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Futu Holdings Limited (NASDAQ:FUTU)
Q2 2019 Earnings Call
Aug 26, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Futu Holdings Limited Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would like to hand the conference over to your first speaker today, Mr. Daniel Yuan, Chief of Staff of Futu. Thank you. Please go ahead.

Daniel Yuan -- Chief Staff

Thank you, operator. And thank you for joining us today to discuss our second quarter 2019 results. Joining me on the call today are Leaf Li, our Chairman and CEO; Arthur Chen, CFO, and Robin Xu, Vice President.

As a reminder, today's call may include forward-looking statements which represent the company's belief regarding future events, which by nature are not certain and can be affected by factors outside of the company's control. These statements are based on current plan estimates and projections, and you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the company's filings with the SEC, including its registration statement.

So with that, I will now turn the call over to Leaf Li . Leaf will make a comment in Chinese and I will translate.

Leaf Hua Li -- Founder, Chairman & Chief Executive Officer

[Foreign Speech]

Hello everyone. Thank you for joining us today. I'm pleased to report another strong quarter despite ongoing market volatility.

[Foreign Speech]

On the client side, we added over 16,000 new paying clients during the past quarter. And the total number of paying clients hit 165,000, representing 65% year-over- year growth. A large part of this growth was driven by our Hong Kong business. Despite the adverse effects of recent political events on our online and offline marketing efforts in Hong Kong, we were still able to increase brand awareness and achieve 115% year-over-year growth and a number of paying clients in Hong Kong. We will continue to leverage our experience in penetrating the Hong Kong market, which was our first target market outside of Mainland China to expand globally.

[Foreign Speech]

As we mentioned on our last earnings call, the number of paying clients, client retention rate and total client assets are the three metrices that we attach most importance to. As our paying client numbers continue to demonstrate strong growth momentum, we're also pleased to have retained 98.1% of them on a quarterly basis, which is the highest retention rate that we have seen since 2018. At the same time we saw net asset inflows of HKD5.7 billion [Phonetic]. Despite the market volatility, our clients clearly continue to entrust us with more and more of their assets.

[Foreign Speech]

In May, we officially launched the Money Plus, a money market mutual fund distribution platform in Hong Kong. This marked our initial foray into the wealth management business. Early results indicate that Money Plus has been effective in helping us attract new assets, which as I mentioned, is a key metric for our business. Since the end of the second quarter, we have also started to offer a number of fixed income and equity funds to clients in both Mainland China and Hong Kong.

[Foreign Speech]

Going forward, wealth management will be an integral part of our business, through our proprietary trading infrastructure and superior user experience, we have already attracted a rapidly growing group of young, active and affluent millennial to our platform, notably our average client age of 35. The average asset balance at the end of the second quarter was around HKD415,000, which is a much higher level than our peers in the region. In the end, we believe clients are our biggest assets, in that regard, our trading services have laid a solid foundation for our wealth management business.

[Foreign Speech]

As our clients accumulate more wealth, they become more financially sophisticated, and as we gain a deeper understanding of them, we want to cater to their broader wealth management needs. And for that, we are starting with mutual fund investments. Like we did for our trading and margin financing services, we will surround our wealth management products with news, research and powerful analytical tools, providing our clients with a data rich foundation to simplify their investing decision making process. We want to empower our clients with thoughtful industrial education.

[Foreign Speech]

We are still experimenting with our wealth management business, but in time we believe that it can help expand our client acquisition capabilities, increase average assets per plan, improve client retention and provide a more stable stream of revenue.

[Foreign Speech]

Now I'd like to provide some updates about our technology enhancement and enterprise service.

[Foreign Speech]

In June, we became the first Chinese broker to offer a full market-depth for US option quotes. With quote refresh rates that are much faster than our peers in the region, we have and will continue to invest in technology to bring a best-in-class trading experience to individual investors.

[Foreign Speech]

Moving on to our Enterprise business. We officially launched our new service brand I&E in May to integrate our ESOP solutions and IPO subscription services. In the first half of 2019, we acquired 15 new ESOP clients. Among the new additions in the second quarter were Douyu, the recently IPO'd game streaming business and a number of other leading Chinese new economy companies. Our ESOP business has successfully handled some of the most complicated ESOP systems for a variety of Chinese tech companies. And we continue to differentiate ourselves with both the quantity and quality of our plants in this area. Moreover, our ESOP solutions have proven to be a consistent client acquisition channel for our Mainland China business.

[Foreign Speech]

And finally, on August 12th, we announced the appointment of General Atlantic to our Board. We believe GA has extensive experience investing in technology platforms in the region, will benefit us as we further build our platform and deliver long-term value to shareholders.

[Foreign Speech]

So with that, I will now turn the call over to Arthur to discuss our financial performance.

Arthur Yu Chen -- Chief Financial Officer

Thanks, Leaf and Daniel. We concluded the second quarter with total revenue of HKD260 million or 40% percent year-over-year and the 10% Q-on-Q increase. We can see that it is reasonable growth against the backdrop of the broader market volatility.

Let me walk you through the key financial details for this quarter. Brokerage commission and handling charge income was HKD122 million, an increase of 36% from the same period in 2018. Quarterly growth was a moderate 7%. Total trading volume came down a little bit due to a weak equity market, yet our effective take [Phonetic] rate went up due to the expirations of promotion discounts. Brokerage commission and handling charging income contributes to about 47% of our total revenue in the past quarter.

Interest income was HDK114 million, an increase of 31% year-over-year and a 6% Q-on-Q. The rise was primarily due to the increase in the balance of the client deposits and improved the returns of such balance due to enhanced capital management as well as higher benchmark interest rates in the US and Hong Kong. Our margin financing and the secured lending balance dipped by 1% on a yearly basis, but went up 7% Q-on-Q. Interest income contribute to about 44% of our total revenues. Other income was HDK24 million, the 159% year-over-year growth was mainly attributed to our growing enterprise service business. This contributed remaining 9% of our total revenue.

On the cost side, total cost was HKD64 million, an increase of 6% year-over-year and 4% Q-on-Q. Brokerage commission and handling charge expenses were HKD24 million, an increase of 21% year-over-year, and a 16% Q-on-Q which was roughly in line with our brokerage commissioning income growth. Interest expenses decreased 21% year-over-year to HKD19 million and the processing and the servicing cost increased 26% on a higher market information and the data fees, including cloud service fees as well. As a result, we recorded total gross profit of HKD196 million increase of 56% year-over-year and 12% Q-on-Q, which translates to a gross margin close to 76%, which was a record high.

In terms of the operating expenses, total expenses was HKD145 million, increase of 67% year-over-year and 28% Q-on-Q. The breaking down of our operating cost, research and the development expenses was HKD64 million, up 83% over last year and 19% over last -- from last quarter. The rise was mainly due to the continued increase in headcount for our R&D functions, where we have been hiring most aggressively. As of quarter end R&D personnel account for about 70% of our total employees.

Technology creates the biggest entry barrier for our businesses in our view. And we will likely continue to attract the talents as we expand our trading products and branch out into new business such as wealth management.

Selling and marketing expenses was HKD42 million, an increase of 46% year-over-year and 33% Q-on-Q. The rise was primarily due to higher branding and marketing spending, particularly in relation to our new Money Plus business. Our marketing in Hong Kong has turned out to be quite effective, resulting 115% year-over-year growth in terms of the number of new paying clients acquired in Hong Kong.

G&A expenses was HKD39 million, an increase of 68%. The rise was primarily due to the increase in head count for G -- for General and Administrator Personnel. At the quarter end, our total head count reached 688 and roughly 65% increase from one year ago. As a result, our pre-tax income was HKD48.2 million, up 30% from last year and also down 21% from last quarter. Net income increased by 129% year-over-year to HKD55 million due to additional tax allowance for our R&D expenses from the local tax bureau [Phonetic].

And as we mentioned in our first earning call, we continue to expect our full year effective tax rate will be below 20%. Non-GAAP adjusted income increased by 122% to HKD59 million.

That concludes our prepared remarks. We are now -- like to open the call to questions. Operator, please go ahead.

Questions and Answers:

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Weicheng Tang from Goldman Sachs. Please ask your question.

Weicheng Tang -- Goldman Sachs -- Analyst

Hi, Management. Yes, thanks for taking my question. I got two questions. One is regarding wealth management. As Leaf just introduced, you have things starting to sell not only mutual money market funds, but also some fixed income or other maybe equity mutual funds to the investors. We would like to -- if the management could give us an update in terms like the volume of funds has been sold since like we roll out Money Plus product in May, and also like the average fee on those products. And also like if you have some balance, like outstanding balance of those funds has been sold to investors.

Yes. And the second one is related to the recent Hong Kong situations, I think a lot of investors would be worrying about how this heated situation in Hong Kong would impact our operation. Can management give some quantitative guide like measures or metrics to let us know, since June, how are our client asset grows or trading velocity as well as marketing, camping or all of those big business activities has been impacted by this situation in Hong Kong? Thank you.

Arthur Yu Chen -- Chief Financial Officer

Okay. Thank you Weicheng. This is Arthur. I will answer your questions. For number one, about how our mutual fund products actually, which is a long -- launched the money market funds in second quarter. At the end of the second quarter our balance for the money market fund is close to HKD1 billion. And just recently, actually last week, we further enrich our fund of portfolios in connection with the money market funds we also launched [Indecipherable] fixed income products and also the equity products as well. You can actually see the breakdown of all our funds, in our new platform as well. I think in the third quarter, we will do a lot of new marketing campaigns in order to promote our new service offerings. But having said that, I think the most -- the more important thing is we try to leverage our technologies to get more deep and more wide investment educations to our users. In particular, now, our users and customers attach into our platforms have limited knowledge about these new products such as the funds. This is -- I think, the areas we will pay special attention in this quarters.

And for the, the recent Hong Kong social event, I think as you can imagine or if you have already witness, create a lot of the market volatilities alongside with the recent China-US trade war, which I think, actually in our side, we welcome both market volatilities, which we think it will accelerate, and market consolidations in the long terms. As a leading player in the space, we actually will be better off in such market consolidations. So in terms of financial impact, I think for the revenue and also for the cost side, so far, we think, the situation is quite manageable. Having said that, I think, the negative impacts mainly relies on the new kinds acquisitions in particular in Hong Kong, because of the recent event we also intentionally delay certain of our marketing campaign, because we think, even we put a lot of marketing campaigns nowadays and may not turn out to be a very effective -- effective channels or effective solutions to acquire new clients.

Weicheng Tang -- Goldman Sachs -- Analyst

Thank you, Arthur. Can I follow up on a question regarding the mutual funds, because we are not allowed to open the accounts on your platform. So can you give us some more information regarding -- I actually saw on your WeChat channel that you officially launched [Indecipherable] is like fund plus or thinking about this? How many funds and particularly what type of funds are listed on this platform? And/or is it open to like this -- I thing you said, is it open to all Hong Kong and Mainland investors?

Arthur Yu Chen -- Chief Financial Officer

Sure. In terms of the coverage, I think in the second quarter we are more focused or tailor to the Hong Kong based clients, in terms of the Money Plus or money market funds. Actually, we now extend the coverage to our existing clients, i.e., including the Mainland clients and also the Hong Kong clients as well. And also we will particularly, enhance our features and functions so that even the financial service professionals, because, you guys are not allowed to open a brokerage account, trading brokerage account. I think it will be very likely for you to open just fund accounts in our platform, so that we can solve your constraint through our technology expertise.

And in terms of the number of funds we launched, up to now, we have already launched close to 10 products, including three to four fixed income products, four equity products and three to four mutual fund products. And I do expect, the number of the funds we launched at the end of the third quarter, we'll close to 20. All the funds nowadays, just SFC recognized product, so it can be offered to all retail clients. And I just forgot, also your question before in terms of fee structures. For the money market fund, actually we don't charge any subscription fees. But for the management fees, charged by the fund manager company, we do have certain percentage to -- as a rebate. And for the fixed income products and also the equity products on top of the -- so mainly from through rebate, we also charge 0.8% one-time subscription fees in our platform as well.

Weicheng Tang -- Goldman Sachs -- Analyst

Okay. Thanks. I would definitely try to fund accounts if we can on your platform.

Arthur Yu Chen -- Chief Financial Officer

Yes, you should.

Weicheng Tang -- Goldman Sachs -- Analyst

Thank you.

Arthur Yu Chen -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Kelvin Chu from UBS. Please ask your question.

Kelvin Chu -- UBS -- Analyst

Thank you for the presentation and congratulations again regarding the launch of the mutual fund distribution platform. Just a follow-up question on that. Can you remind us the key competitive advantages you see with your platform versus key competitors in Hong Kong, which I believe the sales of mutual funds are still mainly conducted by commercial banks now.

Second question is longer term, would you consider launching margin trading solutions for mutual funds, kind of paying services offered by private banks. And third question regarding this platform. Just want to get updates regarding any additional costs we should foresee after the launch of this platform or should there be plenty of cost synergy with the existing Futu's platform we have.

And then the other question is regarding client mix. I noticed that in the past few quarters Futu's client acquisition has been -- I would say comparing to your enforce customers most secure through Hong Kong locals. So plenty of new customers from Hong Kong locals, with contribution has risen to 30% now. I just wanted to have an idea from management team on the long-term client breakdown that we -- we should target at between Hong Kong and the Chinese? Thank you.

Arthur Yu Chen -- Chief Financial Officer

Thank you, Kelvin. Let me answer your questions. I think maybe, address your first -- your last question first. Given it is a purely a number questions. In terms of the new clients we acquired in the second quarter, the breakdown is roughly 50% -- to 50% of spreading over Mainland China and also in Hong Kong. As we recall in the first quarter the clients we acquired in the first quarter is 60% of them came from the Hong Kong local people and the remaining 40% came from China. I think in the long run the percentage of the Hong Kong paying clients will continue to go up. As we think, this year actually will be the first year for us to pay more attention about clients outside of Mainland China.

For the money market or fund distribution compared to our platforms with other commercial banks, we get some feasibility [Phonetic] before we launch our products. I think the major pinpoints for the Hong Kong retail person nowadays, for them to buy the mutual funds through the commercial banks is number one, the cost is still relatively high. If you look at certain commercial banks such as HSBC, Citi Bank, etc, normally clients need to be charged 2% subscription fee for the fixed income products and 3% for the equity products versus our charges is roughly 60% to 80% lower compared with their fee rate. And secondly it is the convenience because, we are plugging this money market funds products into their brokerage account, i.e., people can buy, sell their stocks. At the same time they can use the purchasing power to subscribe the funds in a simultaneous manner. And also we spend a lot of efforts in the mobile technology enhancement. So in particular for these millennial generations, they are -- they can easily use our mobile phone APPs to do these transactions.

And definitely in the long-term we are considering to put more leverage or do the financing for these funds products as well. I think, this is our long-term footprint in terms of -- in terms of our whole wealth management strategy as well. In terms of the cost, actually, I think, we don't have increased a lot of new marginal cost alongside with this new business in terms of the system setup and also the product development, etc. So going forward, there will be definitely some marketing cost in connection with this fund distribution. But I think, in terms of economics model and also the client retention and also the new assets, new addressable market people can bring in these costs will be worth while. Thank you.

Kelvin Chu -- UBS -- Analyst

Thanks Arthur. Just follow-up with that, regarding the source of customers on the mutual fund distribution, will you foresee more of the potential customers with your existing brokerage clients, or would you think the launch of the mutual fund distribution platform would also help Futu to acquire a lot of new customers?

Arthur Yu Chen -- Chief Financial Officer

I think actually it will help in both manner. If we look at the numbers or the data in the second quarter for our Money Plus, the initial response or the clients to subscribe this money markets and all came from the existing clients, which I think it is also a natural situation given they have already connected with us, they have already accessed in our accounts. So it is very convenient for them to buy these mutual fund products. But, I think after May, starting from June, we see more and more people actually, they are not actively trade in these stocks, but through our new products, we attract a new type of people and also more importantly, we attract new money outside our universe, i.e. we did see a lot of new people because of this new products start to open the trading accounts, start open the fund accounts in our platform and have started to put new money into our platform. So I think going forward, this is also why we are so determined and we are so convinced, we will go through this direction, because it too will enlarge our addressable markets and also it will attract the new people with new money inflow.

Kelvin Chu -- UBS -- Analyst

Thank you Arthur. Very helpful.

Arthur Yu Chen -- Chief Financial Officer

Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Lizzie Liu [Phonetic] from HSBC. Please ask your question.

Lizzie Liu -- HSBC -- Analyst

Hi, management, it's Lizzie here, and I have three questions. One -- the first one is that also about wealth management? So where do we book our earnings for the wealth management in the P&L statement? Is it in the other income and also for the fee structure, we can see that from our official website about our products in the fee structure, there is 100% subscription fee for us and then a sharing mechanism with the fund companies to share about the annual management fee. So based on our own research, it's usually 50% to 60% sharing to the distribution channel in Hong Kong. Are we following the same policy?

And the second question is about margin financing. We can see that from the balance sheet we have over HKD3 billion balance of margin financing, but we only have less than HKD1 billion bank borrowings. So where do we have the funding source for margin financing business and what's the funding cost with this business?

And my third question is about -- our management just said Hong Kong is the first stop of our internationalization. So where or which cities will be the choices that we are considering for next stops and are -- is Mainland one of our choices at the moment, market is also opening up for the brokerage licenses? Thank you.

Arthur Yu Chen -- Chief Financial Officer

Sure. For your three or maybe four questions, I will address the first three and the last question will be addressed by Leaf. In terms of the wealth management P&L impact, you are right, currently the relevant revenue has been recorded in the other income items, because we just launched the money market funds in this May. So the P&L in passing to the second quarter is too limited.

In terms of fees structure, you are also right. I cannot disclose the exact rebate numbers from the different mutual fund company. But I think your estimate or the industry practice also applies to us as well. For the margin financing, our major funding source actually came from the Hong Kong local banks. The -- on average our borrowing costs were in the range of a HIBOR plus 120 basis point to 130 basis point plus. Besides the margin -- besides the bank borrowing also, we support our margin financing, so our own capital since we finished our IPO in March.

Then Leaf will share with you about his thoughts about our internalization strategy.

Leaf Hua Li -- Founder, Chairman & Chief Executive Officer

[Foreign Speech]

So following Hong Kong, the US will be our second mark -- second destination for intern -- internationalization. So in the US we have got all the relevant SFC clearing licenses. And I'm sure you've noticed earlier this year we've actually launched our US product called Futu MooMoo. And we are actively polishing those products and adding more features. And in the second half of this year, you'll see a lot of new iterations of our Futu MooMoo product. So since we're still very much in the stage of developing our product, we haven't been marking that aggressively, but we will -- you will see a lot more marketing campaigns in the second half.

[Foreign Speech]

Yes. So MooMoo will be the base of our new iteration outside of China and Hong Kong.

[Foreign Speech]

Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Yiwen Zhang from Bank of China. Please ask your question.

Yiwen Zhang -- Bank of China -- Analyst

Thank you management, for taking my questions. I have a question regarding new premium client addition. So among 13,000 new addition can you breakdown for how much come from ESOP, how much is organic and how much is related to the marketing campaign? And given the market campaign is more expensive in your hometown in China, then how should we view the [Indecipherable] on the marketing expense going forward? This is my first question.

And secondary, I saw rapid growth in your others revenue. In your prepared remarks you said its driven by IT on the enterprise [Indecipherable]. Can you give us a size or relatively could you also rate what the true -- of [Indecipherable]. Thank you.

Arthur Yu Chen -- Chief Financial Officer

Okay, thank you. For two questions. Number one, in terms the channels from the new clients are quite similar to first quarter, most part will come from the organic or [Indecipherable], which contributes over 65% of our total new paying clients acquired were in this quarter. And also Hong Kong, the online marketing and also the Hong Kong offline marketing accounts for roughly close to 20% of our new paying clients acquired for this quarter. Going forward, you are right. The marketing cost or equity cost for the Hong Kong clients is relatively high compared with Mainland. But I think from the unit [Phonetic] economics, judging from, these clients annual ARPU contribution and compare with our spendings in terms of new clients acquired it's still make sense for us to continue to spend the money to acquire them in early manner. Because if you can't engage them in a money, much early situations, actually, they will stick with our platform for even longer time. So from a lifetime values perspective, we do think, acquire clients as early as possible is more critical compared with the current ESPO [Phonetic] impact.

In terms of the other revenues, you're right, mainly come from the ESOP contribution and also, the IPO distribution. I think in terms of the proportion wise, IPO distribution accounts for even bigger part versus other revenue by -- I think the in-pass overall is too relatively limited given that the overall revenue just accounts for 9% of our total revenue.

Yiwen Zhang -- Bank of China -- Analyst

Thank you. Thank you Arthur.

Arthur Yu Chen -- Chief Financial Officer

Thank you.

Operator

[Operator Instructions] We have a follow-up question from the line of Weicheng Tang from Goldman Sachs. Please ask your question.

Weicheng Tang -- Goldman Sachs -- Analyst

Hi, management. Yes, just on -- following up on two questions. One is, can you give us an update of your product pipeline regarding the securities lending futures options? When would they be rolled out in second half of '19? The second is regarding the tax. We heard that you mentioned there is like a tax rebate on the R&D expense. We just want to find out, is this rebate one-off based on the aggregate R&D you have expanded or you would be -- is a constant tax rate cut on your R&D expense.

If I may, third question regarding the interest income, sorry interest expense. We found that if, we use -- I'm guessing the major expense, interest expense, you are corresponding to the liabilities of short-term borrowings and payable to brokers. Maybe it's like all interactive focus. So if we do the calculation we found on a quarterly basis that average interest expense cost has went up a bit, we calculate that round 3.9% in first quarter and 4% in second quarter. So would you think that the cost will come down later on, given you mentioned earlier that after listening your borrowings from banks, actually -- does actually have lower spreads on HIBOR. Thanks.

Arthur Yu Chen -- Chief Financial Officer

Okay, Weicheng. Sure. I leave the first question to our -- to my colleagues Robin Xu, who will answer you a little bit later in terms of the new product pipeline to be launched in the second half of this year. Let me just address your second and third questions first. In terms of tax rebate, it is one-off on a quarterly basis, but it will be recurring items on a yearly basis. The thing is, you know, according to the local tax bureaus treatments, they have in order to promote technology spending. They actually allow additional 40% to 50% of your yearly expenses in terms of your deductions for the -- for your effective tax rate calculations. So in the second quarter of this year, actually, we finished all the applications and the documents reviewed by our auditor, PricewaterhouseCoopers, which synced the applications to the tax bureau and also all the documentations was satisfactory. So we have already deduct such tax benefits for 2018 in this quarter. Given that we continue to have a huge R&D spendings going forward, I do think, the relevant treatments will occur in 2019 and 2020 as well.

For the interest expenses, you're right. I think, in terms of the HIBOR spread, which charged by the commercial banks will go down gradually, given that after this thing we actually have more bargaining powers or get more commercial treatment from these commercial banks. I think it is relatively, the intra expenses cost increased in second quarter is mainly due to the underlying HIBOR increase, which you can see, of course, at the same time, we also benefit a little bit from this in terms of the interest income as well. But I think, in terms of the spread, the borrowing costs spread on top of the HIBOR, it will definitely continue to go down in the remaining quarters.

Now, I hand over to Robin for your first question.

Robin Li Xu -- Vice President

[Foreign Speech]

Right. So far our new product pipeline in the second half of this year, as for US trading, we'll start offering our clients the opportunity to lend out their stock positions. And on the Hong Kong side we will start offering the short selling functions, the options and as we just mentioned, we will offer more mutual fund products on our platform. And also, we'll have an iPad version launching in the third quarter. And also we'll have a specific package catering to the more frequent traders in the second half as well.

Weicheng Tang -- Goldman Sachs -- Analyst

Okay, yes. Thanks.

Operator

[Operator Instructions] Your next question comes from the line Pai Chieh-Yu from BBC Investment Management. Please ask your question.

Pai Chieh-Yu -- BBC Investment Management -- Analyst

Hi, guys, thanks for taking my question. Can we get a bit more detailed on the effective commission rate? What makes it to increase by like 30% -- 38% or something year-on-year? And my second question is on the sales and marketing expenses. I mean, how do you use this the expenses, I mean, on the accounting basis, does it include the rewards that you give to the new users and give to the new users of your Money Plus. Yes.

Arthur Yu Chen -- Chief Financial Officer

Okay. Sure. For the commission, we actually, we keep quite firm, if not even went a little bit higher compared with the first quarter. Thanks to more expirations of that discount promotions. And also a lot of new IPO activities starting from second quarter, also enhanced our commission rate, given that -- for the IPOs, we normally have some one-off handling charges which has been blended into our commission revenue as well.

For the marketing spending, you are right. In terms of accounting treatments or for all these -- the reward or these coupons, we all recognize into our marketing expenses by a queue [Phonetic] basis. So it is being fully reflected in to our P&L on a timely basis.

Pai Chieh-Yu -- BBC Investment Management -- Analyst

Yeah. Thank you. That's been helpful.

Arthur Yu Chen -- Chief Financial Officer

Thank you.

Operator

[Operator Instructions] There are no further questions at this time. I would like to hand the conference back to Mr. Daniel Yuan. Please continue.

Daniel Yuan -- Chief Staff

That concludes our call today. On behalf of the Futu management team, I would like to thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our Investor Relations representative. Thank you and goodbye.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Daniel Yuan -- Chief Staff

Leaf Hua Li -- Founder, Chairman & Chief Executive Officer

Arthur Yu Chen -- Chief Financial Officer

Robin Li Xu -- Vice President

Weicheng Tang -- Goldman Sachs -- Analyst

Kelvin Chu -- UBS -- Analyst

Lizzie Liu -- HSBC -- Analyst

Yiwen Zhang -- Bank of China -- Analyst

Pai Chieh-Yu -- BBC Investment Management -- Analyst

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