Smith
CEO at StoneX Group

That's been crucial in terms of our build-out of our physical business, which we continue to strive to add more and more products, more and more capabilities to. It becomes more of a unique ecosystem for our clients, where some clients will be very eager to operate in the physical space. They want the hedging capability. We have the ability to embed optionality into physical contracts. That's a fairly unique product offering in this space because we have that strong financial business, the strong OTC business, and an increasingly strong physical business. Bringing those together, I think, makes a very formidable product line for us and something we want to highlight in a couple of quarters time, where we've brought together various parts of the business that we've acquired, we've built out organically new initiatives.

Philip Smith
Philip Smith
CEO at StoneX Group

We want to highlight that as a separate division, which is increasingly becoming part of a more and more relevant business line for us.

Dan Fannon
Dan Fannon
Analyst at Jefferies

Understood. That's helpful. Wanted to follow up on some of the comments around the RJO integration. I think the commentary obviously is that it's going well. Curious if you could put some numbers around where you are on the cost synergy side. Then at the time of the deal, you announced multiple or greater revenue synergy potential over time versus the expense synergies outlined. Curious if there's been any early attribution you could attribute to the revenue synergies.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Sure. Thanks, Dan. I'll take the first one. I'll let Philip handle the second one. On the cost synergy side, as I mentioned on the last call, we kind of were exiting Q2 with about a $32 million-ish run rate on an annualized basis of the cost savings. We expect to be, or we're exiting Q3 here with something closer to $37 million-$38 million. Still targeting kind of what we talked about last quarter by the end of the fiscal year, so end of next quarter to be mid-40s, $45 million-$46 million run rate. By probably end of first quarter, be at the $50 million we originally announced. Tracking well from where we were last quarter, continuing to see that grow here in Q3.

Philip Smith
Philip Smith
CEO at StoneX Group

I think when we last spoke last quarter, we were saying this Q3 was a very important quarter with regards to the integration. This was when the large integration process of the USFCM was going to happen, and that did happen. That has been completed, and we are now able to start looking at the business more holistically, looking at the clients, being able to really go deeper into the cross-selling capability. From the moment we announced the deal, even before closing, there was a lot of interaction between StoneX and R.J. O'Brien. That continued into closing, that continued into the integration. There are early success stories of where increased capability that we can provide from StoneX to R.J. O'Brien clients who are now StoneX clients. We've seen the benefit of it.

Philip Smith
Philip Smith
CEO at StoneX Group

We've seen an increased level of momentum, and we continue to be very positive about the outcome. As I said in previous conversations, there are certain products that we can offer to customers on day one. The increased capability, access to platforms, access to physical products, physical programs that will assist our clients immediately. There are others where it does involve increased level of engagement in education and also awareness to make sure that products that we are now able to offer legacy R.J. O'Brien clients are correct and suitable for said clients. It's an important process, which is why we repeat we never made any revenue synergies because we didn't want to be bound by timeline expectations, ensuring that we didn't rush certain aspects of future revenue, which we feel and continue to feel very strongly about.

Philip Smith
Philip Smith
CEO at StoneX Group

Because of that suitability and ensuring that we're not moving too quickly for the sake of achieving a timeline that we've set out to the market. That momentum continues, and as the clients are now very much embedded in the StoneX system, we're able to leverage that at a greater rate. We continue to mark lots of cards of wins along the way. Hope that answers your question.

Dan Fannon
Dan Fannon
Analyst at Jefferies

Understood. Bill, just to follow up on just the quarter's results and if there were any one-timer or where any kind of some of the income statement, like professional fees looked low. If there are any benefits or things that we think about from a normalized basis going forward we should be aware of as we think about your fiscal fourth quarter.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Sure. We tried to point that out a bit. There's about a $12.5 million recovery, insurance recovery and professional fees. Net of some settlements, it's about $8.5 million, I would say, on a net basis for the quarter. That would have been one. We did talk about the synergies. There were also about a little over $4 million of severance and retention in the quarter. Kind of netting those out versus synergies. I think those are probably the only two I would call out, Dan.

Dan Fannon
Dan Fannon
Analyst at Jefferies

Okay, thanks. I'll get back in the queue.

Operator

One moment for our next question. Our next question comes from Jeff Schmitt from William Blair. Please go ahead, Jeff.

Jeff Schmitt
Jeff Schmitt
Analyst at William Blair

Hi, good morning. On the revenue synergies, I know you spent a lot of time getting to know RJO's derivative capabilities and going through their client list. What are some of the takeaways you have from going through their books? I think you had just started your cross-selling efforts, but for your OTC derivatives. Maybe if you can give us a sense on how long you think that could take.

Philip Smith
Philip Smith
CEO at StoneX Group

That does seem to be the question everyone wants to know, isn't it? As I said, we've been able to achieve a lot of interaction between existing parts of R.J. O'Brien and StoneX even before the integration has been completed. Very much increasing that awareness of what we have to offer. I would say, reiterate what I said before is that we've had some very easy wins with regards to offering platforms and capabilities that perhaps sit in our physical business. Now, those are already being utilized across legacy R.J. O'Brien clients because they see it as an opportunity, and some of them would've liked to have been able to do that in-house at R.J. O'Brien. They didn't have the capability, and in some cases, didn't know there was an alternative or didn't know there was a product of such that would help them.

Philip Smith
Philip Smith
CEO at StoneX Group

That's been crucial in just increasing the awareness. Now, you must remember, R.J. O'Brien have 350 IBs, who themselves have underlying clients. Reaching out to the end client has been a process of integration, a process of awareness, and a process in which we have tried as actively and as deeply as possible to engage with those underlying clients and really demonstrate all the capabilities that are on offer. Now equally, things as we said quite early on, things like foreign exchange provision, things like OTC, access to our physical hedging capability, access to physical contracts. Things that we sometimes just take for granted. It does have to have a lead time of rollout. We've not put any pressure on people to sell. We've made this very clear. We don't want this to be seen as something that we are trying to force on people.

Philip Smith
Philip Smith
CEO at StoneX Group

It's all about increased awareness and education and highlighting all the capabilities. I'm not saying that every single client of R.J. O'Brien, who traditionally traded futures to hedge their exposure, their risk mitigation in whatever product it might be, will automatically move to an OTC. The beauty of an OTC product is that we are able to custom make a hedge for our clients. That's what our client base does benefit from. They enjoy the personal suitability and targeting of specifically their product, their exposure and themselves. I think that's what makes a difference. It takes time. We've built out huge OTC businesses from scratch in parts of the world, in EMEA and APAC, where I would say five, six years ago, our OTC capability was almost minimal. That's now a big driving force of our expansion and our relevance to our clients.

Philip Smith
Philip Smith
CEO at StoneX Group

We try to apply that same logic to all clients, regardless of whether they are legacy R.J. O'Brien or not. That's very much the direction we're going, very much the strategy, and the RJO client base is part of that. Just like every other client who touches StoneX in one way, we want to ensure there's more that we can offer. I think that's why I went into the deep dive with our prime business, because that's an illustration where we've brought all the capabilities with an ecosystem into a single product offering, which I think is a distinction between us and many other participants in the market. I might have gone on a bit.

Jeff Schmitt
Jeff Schmitt
Analyst at William Blair

Then a question on the payments business. I mean, the RPM continues to decline there. It's fallen for a couple of years now. I think in the past, they talked about a client mix shift having some impact, maybe moving into larger banks. Could you discuss what's driving that and how much farther do you think that can now fall?

Philip Smith
Philip Smith
CEO at StoneX Group

Well, I'm trying to remember when we did the deep dive on payments. It coincided with the launch of our proprietary system, XPay, the key there was all about capacity. You must remember that up until that point, we were turning away business. We had many banks, payments companies wanting to move more business towards us, very much high volume, low value payments. Our system at the time did not have the capability, and so we were turning away business. Once we rolled out XPay, as said, we increased the capacity, I dunno, 15-fold, then allowed those banks, those FIs, those payments companies to use our payment channels, our rails to get into the countries that they were lacking, but at a scale that they were not able to provide themselves.

Philip Smith
Philip Smith
CEO at StoneX Group

Prior to the rollout of XPay, we were not able to provide. That was a key driver for the need to build out a new system. A desire to take on that business that the world was struggling with. We've seen that growth. We continue to see a lot of large payment companies, increasing number of banks who have this flow and are now actively directing it to StoneX because we now have that capability and are able to provide it, provide that level of service as we do with the lower volume, higher value payments. It increases that capability, and that's the reason why you're seeing the average daily volume going up, but you're also seeing the revenue per trade going down. We continue to expect that to be a trend for the foreseeable future.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Yeah.

Jeff Schmitt
Jeff Schmitt
Analyst at William Blair

That could be-

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Oh, sorry. Jeff, I was-

Jeff Schmitt
Jeff Schmitt
Analyst at William Blair

That could be over the next few years. Go ahead.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

No, I was going to say, you can kind of see what Philip's talking about when you look at our first quarter of this fiscal year. That's when you really saw a big spike up in our volumes, and you did see a trend down a bit in the rate per million from a little over 10,000 to 9,400 per million. Then you've seen that actually trend up and the volumes have grown, which has been a nice trend during the fiscal year, going up sequentially for three quarters. It did kind of level set shift down, as Philip said, as that system got rolled out. Now we're seeing it. It trend up a little bit. I don't think it's necessarily going to get to where it was, but the volumes are growing quite fast and it's nice to see the rate per million going up.

Philip Smith
Philip Smith
CEO at StoneX Group

Yeah. It was just shy of a record quarter, and the reason I say that is because historically in our payments business, the Q1 has always been the high-water mark in most years. We were just shy of beating the Q1 high-water mark from 2024. I think that's pleasing to see. I am hoping to have a deep dive in payments for our Q1 2027 call because it should coincide with quite a few initiatives and exciting opportunities that we want to throw out and bring together and highlight the strategy, which will probably be about three years after we last did the deep dive.

Jeff Schmitt
Jeff Schmitt
Analyst at William Blair

Okay, great. Then a question on client float, obviously up a lot from the RJO deal, but what do you think that can grow at after the deal kind of annualizes or lapses? Then, any changes in your investment strategy there? Are you increasing duration using more swaps? Anything like that?

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Yeah, I think that post the deal, I think you can certainly be growing those balances, high single-digit percent. As the industry continues to grow, and I think that we've got a compelling story being the largest non-bank U.S. FCM and continuing to grow, obviously in the U.K. and Singapore as well. Definitely becoming more relevant there. On the investment front, we're not really doing anything different than what we've kind of talked over the last nine months. Post-integration we are continuing to put in some levels. As I said in my remarks today, we did do about another three quarters of a billion of two-year swaps to kind of average in this quarter to kind of put a floor.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

Overall, we've got about $2.5 billion of swaps out there at a little over 350 basis points, which puts a nice kind of floor for us on a piece of it. There's a little bit of duration we're taking, but not a lot on the actual investment side. There's probably about $1.5 billion there as well that we've got a little bit out on the curve, but nothing more than two years. Just trying to continue to maximize and make sure that we're earning a little bit of a premium over SOFR, 10 or 15 basis points is kind of what we're targeting.

Jeff Schmitt
Jeff Schmitt
Analyst at William Blair

Yeah, okay. Just one last one. I think at the Q, it had mentioned greater adoption of your automated trading platform with regards to your OTC derivatives business. I don't know if that's a newer initiative or something you've been investing in. I was just curious why that was called out specifically.

Philip Smith
Philip Smith
CEO at StoneX Group

No, it's not new, but I think it's fair to say it's been accelerated and improved and the efficiencies achieved using AI to speed the upgrades and the increased capability and the increased efficiency from our platforms. That's something we are seeing across the board, and you're seeing it as a highlight in the OTC capability where our electronic swap matching platform has just been rolled out, and it has been rolled out over time, but the acceleration and the efficiency and the capability within the platform has really made a meaningful difference. A lot of that relates back to my announcement in the last quarter where we went from an AI perspective, from sort of early adoption, experimenting, sort of just playing around to rolling out an enterprise-wide capability, which is becoming increasingly core and central to our overall technology build-out. That is a good example.

Philip Smith
Philip Smith
CEO at StoneX Group

Our swap platform is a good example where we're starting to see early wins on that. We are similarly rolling out the capability to approve efficiency in reconciliations, in investigations, in LC management, settlement instruction corrections, and technology platform and project acceleration. A lot of that will be provided as a sort of post six month announcement in the next earnings call. Because I think we want to start demonstrating to our investors and the market what we've been able to achieve, whether it's cost savings, reduction in vendors, whether it's efficiency of technology, acceleration of rollout of new product capability, all the such. That's the objective there in the next quarterly earnings.

Bill Dunaway
Bill Dunaway
CFO at StoneX Group

I would just add, Jeff, one of the other nice things that's come out is, if you looked back six, seven years ago in a lot of the structured products that we're trading in OTC, those were phone conversations that were going on with our desk and the broker and the clients, to kind of customize a solution and find out what it is. Now we have tools to where customers can just be looking at live pricing for structured products that fit the needs that they have. It's a much quicker execution, much more customizable, and gives them a great view. Those kind of things are another thing that's kind of driving those volume growth and revenues.

Philip Smith
Philip Smith
CEO at StoneX Group

It makes expansion geographically that much easier, because you're not feeding through to people to pricing transactions. You're able to offer it to more and more parts of our global footprint and the clients that sit throughout the globe.

Jeff Schmitt
Jeff Schmitt
Analyst at William Blair

Okay. Thank you. That's all I had.

Operator

One moment for our next question. Our next question comes from Dan Fannon from Jefferies. Please go ahead, Dan.

Dan Fannon
Dan Fannon
Analyst at Jefferies

Thanks for taking the follow-up. Just wanted to get your updated thoughts on M&A here currently, and maybe the dialogue interactivity as you see in the kind of back half of the calendar year, if you see that picking up for yourselves.

Philip Smith
Philip Smith
CEO at StoneX Group

I think I've been asked that before, and I think the response has been, we are always looking at transactions. We are known as a consolidator. We're known as an acquirer in the markets. We have stuck to very strict principles of the logic for adding to the StoneX ecosystem and whether it expands our geographical footprint, whether it expands our product offering, or whether it brings us a book of clients that we didn't have before. That doesn't stop. I think we said there's always half a dozen transactions that we're looking at, and I think I actually put it out there, almost business as usual is for us to be acquiring companies sort of $10 million-$30 million, $10 million-$40 million in size that add to that increased capability. I don't see that being anything other than almost business as usual now.

Philip Smith
Philip Smith
CEO at StoneX Group

I think a lot of companies, a lot of small monoline business lines, maybe sole proprietors who are looking for an exit strategy, we are seen as an opportunity for those to extract value and bring a capability that will be added and hugely supplement the product offering across our entire ecosystem. At the same time, give the entire capability that sits within StoneX to their clients to enhance the relationship, to make it deeper and more meaningful. Those, that will not change, and that hasn't changed. We haven't seen any change of any sort from the beginning of the year to where we are today.

Philip Smith
Philip Smith
CEO at StoneX Group

We've obviously been able to demonstrate that even companies the size of R.J. O'Brien, which was the largest transaction we've ever completed, was able to be integrated on time, on the timelines, within budget, and achieving the objectives that we set out on day one. I think we now have a dedicated team, dedicated resources that continue to look at transactions, to make the acquisitions, to complete the acquisitions, and then most importantly, to complete the integration. That's a key part of our business and DNA going forward. We are not desperate. We don't go out trying to find gaps unless there's an obvious glaring gap in our ecosystem that we'd like to fill, and we would actively keep an eye out. On the whole, we look at many transactions.

Philip Smith
Philip Smith
CEO at StoneX Group

We're very disciplined in our approach and what we like and what we'll add to our ecosystem. We will look to see if we can achieve that.

Dan Fannon
Dan Fannon
Analyst at Jefferies

Great. Thanks for taking all my questions.

Philip Smith
Philip Smith
CEO at StoneX Group

No problem.

Operator

I am showing no further questions at this time. I would now like to turn it back to Philip for closing remarks.

Philip Smith
Philip Smith
CEO at StoneX Group

Well, thank you all for your time. We're very pleased with our Q3 numbers. Once again, a huge shout-out to all StoneX employees who have helped make this happen by continuing to provide a standout level of service, professionalism, and relevance to the market and our ever-increasing number of clients and customers, and of course, to each other. Thank you very much.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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