TD Ameritrade 2018 Annual Report

41 adjustments related to remeasurement or resolution of uncertain tax positions and federal incentives. However, we expect to experience some volatility in our quarterly and annual effective income tax rate because current accounting rules for uncertain tax positions require that any change in measurement of a tax position taken in a prior tax year be recognized as a discrete event in the period in which the change occurs. We also anticipate the potential for increased volatility in our future quarterly effective income tax rate from the accounting for income taxes related to equity-based compensation, which requires the income tax effects of exercised or vested stock-based awards to be treated as discrete items in the period in which they occur. Fiscal Year Ended September 30, 2017 Compared to Fiscal Year Ended September 30, 2016 Net Revenues Commissions and transaction fees increased 1% to $1.38 billion, primarily due to increased client trading activity, partially offset by lower average commissions per trade and the effect of two less trading days during fiscal year 2017 compared to fiscal year 2016. Total trades increased 9% as average client trades per day increased 10% to 510,710 for fiscal year 2017 compared to 462,918 for fiscal year 2016. Average commissions per trade decreased to $8.33 from $9.20, primarily due to our reduction in client pricing for online equity and option trades during the second quarter of fiscal year 2017. Asset-based revenues, which consist of bank deposit account fees, net interest revenue and investment product fees, increased 17% to $2.22 billion, primarily due to a 12% increase in average spread-based assets, an increase of 8 basis points in net interest margin to 1.49% and a 17% increase in average market fee-based investment balances. The increase in net interest margin was primarily due to the Federal Open Market Committee increasing the target range for the federal funds rate by 75 basis points (to between 1.00% and 1.25%) during fiscal year 2017, partially offset by the impact of higher average segregated cash and other cash and interest-earning investment balances, which earn a lower net interest spread and a higher IDAmanagement fee on floating rate balances due to the federal funds rate increases. Bank deposit account fees increased 20% to $1.11 billion, primarily due to a 12% increase in average client bank deposit account balances and an increase of 7 basis points in the average yield earned on those balances. The growth in the average bank deposit account balances is primarily due to our success in attracting net new client assets. The average yield earned on bank deposit account assets increased primarily due to floating-rate investment balances within the IDA portfolio benefiting from the fiscal year 2017 federal funds rate increases and investments within the IDA portfolio, including maturities of investments and new balance growth, being invested at higher rates. The increase in the average yield was partially offset by a higher IDAmanagement fee on floating rate balances due to the federal funds rate increases and higher interest rates paid to clients. Net interest revenue increased 16% to $690 million, primarily due to increases in the average yields earned on segregated cash, client margin balances and other cash and interest-earning investment balances as a result of the federal funds rate increases during fiscal year 2017 and a 7% increase in average client margin balances. The average yield earned on interest-earning assets increased 10 basis points to 2.69% primarily due to the benefits realized from the federal funds rate increases during fiscal year 2017. Investment product fees increased 13% to $423 million, primarily due to a 17% increase in average market fee- based investment balances and an increase of 23 basis points in the average yield earned on money market mutual fund balances. These increases were partially offset by a decrease of 1 basis point in the average yield earned on market fee-based investment balances and a 36% decrease in the average money market mutual fund balances. Other revenues increased 20% to $72 million, primarily due to increased fees related to proxy and platform services. Operating Expenses Total operating expenses, which includes $88million of acquisition-related expenses, increased 10% to $2.21 billion during fiscal year 2017. Employee compensation and benefits expense increased 15% to $962million, primarily due to an increase in average headcount related to our strategic growth initiatives and the Scottrade acquisition in September 2017, approximately $35 million of severance costs related to the Scottrade integration and higher incentive-based compensation related to Company and individual performance. The average number of full-time equivalent employees increased to 6,661 for fiscal year 2017 compared to 5,858 for fiscal year 2016.