MarketAxess Q4 2021 Earnings Call Transcript

Participants

Corporate Executives

• David Cresci, Investor Relations Manager
• Richard M. McVey, Chairman and Chief Executive Officer
• Chris Concannon, President and Chief Operating Officer
• Christopher N. Gerosa, Chief Financial Officer

Analysts

• Rich Repetto, Piper Sandler Companies
• Michael Cyprys, Morgan Stanley
• Dan Fannon, Jefferies Financial Group Inc.
• Brian Bedell, Deutsche Bank Aktiengesellschaft
• Alex Blostein, The Goldman Sachs Group, Inc.
• Kyle Voigt, KBW
• Patrick O'Shaughnessy, Raymond James

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. [Operator Instructions] As a reminder, this conference call is being recorded on January 26, 2022.

I would now like to turn the call over to Dave Cresci, Investor Relations Manager at MarketAxess. Please go ahead, sir.

[David Cresci, Investor Relations Manager at MarketAxess]

Good morning and welcome to the MarketAxess Fourth Quarter 2021 Conference Call. For the call, Rick McVey, Chairman and Chief Executive Officer will provide a strategic update for the Company; Chris Concannon, President and COO will review the progress we are making on our growth initiatives; and then Chris Gerosa, Chief Financial Officer will walk you through the financial results and our full year 2022 guidance.

Before I turn the call over to Rick, 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. For a discussion of some of the risks and factors that could affect Company's future results, please see the description of risk factors in our annual report on Form 10-K for the year ended December 31, 2020. 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 Rick.

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Good morning and thank you for joining us to review our fourth quarter and full year results. 2021 was an important year of investment and execution on the long-term growth strategy we outlined at our recent Investor Day. Importantly, we maintained a strong leadership position in the US credit institutional client e-trading space. The institutional client segment is the largest segment in global credit markets and the highest quality order flow for banks and other market makers.

Our international credit business showed strong momentum reaching new highs in estimated market share for global emerging markets and Eurobonds. Large banks report that MarketAxess is now the largest e-trading venue in emerging market debt trading in all regions around the world. Open Trading continues to be a key differentiator in our liquidity offering and we have added new and valuable trading protocols in both credit and rates. Approximately 1,700 counterparty firms were active in Open Trading during the year driving over $500 million in transaction cost savings. We are the only major fixed income marketplace fully promoting all-to-all trading across all products and regions. Beyond our leadership in our core business, we made significant progress expanding our foundation for growth in new product areas.

Our portfolio trading launch in May led to rapid adoption among approximately 68 large investor firms and 14 dealers. Portfolio trading is a natural complement to our leadership in bid and offer list trading which sees over 1,000 bond basket inquiries per day. Our goal is to be the number 1 portfolio trading provider this year. US government bond volume on MarketAxess reached a new record of $4.1 trillion in 2021. Importantly, we are seeing growing large dealer and investor participation due to the launch of our all-to-all US Treasury Live Markets orderbook. Client on-boarding is expected to accelerate this quarter.

In municipal bond trading, the combination of our organic growth this year and the integration of fully electronic volume for MuniBrokers creates the largest e-trading platform in the muni market with plenty of runway ahead for growth. As we start 2022, our foundation for growth with global clients, a diversified product base and a wide range of trading protocols is stronger than ever. Slide 4 highlights our full year results. For the full year MarketAxess reported our 13th straight year of record revenues. 2021 credit trading conditions were unusually quiet following a robust year in 2020. Take it in the aggregate, our two-year compound growth rate for revenue was 17% consistent with long-term averages.

Operating income compound growth was 16% during the same period. Importantly, our investments in geographic and product diversification are paying off with 24%, two-year compound revenue growth in product areas outside of our core US corporate bond business. Full year records and estimated market share were set in 2021 in US high yield, emerging markets, Eurobonds and municipal bonds. The health of our business also comes through with the new records for active trading firms as well as client firms trading three or more products. Slide 5, provides an update on market conditions. Market conditions in 2021 were challenging due to historically low credit spreads and low credit spread volatility.

Low volatility reduces price dispersion and compresses bid-offer spreads. Total credit market volumes reported by TRACE and MarketAxess post-trade were down in all major product areas year-over-year as a result of the low volatility. Volatility rates markets is showing improvement driving increased activity in our Open Trading US Treasury Marketplace.

I believe that the extended period of Central Bank quantitative easing led to historically low-interest rates and depressed volatility. The combination of strong economic growth and much higher inflation is causing central banks to reduce bond purchases and prepare for rate increases. I believe this will lead to more normal levels of interest rates and bond market volatility in the quarters ahead. With four important trading days remaining in January, high grade and high yield estimated market share is running similar to Q1 last year while TRACE market volumes are down about 17%. EM market share is running well above last year with estimated market volumes down about 7%. Our US Treasury average daily volume is up approximately 35% from last January.

Slide 6, illustrates the tremendous growth opportunity that is driving our approach to investing. All of the major product areas trading on MarketAxess are in early stages of electronification. We believe that the trading efficiency and transaction cost savings available to dealers and investors will ultimately lead to electronic market share of over 50% in global fixed income. We have established a strong leadership position in US high-grade, high-yield and global emerging markets. We believe our competitive position is stronger than ever in Eurobonds and municipal bonds and we now have a unique offering with compelling liquidity in US Treasuries. Open Trading delivers additional all-to-all liquidity in global fixed-income trading and expands market participation. Trading automation and Open Trading provide the ingredients for a higher trading velocity in the years ahead. We will continue to invest to capture this large opportunity for our shareholders.

Now let me turn the call over to Chris to provide more detail on the significant progress we are making with our investments in new initiatives.

[Chris Concannon, President and Chief Operating Officer at MarketAxess]

Thanks, Rick. Slide 7 provides an update on Open Trading and protocol expansion. Our all-to-all Open Trading solution continues to be a key driver of our growth strategy across all products. In the fourth quarter over 29,000 orders and $15 billion in notional value were available daily through our Open Trading marketplace. A record of nearly 1,700 firms were active across our Open Trading network during the quarter. Dealers are increasingly seeking anonymous all-to-all liquidity. Dealer RFQ volume grew 27% in 2021 to $272 billion. The increased diversity of participation continues to drive cost savings opportunities, despite compressed credit market spreads.

Clients saved an estimated $128 million in transaction costs during the quarter due to price improvements in Open Trading. Our investment in new protocols is also fueling growth. US Treasury volumes executed over our Live Markets orderbook reached $1.2 trillion during the quarter. Early adopters of Live Markets for Treasuries report high-quality trade execution with unique order capabilities relative to incumbents. We also extended our Live Markets orderbook to new credit markets with support for US high-yield liquidity. Lastly, our Mid-X sessions protocol was recently expanded beyond Eurobonds to include support for US investment grade and US high-yield bonds.

Slide 8 illustrates the powerful diversification of our model across markets, protocols and services, providing choice across markets and trading protocols for all participants is a key competitive advantage, investing in new markets by offering innovative electronic trading solutions and the development of robust data and post-trade services to complement the fixed income trading lifecycle are critical to our long-term growth strategy.

Following enhancements made to our portfolio trading functionality in 2021, we saw increased engagement that drove record volume of $13.1 billion in the fourth quarter. We have seen significant traction with this functionality in a relatively short amount of time. Municipal bond trading on MarketAxess grew 42% to $6.6 billion in the quarter. Additionally $17.9 billion in volume was conducted through MuniBrokers in the fourth quarter. The integration of MuniBrokers into the MarketAxess trading system was completed in the fourth quarter to combine our client-to-dealer network with dealer-to-dealer workflows using our Open Trading solution. The acquisition of Regulatory Reporting Hub helped drive total post-trade services revenue to $9.4 million in the quarter, up 43% year-over-year.

Organic post-trade revenue was up 18% as clients were onboarded for new SFTR services. Demand for intelligent market data solutions within fixed income continues to grow given our significant bond trading market share and our expanded Regulatory Reporting services, we are in a unique position to offer differentiated data products. This includes the launching of our liquid index, the MarketAxess investment grade 400, and enhancements made to our AI-powered pricing engine, Composite plus. With the launch of our CP plus total market which produces a price on over 250,000 bonds globally.

Slide 9 highlights the growing momentum of automation and credit trading. Automated trading on MarketAxess reached new records in the quarter, growing to $44.4 billion in volume and over 242,000 trades. Today, Auto-X represents 19% of total trade count and 7% of our total volume. The use of dealer algorithms is continuing to grow on the platform, with approximately 4.6 million algo responses in the fourth quarter, up 18% from the same period last year. The growth of automation and algo pricing is also driving a steady increase in the average number of responses to any inquiry on the MarketAxess platform. In the fourth quarter, there were on average 8.5 responses per inquiry. This demonstrates improved liquidity on the platform and increased engagement from our diverse investor and dealer community.

Now let me turn the call over to Chris to provide an update on our financials.

[Christopher N. Gerosa, Chief Financial Officer at MarketAxess]

Thank you, Chris. On slide 12, we provide a summary of our quarterly earnings performance. Fourth quarter revenue was $165 million, down 4% from the prior year, a 6% decrease in credit trading volume and lower overall credit fee capture resulted in a 6% decline in commissions. Partially offsetting this decline in commission revenue was the 9% increase in information services revenue and a 43% increase in post-trade services revenue. The $2.8 million increase in fourth quarter post-trade services revenue included $1.8 million of incremental revenue from reporting of acquisition.

The sequential decrease in other net is due to foreign currency transaction gains that did not repeat in the fourth quarter. The effective tax rate was 27.1% in the fourth quarter and our full-year effective tax rate came in at 22.8%. The higher effective tax rate in the quarter was due to lower excess tax benefits and return to provision adjustments related to new state income tax filing requirements. Fourth quarter EBITDA was $86.3 million and diluted EPS was $1.37.

On slide 13, we laid out our commission revenue, trading volumes and fees per million. The 11% decline in variable transaction fees was attributable to lower US credit trading volume and lower overall fee capture. The year-over-year decline in US high-grade fees per million was mainly due to shorter duration, which was driven by an increase in yields and a decrease in the average years to maturity of bonds traded on the platform. The year-over-year increase in other credit distribution fees was due to the migration of certain dealers to a high yield fixed fee plan from an all variable fee plan, and $1.2 million of subscription and license fees from the MuniBrokers acquisition.

Slide 14 provides fee expense detail. Fourth quarter expenses were up 16% year-over-year and include an incremental $5 million of operating expenses, amortization of acquired intangibles and non-recurring integration costs associated with the Reg Reporting Hub and MuniBrokers acquisitions. If we exclude these acquisition-related costs, expenses were up 10.1%.

The increase in compensation and benefits reflects higher salary and benefit expense as we continue to invest in talent to support our product and geographical expansion. The $4 million increase in depreciation and amortization expense includes $1.8 million of acquired intangible amortization expense from acquisitions and higher software development costs as we continue to invest in trading system enhancements. The 25% year-over-year decline in clearing cost is due to lower Open Trading volume and transaction cost savings from our clearing model conversions.

On slide 15, we provide an update on cash flow and capital management. As of December 31, our cash and investments were $543 million, and our trailing 12-month free cash flow was $297 million. During the fourth quarter, we paid out $25 million in quarterly dividends to our shareholders and repurchased approximately 112,000 shares for a total cost of $45 million. We exhausted the $100 million repurchase program that was approved last year, and our Board of Directors authorized a new $150 million share repurchase program. During the fourth quarter, we did not have any borrowings on a $500 million revolving credit facility, or the $200 million secured facility. Our Board of Directors approved a 6% increase in our regular quarterly dividend to $0.70.

On slide 16, we have our 2022 guidance for expenses, capital expenditures and the effective tax rate. We expect that total 2022 expenses will be in the range of $385 million to $415 million. Approximately 60% of the increase is due to our continued investment in the trading system and personnel to support our product and geographical expansion.

2022 capital expenditures are expected to range from $58 million to $62 million, of which roughly two-thirds relate to capitalized software development costs resulting from the investments we are making in new protocols and trading platform enhancements. We expect that the effective tax rate for full-year 2022 will be in the range of 24% and 26%. The increase in the effective tax rate versus 2021 is driven significantly lower estimated tax benefits related to share-based compensation awards.

Now let me turn the call over to Rick.

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Thank you, Chris. In summary, 2021 was an important year of investment and execution to expand our gross cylinders and increased product diversification. Our competitive position remains strong in US credit and has improved materially in international product areas. Our investments have led to attractive ROI and free cash flow for our shareholders. We believe that the future will bring more normal fixed income market conditions with higher volatility and growing trading velocity.

And finally, we would like to welcome Steve Davidson to MarketAxess as our Head of Investor Relations. Steve spent several years with us as a new public company beginning in 2005 and then worked with the New York Stock Exchange and MSCI. Steve and Dave Cresci will both be available to analysts and investors to provide the information and transparency you need from us.

Now, I would be happy to open the line for your questions.

Questions and Answers

[Operator]

[Operator Instructions] Our first question comes from the line of Rich Repetto from Piper Sandler. Your line is now open.

[Rich Repetto, Analyst at Piper Sandler Companies]

Yeah. Good morning, guys. And I welcome Steve as well. We know him from the past. He will be helpful. So first question is, I guess for Rick, and I guess the non-Concannon Chris on expenses. So it's 11% increase at the midpoint similar to the 10% this past year. I guess the question is, if revenues were either significantly up and we get volatility and spreads widening, or if it was flat to down if we get more of the same, how could that -- how variable could the expense guidance be? I guess, how could you move expenses?

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Yeah, Rich, thank you for the question. If you notice, we did widen the goalposts in this year's guidance range from last year it was around $20 million. This year the goalposts are $30 million. Recognizing that favorable or adverse market conditions can drive our variable expense up or down. And if you look at the overall expense base, our variable expenses are roughly 18% to 20% of the total expense base. And so we recognize that in a year like last year, we saw variable expenses in a low-end of the range, and that's what caused us to reset our guidance towards the end of the year. But as you look next year or this year into 2022, you need to keep in mind that 20% of that operating expense base is subject to market condition volatility.

[Rich Repetto, Analyst at Piper Sandler Companies]

Got it. That's helpful. Then my follow-up would be for the Concannon Chris -- the Chris Concannon, and that would be on slide 9, Chris. I just want to get an update on the new products that we rolled out, the all to all trading for munis and rates. I guess when you say client RFQ, is that mean all to all trading is rolled out for those products?

[Chris Concannon, President and Chief Operating Officer at MarketAxess]

Thanks, Rich. So for munis, we have the full complement of both direct dealer disclosed RFQ as well as the all to all solution. In fact, in munis all to all is quite a sizable part of the muni business. It's about 46% of our volume is all to all and munis. In our rate solution in US Treasuries, our current platform is an all to all platform. So the live markets that we use in treasuries is an all to all streaming price platform and it's anonymous. And that's the piece that we're seeing growth and had a sizable growth in the fourth quarter.

Our RFQ complement to that platform was rolled out in the fourth quarter -- at the end of the fourth quarter. We plan to have all to all and disclosed RFQ for treasury this quarter. So that's being rolled out as we speak and worked on as we speak. And we're pretty excited about in all to all solution for things like off the runs and even on the runs. So we're pretty excited about the rollout coming this quarter.

[Rich Repetto, Analyst at Piper Sandler Companies]

Okay. Thank you. That's helpful.

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Thanks, Rich.

[Operator]

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

[Michael Cyprys, Analyst at Morgan Stanley]

Hey, good morning. Thanks for taking the question. I was just hoping you could talk a little bit about the opportunity set that you see first electronifying securitized market. So ABS, non-agency RMBS, CLOs among other products, where do you see the industry today on that front in terms of electronifying? It seems pretty nascent days. I guess how do you see that evolving over the next couple of years? Can you talk about some of the hurdles that you see for that part of the marketplace? And how do you see potentially overcoming some of those hurdles?

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Sure. I'll start with that one, and thanks for the question. It's the level of electronification here today is extremely low. The hurdles are fragmentation and generally lower levels of secondary turnover. But as we talk to clients and dealers, they do believe that an Open Trading solution makes a lot of sense for those markets. So it is on the list of potential future product expansion that we have here. What we've outlined today are the things that are live that we're working on now and we're excited about in terms of impact on revenue and earnings growth this year. But clearly, the securitized markets are on the list and I wouldn't have those in the bucket of potential product expansion that fits with the protocols that we run in credit.

[Michael Cyprys, Analyst at Morgan Stanley]

Great. Thanks. And maybe just a follow-up on the expense side. I was hoping maybe you could elaborate a bit on the investment spend. I think you mentioned about 60% of the overall increase in the expense base for '22 is coming from investments. I guess maybe you could just elaborate on what those investments are? How you're thinking about headcount growth into '22? And maybe what are some of the items that did not make it on the investment list for this year that may be could be on for '23?

[Chris Concannon, President and Chief Operating Officer at MarketAxess]

You know, that's a good question. And the investments of 60%, it really comprises of investing in our people, investing in the trading system enhancements, and as we expand not only the product and protocol offerings but recognizing we're expanding our footprint in Asia and Europe. So it's a combination of headcount and our software development and system enhancement investments. With respect to any investments that we don't have on that roster, I don't think we're tabling anything until 2023. We're recognizing that there is an existing list of opportunities that we want to capitalize on, and they're all embedded in part of that investment agenda for 2022.

[Michael Cyprys, Analyst at Morgan Stanley]

Great. Thank you.

[Operator]

Thank you. Our next question comes from the line of Alex Blostein from Goldman Sachs. Your line is now open. Alex Blostein from Goldman Sachs, your line is now open. Please check your mute button. Our next question comes from the line of Dan Fannon from Jefferies. Your line is now open.

[Dan Fannon, Analyst at Jefferies Financial Group]

Thanks. Good morning. The question is on the buyback authorization as well as the 4Q repurchase activity. I believe, previously you guys had talked about mainly just offsetting dilution, so wondering about your kind of view going forward in terms of execution of that authorization. And maybe also just in the context of M&A and capital deployment, update us on your thoughts around inorganic opportunities as well.

[Chris Concannon, President and Chief Operating Officer at MarketAxess]

Hey, Dan, good question. Our capital management strategy continues to remain the same. Our number 1 investment priority is to continue to invest in a trading platform. We continue to seek opportunistic M&A opportunities, and the balance of our capital management program focuses on returning capital to the shareholders, either in the form of dividends and repurchase programs.

During the four quarter, we recognized there is a dislocation in the share price, and we did have the existing program which had around roughly $80 million of capacity heading into the fourth quarter. So we employed that strategy to capitalize on the opportunity and accelerate the offsetting dilution from equity grants in the future. But the fact that the Board approved a new $150 million plan is to the ordinary course of business gave some of the management team flexibility to enter the market either opportunistically or to continue with our strategy to offset dilution from equity awards given to the employees.

[Dan Fannon, Analyst at Jefferies Financial Group]

Got it. That's helpful. And then just as a follow-up, if you can update us on the outlook for the non-transactional revenues. In your Investor Day, you talked a lot about the market size and the TAM. I was wondering as you've kind of improved the product offering, we should see some acceleration as we think about '22 versus the low double-digit numbers, I believe you cited before for post-trade and information services.

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

So, Dan, a great question. On our information services, obviously, we're seeing double-digit growth in 2021. We're excited about the new products CP plus and Axess All have been really the drivers in that growth engine in 2021. We're launching really two new products entering into '22. Our total markets -- our CP plus total markets which really expands the overall coverage and another product trade ability which really allows people to understand the true depth of the market and how to execute in the market. It's quite valuable in portfolio construction, sizing orders as you enter the market. So really critical information that we're launching here in '22. So excited about the opportunities and continued growth in CP plus and then the new product, total markets.

Post-trade obviously, you saw grow year-over-year quite substantially given the increase in Reg Reporting, the transaction -- closing of the transaction Reg Reporting Hub. We've integrated about 73% of the clients in 2021, expect additional integrations throughout the first quarter. The great opportunity around our post-trade business is it is a resource of data for information services business, so phenomenal of resource of trade data across all of Europe. And it gave us the opportunity in '21 to launch our CP plus for European government bonds which we have a small but growing footprint, but largely leverage the value of that post-trade business. So pretty excited about '22, the new products and the growth of our really flagship product CP plus.

[Dan Fannon, Analyst at Jefferies Financial Group]

Great. Thank you.

[Operator]

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

[Brian Bedell, Analyst at Deutsche Bank Aktiengesellschaft]

Great. Thanks, good morning, folks, and also welcome to Steve as well. Maybe just Chris or Rick, if we can do in on portfolio trading if my calculations are right, it looks like around 1% of your high-grade volumes in 4Q, I guess, correct me from wrong on that, but maybe if you could share your view on expanding that. Obviously, we've seen attraction this year from your main competitor, but if you can talk about how you see that market evolving for portfolio trading in '22, given potentially higher volatility in corporate bonds? And then how you see that tracking versus your list trading business, and what kind of, I guess, market share, would you like to get your portfolio by the end of the year?

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Sure. Good question. And as I've said in the past, I do think the blend between portfolio trading bid and offer list will be dependent on market volatility and market conditions. This year we did see strong growth in portfolio trading during several quarters of very benign credit market conditions, but it's important to keep it in context. The peak months we estimate we're around 6% of TRACE secondary volume conducted through portfolio trades.

And it's kind of interesting because the track that we have on TRACE to identify portfolio trades is currently showing about 25 portfolio trades on average per day and we've already had 14 dealers involved. So there is a lot of competition in a low vol market for a limited number of portfolio trades, but importantly there, large inline items in large in volume. So it's an important piece for us to offer and we are pleased with the progress we've made since the May launch and the number of clients and dealers that are involved.

If you look back at 2020 when volatility was very high, clearly, the added liquidity of Open Trading in bid and offer list was essential to the functioning of the market during the course of that higher volatility year. It's kind of interesting because even in the last two months, with a very slight increase in volatility from the end of November through this week, we're seeing portfolio trading percentage of TRACE decline and that period has been closer to 4% or a little bit more of secondary trading in TRACE.

So we're starting to see that it gets more difficult for dealers to manage the risk in large portfolios when there is a pickup in volatility and as a result, we think that clients toggle back to bid and offer lists and use open trading in a deeper and broader pool of liquidity during those periods. Our belief as I mentioned earlier is it's unlikely that volatility and credit would be as low in '22 as it was last year. It's highly unusual to have two years in a row like that, and my belief is that at the end of quantitative easing from central banks around the world is a big deal. They have been buying up a lot of the net supply and government bonds and even mortgages here and so if market forces are at work to determine bond prices, I think it's likely to come with greater volatility.

We're well aware of the appeal of portfolio trading to clients and that's why we have been investing very actively in that solution. In terms of my expectations, as I mentioned in my prepared remarks we are after being number 1 in portfolio trading as we are elsewhere in other protocols in global credit and we believe we're making the investments and we have the client connectivity and dealer connectivity and sales effort around that community to achieve that goal.

[Chris Concannon, President and Chief Operating Officer at MarketAxess]

And Brian, I'll just add on portfolio trading. We are seeing demand for as Rick mentioned, a very long line items. So we are up to 1500 line items. We're expanding that out even further this quarter. So there is demand for a very large line item, sizable trades, but it does go across high-grade, high-yield. We are now seeing portfolio trades in Eurobonds, which is helping our market share there and even emerging market bonds. So we're seeing a diversity of product and our solution and our liquidity, the support of our dealer community is certainly helping us support portfolio trading demand.

We're also seeing at month end higher demand for portfolio trading says our client try to move sizable portions of their portfolio. There is demand for portfolio trading at month end, but as Rick mentioned, we want to be number 1 in portfolio trading. We want to use our list trading and our portfolio trading as ways with analytics to compare what's the right trade for the client, is it individual list trade based on our unique proprietary pricing, or is it a portfolio trade and we think we can a provide better analytics around of both list trading and portfolio trading for clients to make the right decision at the individual bond level.

[Brian Bedell, Analyst at Deutsche Bank Aktiengesellschaft]

That's super interesting. Maybe just a follow-up on the pricing and the potential if we ease up of quantitative easing and move into quantitative tightening type of environment, what that, yeah, if we do get a pickup in the yield to maturity, what kind of impact that could have on the pricing? I know that tends to be favorable impact.

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Yeah, I'll start and Chris can follow-up on any specifics, but the only product that has a duration as a factor in our average pricing is US high-grade. And so higher rates, all else equal reduces the duration of bonds and as a result, reduces fee capture. The rest is dependent on the average maturity of bonds traded, not surprising that as we enter into this new environment in '22 where there are expectations of the fed raising rates that we're seeing a slightly lower average years to maturity of the high-grade bonds traded on our platform. So we're happy to follow up with it. The historical goalposts are pretty clear. Our personal view is that bring on the volatility because we excel in more volatile markets and the offset and the benefit that we get with higher volatility and higher rates in market share and volume gains is well worth it even if we get slightly lower duration of average bonds traded in high-grade.

[Brian Bedell, Analyst at Deutsche Bank Aktiengesellschaft]

All right. That makes sense. Yeah. Thank you.

[Operator]

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

[Alex Blostein, Analyst at The Goldman Sachs Group]

Hey guys, good morning. Apologies for our phone issues earlier. I want to circle back on the commentary Rick just made around capture rates and sort of pricing dynamic. So it feels like most of the movement we've seen in capture rate is been really a function of the mix and not so much direct kind of pricing changes. As you continue to evolve the business are you starting to see any changes in pricing from a more competitive perspective across all the kind of asset classes that you guys trade, and maybe what are the areas where we see that a little more pronounced than others? And then with respect to portfolio trading, specifically, could you talk about how you're offering and the pricing there compares to the competitors offering in the same markets and same products?

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Sure. On the broader question, Alex, I think if you really look at the blended fee capture for our primary competitor here in the US there is not a big difference in their average credit fee capture versus the MarketAxess average. So the small difference is actually explained by the much larger high yielded EM franchise that we have relative to that competitor with higher fee capture in those product areas. So there really aren't significant differences in the fee capture when you look at the blended rates that are being communicated publicly. With respect to PT, we think we're very competitive on pricing and really when markets get more volatile our Open Trading cost savings go up. So we're delivering more value to the clients due to the transaction cost savings, which is why we've had a very long track record of maintaining our pricing.

And then the last thing I'll say is that there is a new pricing scheme in our space as well as you know, broadly communicated by dealers and investors that Bloomberg has started to charge transaction fees and when we look outside the US Bloomberg has been our biggest competitor. So the fact that they've gone from zero transaction fees to now charging and doing something more comparable to what we've always done is actually a benefit to us on a competitive basis. And what we are hearing from the large banks when we look at global OEM in particular is our very significant share gains across the world in EM are partly because of the expansion of the electronic market and partly because of the strengthening of our competitive position, especially vis-a-via Bloomberg.

So we feel good about our pricing relative to the value we deliver back to our clients and even in an incredibly benign year for credit trading, our transaction cost savings were very close to total transaction fees. So we think that the value for money equation holds up very well and the large banks, as you know favor the fixed fee and mark-up models that we have here in the US. So we think we're in a really good place around our fee models.

[Alex Blostein, Analyst at The Goldman Sachs Group]

That's great, thanks for that. And then my follow up is around the rates business, and obviously given the pickup in rate volatility and the move-in rates we're seeing across the Board that should bode quite well for volume share. What are some key kind of milestones you hoping to achieve with that business this year sort of lengthy liquidity edge. Maybe an update on where you guys stand with respect to net spotting and sort of integration with the rest of the business?

[Chris Concannon, President and Chief Operating Officer at MarketAxess]

Sure, Alex. On the rate solution, obviously we look at that market it's one of the largest markets that we're active in and it's still has a phone-based offering. So we do see a sizable share on the phone, conducted on the phone non-electronic. There are two large competitors in the space. From a pricing standpoint, on the last topic we are very competitively priced against the competition. So we feel good about our pricing position as we grow share in that market. We really have two offerings in that market, a live streaming order book offering which has been growing and that was direct result of the liquidity edge transaction, a number of years ago. The other offering is our traditional RFQ offering. Those two offerings are combined side to side which makes it quite attractive for a client to decide if you're trading a more liquid products, you can trade it in real time on a live market.

If you're trading a less liquid off the run product, you can trade it via traditional RFQ, which is really offered by the competition. So we have quite sizable goals in that market, particularly given our offering is an all-to-all live orderbook with an all-to-all RFQ supported by our all-to-all marketplace. So we think we can grow that market over the course of '22.

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Just add on top of that as well is it, it's really interesting to us that in, as we start '22 to that the majority of institutional investor, treasury electronic business is still conducted in an RFQ to five protocol, which is where both of the incumbents are with their investor offering. My belief is that the market is fully ready and welcomes an order book solution.

And we think we are the right provider for that solution. We have 1700 counterparties. They can access the order book that Chris described. We have merged the two broker dealers. So there is no additional documentation any longer for clients to access that pool. We've made important post-trade STP solutions and average ticket pricing to help with investor activity. We have one more piece that will be completed this quarter in terms of [Indecipherable] management connectivity to make it even easier to access.

So when you think about the treasury market the off-the-run cash market is trading one way, the US Treasury futures market has been trading in an exchange order book for decades. And we think everything we hear from both dealers and investors is they welcome a new offering within order book because of the additional flexibility and the additional distribution through this very wide client network that we now have installed on MarketAxess. So we're super excited about it. We recognize that we have to have the RFQ offering as well, especially as you think about off-the-run treasuries, but here again, we think open trading and order books have a role to play and we're happy to be out in front providing that to a very large network of clients and dealers.

[Alex Blostein, Analyst at The Goldman Sachs Group]

Great. Thanks a lot.

[Operator]

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

[Kyle Voigt, Analyst at KBW]

Hi, good morning. Maybe can just ask a question about the Mid-X launch in the US. Just wondering if any numbers you can share in terms of the uptake of that Mid-X offering in Europe thus far to help us think about how meaningful this launch in the US to be for your 2022 growth? And I also think that the Mid-X offering in the US is all-to-all from day one of the launch. I just want to confirm that, and I'm just curious to hear your thoughts as to whether that's the kind of key differentiator for that protocol versus competitors that will drive adoption?

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Sure. Great question. Mid-X is by definition all-to-all it leverages that all-to-all marketplace. So it's a fully anonymous for anyone can participate in that match in our European our Eurobond Mid-X offering we saw $3.2 billion in Q4 volume. Sizes of average trade sizes are a max sessions are still quite sizable close to $300 million. So we continue to see demand for session-based trading in Europe. It is particularly dominated by dealers, unloading inventory. So it's truly a first a dealer-to-dealer offering. Clients are still taking their time engaging the Mid-X solution.

With regard to US high-grade and US high-yield we see particular demand for our dealer RFQ, again that's really a dealer solution for dealers to exit inventory, unwanted inventory using their traditional RFQ through the Open Trading network. Mid-X is just now launching here in the US. We're excited about offering a session-based solution to dealers here in the US as well and we continue to hear demand from our dealer community on a session-based solution for them to load large amounts of inventory, looking for a mid-market priced execution. We are using our premium CP Plus mid-price, which is a quite an attractive product compared to some of the competitor pricing dynamics. So, pretty excited about Mid-X for high-grade and high-yield this in 2022.

[Christopher N. Gerosa, Chief Financial Officer at MarketAxess]

I would just expand on that with one other piece. There is some interesting similarity between the market environment that seems to work well for sessions in the market environment that works well for portfolio trading because sessions depend on a relatively matched order book of buys and sells, and a lot of confidence in a model-driven mid-market price. And those two things decline when volatility picks up. So if you look back at the Q2 last year in 2020 when you had very high volatility those protocols did not work as well and sessions based when we studied the TRACE tape as we do very regularly, when we look at sessions based volume within the TRACE tape that too has declined in a material way since late November running right through this week.

So if these protocols the best position we can be in is what exactly what we're doing and that's to offer the whole range of protocols across our entire network, all supported by Open Trading, and there will be times where the Open Trading RFQ is the dominant theme and there'll be other times where portfolio trading and matching sessions worked well and we're really pleased that our investments are putting us in a place where we've got the entire offering, and we can benefit from any of those environments.

[Kyle Voigt, Analyst at KBW]

That's really helpful. I just had a maybe a bigger picture question on treasuries and treasury market structure. Obviously, as you noted, it's still very bifurcated market structure between the dealer to dealer space and the client to dealer space, you're trying to kind of bridge that. I guess, I just wanted some more clarity on two pieces. One, do you think there is going to be any real material regulatory change in terms of, there's been a lot of talk about treasury clearing. Do you think that's realistic to get some sort of proposal this year? I guess, what are the expectations there? And will that help kind of this transition to all-to-all whatsoever, or are you the solution and basically you don't think that that's going to have a big impact to the adoption of all-to-all in that treasury space?

And then secondarily, just in terms of a lot of other platforms, I think have tried to launch more all-to-all solutions in the space before trying to open up some of the inter-dealer offerings to buy-side clients, but it sounds like you're really encouraged by the uptake, you're seeing and it's kind of a right -- the opportunities right for in these buy-side clients to be more engaged and actually use the platform, and there's a lot of appetite for that. So do you think it's just the time has come for that, or is it just you're hearing more louder in a cries from the buy-side that they really need this? I guess I'm just curious to get a better sense of what your clients are really talking to you about in terms of the desire for that all to all offering? Thank you.

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Sure. So, Kyle, two very different questions but on the same topic. But first, on regulatory focus, there is a lot of regulatory focus on the US Treasury market. As you know, in fact, I think as we speak, there is an SEC call -- public call going on about ATSG, which is the rulemaking that they're undertaking around the new category within ATS specific to the government bond market. And I think the observation is that the fragmentation in the market has not worked particularly well at times of very high volatility and there have been significant gaps in pricing and liquidity that are really important to US Treasury and the functioning of all fixed income markets because the US Treasury market is the benchmark for the entire world.

So we think that the regulatory focuses will remain favorable to all to all trading solutions, and some of the thinking around that is that central clearing would be a good outcome to help to support all to all trading as well as less risk in the settlement process for US Treasuries. So we obviously have been the most successful open trading platform without central clearing for corporate bonds, and we've been able to support that successfully with our own settlement solutions. But longer-term, I think there is a lot of benefit to centralized clearing solutions and there is a foundation at DTCC to be able to help to promote that down the road. And we'll have to see how the regulators view that, but we do see some potential benefits of moving in that direction.

As far as you know, I don't think you've ever seen a foundation like ours that already has success, and Open Trading has 350 or 400 dealers and 1,700 clients all connected with order management system connectivity and counterparty authorization to trade through MarketAxess before in any of the other offerings. So we have liquidity. We have a very broad client network that's already -- that has the LMS connectivity, has the counterparty and settlement agreements already done. And we think that that's creating a really unique offering to complement the offering that's been out there for a long time.

So when you look at the others, they had the inter-dealer liquidity, but they really did not have the functionality or the OMS or the counterparty connections to the end clients at all. And as we've seen, it takes a long time to build that up and we've been at -- that we're starting year '22, so we have that network already built up. We're fully committed to all to all trading, and I think we are the obvious choice to promote this in a successful way.

[Kyle Voigt, Analyst at KBW]

That's great. Thanks, Rick.

[Operator]

Thank you. Our next question comes from the line of Patrick O'Shaughnessy from Raymond James. Your line is now open.

[Patrick O'Shaughnessy, Analyst at Raymond James]

Hey, good morning, guys. Just one question from me. What's your view on why industry-wide credit trading volumes have been so tepid thus far in January, despite volatility picking up a bit, trading volumes and other asset classes have been reasonably healthy? And related to that, how have TRACE volumes typically fared during periods of Fed rate hikes?

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Yeah. So I think that part of what's going on is the risk-off mentality. But the reality Patrick is that the volatility that we've seen recently has been mostly focused on the rate space, so we have price volatility in the corporate bond market, but we do not yet have much spread volatility. If you look, there has been a modest widening of credit spreads from where we were for the two or three quarters leading into at the end of last year. So my expectation is you're more likely to get both throughout this year. But credit spreads have been pretty stable so far.

And we do notice from the Fed data that the dealer balance sheets are pretty low right now. They were going into year end as you would expect, but they remain low in the weekly data that we've seen pretty recently. So I think there is certainly a chance that this is the calm before the storm. But I do think, right now the volatility has been focused on the rate space more than it has credit spreads. And I would expect that we'll see better turnover in credit products when we see better volatility in spreads.

[Patrick O'Shaughnessy, Analyst at Raymond James]

Got it. And then I guess to follow-up on that one. When you think back in periods where the Fed has been hiking so 2015, 2016, was that generally a favorable environment as you guys were kind of looking at -- thinking about market share trends and industry-wide volumes? Or what are the puts and takes as you kind of think about what might happen as the Fed potentially raises during 2022?

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

We're happy to follow up with more specific data which obviously has been public in our reporting for a long time. I can tell you there is a very clear correlation between the periods where we've done the best with market share and revenue growth and volatility. So I think it's a safe assumption given how different the central bank environment could be over the next two years relative to where we've been that the outcome of that could very well be better-fixed income market volatility. And those are the environments where we do the best.

[Patrick O'Shaughnessy, Analyst at Raymond James]

All right. Got it. Thank you.

[Operator]

Thank you. Our next question comes from the line of Rich Repetto from Piper Sandler. Your line is now open.

[Rich Repetto, Analyst at Piper Sandler Companies]

Yeah. Hi guys. Most of my follow-ups have been asked and answered, but excuse me one quick one. I'm just trying to understand what's the driver when you say you are going to take the number 1 position on portfolio trading? So what leaps you beyond the competitors, the number of dealers signed up? Or I'm just trying to understand how you get to that position?

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

No. Look, I think we're really encouraged by the last six months and how much of the PT share we've been able to attract onto the MarketAxess system. But Rich, I think going back to my prepared remarks, we've been the leader in this space for a long time, and we've been going head to head with Tradeweb since 2002 when they launched their corporate bond offering. And we have successfully innovated and led that market for a long time.

So the reality is the client eyeballs and the client mindshare and attention is largely on this system. And as I mentioned, we do well over a 1,000 bid and offer lists every day. So that compared to the 25 portfolio trades now that we have a terrific technology solution four portfolio trades, it sits alongside those 1,200 or so bid and offer list that's clients are trading every day. We have primary sales focus on the credit trading desk. We have all 14 of the dealers that we know that are active in portfolio trading that are live on MarketAxess. So we have the same liquidity pool of dealers. Those dealers just happened to do most of their client trading on MarketAxess, not any of our competitors.

So we think we have an incumbent position that's going to benefit. As Chris mentioned earlier, getting that functionality so it's easy to toggle back and forth based on market conditions and the situation between bid and offer list in portfolio trading is where we think clients want to be. So we're encouraged by the last six months and we think there is a lot more to come, and we're focused on taking the lead in the portfolio trading space.

[Rich Repetto, Analyst at Piper Sandler Companies]

Got it. Thank you. Very helpful, Rick.

[Operator]

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Rick McVey for closing remarks.

[Richard M. McVey, Chairman and Chief Executive Officer at MarketAxess]

Thank you for joining us this morning, and we look forward to talking with you again next quarter.

[Operator]

[Operator Closing Remarks]