MarketAxess Q1 2025 Earnings Report

MarketAxess EPS Results

• Actual EPS: $1.87
• Consensus EPS: $1.82
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: $1.92

MarketAxess Revenue Results

• Actual Revenue: $208.58 million
• Expected Revenue: $211.81 million
• Beat/Miss: Missed by -$3.23 million
• YoY Revenue Growth: -0.80%

MarketAxess Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 7, 2025
• Conference Call Time: 10:00AM ET

MarketAxess (NASDAQ:MKTX), together with its subsidiaries, operates an electronic trading platform for institutional investor and broker-dealer companies worldwide. The company offers trading technology that provides liquidity access in U.S. high-grade bonds, U.S. high-yield bonds, emerging market debt, eurobonds, municipal bonds, U.S. government bonds, and other fixed-income securities; and executes bond trades between and among institutional investor and broker-dealer clients in an all-to-all anonymous trading environment for corporate bonds through its Open Trading protocols. It also provides trading-related products and services, including composite+ pricing and other market data products to assist clients with trading decisions; auto-execution and other execution services for clients requiring specialized workflow solutions; connectivity solutions that facilitate straight-through processing; and technology services to optimize trading environments. In addition, the company offers various pre-and post-trade services, such as trade matching, trade publication, regulatory transaction reporting, and market and reference data across a range of fixed-income and other products. MarketAxess Holdings Inc. was incorporated in 2000 and is headquartered in New York, New York.

MarketAxess Q1 2025 Earnings Call Transcript

Key Takeaways

• MarketAxess delivered record commission revenue in international and new products such as emerging markets, municipals and U.S. Government bonds, driven by a single‐day $102 billion U.S. Treasury trading record and 97% passive algo execution.
• Across its trading channels, the firm achieved record client‐initiated ADV, automation volumes (+17%), portfolio trading ADV and a 19% market share, and dealer‐initiated RFQ ADV (+45%), while U.S. Credit market share improved to 20% in March after earlier declines.
• In April, heightened volatility lifted ADV 68% year‐over‐year to $57 billion (rates +93% to $39 billion; credit +32% to $18 billion) and boosted U.S. High Grade market share to 19.4%, with ETF market‐making activity reaching its highest level since November 2023.
• Services revenue grew 7% while operating expenses rose only 2%, and the company repurchased 251 000 shares for $52 million year‐to‐date, reflecting continued cost discipline and opportunistic capital deployment.
• First-quarter revenue was $209 million (commission −2%, services +7%) and EPS was $1.87 excluding notable items; full-year guidance now assumes a GAAP tax rate of 41–42%, expense growth at the low end of $515–525 million, and the consolidation of RFQ Hub with 15–20% revenue growth and $7–9 million of incremental costs.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the MarketAxess First Quarter twenty twenty five Earnings Conference Call. As a reminder, this conference call is being recorded on 05/07/2025. I would now like to turn the call over to Steve Davidson, Head of Investor Relations at MarketAxess. Please go ahead, sir.

[Stephen Davidson, Head - Investor Relations at MarketAxess]

Good morning, and welcome to the MarketAxess first quarter twenty twenty five earnings conference call. For the call, Chris Concannon, Chief Executive Officer, will provide you with an update on our strategy and our trading businesses and Eileen Fazel Beeler, Chief Financial Officer, will review the financial results. Before I turn the call over to Chris, let me remind you that today's call may include forward looking statements. These statements represent the company's belief regarding future events that, by their nature, are uncertain. The company's actual results and financial condition may differ materially from what is indicated in those forward looking statements.

[Stephen Davidson, Head - Investor Relations at MarketAxess]

For a discussion of some of the risks and factors that could affect the company's future results, please see the description of risk factors in our annual report on Form 10 ks for the year ended 12/31/2024. I would also direct you to read the forward looking statement disclaimer in our quarterly earnings release, which was issued earlier this morning and is now available on our website. Now let me turn the call over to Chris.

[Christopher Concannon, CEO at MarketAxess]

Good morning, and thank you for joining us to review our first quarter twenty twenty five financial results. I am pleased to report that we are seeing the benefits of our technology investments in our first quarter results as shown on Slide three of my strategic update. In terms of revenue generation, our product and geographic diversification continue to pay off with record commission revenue in our international and new product areas like emerging markets, municipals and U. S. Government bonds.

[Christopher Concannon, CEO at MarketAxess]

We are very pleased with the growth we generated in U. S. Government bonds in the quarter, including a single day trading record of $102,000,000,000 on April 9. The strong growth in U. S.

[Christopher Concannon, CEO at MarketAxess]

Government bonds is being driven by increased velocity, but also by more institutional clients leveraging our rates algos even during volatile periods. These clients are leveraging new algos to work larger block orders with low market impact over a specific time range. And the results have been impressive. Clients are executing billions in treasuries with 97% passive execution rates. That means institutional clients are not crossing the spread 97% of the time using our algos.

[Christopher Concannon, CEO at MarketAxess]

During the week of April 7, clients leveraged our U. S. Treasury algos to execute $36,000,000,000 or 11% of our trading volume that week. We expect to continue to expand our algo suite for rates, and we anticipate launching an enhanced RFQ solution in the near future. Services revenue growth was also strong at 7%.

[Christopher Concannon, CEO at MarketAxess]

In terms of expenses, we continue to show cost discipline with expenses up only 2%, which also benefited from lower variable costs during the quarter. Last, on the capital front, we have been more opportunistic with our share repurchases as we move beyond just offsetting dilution from stock based compensation. Our challenge has been U. S. Credit market share across key protocols, which partially offset the growth we generated in other areas in the quarter.

[Christopher Concannon, CEO at MarketAxess]

However, the exit rate in March was very encouraging with U. S. High grade estimated market share increasing to 20%, the highest level since December 2023, driven by strong market share gains across the portfolio trading and dealer initiated channels. On slide four, we highlight the key performance indicators for our trading businesses across channels in the first quarter. As this slide clearly shows, except for U.

[Christopher Concannon, CEO at MarketAxess]

S. Credit market share, the key performance indicators across our platform are largely green in the quarter, reflecting the underlying fundamental strength of our business. First, across our client initiated channel, we generated record U. S. Credit ADD, up 2% to $9,000,000,000 We saw strong growth in international products with record ADD of $6,000,000,000 up 11%.

[Christopher Concannon, CEO at MarketAxess]

EM local markets are the largest opportunity in EM from an addressable market perspective. We produced record local markets ADD of over $1,500,000,000 up 8%. Our performance in municipal bonds is also a positive example of our product diversification strategy with ADV up 42%. We are very pleased with the liquidity coming from our partnership with ICE bonds, which started with municipals and has now extended to U. S.

[Christopher Concannon, CEO at MarketAxess]

High yield and U. S. Investment grade. We experienced another quarter of strong growth in automation with record trade volumes of $110,000,000,000 up 17%. We had two forty nine active automation clients in the first quarter.

[Christopher Concannon, CEO at MarketAxess]

We now have 80 clients enabled for our algo suite, up from 25 in the prior year. Open Trading ADV hit a record 5,000,000,000 in the quarter, an increase of 8%. Open Trading share of total credit was 38% in April, and Open Trading volume hit record levels during the second week of the month across credit markets. Our share of blocks in U. S.

[Christopher Concannon, CEO at MarketAxess]

High grade was just over 11%, up slightly from the prior year. In the portfolio trading channel, we generated record total PT ADV of $1,300,000,000 and record U. S. Credit PT ADV of $1,100,000,000 with market share of 19%. Last in the dealer initiated channel, dealer RFQ and mid ex ADV was a record $1,900,000,000 representing a 45% increase over the prior year.

[Christopher Concannon, CEO at MarketAxess]

As promised on the last earnings call, on Slides five and six, we want to update you on how we are executing across the three critical channels we are attacking to grow U. S. Credit market share. First, in the client initiated channel, we made progress with our block trading solution. We registered record total block trading ADD in U.

[Christopher Concannon, CEO at MarketAxess]

S. High grade, emerging markets and euro bonds in the first quarter. Year to date through April, block trading in U. S. High grade is running up 27%, U.

[Christopher Concannon, CEO at MarketAxess]

S. High yield is up 19%, emerging markets is up 22% and Eurobonds is up 71%. Our cumulative block trading volume since the launch of our targeted block trading solution in emerging markets and Eurobonds was $4,000,000,000 through April 2025. We are rolling out our full high touch block trading solution in U. S.

[Christopher Concannon, CEO at MarketAxess]

Credit to our broader client base as we speak. This is really exciting because we are delivering click to trade solution where the trade is against the dealer acts or an indication of interest and the trade goes direct to the dealer without information leakage. This strong performance was driven by our client sales outreach we have been doing for our targeted block solution. Next, in the portfolio trading channel, which is a very important part of the market, we generated record levels of portfolio trading ADD with strong increases in both U. S.

[Christopher Concannon, CEO at MarketAxess]

High grade and U. S. High yield estimated market share in Q1. U. S.

[Christopher Concannon, CEO at MarketAxess]

High grade portfolio trading market share was 19% in the quarter, up five twenty basis points over the prior year. U. S. High yield market share was 18%, up six ninety basis points versus the prior year. Year to date through April, U.

[Christopher Concannon, CEO at MarketAxess]

S. High grade portfolio trading estimated market share is running up three ten basis points compared to full year 2024 levels and U. S. High yield is running up two sixty basis points. So again, very strong progress with the portfolio trading channel.

[Christopher Concannon, CEO at MarketAxess]

Last, in the dealer initiated channel, we are beginning to see progress as we prepare to launch a new Midex solution later this quarter in U. S. Credit. Dealer RFQ ADD was a record $1,800,000,000 with record ADD across U. S.

[Christopher Concannon, CEO at MarketAxess]

High grade, emerging markets and municipal bonds in Q1. U. S. High grade dealer initiated estimated market share increased almost 100 basis points year over year. We are very excited about the launch of our new Midex solution in the second quarter.

[Christopher Concannon, CEO at MarketAxess]

It is a very streamlined API delivered high performance matching solution for dealers. Slide seven highlights our strong growth in April, continuing the trend of March on a significant increase in credit market volatility. With the recent increase in volatility, we have seen spreads widen, liquidity needs increase and the velocity of trading increase. We saw trading ADV grow 68% year over year to a record $57,000,000,000 driven by strong growth across all products, including 32% growth in total credit ADV to a record $18,000,000,000 and 93% growth in total rates ADV to a record $39,000,000,000 Most importantly, U. S.

[Christopher Concannon, CEO at MarketAxess]

High grade market share of 19.4% was 120 basis points higher than the prior year. We also saw a significant increase in the ETF market making activity in U. S. High yield in April, the highest level since November 2023. Before I turn the call over to Eileen, let me make a couple of observations about the market, the recent volatility and how our platform is responding.

[Christopher Concannon, CEO at MarketAxess]

First, the velocity of trading in U. S. High grade has risen to levels we have not seen since 2011, which is great for our market and further electronification. Portfolio trading, a key protocol that has fostered increased velocity has continued to perform at high levels despite the increase in volatility. Portfolio trading was approximately 11% of The U.

[Christopher Concannon, CEO at MarketAxess]

S. High grade market in April, in line with prior periods, reflecting its resiliency as a risk transfer tool. Last, one of the most exciting aspects of this increase in volatility has been how our clients are increasingly willing to execute greater size through automation during times of volatility. Our largest and most sophisticated clients continue to increase their automation risk tolerance in March and April with over 2,500 automation trades of $2,000,000 or above over the two months, the highest two month period ever. Also, we generated record U.

[Christopher Concannon, CEO at MarketAxess]

S. High grade block count leveraging Auto Ex during the March and April period. We believe that our strong results were driven by the progress we have made with our new initiatives as well as the significant increase in market volatility. Now let me turn the call over to Eileen to review our financial performance.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

Thank you, Chris. Turning to our results on slide nine, we provide a summary of our first quarter financials. We delivered total revenue of $2.00 $9,000,000 compared to $210,000,000 in the prior year. Looking at each of our revenue lines in turn, commission revenue decreased 2%, largely driven by lower fee per million and market share in U. S.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

Credit, partially offset by strong market volumes on an increase in volatility beginning in March. Services revenue increased seven percent, driven by a 9% increase in Information Services revenue to $13,000,000 The increase was driven by new contracts as we continue to experience strong adoption across our data product suite, especially CP plus Post trade services revenue of $11,000,000 increased 3% versus the prior year. Technology services revenue of $3,000,000 increased 14%, driven by higher pragma related license and connectivity fees. Total other income increased a little over $3,500,000 due principally to higher interest income of approximately $1,000,000 higher mark to market gains on our U. S.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

Treasury portfolio of approximately 1,000,000 and lower levels of FX losses of approximately $1,000,000 We've reported diluted earnings per share of $0.40 or $1.87 per share excluding notable items in the quarter, which included a new reserve which we established for uncertain tax positions. This reserve is being established for prior periods through the first quarter of twenty twenty five based on a recent ruling in a case that MarketAxess was not a party to that was not supportive of the company's historical tax filing position. This decision reversed a lower administrative court's ruling that had been supportive of the company's position. The go forward effective tax rate will move higher to accrue for the expected increase to the tax reserve in 2025, and I will provide updated guidance on the effective tax rate later in my presentation. On Slide 10, we provide more detail on our commission revenue and our fee capture.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

Total commission revenue was $181,000,000 compared to $185,000,000 in the prior year. We experienced growth in credit commission revenue across Emerging Markets, up 6%, Eurobonds, up 5% and municipals, up 6%, which helped partially offset the 7% decline in U. S. Credit Commission revenue driven by lower fee per million and lower market share. The reduction in total credit fee capture both year over year and quarter over quarter was driven principally due to product mix.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

On slide 11, we provide a summary of our operating expenses. First quarter operating expenses of $120,000,000 increased 2% compared to the prior year. The lower level of expense growth was principally driven by continued cost discipline and lower variable costs due to the slower start to the quarter in January and February. While the pace of operating expenses was lower in the quarter, we have continued to invest to drive future growth. Headcount was flat year over year, but down from eight ninety one at the end of twenty twenty four.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

On slide 12, we provide an update on our capital management and cash flow. Our balance sheet continues to be strong with cash, cash equivalents and corporate bonds and U. S. Treasury investments totaling $642,000,000 as of March 31, down from $699,000,000 at the end of twenty twenty four. The decline in cash was due principally to the annual payout of full year 2024 cash incentive compensation in the quarter in addition to the share repurchase activity during the quarter.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

We generated $344,000,000 in free cash flow over the trailing twelve months, an increase of 5% over last quarter. We repurchased 251,000 shares year to date through April 2025 for a total of $52,000,000 including 188,000 shares repurchased during the first quarter at a cost of $38,000,000 As of 04/30/2025, '1 hundred and '70 '3 million remains on the Board's authorization. We believe we are striking the right balance of investing to drive future growth, while at the same time being disciplined stewards of capital. Before I turn the call back to Chris, there is no change to our previously stated full year 2020 guidance for services revenue and capital expenditures. Based on the progression of our operating expenses in the first quarter, we are refining our full year 2025 expense guidance and now expect to be at the low end of the previously disclosed guidance range of $5.00 $5,000,000 to $525,000,000 including the impact of RFQ Hub, which I will discuss in a moment.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

And I would remind you that variable expenses can change depending on operating conditions. While we are refining our expense guidance, we are continuing to strike the right balance of investing to drive our future growth. Additionally, given the notable item discussed earlier, we are updating our full year 2025 effective tax rate guidance range. On a GAAP basis, the effective tax rate is expected to be in the range of 41% to 42% due to the reserve I mentioned previously. The effective tax rate excluding the notable item in the first quarter is expected to be in the range of 26% to 27%.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

Before I turn the call back to Chris for closing remarks, we expect to close the RFQ Hub transaction later in May. This will bring our ownership to approximately 90% and we will begin consolidating RFQ Hub in our financials. For full year 2024, RFQ Hub revenue was a total of $13,000,000 and we expect revenue to grow between 1520% in 2025 as we integrate the offering into our product suite. We expect to include most of RFQ Hub revenue in other variable transaction fees within total commission, but we also expect approximately $750,000 of connectivity fees to flow through our technology services line. The incremental expenses related to the consolidation of RFQ Hub are expected to be in the range of $7,000,000 to $9,000,000 for 2025 after the close and are included in the new full year 2025 expense guidance I just noted.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

For modeling purposes, we expect approximately $2,000,000 in incremental depreciation to flow through the depreciation and amortization line in 2025. Now let me turn the call back to Chris for his closing comments.

[Christopher Concannon, CEO at MarketAxess]

Thanks, Eileen. In summary, on Slide 13, we made solid progress with the key new initiatives that will drive improved market share in U. S. Credit in the remaining quarters of 2025. We generated record levels of block trading across U.

[Christopher Concannon, CEO at MarketAxess]

S. High grade, emerging markets and Eurobonds, which have benefited from the launch of our targeted solution. Our portfolio trading solution continued to hit record ADB trading levels and our market share in U. S. Credit continues to expand.

[Christopher Concannon, CEO at MarketAxess]

Record dealer RFQ ADD reflects our increasing focus on this important channel with record ADD in U. S. High grade, emerging markets and municipals. Our strong progress across the client initiated, portfolio trading and dealer initiated channels combined with the increase in credit market volatility should help drive higher levels of market share in U. S.

[Christopher Concannon, CEO at MarketAxess]

Credit in the coming quarters. Now we would be happy to open the line for your questions.

[Operator]

We are now opening the floor for question and answer session. Thank you. Your first question comes from the line of Chris Allen of Citi. Your line is now open.

[Christopher Allen, Managing Director at Citi]

Good morning, everyone. Thanks for taking the question. I wanted to hoping you could unpack the outlook for increased share gain moving forward. Can you help us frame out what are realistic expectations here? How dependent are share gains on the environment continuing at some of the recent levels?

[Christopher Allen, Managing Director at Citi]

And how do you think about the impact of new capabilities on share gains from here?

[Christopher Concannon, CEO at MarketAxess]

Great. Thanks, Chris, for your question. First, I'll address the market environment because the current market environment that we've been experiencing certainly in March and leading into April is favorable to our business model. We are obviously seeing in this environment a lot of uncertainty. I would call it an environment of uncertainty, whether it's economic uncertainty, geopolitical uncertainty and certainly questions around direction of rates.

[Christopher Concannon, CEO at MarketAxess]

Obviously, market is now predicting rates will head lower, which couldn't be favorable for us. Certainly, any rate moves is largely favorable to the turnover that we see in the bond market. But most experts right now are predicting higher levels of volatility, not returning to those lows that we saw certainly in 2024. So it's not just a business model on tweets about tariffs going forward, but we do see higher levels of volatility in the market. Spreads will remain slightly widened relative to what we saw in January and Feb, and our clients' liquidity needs have risen

[Christopher Concannon, CEO at MarketAxess]

We are hearing more and more from clients about need of need for liquidity and need, in particular, for alternative liquidity. That's all favorable to our business model and and and so from a market environment. The the one piece we haven't seen is credit quality challenges. If there are any macroeconomic impacts, we we could expect to start hearing about credit quality, which would have an impact on spreads and obviously, change investor outlook around portfolio holdings, which could increase turnover. With regard to our growth of growth opportunity in this market, one, I think the the market opportunity that we have is expanding because we have changed our model to be what we call protocol agnostic by delivering clients multiple protocols to solve different execution needs for different size orders, different shaped orders like portfolio trading, block trading, and then also addressing the dealer to dealer market.

[Christopher Concannon, CEO at MarketAxess]

We think our opportunity for growth is increasing given the both the market environment and the deliveries that we're making in this year. In terms of this quarter, we're excited about the number of product releases that we see in the coming quarter as well as the future quarters. We've made sizable investments last year and we're feeling the impact of those investments as we roll out additional items. First, as you heard in my prepared remarks, we're launching our high touch block solution on the back of our already launched targeted block, trading solution that we launched in EM and Eurobonds. And that is literally launching next week.

[Christopher Concannon, CEO at MarketAxess]

So we're super excited about being able to deliver a block solution to our clients where they can trade directly with dealers. We also mentioned the launch of Midex coming this summer, an exciting new addition to our protocol mix for dealers. Again, this is a dealer targeted solution, to address dealers' needs to, trade at mid market as they exit, their inventory. We're also rolling out X Pro into Europe this summer and excited about the benefits that X Pro brings not only from a portfolio trading perspective, but also just a workflow perspective and the ability to deliver data and analytics, to clients as we roll that tool out, not just in Europe, but further rollouts into EM as well. So when I when I look at this environment, Chris, and I look at the the number of product releases that we have coming, in the current month in the coming months and and quarters, I'm just very excited about, our opportunity to grow, particularly around, what you've seen in portfolio trading, the dealer to dealer, but also the block trading solutions that we've delivered to the market.

[Christopher Concannon, CEO at MarketAxess]

So, feeling very good about, both market environment and, our delivery schedule for forward growth.

[Operator]

Your next question comes from the line of Alex Kramm of UBS. Your line is now open.

[Alex Kramm, Managing Director - Equity Research at UBS Group]

Yes. Hey, good morning. Just staying on the environment a little bit and sorry to slice and dice the month or the environment, but some people talk about April almost in two halves and you yourself mentioned some of the record days in the early part of the month. So just wondering what you saw maybe in the first half and second half given that there was it was clearly very, very elevated and very good. But curious what kind of things kind of stuck in terms of client behavior and share and where maybe things started normalizing a little bit just as we think about the second quarter from here? Thank you.

[Christopher Concannon, CEO at MarketAxess]

Sure. Obviously, we saw accelerated market velocity in April, seeing some records across a number of protocols. But overall, volumes were up substantially in April. And high yield in particular, we saw record market volumes up 42% year over year. So just sizable velocity in the market.

[Christopher Concannon, CEO at MarketAxess]

What's very encouraging is that the market is able to sustain that level of velocity. So without electronic trading and the broad electronic trading penetration, you just wouldn't be able to see that level of market turnover. We continue to see that velocity in throughout the month of April and into May. So we're encouraged that overall turnover remains heightened. As you mentioned, Alex, volatility spiked and did come down, but it never rested back at a low point.

[Christopher Concannon, CEO at MarketAxess]

So we're seeing even at lower levels of volatility relative to the April, we're still seeing a vol stay at a somewhat heightened level. And more encouraging, spreads remain at a heightened level relative to January and February. So the market environment, while we've come off our peak volatility and those were quite some peak spikes during the tariff wars back and forth. We're still at a very attractive market environment for our business model. We continue to hear from clients both in high yield and EM asking for liquidity needs and and saying suggesting that the the liquidity in the market is not not robust.

[Christopher Concannon, CEO at MarketAxess]

So that that's always encouraging because they tend to lean on our open trading alternative liquidity in type of market environment. So encouraged by the current market environment. While it's not at the peaks that we saw in early April, it's still a relatively sustained volatility that we're seeing in the market. And that's before we're seeing any rate adjustments or any challenges, macroeconomic challenges that could come.

[Alex Kramm, Managing Director - Equity Research at UBS Group]

Fair enough. Thanks.

[Operator]

Your next question comes from the line of Kyle Voigt of KBW. Your line is now open.

[Kyle Voigt, Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Hi, good morning. Maybe if I could just ask a question on fee capture. And particularly wondering if you could update us on what you saw for high grade fee capture in 1Q and the high grade capture number that's embedded in the April metrics you released earlier this week. I'm just wondering if you could help us understand really what's causing the year on year and the quarter on quarter declines that we saw, because I think at first glance, higher open trading share, I thought, would have been incrementally helpful. But I know there's another a number of other factors at play with PT growth and block growth, for example, which, which could, you know, continue as we're looking at launching the The US block solution into the second quarter.

[Christopher Concannon, CEO at MarketAxess]

Great. I'll start and, let Aileen fill in some of the gaps. First, what I'll do is take a step back and talk about fees holistically. I think it's a good topic. Just given what I talked about previously around being protocol agnostic, we are investing heavily in delivering multiple protocols to both clients and dealers.

[Christopher Concannon, CEO at MarketAxess]

And with that level of focus, you saw performance in the first quarter and that performance continued into April. These are two market protocols that have grown in the overall market. Portfolio trading and the dealer to dealer business has grown substantially year over year and over the past couple of years. Portfolio trading somewhere around 10% of the overall market and the dealer to dealer market is somewhere around 30% of the market, which is up sizably from prior years. So we're investing heavily in those areas.

[Christopher Concannon, CEO at MarketAxess]

Those obviously come at a lower capture rate. And so with any success in portfolio trading or deal with the dealer, you tend to have pressure on your fee capture as well. We did what was interesting in in April, we did see heightened levels of portfolio trading in high yield, literally record levels of portfolio trading as high as 15% for the full market, which we haven't seen before. What we heard from clients was just large sell offs required because of large redemptions coming into funds both in managed funds as well as ETFs. Those heavy redemptions in high yield funds led to a lot of clients choosing to use PT as a liquidity solution.

[Christopher Concannon, CEO at MarketAxess]

And that had us in turn have record levels of portfolio trading. So those items are impacting our fee capture, but they are growth items for us. So while they come in at a lower fee capture, we are encouraged by growing revenue by delivering new protocols and new solutions to our clients. The nice thing about where we're headed, things like block trading and growing further in the portfolio trading solution space, those are areas that have low variable costs. And in fact, some come with no variable costs.

[Christopher Concannon, CEO at MarketAxess]

So they are higher margin businesses, but they can be seen as lower capture rate. So for example, a block block trading rolling out can be can delivered at a slight discount to our traditional RFQ, but it comes with no variable cost for us. And so we're headed into a place where we're delivering more protocol, some of which comes at a lower capture rate, but some of which has lower variable costs associated with it. Eileen, you wanna add something?

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

Sure. So, Kyle, let me give you a little bit of the puts and takes that you mentioned in terms of the April versus March. Right? So, you know, we saw that increase in fee per million for about which was about $4. Right?

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

And that was drivenly really driven by more favorable product mix. And if you think about the we had increase in high yield activity that was worth about $2. We had benefit from higher duration of about $1 to your IG question. Right? And we saw weighted average years to maturity out a little to about 8.7 in April, '8 point '7 weighted average years to maturity.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

And then in terms of the mix of business, and you're right, open trading activity was up about $4, but we saw that partially offset by the increase in portfolio trading in the month, which was, you know, went the other way by about $3. So hopefully, that gives you the puts and takes. Your premise is right, but it kind of goes back to what Chris was saying, which is that as we're continuing to gain share and as we're continuing to do more volume in some of the other newer protocols for us, These are incremental revenues, but they do come in at a lower fee per million.

[Kyle Voigt, Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Great. Thank you very much.

[Operator]

Your next question comes from the line of Michael Cyprys of Morgan Stanley. Your line is now open.

[Michael Cyprys, Analyst at Morgan Stanley]

Hey, good morning. Thanks for taking the question. I just wanted to circle back to portfolio trading. I was hoping you could elaborate a bit on what you see driving the strength across your PT solution. I believe you had, brought some new innovation with, I think it was a net hedging for IG embedded in PT in the in the quarter.

[Michael Cyprys, Analyst at Morgan Stanley]

So more broadly, maybe you could talk to some of the feedback and traction you're seeing with PT. And as you look out over the next twelve, twenty four months, where is your scope for continued enhancements and innovation with your PT solution? Thank you.

[Christopher Concannon, CEO at MarketAxess]

Sure. And appreciate the question. Obviously, we've been talking about our investment in portfolio trading over the past year and we are seeing the returns as a result of those investments. There are a number of enhancements that we have delivered. Obviously, our new X Pro platform just makes the workflow smoother, allows our clients to have more line items, see pre trade analytics, evaluate the portfolio that they're loading, and pick and choose winners and losers that are in those portfolio trade portfolios that can improve price.

[Christopher Concannon, CEO at MarketAxess]

So there's a way for clients now to evaluate what's costing them price in the context of the portfolio. So all of those enhancements were delivered through X Pro. We're now seeing 92% of portfolio trades on X Pro. So it's clearly the platform is winning the market share in the portfolio trade environment. The other places as you mentioned delivering and having clients sign up for all of the net hedging auto spotting all has been delivered and the feedback has been quite positive.

[Christopher Concannon, CEO at MarketAxess]

Ultimately, portfolio trading will come down to analytics, data and analytics. And that's where the constant demand is, is understanding when's the right time to trade a portfolio versus when's the right time to trade a list via RFQ. Those are important questions we're hearing from our clients. Optimizing the portfolio, the more correlated you are to an ETF, the better pricing mix you get from dealers. And then optimizing your size within a portfolio.

[Christopher Concannon, CEO at MarketAxess]

If you have block size line items, you can degrade your pricing in PT. So all of that requires pre trade analytics and the demand for pre trade analytics continues to grow. We are obviously planning on enhancements in the coming weeks and the coming months for PT solutions. So we're excited about what we achieved in Q1, which followed into April and what's ahead for portfolio trading.

[Michael Cyprys, Analyst at Morgan Stanley]

Great. Thank you.

[Operator]

Your next question comes from the line of Alex Blostein of Goldman Sachs. Your line is now open.

[Alex Blostein, Analyst at Goldman Sachs]

Hey, thank you. Good morning. Another one around PT for you guys. I was hoping you could break down the composition of the ADV in the quarter between the single dealer and the income ADV that you cited. And I heard the discussion around fee per million, that all makes sense.

[Alex Blostein, Analyst at Goldman Sachs]

But can you help us just frame what the fee per million currently stands today at portfolio trading and, I guess, deal RFQ as well since these are two of the larger protocols that are growing right now for you guys? Thanks.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

So, Alex, in terms of sort of how we're we're thinking about portfolio trading and we have, obviously, you saw in April, the overall market share there was investment grade was was pretty positive. And we thought the income was 19.3, and the it was 19.4, I believe, all in. So I just wanna double check that for you. Yep. And so that's kind of, you know, again, positive.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

And then if you think about the market share and high yield, that was income thirteen point five and fourteen point one in terms of all in. Right? So, you know, some real positive moves there, in terms of how we were doing with high yield and investment grade. And so, you know, we know though that if you think about portfolio trading in general, that those come in at a lower fee per million. We know that, you know, the single dealer is really not something that we have, you know, feet per million on, and that's not really included in that because if they've come in without it.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

So I I guess this is all to say as we continue to see investment grade and high yield shares pick up and more of that becomes portfolio trading, you know, we're gonna expect to see continued, you know, pressure there on the overall fee per million. But, again, it's really good for share. It's good for what we're looking to do overall. Chris has talked about how we really look at block trading in as something that's a real opportunity for us incrementally. And and the portfolio trading and the block trading folks are really often, you know, the same desk.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

And so this is something we're really pleased about. We're pleased about our progress, but we know that this is gonna come in at, you know, some some feet per million pressure.

[Christopher Concannon, CEO at MarketAxess]

And I'll just add, Alex, because it's a great question, because that's an area where, obviously we've been investing and continue to invest in. In the past, we have said that expect month over month volatility and market share because of PT. Single dealer PT obviously can swing share. Those are what we call the mega PTs over $1,000,000,000 in a single PT. And they do swing share.

[Christopher Concannon, CEO at MarketAxess]

If you look at our high yield market share, it was it increased sizably in comp, so total in comp, but it had a material pickup because of a single dealer PT during the month. So again, point is it will have an impact on our capture month over month. And single the dealer to dealer business, as we invest in that, will also continue to have further pressure on our fee capture. Again, our goal is to grow revenue and grow it through all the different protocols. We price our protocols based on the market of the protocol, not our overall fee capture.

[Christopher Concannon, CEO at MarketAxess]

And so we are being very mindful of what that market looks like and when we're pricing into it. The good news on fee capture is our client to dealer RFQ business and fees have been quite stable and remain stable as we speak today in May. So we feel very good about the stability of pricing across our core business, which is traditional RFQ in high grade, high yield and now EM.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

And then Alex, just to follow-up back because I think you also asked us about PT share in addition to high grade and high yield. If you look at April PT share, that was in comp at about 20.5% and the single dealer piece of that was about 1.3%. So the overall market share there in April for us was about 21.8%. So that was also a really good positive indication.

[Alex Blostein, Analyst at Goldman Sachs]

Great. Awesome. Really helpful stats. Thank you, guys.

[Operator]

Next question comes from the line of Jeff Schmitt of William Blair. Your line is now open.

[Jeff Schmitt, Research Analyst - Financial Services and Technology at William Blair & Company, L.L.C]

Hi, good morning. So what have you learned from the rollout of enhanced block trading in EM and Eurobonds as you look to launch that in The U. S? And do you see any potential hurdles to adoption here? Anything that may be different in this market?

[Christopher Concannon, CEO at MarketAxess]

Sure. Great question. And again, we launched in EM and Eurobonds, launched targeted RFQ, a slightly different model from the way folks trade here in particularly in IG and high yield. Target RFQ has had a positive response. Obviously, our block trading market share has increased.

[Christopher Concannon, CEO at MarketAxess]

We saw a block trading record volume in EM. Again, that's partly driven by targeted but also largely driven by clients coming in and trading larger block size on the platform and getting liquidity in our all to all solution in EM. The feedback from clients is very positive. They want to be able to trade larger size electronically without information leakage. And and the concern on information leakage is if you go out to an all to all RFQ request, you are leaking obviously your larger block size to the broader market.

[Christopher Concannon, CEO at MarketAxess]

So using a targeted solution protects your information, but allows you to maximize price improvement by marketing it to a few dealers rather than all dealers. As we have been certainly going out to clients in IG here in The U. S. With our high touch block trading solution, which rolls out next week, feedback has been quite positive. Again, we're competing with the phone and with chat.

[Christopher Concannon, CEO at MarketAxess]

So when it comes to competition, being able to click to trade your workflow for blocks is is quite powerful, And and that feedback has been consistent as we demo the product to clients, and and they give us the feedback on the seamlessness of the workflow, the ability to go to a single dealer and engage that dealer fully electronically without going on chat. So both the targeted solution that we launched in EM and Eurobonds is yielding results with our block trading stats, but we're excited about the client feedback we've heard in our high touch solution rolling out next week.

[Jeff Schmitt, Research Analyst - Financial Services and Technology at William Blair & Company, L.L.C]

Okay. Thank you.

[Operator]

Question comes from the line of Patrick Molley of Piper Sandler. Your line is now open.

[Patrick Moley, Sr. Research Analyst at Piper Sandler Companies]

Yes. Good morning. Thanks for taking the question. So we're hearing more and more about these alternative liquidity providers and market makers you know, wanting to expand their presence in the credit market. So I was hoping you could just update us on what your conversations with these alternative liquidity providers has been like and, you know, what protocols you find that they're looking to utilize most.

[Patrick Moley, Sr. Research Analyst at Piper Sandler Companies]

Your competitor has indicated that they've been very interested in portfolio trading. So just curious if that's the case, at MarketAxess as well. Thanks.

[Christopher Concannon, CEO at MarketAxess]

Thanks for the question. And certainly, have seen an influx in demand coming from what I'll call alternative market makers, systematic hedge funds. That influx has been over the last couple of years actually our hedge fund community continues to grow. We continue to see record volume from that community as well as from your traditional ETF market makers. So that we saw sizable growth record levels of volume from the ETF market makers and the alternative liquidity providers.

[Christopher Concannon, CEO at MarketAxess]

We have a strong pipeline of alternative liquidity providers. The number one protocol that they're requesting from us is our all to all RFQ solution. They want to be able to price a large client request for price. They want to respond to inquiries and they can do that anonymously without facing those large clients. The challenge for these alternative liquidity providers and you find it in portfolio trading as well as many of them are not prepared and and many of the clients are not prepared to face them directly for settlement.

[Christopher Concannon, CEO at MarketAxess]

So the all to all traditional RFQ protocol is in higher demand from alternatives. They also typically trade large baskets across a large number of bonds because they're trading against the ETFs. So they tend to trade a smaller size across the RFQ landscape. So the good news is we continue to see more come. Some of them have come from both the FX and treasury markets and moved into credit, but they continue to grow and they continue to demand our proprietary data.

[Christopher Concannon, CEO at MarketAxess]

So there are data demands coming from that group because they are largely API driven, consume a lot of data, and trade a lot of product, in a higher velocity level of trading. But the key ingredient for them, is the anonymous all to all solution where they don't have to disclose their name or face any clients from a settlement perspective.

[Operator]

Your next question comes from the line of Ben Budish of Barclays. Your line is now open.

[Christopher O'Brien, Equity Research AVP - Brokers, Exchanges, & Asset Managers at Barclays]

Hi. Thanks for taking the question. This is Chris O'Brien on for Ben. I had a broader question on the capture rate and just kind of thinking more broadly across, I know you said that you price by protocol and kind of what you're seeing in the market there. So I was curious how you're kind of positioning your pricing competitively and if there's any way or to the extent there's capacity that you could use that as a lever to drive more share growth moving forward?

[Christopher Concannon, CEO at MarketAxess]

Great question. And again, we we do price by protocol. We think about what the market is is requiring from each protocol. I think in the dealer to dealer space, that's an area where clients are quite price sensitive. And so we have certainly adjusted price.

[Christopher Concannon, CEO at MarketAxess]

And with our Midex launch this summer, we'll be pricing that in the market that requires a lower level of fee capture. So we'll be targeting that market with what we think is an appropriate price given the demand by dealers. Again, we're not really touching our client to dealer pricing. That has been quite stable and we intend it to remain quite stable. I think it's important to point out that there are other players in the market, smaller players in US credit that have been free for quite some time and we haven't seen any impact in our core business as a result.

[Christopher Concannon, CEO at MarketAxess]

I think Bloomberg has been free for years actually and we don't see any competitive pressures in that area. So we feel good about the current pricing levels that we have in the client to dealer space. I think where you're seeing appropriately priced product is really in the dealer and portfolio trading space. The more exciting piece of the market where is really the next what I call the next 50% of the market, which is the opportunity to grow electronic trading against the phone and chat market. That market is sizable, and it's it's a quite vulnerable market because it is is not ideal workflow for our clients.

[Christopher Concannon, CEO at MarketAxess]

We hear continuously from them. They'd much rather connect with a dealer and price a bond electronically then type it out on chat to get an execution. So that market is obviously an attractive market for us. We think it's we'll attack that market with appropriate pricing. But again, it's a different protocol.

[Christopher Concannon, CEO at MarketAxess]

We'll require different pricing levels as well. I will say I don't we don't sit here and feel a lot of pricing pressure in this market. I think where where all the competition is in the client to dealer space is all around workflow, data analytics. And and so the the the biggest pressure that we feel is delivering new product with new execution solutions, with new data, new analytics to help our clients trade better. In the environment we sit in right now where it's more difficult to trade, clients are only talking about data and analytics and their demand for data analytics is growing.

[Christopher Concannon, CEO at MarketAxess]

We do not talk to our clients about pricing and pricing pressures. Hopefully, that helps.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

Yeah. And let me just add a little bit to what Chris said, which is if you think about sort of the bifurcation of this in terms of the macro level and on the product mix and trading activity as sort of another level of how you think about our capture. So on a macro level, a combination of lower rate environment, upward sloping yield curve for high grade and a higher mix of high yield volume can make a positive difference. We know that the pace of Fed cuts, however, is constantly moving, and that's something you're gonna have to factor in. We know the most recent CME Fed watch data, for instance, is predicting three to four cuts this year, but we're gonna have to wait and see.

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

Now back to what Chris was talking about in terms of product mix and trading activity. You know, the growth in PT, we know has downward pressure on capture. That that is we we've been talking about that for a while now. However, if we get back the impact of lower levels of high yield activity that we had seen and we see more of that on the platform as we've seen volatility return, as we see ETF market makers clients get more active, that's gonna be a positive. Right?

[Ilene Fiszel Bieler, Chief Financial Officer at MarketAxess]

And then Chris has said this, but I really wanna reemphasize that our core fee capture protocols for core RFQ have remained steady, pretty steady. And it's really the newer protocols that come in at a lower rate that I really wanna keep in mind and that we all have to take a look at what does that mean for incremental revenue because that's really what we're driving for. So I just wanted to sort of close out with, like, thinking about that in those terms.

[Christopher O'Brien, Equity Research AVP - Brokers, Exchanges, & Asset Managers at Barclays]

Great. Thank you so much.

[Operator]

Your next question comes from the line of Brian Bedell of Deutsche Bank. Your line is now open.

[Brian Bedell, Director at Deutsche Bank Securities]

Great. Thanks. Thanks. Good morning. Thanks for taking my question.

[Brian Bedell, Director at Deutsche Bank Securities]

Just wanted to ask Chris about the rollout of X Pro into Europe. And to what extent do you think that will accelerate portfolio trading share? I mean, I think you mentioned 92% of your PT is done in X Pro now. I guess that's mostly U. S.

[Brian Bedell, Director at Deutsche Bank Securities]

But how do you think that could influence the rollout of X Pro could influence the usage of PT on your platform in Europe? And if you again, I ask this every once in a while, but if you had to guess sort of where you think that 11% market share of PT goes to in the next couple of years, would you guess?

[Christopher Concannon, CEO at MarketAxess]

Great question, Brian. Thanks for that question. First of all, taking a step back, X Pro is part of our technology migration. It's an important part of that migration as we move to modern tech in the cloud with high levels of capacity and more importantly, the ability to enhance and add data to our platform for our clients. That's a critical ingredient.

[Christopher Concannon, CEO at MarketAxess]

As I mentioned earlier, it's where all the demand is coming from from our clients is not just workflow, but data and analytics that help them improve their execution outcome. The other nice feature about X Pro is the delivery schedule of X Pro is much faster. Our ability to roll out new functionality, new data and analytics comes faster in that new tech, and that's why it's such an important ingredient to our tech migration globally. In X Pro, in in particularly the rollout in Europe, which will be exciting because while we've been making gains in both Eurobonds as well as emerging markets, is largely traded from the European region, having Xpro add to those gains we think is fairly exciting. As you note, our X Pro users are growing their PT volumes.

[Christopher Concannon, CEO at MarketAxess]

And so with the delivery of X Pro to Europe and onward to EM, we're excited that that portfolio trading market share that we're garnering here in IG and high yield will continue to grow into those markets as well. Just because the workflow is easier, The integration of data and analytics to help portfolio trading is much easier, and there's lots of enhancements that we can do in the coming months and quarters ahead. So we're excited about that rollout and excited about how fast we can deliver once that rollout is in place. That's the that's really the key ingredient. As clients ask us to make changes to functionality, it's much easier and much much faster to deliver in that new tech.

[Christopher Concannon, CEO at MarketAxess]

With regard to my predictions on portfolio trading, it's going to be a key ingredient to clients' ability to leverage liquidity in the market. We are seeing more dealers entering the portfolio trading counterparty space. I think if you look at high yield and the performance portfolio trading had in the volatility of of April, that's a market share that I probably wouldn't have predicted, which is 15% of the overall market. But it's encouraging that clients are able to leverage that tool and and achieve liquidity levels that we haven't seen in this market in the past. And it's really all about putting a basket together and having a dealer offset that with the liquidity in the ETF market.

[Christopher Concannon, CEO at MarketAxess]

The other piece that's important to the growth of portfolio trading is we're seeing the growth of credit futures. We're partnered with MSCI on a credit future listed on ICE Futures. So we're excited about that. That will lead to higher levels of turnover in the fixed income market, the successful launch of credit futures as well as the growth of ETFs. These are all levers that market makers use to hedge large portfolios and large RFQ lists as well.

[Christopher Concannon, CEO at MarketAxess]

So these are all the trends are all in the right direction for growing portfolio trading in The U. S. Market as well as in the European and EM market. Hopefully, answers your question.

[Brian Bedell, Director at Deutsche Bank Securities]

Yes. That's great color. Thank you.

[Operator]

Thank you so much. I'd now like to hand the call back over to Chris Concannon for final remarks.

[Christopher Concannon, CEO at MarketAxess]

Thanks everyone for joining us today and we're looking forward to the quarter ahead and we'll talk to you again on the next quarterly call. Thanks again.

[Operator]

Thank you for attending today's call. You may now disconnect. Goodbye.

Participants

Executives

• Stephen Davidson, Head - Investor Relations
• Christopher Concannon, CEO
• Ilene Fiszel Bieler, Chief Financial Officer

Analysts

• Christopher Allen, Managing Director at Citi
• Alex Kramm, Managing Director - Equity Research at UBS Group
• Kyle Voigt, Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)
• Michael Cyprys, Analyst at Morgan Stanley
• Alex Blostein, Analyst at Goldman Sachs
• Jeff Schmitt, Research Analyst - Financial Services and Technology at William Blair & Company, L.L.C
• Patrick Moley, Sr. Research Analyst at Piper Sandler Companies
• Christopher O'Brien, Equity Research AVP - Brokers, Exchanges, & Asset Managers at Barclays
• Brian Bedell, Director at Deutsche Bank Securities