Monex Group Inc

TSE:8698

Earnings Call Analysis

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and welcome, everyone to the Monex Group, Inc. announcement of financial results for 3Q of fiscal year ending March 31, 2021 call. My name is Matthew, and I'm your event manager. [Operator Instructions] I would like to advice all parties that this call is being recorded for replay purposes. And now, I would like to hand over to your host, Oki Matsumoto. Please proceed.

[Oki Matsumoto, executive]

Okay. Good day, everybody. Thank you for joining the call for the Monex Group's third quarter announcement. Today, I am joined by our CFO, Yuko Seimei; as well as our President of TradeStation Group, John Bartleman.

So overall, the results was very strong and also the revenue and the profits also were very diversified. Of course, the good part of that is backed by the current monetary policy situation, lots of money printed and then shares, U.S. and Japan and the crypto, are going up. So we are supported by those environments. But we have been expanding our business to the States under Global Vision, and also expanded our business into crypto and the rebound of the company. I forgot how to say that vision in English. But -- so we had a vision -- visions, and then we expanded to the businesses. And then now we're growing in these areas. So I -- we feel very good about that. And also, we started doing some serious ESG-related commitment and business system. So I think our results for this quarter is actually very broad and deep.

If you turn to Page 4, this is the 9 months. This is April to December period over the last fiscal year versus the same period of this fiscal year. So 9 months versus 9-month comparison. As you see, the pretax profit grew by -- it became 3x basically. And now it's about JPY 9 billion, about $90 million, if JPY 1 (sic) [ $1 ] being JPY 100. So we had a very strong growth, even compared with the competitors or the similar kind of companies, this growth is by far the biggest. So 3x against the year ago and the JPY 9 billion pretax profit, consolidated.

If you turn to Page 5, if you look into the components of the profit, we have 5 business segments: Japan, U.S., Asia Pacific and the Crypto Asset and the Investment; and 3 large major pillars: Japan, U.S. and crypto. If you pick up those 3 segments, as you see, those 3 segments grew by like 3x as well. And as you can see, the breakdown of the pretax profit, the U.S. and crypto, together, represented 46% of the entire pretax for these 3 segments for the 9-month period the last fiscal year. But this fiscal year, it represents 62%. So it really -- the revenue and the profitability source, that's really diversified. As you see, now Japan, the U.S. and crypto represents kind of 1/3 each of the entire profitability. So it really -- entire profitability grew and also it got diversified. So it's quite a beautiful growth we had last 1 year.

If you turn to Page 6, this is the crypto business. The biggest driver for the growth of the profitability was apparent to the Crypto Asset business or Coincheck. This is a quarter-by-quarter number, a pretax profit. From second quarter this fiscal year to third quarter, the pretax profit became 3.3x Q-on-Q, ending JPY 2.4 billion. So it had a really nice growth.

But it's not only crypto business. If you turn to Page 7, even in the Japan segment, this Monex Securities business, from Q2 to Q3, the pretax became 2.6x or JPY 1.45 billion. It's mainly -- not mainly, but it's kind of driven -- partially driven by the strong U.S. equity business. We will talk it later, but both in Japan and Hong Kong, the retail customers' interest to our U.S. security is only growing. And that is -- and because we have TradeStation in the group, we do have a very advantaged services compared to competitors for the U.S. equity business. So that is really helping us as well.

If you turn to Page 8, this is the 3 pillars business segment kind of, how do you say, constituency of the businesses. The brokerage businesses for the Japan and U.S. segment are really the important core business. And for Coincheck, of course, a cryptocurrency exchange or RFQ. Based on those -- our core businesses, we're adding, in Japan, asset management business and some other businesses. And the U.S. based upon the acquired brokerage business, we're adding a cryptocurrency trading business as well as the education community business, YouCanTrade. And also for the Coincheck, on the basic base crypto exchange RFQ business, we are adding NFT, non-fungible token and also the virtual shareholder meeting support service. Especially, this non-fungible token business is quite important when we think about the future potential growth of the Coincheck, but I will talk about it later in the presentation.

If you turn to Page 9, this is the highlight of this Q3, 3 months. It's a -- pretax was JPY 4.8 billion. And operating income -- yes, operating income was like JPY 5 billion. So like that being JPY 100, then like $50 million. And also EBITDA for the 3 months period was JPY 7 billion or like $70 million. So we're talking about, roughly speaking, $280 million EBITDA business, consolidated basis -- run rate basis right now for the Monex Group, again, which grew out. You see on each segment, Japan was, the U.S. share business was strong. The U.S. crypto, doing good and blah, blah, blah. But anyway, we can talk about that later. But for the crypto business, this JPY 2.4 billion pretax was the biggest profitability, of course, after Coincheck joined Monex Group.

So now let me hand to Yuko. She will talk about the consolidated performance.

[Yuko Seimei, executive]

Okay. Hello, everyone. I'm Yuko Seimei, CFO of Monex Group. I would like to explain the figures for the fiscal year 2020, the third quarter.

Please take a look at Page 14. Firstly, I'm going to explain this 9 months results by comparing with that of the previous fiscal year, and elaborate the details of the third quarter comparing with the second quarter. The total operating revenue after deducting financial expenses for the third quarter increased by 28% year-over-year to JPY 44 billion. The major factor of this revenue increase came from net trading income in Crypto Asset segment, where the cryptocurrency market was very active. And it also came from 3 segments of Japan, the U.S. and the Asia Pacific, where the stock market continues to be active.

SG&A increased by only 10% to JPY 35 billion as we succeeded in controlling the cost overall. As a result, quarterly profit before income taxes went up by 192% year-over-year to JPY 9 billion and quarterly profit attributable to owners of the company increased by 191% year-over-year to JPY 6.5 billion.

And Page 15 shows the performance of each segment. Compared with the same period of the previous fiscal year, all the segments increased in revenue and profit. The revenue of Japan segment increased by 17.3% year-over-year due to the increase in brokerage commissions because our market share for Japan equities rose and the U.S. stock business grew gradually, while the FX and the net financial income decreased. SG&A increased by 11.6% year-over-year mainly due to the increase in variable costs and the personnel expenses.

The U.S. segment increased the revenue by 11.4% year-over-year due to significant increase in the brokerage commissions and other commissions, while the net financial income decreased by half because of the lower interest rate. SG&A also went up by 10.4% year-over-year due to the increase in advertising expenses and other variable costs.

Asia Pacific segment increased the revenue threefold, thanks to the active Hong Kong stock market. SG&A went up by 23.5% year-over-year because of the increase in variable costs.

In the Crypto Asset segment, operating revenue increased by 157.8% year-over-year due to the booming Crypto Asset market. SG&A increased by only 24.2% as the variable cost ratio is relatively low.

The Investment segment increased the revenue by JPY 338 million, reflecting the gain on sale of one investment company and the valuation gains on several portfolio companies.

Now let's skip over to Page 22. This Page 22 shows the consolidated performance of the October to December. The total operating revenue after deducting financial expenses was JPY 16.8 billion, 21% up quarter-over-quarter. The quarterly profit attributable to owners of the company also increased by 143% quarter-over-quarter to JPY 3.6 billion. EBITDA was JPY 7 billion, 60% up quarter-over-quarter.

Page 23 describes the revenue and expenses of each segment. On a pretax profit basis, 3 segments of Japan, the U.S. and the Crypto Asset segments increased in both revenue and profit, while Asia Pacific segment decreased. But all of the segments achieved profitable for 4 consecutive quarters.

And I'm going to explain revenue and expenses of the 3 major segments in more detail. First of all, let's look at the Page 24. This is the revenue of Japan segment. Quarterly total operating revenue increased by 11% quarter-over-quarter to JPY 7.2 billion. The main reason for the increase was the rise in the stock market trading volume by individuals and the commissions from U.S. equities. As a result, brokerage commissions increased by 10.7% quarter-over-quarter.

Page 25. Expenses of Japan segment increased by JPY 125 million, 2.1% up quarter-over-quarter. The variable cost increased due to higher trading volume, but the system-related expenses decreased due to the migration of the data center as a part of in-house system development.

And moving on to the Page 26. In the U.S. segment, quarterly total operating revenue increased by 2.7% to $51.8 million. The brokerage commissions decreased by $1.1 million due to the drop of future volume. On the other hand, other commissions went up by $1.2 million, thanks to the increase in that. In addition, net financial income increased by 17% due to the revenue growth from securities lending and crypto lending despite the ultra-low interest rate environment.

Page 27 describes the expenses of the U.S. segment, which rose by 1.3% quarter-over-quarter to $45.4 million. This was mainly due to the increase in the advertising expenses and personnel expenses for new businesses.

Finally, the Crypto Asset segment, which is in Page 28. Total operating revenue surged by 2.3x, 125.5% up from the second quarter to JPY 4 billion due to a significant increase in trading volume of Bitcoin and altcoins, accompanied by active Crypto Asset market.

Page 29 shows the expenses of the Crypto Asset segment, which increased by only 27.3% quarter-over-quarter to JPY 1.3 billion due to an increase in variable costs, such as marketing expenses, reflecting the surge in new account openings and also performance-based bonus reserves for the good business performance.

That concludes my explanation.

[Oki Matsumoto, executive]

Okay. Thank you, Yuko. So now let me talk about the business update. Please go to Page 33, the Japan segment. The asset management model promotion is ongoing. And we're doing many things, and then this is basically not just offering information and product trading too, but to have our aim to really help customer asset to grow. And so we are building a lot of services around that.

As you see on the right-hand side, the U.S. equity business is very strong. Now it represents about 20% of the entire Monex Securities equity commission business, which is like 5x compared to 1 year ago as regard to the percentage in the equity commissions business in Monex Securities. So the customers are really interested in U.S. equity. And recently on that, the GameStop on the NIM stock kind of fever, we did see actually Japanese retail customers trading those shares a lot as well. So really kind of market structure changing. It used to be -- when we talk about Japanese retail customers buying a U.S. equity, it's like Amazon, Apple, Microsoft, period, something like that. But now they're going to -- they play around on the NIM as well. So the [ board ] is getting really lower, I guess.

Page 34 is the -- some other information about the Japan business. The mutual fund, we have the daily or, how do you say, the monthly and accumulation auto purchase program of the mutual fund. And that amount is now JPY 4 billion per month, which is about double of last 1 year ago. So it's growing a lot.

And the -- I guess, 2 days ago, we announced our -- the holistic business corporation agreement with the Shinsei Bank and its subsidiary securities company. It's basically, we insource the Shinsei Bank Group's security-related system and back office. So we internalized the system several years ago. And so not like SBI or our competitors, whereby they use like NRI as a system vendor, our system is internalized. So we have also the system and the back office and compressed everything, which can be used by other banks and brokers.

The Shinsei Bank, they are using someone like NRI and the paying of fee to those system vendors. And whenever they -- [ never knew have this ] new regulation, new compliance, whatever comes, they have to pay to the system vendor. And also they have to keep a back office. So there are some kind of -- the needs really matched, thereby, by insourcing Shinsei Bank's security-related system and back office, Shinsei can reduce the cost, and we can utilize our asset. And also, whenever we add a new service or products or whenever we accommodate a new compliance or regulation change, that can be used by Shinsei as well. So this is kind of what we are entering in the NRI or DIR kind of business, which is, of course, a very low volatility. So this is quite good.

And by the way, as you may know, the SBI owns like 10% of Shinsei Bank share. So we feel very proud that we are selected by Shinsei Bank for this business or by SBI. And we, of course, try to do the same thing with other regional banks. And so this is a quite interesting development.

Right-hand side, the security lending and IFA and ferci, blah, blah, blah. So we are doing all those things as well.

Please go to Page 35. This is regarding asset management business. Monex Asset Management assets in custody grew to JPY 16.8 billion. And wrap account, ON COMPASS+, ON COMPASS, JPY 7.8 billion. So it is gradually, but it's growing nicely. In the Monex Activist Fund, our AUM is currently like, at December end, JPY 5.4 billion. I, myself, doing road show but deep engagement directly talking one-on-one, face-to-face, with CEOs of the investee companies and also doing some high-level engagement with the bureaucrats and others. And I feel very confident that what we are doing in engagement is much stronger, much deeper than other engagement fund.

If it's in the States or U.K. or Hong Kong, our engagement activity is much deeper and much stronger. And we see some of the results are coming up, not yet, but it's about to come up. So once those results, I mean, the actions from the investee companies are realized, then it will, of course, reflect to the fund management results and also, it will draw a lot of attention from investors. So the asset growth is slower than our initial plan, but I feel confident -- comfortable that this business will grow nicely.

We got some prize from Nikkei, and we are doing big activist forum again. And also, we started marketing to institutional investors as well.

I'm sorry. Now let me switch to John. And John, please discuss about the U.S. business.

[John Bartleman, executive]

Sure. Thank you, Oki. Good morning, everyone. So as was mentioned, this past quarter has seen a continuation of what we've seen all year with the advent of commission-free trading in the U.S. and COVID really combined into an explosive environment for us to -- for account growth and trading activity. And although we saw a slight drop-off in sort of the account growth, starting really around September period and October and into November, we thought that might be the end of this wave. But coming into late December and specifically this month of January has just been explosive, and we're now hitting all-time records again on a daily basis. So really, the elevated activity across the board.

Our mix of activity has shifted a little bit as well. We are seeing an increase in equity and options traders, and they're definitely a younger audience. And now we're starting to pick up on the options side as well. So that's provided a good mix of business, even in this commission-free environment. And with VIX dropping off a little, these customers are not stopping their activity. So from the overall DARTs and payment order flow side, that really helps make up the gap that we've seen from the interest income side with the interest rates so low.

So overall, just a really incredible quarter again. Just over JPY 9 billion in assets, so 55% growth quarter-over-quarter -- or sorry, year-over-year and 36% growth in accounts this quarter. It's really been incredible.

And we've seen accounts grow now this last week or so with -- as Oki mentioned, with what's going on in Reddit and WallStreetBets and this movement by these younger traders to really start getting more activist and take on Wall Street, I think that's benefited us quite a bit. What happened yesterday with Robinhood, I think it was unfortunate, maybe for the space, but definitely for them and the brokers who chose to sort of lock down trading on some of these symbols. We were one of the firms that didn't lock down trading on the underlying equities. We did on the options side just to be able to protect the customers and ourselves from that volatility. But we stayed open on the equity side, and I think that's really helped us. We'll see what happens over the next several weeks.

So overall, great quarter, strong revenue growth here.

If we jump to Slide 37, talking about some of the new initiatives we have been working on. Our API partner growth has continued to expand, adding 20 new partners this quarter, so 75% (sic) [ 57% ] increase quarter-over-quarter. So we're really starting to ramp this piece of the business up. It's a little bit slower to activate these. These partners can be small or large. They can be individual traders or large companies. So depending on the size, an integration could take days to weeks to integrate. Our partnership with TradingView continues to accelerate. They are, by far, our largest partner right now. We are seeing significant activity and account growth. We're now driving almost 1,000 accounts a month through that relationship.

This quarter, we've also onboarded a few new interesting partners. We're leveraging our API to be able to target different types of customer bases, not just the trader market. So an example of that is it's an Indian company with a product called [ Dollar Bull ]. They're attempting to be like a Robinhood for India, trading U.S. markets. They signed with us and in the process of connecting. So that would open up that market for us. We have a partnership with a wealth RA platform this past quarter and also a neobank. So we think having this capability to empower other types of platforms will help us open up and expand our customer segmentation.

And if we look at TradeStation Crypto, we have really started picking up this quarter. I think the growth really started accelerating around August, September with the initial bump in Bitcoin trading. But really in the later part of December into January, we've really started seeing explosion. Obviously, not to the levels we've seen at Coincheck. They're quite a bit more established, but we are starting to see significant growth, almost $2 million in revenue this quarter. And I'd say this is really just now starting to take off. So we're really excited about this business and seeing where this will go.

And on the YouCanTrade side, continued growth in our community membership and engagement. Overall, I'd say this has been slower than we'd anticipated on taking off this new community. So we are looking this year, now that we've launched these sort of new segments to the business, we did it in a way that wasn't necessarily the best customer experience as it relates to the integration and overall user flow. So we are making some improvements to that this year to better engage with these clients and the funnel that we have. So we're expecting to see some good growth in there.

And as Yuko have mentioned on the net financial income side, saw some decent growth this quarter, even in this interest rate environment, that our securities lending team is really doing an outstanding work here and saw a significant increase quarter-over-quarter with some of these names. So overall, really, really good quarter, and this new Q4 is starting to kick off really well. So really excited about where we're going and really growing this business.

So that's about it from the U.S. side.

[Oki Matsumoto, executive]

Great. Thank you, John. I think it's really amazing that now TradeStation has about JPY 9.3 billion (sic) [ $9.3 billion ] assets in custody. In yen term, it's almost about JPY 1 trillion. So when TradeStation joined Monex Group in 2011, I believe it was like $2 billion or something or $2-plus billion. Now it's $9.3 billion. So it's a remarkable growth. And even in this mature market in the States, it still got the growth. And especially in recent years, because of the change of the marketing, it's got a good growth, which is very good, I think.

The crypto business, if you go to Page 38, this is about Coincheck. The size -- share of the Coincheck is basically about 30% in the accounts and assets and blah, blah, blah, anything, it's about 30% of Japan. And it's either #1 -- or one of 2 #1s, basically. And so that's where we are. And we have 15 coins on listed and blah, blah, blah. So this is basically, the size of the Coincheck is similar to bitFlyer, but the business model is very different. They are -- bitFlyer is a pure exchange model, whereby the margin is very thin. And the Coincheck is a market-making model basically, and the margin is much healthy or much good. There's a real spread. So we make way much more money than our competitor.

If you go to Page 39. For this quarter, the OP margin was 66%. As you see this graph, the fixed cost quarter-by-quarter, fixed cost is pretty much fixed, the same level. And then we have some variable costs. But -- so the fixed cost is very controlled, so that as the trading volume goes up, there's a really high leverage to increase the OP margin. And so for the third quarter, which is October, November, December, even those 3 months average, OP margin was 66%, implying the December margin or current margin, it should be even higher. The -- it's a great high leverage model.

The Page 30 -- right-hand side, the non-fungible token is like the icons, the items or tokens on the game. And there's no one -- like in the cryptocurrency, Binance is very big. But in non-fungible token, still, there is no one who won the #1 position in the world. And to create a platform for non-fungible -- marketplace for non-fungible token, the technologies and the expertise are pretty much the same as running the crypto exchange. So Coincheck is trying to be -- trying to take the big position in the world in the NFT marketplace. So this is quite interesting.

This is outside of Japanese [Foreign Language], Japanese law to regulate the cryptocurrency. So NFT is outside of that. So the NFT business is outside of FSA, which is nice. So we are working with that.

The Page 40 is earn-out growth. You may -- some of you may know or remember that when we acquired Coincheck 3 years ago, we entered earn-out growth with the former shareholders of Coincheck, which is we calculate the 3 years accumulated net P&L, ending this coming March end. And then if that number was positive, then under some rules, we can deduct something on them. But after that, we pay 50% of that to the former shareholders the spring of this year.

The Coincheck was in red for the fiscal year ending 2019, and it is almost flat fiscal ending March '20. And then up until the second quarter this fiscal year, the accumulated P&L was negative. But at the end of third quarter, accumulated P&L became positive. So after deducting something, we'll be paying JPY 217 million to the former shareholders in spring. So we basically kind of reserved that money from our P&L. So this running fourth quarter, if -- and, of course, we are making money in the Coincheck, and the net income is at minus something and 50% will be paid to the former shareholders. But that contract will end completely at the end of this coming March. So after April 1 of this year, the -- basically all profit of Coincheck will belong to Monex Group.

Page 41 is Asia Pacific. As you see, even in Hong Kong, U.S. share business is very popular. And also, the Mainland China business is not so big, but in the black ink.

The Page 42 is the Monex Ventures or the venture capital business. We did a nice exit. And Monex Ventures has been always very good in -- I mean, the financial results -- return of the Monex Ventures have been very high, and we continue to be doing. So this is kind of open innovation. This is, of course, profit banking business for us and for LPs. And also this is like open innovation or kind of outside company R&D because of start-ups tend to have a very interesting idea. So we will continue to do this.

Page 43, our ESG. We are putting more stress on the ESG. And we decided to do more to contribute to the ESG in our own business, in our securities business.

So if you go to Page 44, we announced that we create a sustainable finance department, the Monex Securities, which will create the Impact Fund for the renewable energy. We hired 5 very experienced professional team from Crédit Agricole and other places, and they are here. And also, we are going to add the blockchain-based reporting system, whereby the investors can see the -- how much their investment is contributing to the environment. And that kind of service is very rare. And you know that there have been some greenwashing and those kind of things. But this -- we will add fintech and blockchain technology as a kind of a unique but advanced, rare service for the Impact Fund. So we are in this business now.

To Page 45, our DEI, the kind of initiatives. Our gender pay is very good, like 90% or 100% -- close to 100%, but we will try to make sure that it will become 100%. And also, we signed The Valuable 500, which is Davos-based. Davos started the kind of initiative for the disability inclusion. So we're working on those DEI or disability inclusion thing.

Page 46 is GENEX. I think I talked about it before. This is blockchain -- this is using blockchain to collect and manage the whole-genome of the complicated disease patients and then provide a data set to the pharmaceutical companies. And they create a new vaccine or the new drug for those complicated disease, and then they make money. And then we put some of those returns back to those patients who provided the data for genome. So it's basically, we try to create new ecosystem, whereby the patients can help their life by providing their data. And so we got some -- the capital injected by pharmaceutical companies and a big drug store chain in Japan. So we are working on this now. So that's it.

So -- I'm sorry, it was a little bit very long, but the profitability was very strong. Compared to any other company, it's -- the growth rate was, by far, the best, and it's very diversified and it's very stable. And we have some initiatives in ESGs and some new things like collaboration with Shinsei Bank. And so we feel quite good. I'm also going into this current period in January, both in equity and the crypto business, of course, we are having a very good base. So we feel very constructive. And when we think about the value of Coincheck and the value of TradeStation, value of Monex Securities, and if you just sum them up, you can imagine how much value the Monex Group should have. So we think are very constructive for the -- our share price as well.

So let me stop here, and I'd like to take questions from you.

[Operator]

[Operator Instructions] The first one is coming from the line of [ Paul Saferstein ].

[Unknown Analyst]

Nice to hear your voice. I hope you're well during the pandemic here. And thanks for doing it in the U.S. hours. So 3 questions, if I could. First is in the crypto segment. Can you just describe -- you mentioned the high profitability and the high operating leverage by being a market maker. Kind of numerically, what that means in terms of spread and what that competitive environment looks like? That's question one.

Second is the asset management business. Could you talk about how the Activist Fund returns are to date? And how do you expect in the next, let's say, 12 months, asset gathering, asset raising will be?

And then thirdly, for the U.S. business, maybe John could talk a little bit more in detail about the level of volatility that we're seeing and what potentially could be some risk to the equity -- the capital base of brokers and what they're seeing in terms of requests for margin at the clearinghouses and the regulatory bodies, if there is any contact from them in terms of some outside force to clamp down on the success of trading that's taking place in these Reddit-type names?

[Oki Matsumoto, executive]

Okay. Thank you very much for questions. So first 2 questions, I will answer and the other one, John will answer.

The first one, the spread of the crypto market-making Coincheck be far, coin by coin. Obviously, the tightest with Bitcoin and then wider with other altcoins. We have the Bitcoin exchange business elsewhere, which is basically no spread, no fee. It's free. And our competitor is offering the basically exchange model. So there it's a matching engine, no spread and then they charge very thin fee. Whereby in Coincheck, if they go to RFQ, a request for quote market-making, even on the Bitcoin, there's a spread. I would say for Bitcoin to the altcoin, the spread, we know the spread is anywhere between like a 2% -- 1% or 2% to like 5% or, for some altcoins, even wider. And we do change the spread as well, depending on the liquidity of that time. So -- but the general spread is somewhere between like a 2% -- generally speaking, like 2% to 5%. It could be a little bit wider. So we do make a very good spread on that and competes us. As I said, they are in exchange model, so they don't make spread and they charge very tight fee. So our business is very, very much more profitable compared to our competitors.

[Unknown Analyst]

So does that -- okay, so that -- is that a sustainable situation competitively that they're paying so much on spread and gets so cheap if they can go to a competitor? Do you see this as a sustainable business model? Or do you think the spread would come closer to this kind of exchange level?

[Oki Matsumoto, executive]

Well, I can say 2 things. One is that the Coincheck service, not only the business model, but also user experience is very, very different. Our competitors are really, they go to PC and then really see us trading things. The Coincheck is more like a PayPal or Cash App or whatever. It's really easy to use ordinary people just maybe dining and wining and then just talking about some crypto and then decide to buy Bitcoin or other coins during the dinner, for example, and then they can just do it very easily.

So the customer base is very different. And the user experience is very different. And it's not a big customer, it's a very big number of the small customers. So we enjoy wide spread. So it's very different.

And also, if you think about the banks, okay, if you go to the Chase Bank or Bank of America or whoever, if you try to exchange dollar to euro, then there is a tight spread or yen tight spread. Even U.K. starting, you started getting charged like 3% or 5% or whatever spread. And if you try to exchange that South African rand, you may get charged by like 15%, for example, right? So that means keeping those spread forever, for example, almost.

So I think it is very -- we decided when we acquired Coincheck, there are talk that we should move into exchange model. [ Share covenant ], Monex is a financial institution, we should go into the exchange model and then do the CDS trading platform. I completely denied it. No way. We're going to keep this Coincheck model, and then that really pays off. And I think it's -- of course, it's not guaranteed to be sustainable, but I think there are ways to sustain this model.

The second question of asset management...

[Unknown Analyst]

Yes. Just one quick follow-up. Do you do any prop trading in crypto? And any of the profits come from prop, no?

[Oki Matsumoto, executive]

No, we don't. Of course, because we are making market, time to time, when we warehouse some positions before we hedge them out to The Street, we may end up taking a little bit of a prop kind of risk, but it's basically we're doing just a complete market-making the floor, automatic hedging. The asset management division, the Monex Activist Fund, at the mother fund level from the -- when we started managing the fund like 9 months ago, at the mother fund level, which is almost same as TOPIX. But we are charging -- our retail customers, we are charging [ 2%, 20% ], 2% plus anything above 2%, we charge 20%. So basically, we're charging 20% such as fee. So because of that, the mutual fund retail tranche performance is a little bit below TOPIX. But the mother fund is right on the TOPIX right now, which I'm not satisfied, of course. But as I said, many engagements being planted now, and it will, I believe, start harvesting. So I believe this return will be better than -- much better than TOPIX. And with that, it will attract the eyes from investors. So we believe we can gather more assets.

We are now targeting to make this $50 million AUM up to like $600 million in about a year from now, in about a year from now. So -- but since we don't do, how do you say, push marketing, we are not like Nomura, we just wait for customers to come. So there's a time access can extend or shorten, depending on the market or performance condition, I think.

Now let me -- so John, can you answer the question for the -- this capital volatility blah, blah, blah thing?

[John Bartleman, executive]

Yes. Absolutely. So yes. So with this increased volatility, we really -- so first, TradeStation is self-clearing equities and options. So we interface directly with DTCC and the OCC and settle on a daily basis. And we really have not seen a sort of spike in liquidity demands from that perspective. A lot of this nets out intraday. So that has not put really stress on TradeStation from a liquidity stress testing side. Where we see risk with this kind of trading and these new entrants in the market is more on the individual account levels. You have amateurs starting to trade options in significant volumes, and the problem is they don't necessarily understand the risk they can have to themselves and creating a negative equity situation for themselves, in which case, they would blow up and obviously, TradeStation would be on the hook.

So from that perspective, over the last several years, we've put in place really strong risk management control. And that's why when you get into a situation like what happened this week, we're immediate to do a few things. One is setting some of these crazy illiquid symbols to impossible to borrow. So anyone that wants to shortlist, obviously, has to borrow the stock, but that puts them at risk in those situations. So there, we lock down that capability.

The other is we would set some of these markets to 100% cash requirement, so not providing margin trading on them. So that is a further way to prevent these customers from hurting themselves and us. And then the other is on the options side. So what happened yesterday, for example, someone like a Robinhood and several other brokers, they basically completely shut down trading of these symbols that's buying the underlying or the options, which is a little excessive in our mind. We allowed continuing to buy on a cash basis, the equities. But on the options side, we definitely see where -- in cases like this, where we have to set to liquidating transactions only to prevent the customers from blowing up, again, on that perspective.

So overall, I think, really, it's that individual account level which is dangerous. And I think from a regulatory perspective, there may be some focus there. But otherwise, I think from an overall liquidity standpoint, we, as TradeStation, don't really see much risk there. I don't know if that helps answer your question.

[Unknown Analyst]

Yes. That's very helpful, John. Were there any contact from the clearinghouse or the regulators about kind of externally trying to force you to change margin requirements or at least check on them?

[John Bartleman, executive]

No. I mean we have our normal day-to-day interactions with the clearinghouses and with the regulators, but nothing unusual this week about the events that have happened.

[Unknown Analyst]

Got it. So you would say, I mean your own opinion, the other firms that have made public announcements about this, it all comes from internal decisions at this point? Is that -- not to put words in your mouth, but you would agree with that? Yes. Okay.

[John Bartleman, executive]

Yes.

[Unknown Analyst]

Got it. And just kind of more specifically on the options side. Are you force liquidating like kind of pre-expiry where you think the equity is not in place to take exercises?

[John Bartleman, executive]

Yes. Absolutely. We'll do that on the options side and the equity side, to some degree. If anything shows a risk of going negative equity on our side, we have procedures in place to close out those accounts and prevent that risk.

[Unknown Analyst]

Right. Okay. Great.

[Oki Matsumoto, executive]

I think it's on these margin trading and options, you can completely systemize everything. And to reduce, avoid the risk, you need to have experienced people operate those businesses to avoid those risks. I think that is something happening -- some difference by broker by broker in that area. I think that is actually -- in this kind of extraordinary environment, that difference is very big, I think.

[Operator]

The next one is coming from the line of Michael Herzig.

[Michael Herzig, analyst]

Congratulations on a very, very strong performance. First question is, I know on the last call, John, you talked about the success of the lending business for crypto. I think it was a U.S. dollar coin product for other cryptocurrencies. And Matsumoto-san, you said that there's some value at risk model in force in-house to try to understand the balance sheet risk to Monex shareholders from that lending business. And I just was wondering if there's any follow-up to that. And any way we can try to quantify what the balance sheet allocation is to that crypto lending business?

And just the second question which is related is, I noticed that your -- on a -- as you know, Matsumoto-san, my favorite slide, the one which talks about the increase in your cash balance relative to the start of the fiscal year is up from JPY 20.8 billion to JPY 24.3 billion, which is very constructive, but it's less than the increase in your after-tax net income. So I'm just wondering if there's some allocation going on to reserves.

[Oki Matsumoto, executive]

Okay. The first one, the value at risk study on the crypto lending, we did that -- we have done a lot. And now we have kind of, how do you say, holistic understanding of the risk at the TradeStation level as well as Monex Group headquarters level. We now believe that the risk is well inside the -- our risk-taking capacity. And -- but through that process, we kind of figured out that how we could even lower the value at risk on this business. So we are now working on that right now. I can't -- we don't have anything written to disclose to shareholders. But I can tell you, I can assure you that the risk is well understood, well calculated and well-managed inside the -- our risk capacity.

And second question, I'm sorry, I didn't catch it well. You...

[Michael Herzig, analyst]

Slide 30. It's a Slide 30 figure, the JPY 24.3 billion difference between net capital and noncurrent assets.

[Oki Matsumoto, executive]

Yes.

[Michael Herzig, analyst]

That figure is up from, I believe, JPY 20.8 billion at the start of the fiscal year. So it's up about JPY 3.5 billion. But your after-tax net income is up JPY 6.5 billion over that period. So I just -- I don't know whether it's -- I know it's not a dollar-for-dollar relationship, but I guess I was a little surprised that, that net capital difference wasn't stronger.

[Oki Matsumoto, executive]

Sorry, I -- wow. You know the company, they're on me. So let's see. So you're saying that -- I see either we paid out the dividend or the noncurrent asset grew. I'm sorry, I have to check on them. I have to come back to you. I'm sorry.

[Michael Herzig, analyst]

Okay. That's fine. I appreciate that. And just -- sorry, just last question. Some further commentary on Shinsei Bank. That is a very impressive announcement. I don't know a lot about Shinsei Bank's retail footprint. I know they have some strong assets in -- on the consumer lending side. But I guess, I'm thinking that there are regional banks out there which have much larger retail footprints that you probably would like to get -- you start a relationship. What should we expect going forward for your next announcement along these lines?

[Oki Matsumoto, executive]

First of all, the Shinsei Bank deal, we are basically moving JPY 500 billion asset from Shinsei Bank and Shinsei Securities, whereby our asset in custody is JPY 4.7 trillion at Monex Securities. So we're basically talking about more than 10% of our current asset under management, size of assets are coming from Shinsei Bank Group, which is quite sizable. And of course, this is -- we are insourcing the system and the brand -- system and the back office. So we don't earn the revenue on the same basis points on the -- our own asset. We should earn lower, but still, it's quite sizable. We are talking with other banks. And I can't tell you the exact schedule when other are coming. But you will probably see not in the long future, you will see the similar deal coming up. So there are concrete deal or deals in pipeline.

[Operator]

We have one more incoming question, which is coming from the line of [ John Nelson ].

[Unknown Analyst]

My first question was on Shinsei Bank, which you answered. But just a follow-up, are you seeing any pickup in Japanese investors buying -- you mentioned Gamestop, in particular. But are you seeing any interest in the Japanese investors buying Japanese stocks either through direct stocks or through mutual funds?

[Oki Matsumoto, executive]

Yes. Apparently, not only in the States but or in Japan. After COVID shock, equity market slowed down and then boom, it's coming back. And the people started kind of digesting the idea of this [ super quantum easing ], trending up with the share price going up. Initially, TV or the media and everybody talking about, this share price is kind of mirage and the economy is bad because of the COVID, when the stock price is not reflecting the economy blah, blah, blah. But now people realize that, well, the amount of money in the market is completely different from the past. So the variation of the stocks is different from the past. So people kind of started either directly or indirectly digesting that idea. And they see that their friends, acquaintance is making money in the stock investment. So many people now coming in to stocks.

This kind of movement is -- I remember that -- so before the -- I don't want to say something kludgy, so but before the Lehman -- before the GFC or before the Internet bubble burst in like 2002 or '03 or whatever, I forgot, before the 2 eras, we kind of saw the similar kind of phenomena. The more people who never had experience in stock investment has come to us because they see people making money around them, in stock investment. So yes, so the customer base is getting wider these days. And the people now believe that putting money into the deposit or fixed income is bad idea. But I think more to come. And it's still vast majority of Japanese putting money into stock -- into the cash equivalent basically. So there are much more potential to come into the stock market.

[Operator]

We have one more incoming question, which is coming from the line of Ayako Weissman.

[Ayako Weissman, analyst]

My question is about the Coincheck customer base. Are there any overlap between that list and then your main business side?

[Oki Matsumoto, executive]

Almost no warrant.

[Ayako Weissman, analyst]

Do you think there's ever -- do you think there's ever opportunity to somehow cross-sell?

[Oki Matsumoto, executive]

Of course. We've been trying to do, and I think the time will help. The thing is that the Coincheck customers are very young basically. And it's like a Teen Asia to like for 22 like a 35. And the Monex customer -- Monex Securities customers are 35 and above, basically like if I make it -- if I simplify the picture. So there's no overlap because one is 20 to 35 and one is 35 and over.

Interestingly, the people, when they get older, then they start thinking about stock investment or like those traditional investments away from coins. So we can't -- I don't feel that we can cross-sell the Monex business into those 20 and 25 and 30 years old people. But every year, the Coincheck customers get matured and it become like, in a simplified picture, become older than 35 and they start thinking about doing Monex Securities, the savvies. So something like that. This is really very way kind of oversimplified simplification, but something like that. So we are aware -- we know that it's not really overlap, but we are working on kind of cross-selling. It's not easy, but it's gradually happening in the way I just described. So I think the Coincheck can work as a great kind of in-depth, great kind of [ fund narrow in-depth ] to grasp young people into Monex Group. And then we can eventually make them into Monex Securities customers as well. So that's how it works.

[Operator]

We don't have any more incoming questions in the queue.

[Oki Matsumoto, executive]

Okay. All right. Thank you so much. And so it's great, the results. And not only crypto, by the way, we have a very bright future, but the crypto, obviously, very -- crypto business, the Coincheck, obviously very bright future or variation or whatever. And so we are very excited. And if you have any further questions, please let us know. We are always here to answer your any questions. Thank you very much.

[Operator]

Thank you very much, everyone. That concludes our conference call for today. You may now disconnect. Thank you for joining, and enjoy the rest of your day.