Marketaxess Holdings Inc (MKTX) 2021 Q4 法說會逐字稿

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.

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 beliefs 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 the 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.

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 U.S. credit institutional client e-trading space. The institutional clients 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 shows 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 #1 portfolio trading provider this year. U.S. 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 U.S. Treasury Live Markets order book.

Client onboarding is expected to accelerate this quarter. In municipal bond trading, the combination of our organic growth this year and the integration of the 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. Taking in the aggregate, our 2-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% 2-year compound revenue growth in product areas outside of our core U.S. corporate bond business. Full year records and estimated market share were set in 2021 in U.S. high yield, emerging markets, Eurobonds and municipal bonds. The health of our business also comes through with a new record 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 in rates markets is showing improvement, driving increased activity in our Open Trading U.S. 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 volumes down about 7%. Our U.S. 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 U.S. 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 U.S. 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.

Thanks, Rick. Slide 7 provides an update on Open Trading and protocol expansions. 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. U.S. Treasury volume executed over our Live Markets order book 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 expanded our Live Market order book to new credit markets with support for U.S. high-yield liquidity. Lastly, our Mid-X expansions protocol was recently expanded beyond Eurobonds to include support for U.S. investment grade and U.S. 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 life cycle 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 volumes 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 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+, with the launch of our CP+ 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 volumes and over 242,000 trades. Today, Auto-X represents 19% of total trade counts and 7% of our total volumes. 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.

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 is commission -- 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 on 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 U.S. credit trading volume and lower overall fee capture. The year-over-year decline in U.S. 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 the expense detail. Fourth quarter expenses were up 16% year-over-year, including an incremental $5 million of operating expenses, anticipation of acquired intangibles and nonrecurring integration costs associated with the Regulatory 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% increase year -- or the 25% year-over-year decline in clearing costs 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 the 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 2/3 relates 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% to 26%. The increase in the effective tax rate versus 2021 is driven significantly by lower estimated tax benefits related to share-based compensation awards.

Now let me turn the call over to Rick.

Thank you, Chris. In summary, 2021 was an important year of investment and execution to expand our growth cylinders and increase product diversification. Our competitive position remains strong in U.S. 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.

(Operator Instructions)

Our first question comes from the line of Rich Repetto from Piper Sandler.

I'll welcome Steve as well because we know him from the past, he'll be helpful. So first question is, I guess, for Rick and I guess, the non-Concannon Chris on expenses. So it's an 11% increase at the midpoint similar to the 10% this year -- 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?

Yes. Rich, thank you for the question. If you noticed, we did widen the goalpost 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 recognized that in the year like last year, we saw variable expenses in the 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.

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, like I just want to get an update because 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 the -- does that mean all-to-all trading is rolled out for those products?

So 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 muni all-to-all is quite a sizable part of the muni business. It's about 46% of our volume is all-to-all in munis. In our rate solution in U.S. 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 an 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.

Our next question comes from the line of Michael Cyprys from Morgan Stanley.

I was just hoping you could talk a little bit about the opportunity set that you see for electronifying securitized markets, 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?

Sure. I'll start with that one, and thanks for the question. It's -- the level of electronification there 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 would have those in the bucket of potential product expansion that fits with the protocols that we run in credit.

Great. 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 head count growth into '22? And maybe what are some of the items that did not make it on the investment list for this year that maybe could be on for '23?

Yes. Very 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. And 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's an existing list of opportunities that we want to capitalize on and they're all embedded in part of that investment agenda for 2022.

Our next question comes from the line of Alex Blostein from Goldman Sachs. Please check your line.

Our next question comes from the line of Dan Fannon from Jefferies.

My 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.

Yes, Dan, that's a good question. Our capital management strategy continues to remain the same. Our #1 investment priority is to continue to invest in the trading platform. We continue to seek opportunistic M&A opportunities on 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 fourth quarter, we recognized there was a dislocation in the share price. We did have the existing program, which had around roughly $80 million of capacity heading into the fourth quarter. So we employ 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 the new $150 million plan is to the ordinary course of business gives 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.

Got it. That's helpful. And just as a follow-up, if you could update us on the outlook for the non-transactional revenues? At Investor Day, you talked a lot about the market size and the TAMs. 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've cited before for post-trade and information services?

So Dan, great question. On our Information Services, obviously, we're seeing double-digit growth in 2021. We're excited about the new products. CP+ 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+ total markets, which really expands the overall coverage and another product, tradability, 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, continued growth in CP+ and then the new product total markets.

Post-trade, obviously, you saw it grow year-over-year quite substantially, given the increase in Regulatory Reporting -- the transaction -- closing of the transaction, Regulatory 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 our information services business. So phenomenal resource of trade data across all of Europe. And it gave us the opportunity in '21 to launch our CP+ 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+.

Our next question comes from the line of Brian Bedell from Deutsche Bank.

Great. And also welcome to Steve as well. Maybe just, Chris or Rick, if we can zoom 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 if I'm wrong on that, but maybe if you could share your view on expanding that? Obviously, we've seen traction 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 to in the portfolio by the end of the year?

Sure. Good question. And as I've said in the past, I do think the blend between portfolio trading and bid and offer list will be dependent on market volatility and market conditions. And 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 tracker 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's a lot of competition in a low-vol market for a limited number of portfolio trades. But importantly, they're large in line items and large in volume. So it's an important piece for us to offer. And we are pleased with the progress we 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 in the market during the course of that higher volatility. It's kind of interesting because even in the last 2 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 and 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 list and use Open Trading in a deeper and broader pool of liquidity during those periods.

Our belief, as I mentioned earlier, it's unlikely that volatility in 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 in 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 #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.

And Brian, I'll just add on portfolio trading. We are seeing demand for, as Rick mentioned, a very long line item. So we are up to 1,500 line items. We're expanding that out even further this quarter. So there is demand for very large line items, sizable trades, but it does go across high grade, high yield. We're 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 demands. We're also seeing, at month-end, higher demand for portfolio tradings as our clients 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 #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 an individual list trade based on our unique proprietary pricing, or is it a portfolio trade? And we think we can provide better analytics around both list trading and portfolio trading for clients to make the right decision at the individual bond level.

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

Yes, 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 U.S. 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 in the benefit that we get with higher volatility and higher rates in market share and volume gains as well were at even if we get slightly lower duration of average bonds traded in high-grade.

Our next question comes from the line of Alex Blostein from Goldman Sachs.

Apologies for phone issues earlier. I wanted to circle back on the commentary, Rick, you just made around capture fee and sort of pricing dynamics. So it feels like most of the movement we've seen in capture fee has 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 we see that to be a little more pronounced than others? And then with respect to portfolio trading specifically, could you talk about how your offering and the pricing there compares to the competitors' offering in the same product?

Sure. On the broader question, Alex, I think if you really look at the blended fee capture for our primary competitor here in the U.S., there's 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-yield and 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 U.S., Bloomberg has been our biggest competitor. So the fact that they've gone from 0 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 EM, 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 a strengthening of our competitive position, especially vis-a-vis 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 markup models that we have here in the U.S. So we think we're in a really good place around our fee models.

Great. And then my follow-up is around the REIT's business. And obviously, given the pickup in rates volatility and the movement rates we're seeing across the board, that should bode quite well for volumes this year. What are some key kind of milestones you're hoping to achieve with that business this year, sort of legacy 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?

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 still has a phone-based offering. So we do see sizable share on the phone -- conducted on the phone, nonelectronic. 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 a direct result of the LiquidityEdge 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 our clients to decide if you're trading a more liquid product, 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 a 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 order book 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.

Just to add on top of that as well is that, it's really interesting to us that in -- as we start '22 that the majority of institutional investor treasury electronic business is still conducted in an RFQ to 5 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 1,700 counterparties that can access the order book that Chris described. We have merged the 2 broker dealers. So there's 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 order management, connectivity to make it even easier to access.

So when you think about the treasury market, the on-the-run cash market is trading one way. The U.S. 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 with an 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 RRP 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.

Our next question comes from the line of Kyle Voigt from KBW.

Maybe can I just ask a question about the Mid-X launch in the U.S. Just wondering if there's 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 U.S. could be for your 2022 growth. And I also think that the Mid-X offering in the U.S. is all-to-all from day 1 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.

Sure. Great question. Mid-X is by definition all-to-all. It leverages that all-to-all marketplace. So it's a fully anonymous where anyone can participate in that match. In our European -- our Eurobond Mid-X offering, we saw a $3.2 billion in Q4 volume. Sizes of -- average trade sizes or match sessions are still quite sizable, close to $300 million. So we continue to see demand for a 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 U.S. high-grade and U.S. 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 the traditional RFQ through the Open Trading network.

Mid-X is just now launching here in the U.S. We're excited about offering a session-based solution to dealers here in the U.S. 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+ mid-price, which is quite an attractive product compared to some of the competitor pricing dynamics. So pretty excited about Mid-X for high grade and high yield is in 2022.

I would just expand on that with one other piece. There's 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 Q2 last year in 2020, when you had very high volatility, those protocols did not work as well. And sessions-based, when we study the TRACE tape as we do very regularly, when we look at sessions-based within the TRACE tape, that too has declined in a material way since late November running right through this week.

So these protocols are 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 will be other times where portfolio trading and matching sessions work 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.

That's very helpful. And then I just had 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 and you're trying to kind of bridge that. I guess, I'm just -- I just wanted some more clarity on two pieces. One, do you think there's 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 it 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 the 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 this space before trying to open up some of the inner dealer offerings to buy by clients. but it sounds like you're really encouraged by the uptake you're seeing, and it's kind of a rig opportunities, right, for 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 times come for that, or is it just you're hearing more louder cries from the buy side that they really need this? I'm just curious to get a bit better sense of what your clients are really talking to you about in terms of the desire for that all-to-all offering?

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 U.S. treasury market. As you know, in fact, I think as we speak, there's an SEC call, a public call going on about ATSG, which is the rulemaking that they're undertaking around the new category with ATS specific to the government bond market. And I think the observation is that the fragmentation of the market has not worked particularly well at times of very high volatility, and there have been significant gaps in pricing and that are really important to U.S. treasury into the functioning of all fixed income markets because the U.S. treasury market is the benchmark for the entire world.

So we think that the regulatory focus is 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 U.S. 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's a lot of benefit to centralized clearing solutions. And there's 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 -- I don't think you've ever seen a foundation like ours that already had success in Open Trading has 350 or 400 dealers and 1,700 clients all connected with order management system connectivity and counterparty authorization to trade through MarkeAxess before in any of the other offerings. So we have liquidity. We have a very broad client network that's already -- that has the OMS 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 I think 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 it -- 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.

Our next question comes from the line of Patrick O'Shaughnessy from Raymond James.

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 in other asset classes have been reasonably healthy. And related to that, how have TRACE volumes typically fared during periods of Fed rate hikes?

Yes. 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's been a modest widening of credit spreads from where we were for the two or three quarters leading into 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's a -- 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.

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 like 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?

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's 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.

Our next question comes from the line of Rich Repetto from Piper Sandler.

Most of my follow-ups have been asked and answered. But one quick one. I'm just trying to understand what's the driver when you say you're going to take the #1 position 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.

Well -- so look, I think we're really encouraged by the last 6 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 mind share and attention is largely on the system. And as I mentioned, we do well over 1,000 bid and offer list every day. So that compared to the 25 portfolio trades. Now that we have a terrific technology solution for portfolio trades. It sits alongside those 1,200 or so bid and offer lists that 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 happen to do most of their clients 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 and portfolio trading is where we think clients want to be. So we're encouraged by the last 6 months, and we think there's a lot more to come, and we're focused on taking the lead in the portfolio trading space.

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.

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

This concludes today's conference call. Thank you for participating. You may now disconnect.