Marketaxess Holdings Inc (MKTX) 2021 Q1 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 April 22, 2021. 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 First Quarter 2021 Conference Call. For the call, Rick McVey, Chairman and Chief Executive Officer, will review the highlights for the quarter; Chris Concannon, President and COO, will discuss automation and product expansion; and then Tony DeLise, Chief Financial Officer, will review the financial results.

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 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.

Thank you for joining us for our first quarter earnings call. First quarter revenue reached a new quarterly record of $195 million, up 16%; operating income of $103 million, was up 14%; and EPS of $2.11, was up 8%. Record revenue was driven primarily by market share gains in our core credit products. New quarterly volume records were set for total credit trading volume as well as new volume records for high-yield trading, emerging markets, eurobonds and municipal bonds.

Open trading volumes grew 20% year-over-year, and estimated transaction cost savings delivered to our clients were $197 million. International client volume was up 18% and reached a new record of $237 billion. It is important to remember that in Q1 last year, we had 5 full weeks of elevated credit market activity due to the onset of the pandemic. In light of the significant difference in market conditions this year, we feel very good about the volume, revenue and earnings growth this quarter.

Slide 4 provides an update on market conditions. The top left chart displays just how different the market environment was 1 year ago. Our business thrives when credit spread volatility increases. During Q1 last year, credit spread volatility was 10x greater than this year, and credit spreads in high-grade were nearly 200 basis points wider.

New issue activity was strong during the quarter and similar to last year. TRACE volumes in high-grade were up 7% in Q1, reflecting a continuing trend toward higher secondary market turnover. Average years to maturity for investment-grade bonds traded on the system continues to climb and reach the high end of the historical range at 10 years this quarter.

Slide 5 provides an update on Open Trading. Our market-leading all-to-all marketplace, Open Trading set new records this quarter with an average of 34,000 orders per day, totaling over $19 billion in notional value per day in credit products. High grade, high-yield and emerging markets all show healthy open trading volume increases in excess of 20%. Dealer initiated open-trading orders were up 78% year-over-year. Our D2D business now represents 8% of our credit trading volume and 7% of credit trading revenue as we compete effectively in this client segment with more traditional D2D competitors through open trading.

This quarter, 2/3 of our system-wide open orders traded with a traditional dealer counterparty, while 1/3 found price improvement in Open Trading. Open Trading ADV reached a new record of $4 billion per day, up 22% year-over-year. For the fifth quarter in a row, estimated transaction cost savings of $197 million delivered to our clients were in excess of total company credit trading revenue.

Now let me turn the call over to Chris to provide an update on product and client expansion.

Thank you, Rick. Slide 6 highlights our international growth and product expansion. Throughout the past year, we have remained focused on bolstering our global footprint and expanding our product offerings. I will touch on a few of these initiatives today. Our international growth continues with an 18% year-over-year increase in international client volumes, driven by over 900 active clients across our global products. In the first quarter, U.S. credit volume from international clients was up 23%. Emerging markets volume increased by 22% and eurobond volumes increased by 13%. Our ongoing investment in Asia Pacific region delivered an increase in the number of clients and significant gains in volume. Client credit volume from the region grew to $29 billion, up 57% from the first quarter of 2020, as the number of clients in the region also grew by 14% over the past year. We are encouraged by the progress we are making outside the U.S., and we believe we are well positioned to capture a larger share of trading in the growing global credit markets.

In the area of product expansion, we continue to see momentum in our municipal bond offering. In the first quarter, we again hit record volumes with a total of $5.8 billion in municipal bond volumes, up 75% from a year ago. We also released -- recently closed on the acquisition of MuniBrokers, a central electronic venue serving large banks and inter-dealer brokers in the municipal bond market. The acquisition expands our connectivity with dealers and provides rich content for our growing Muni client business.

Our post-trade business, an important contributor to our data strategy, continues to grow with organic post-trade revenue up 50% in the first quarter, driven largely by new client additions and our SFTR offering. We now have over 950 unique post-trade clients. The integration of our recently acquired Regulatory Reporting Hub is well underway and is extending our leading regulatory reporting business across Europe, while further strengthening our data capabilities and our post-trade services.

Slide 7 demonstrates our continued momentum of automation in Credit Trading. Automated trading and dealers automated responses continue to grow across the platform. Automated trading volumes rose to $39 billion in the first quarter, up from $31 billion in the first quarter of 2020. Auto-X trade count also grew in the quarter to 205,000, up 37% from the prior year. 95 firms utilized our Auto-X functionality in the quarter, up from 84 in Q1 of last year, while 22 firms used our Auto-Responder functionality. We are also seeing healthy adoption of Auto-X across investment grade, eurobonds, high-yield and emerging markets.

The use of dealer algorithms is continuing to grow on the platform with approximately 4.8 million algo responses in the first quarter, up 57% from the same period last year. The growth in the average number of responses per inquiry has resumed following a decline in the first half of last year. The increasing responses ultimately improves the likelihood of execution across the platform.

As the overall share of electronic trading grows in global credit, we are seeing continued demand for and growth in our automated trading solutions. We are continuing to develop innovative automated trading solutions in collaboration with our buy and sell-side clients, and I look forward to sharing updates to our offering in the coming quarters.

Slide 8 provides a summary of our trade environment across product categories. Our U.S. high-grade volumes were up 10% year-over-year to $363 billion for the quarter, largely due to an increase in market volumes and market share gains. Estimated U.S. high-grade market volumes were up 7%, while estimated share increased -- market share increased by 0.5 percentage points year-over-year to 20.5%. Volumes in our other credit category were up 19% year-over-year to $391 billion for the quarter, and we achieved record quarterly trading volume in high yield, emerging markets, eurobonds and municipal bonds.

Market share gains account for the vast majority of the increase across each product category, with U.S. high-yield volume up 21%, emerging markets volume up 18%, eurobond volume up 15% and municipal bonds up 75%.

Our rates business maintained its dealer-to-dealer market share compared to Q4 of 2020, and we are beginning to see volume contribution from both our new dealer-to-client trading protocol and our recently launched hedging initiatives. Over 150 clients are now approved for our Click-To-Trade rates offering. Regarding April activity, with 7 full days of trading left in April, it is far too early to draw any conclusions on the full month. However, TRACE market volumes are currently running below Q1 levels, and our market share is maintaining levels similar to Q1.

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

Thank you, Chris. On Slide 9, we provide a summary of our quarterly earnings performance. Revenue was a record $195 million, up 16% year-over-year. The 14% increase in credit trading volume led to a 13% uplift in commissions. Post-trade services revenue more than doubled to $10.3 million and includes $4 million of trade reporting revenue from clients added through the Regulatory Reporting Hub acquisition.

Operating income was up 14% year-over-year, and operating margin was 53% in the first quarter. EBITDA hit a record quarterly level in the quarter. Other expense was $1.6 million in the first quarter and includes foreign currency transaction losses of $500,000. Absent unpredictable items like foreign currency transaction and investment gains and losses, we would expect other expense to run around $1 million per quarter. The effective tax rate was 21% in the first quarter and reflects $4 million of excess tax benefits related to share-based compensation awards. Inclusive of the recently enacted increase in the New York state corporate tax rate, we are maintaining our full year effective tax rate guidance range of 22% to 24%.

On Slide 10, we have laid out our commission revenue, trading volumes and fees per million. Total variable transaction fees were up 15% year-over-year. On a composite basis, the majority of the 17% increase in credit transaction fees was driven by estimated market share gains. The decline in rates transaction fees was due to lower U.S. treasury's trading volume, principally resulting from a decline in estimated dealer-to-dealer market volumes. U.S. high-grade fee per million was down $7 versus the fourth quarter level, but $4 higher year-over-year. There were several factors contributing to the sequential decline in fee capture, including a shift in trade size.

The duration impact on U.S. high-grade fee capture was muted on a sequential quarterly basis as longer years to maturity on bonds traded over the platform was offset by higher bond yields. Our other credit category fee per million of $202 was similar to both the fourth quarter 2020 and first quarter 2020 levels. Product mix, along with fee capture at the individual product level, was very consistent across these periods.

Slide 11 provides you with the expense detail. First quarter expenses were up 18% year-over-year and include $3.6 million of operating expenses, amortization of acquired intangibles and nonrecurring integration costs related to the Regulatory Reporting Hub business. Excluding the regulatory Reporting Hub activity, expenses were up 14% year-over-year and up 11% on a constant currency basis. The rise in compensation and benefits was due to an increase in headcount of 74 personnel in support of our growth initiatives. The increase in professional and consulting expenses is due to a variety of factors, including M&A transaction and integration costs and consulting costs associated with our clearing and settlement transition projects. Higher depreciation and amortization reflects the continuing investment in product development, along with the amortization of acquired intangibles.

While Open Trading volume increased 20%, overall clearing costs were down 15%. In March, we completed the second phase of our settlement project with the transition to a new settlement agent in the U.K. Although we expect to realize some further cost improvements over the balance of this year, I'm happy to report that third-party clearing costs measured on a per ticket basis declined by over 35% year-over-year.

As Chris mentioned, we closed on the MuniBrokers acquisition on April 9. We expect MuniBrokers expenses will be around $4 million in 2021, 50% of which will be amortization of acquired intangibles. We are updating our full year expense guidance range to $370 million to $386 million to incorporate the MuniBrokers expense activity.

On Slide 12, we provide balance sheet information. Cash and investments were $415 million at March 31, and trailing 12 months free cash flow reached $340 million. During the first quarter, we paid out year-end employee bonuses and related taxes of roughly $50 million and a quarterly cash dividend of $25 million. We also repurchased 54,000 shares during the quarter, the majority of which were associated with the investing of employee stock awards. We didn't borrow against the revolving credit facility in the first quarter and ended the period with over $300 million of excess net capital resident at MarketAxess Corp, our regulated self-clearing entity. Based on the first quarter results, our Board has approved a $0.66 regular quarterly dividend.

Now let me turn the call back to Rick.

Thank you, Tony. Market share gains across all credit products and all geographic regions drove our record results in Q1. Trading automation is advancing in credit products with both dealer and investor clients, and MarketAxess Open Trading is leading the way. We continue to invest actively in new product areas like municipal bonds, government bonds and Asia emerging markets to sustain long-term growth. We are also pleased with the progress we are making with new electronic trading protocols.

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

(Operator Instructions)

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

I guess the question is on the fee per million. And Slide 4 helps -- it shows the yield to maturity. But I guess the question is, Tony, can you review the drivers? We know that duration, trade size and mix. But -- and we're just trying to see the moving parts. And if it's easy to compare quarter-to-quarter, I believe, rather than year-over-year because the big change in yields occurred between 4Q and 1Q, I believe? Are you -- can you explain whatever is easier -- easiest that we can understand it, I guess?

Yes. Happy to do that, Rich. So Rich, you're right that there's lots of factors that influence the high-grade fee capture. And we're really talking about investment-grade here. And years to maturity matters, yields matter. We have a tiered fee plan. So trade size matters. We have the mix of dealers that are participating. So for example, dealers that are on a distribution fee plan versus dealers that are on an all variable plan, the fee capture looks different. Even when it comes to protocol, it may look different. Open Trading, fee capture is slightly different than disclosed request for quote. Some of the newer protocols of fee capture is different. So there's a lot of moving parts here. But Rich, you're right. Looking at, say, Q4 versus Q1, that's probably the best way to describe it. And when you look at those 2 periods, fee capture was down about $7 per million. A couple of items in there. Trade size was one of them. Not a big influencer, but trade size did tend to shift to a little bit larger trade size as our fee capture is a little bit lower.

Dealer mix. So when we look at dealers that are on all variable plans versus fixed plans, a little bit heavier weighting to dealers on fixed plans, fee capture a little bit lower. But the item you mentioned, which is very interesting, as Rick picked it up on in his comments, we're at -- close to the post credit crisis high on years to maturity of bonds traded over the platform. Typically, that would result in higher fee capture, dollar value of the basis points higher with longer years to maturity. But in this case, what offset the years to maturity was the fact that yields were up. So again, you're right, you look at fourth quarter to first quarter, you did see a rise in bond yields. So those 2 were largely offsetting. One last thing because I'm getting -- I'm on the clock right now. One last thing, just sensitivity going forward, every year to maturity is around $10 to $15 per million, all things being equal. A 1% change in yields across the yield curve, again, about a $10 to $15 per million, all things -- all else being equal.

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

So I think portfolio trading is up to around 5% of high-grade and high-yield trading volume in recent months. What's driving this adoption by the buyer side? And can you provide an update on MarketAxess efforts to develop a client solution in this area?

Sure. I'll be happy to start on that, Patrick. Thank you for the question. But yes, you did see growth again in the first quarter in portfolio trading. And I think that situationally, clients and dealers are finding good opportunities to use the workflow solutions around portfolio trading for efficiency and execution. And there are a variety of different cases where dealers can promote inventory in baskets to clients, which, in an environment like this, has been very popular from both sides. You have certain transactions that involves offsetting buys and sells where the combined risk of the basket is less than it would be in individual bonds and can sometimes create efficient execution for both sides. You've also seen trades where investors are making room for new issues through portfolio trading. So a variety of different case studies. And March was an unusually active month for portfolio trading. It's tapered off from what we can see on the TRACE tape in April so far, but very large month in March. We continue to work on our workflow solution there. We are very confident that we are closing the gaps that we have, and we'll be competitive in this space. At the same time, we're making very large investments in our liquidity solutions through open trading and in new product areas. So it's a convenient workflow solution. It's -- they're a subset of very large dealers that are active, a subset of very large clients, limited client community, but growing importance in the market, and it's something that we expect to be competitive in throughout '21 and beyond.

And Rick, I'll just add that we are rolling out enhancements to our portfolio trading solution this quarter and the coming quarters, including things like -- critically important things like net hedging that will be available to portfolio trades. The other thing worth mentioning is we are seeing activity in our dealer RFQ platform on Open Trading, which is likely resulting from the liquidation of portfolios that dealers are trading into. So we are getting collateral benefit on the platform, particularly in Open Trading and things like investment-grade and high-yield as a result of these very large block trades that are going up on TRACE, and then we're seeing those dealer liquidations happening on the platform.

Our next question will come from the line of Dan Fannon from Jefferies.

Wanted to follow up a bit more on some of the market share trends year-to-date, and the detail on Slide 4 highlights some of the macro factors. But as you think about volatility maybe being a bit more depressed and the work-from-home environment ending as things normalize, how are you thinking about kind of the trajectory of market share from here?

Yes, I'll start, but -- thanks for the question, Dan. But listen, when we look at broadly at market share trends, we're really encouraged by what we see in the first quarter, even though, as you've point out, market volatility across most credit products was significantly lower than it had been much -- for much of last year. It's coming through most clearly in year-over-year gains in high-yield and emerging markets. High grade, a little bit more developed market electronically is going to have ebbs and flows based on volatility. And especially with the ETFR community, where you would have seen them very active a year ago at high volatility levels, and they are always less active in low volatility environments. But beyond that, when we look under the hood at the trends that we see with investment managers, hedge funds, dealers using Open Trading, international clients, it's all very encouraging for long-term market share gains. And we have no control over the quarter-to-quarter market conditions. But if you look historically at our consistent growth and success over almost 17 years of being a public company, we've been able to show sustainable long-term growth through any environment. So our expectation is that we have lots of reason for optimism because of the liquidity solutions that we are delivering and the significant transaction cost savings to see share gains through any environment, and that is certainly what we saw in the first quarter of this year.

Our next question will come from the line of Ari Ghosh from Crédit Suisse.

So I just wanted to come back to some of your new initiatives and rollouts, especially as institutional participation continues to improve this year. Specifically, I appreciate any color around the traction that you're seeing around Live Markets and then also the opportunity for market access in China, just given that there's been some recent regulatory changes and relaxation of requirements for investors. So just trying to think about how you scale that opportunity and time lines around when you think that may start rolling into your numbers in a meaningful manner?

Well, great question. So on live markets, I'll start. We're seeing more activity on Live Markets, and it's quite encouraging because it is a brand-new protocol to the credit space. And what we have seen is we've got 19 dealers live on the platform. We expect to have new announcements around designated market makers on the platform as well. We would likely have up to 3 designated market makers. Those are fully committed 2-sided market makers on the platform, and we expect to have announcements around that in the coming quarter. Very encouraging signs on the size of trades on Live Markets. Right now, our average trade size on Live Markets is $2 million, which is much larger than your traditional RFQ average on the platform. So we're encouraged that there is sizable live liquidity with 2-way markets and over 250 Q-sips across the platform. So again, it's a new protocol. The changes in workflow and trading behavior by clients is a sizable lift. But the liquidity that's building on the platform is encouraging. And the opportunity for clients to join a bid or an offer and not cross spread is growing as that liquidity on Live Markets grow. I'll let Rick cover our recent activities in Asia and the growth of our volumes there.

Sure. We highlighted in the prepared remarks that we're really encouraged by the developments we see with our APAC business. And part of it is organic where we see more dealers and investor clients embracing electronic trading and trading consistently across the platform. Part of it, we hear back from dealers is a view that our competitive position has gotten even stronger in EM globally and particularly in the Asia region. So really good news there in terms of the trends in EM broadly in very large markets.

With respect to China, I think that it's very clear that they will continue to take additional steps to open up their fixed income markets. And given the presence we have with global investors in our EM franchise, we know that we can play a significant role in bringing investor order flow into China. And we're also encouraged by southbound traffic, where it's likely that investors within China will be trading more actively outside of China. So we would expect to be more involved in that market. We are taking the steps to be eligible to do so, and we're hopeful that our presence in EM is going to make a significant contribution to the Chinese goal of opening up their fixed income markets.

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

Just sticking with some of the new initiatives, Chris, you highlighted muni markets. I was hoping to dig into that a little bit more. Can you provide us, I guess, maybe some specifics around what MarketAxess is doing in order to enable greater pace of electronification in the muni market today? What are some of the biggest hurdles? Obviously, it feels like there's a lot of inertia in that space. I'm trying to think how you guys are trying to break through that? And how much of the muni market do you think could ultimately become electronically traded?

Sure. I'll tackle that one. Well, I continue to be excited about the muni market and our opportunity there. You're talking about a very large market, a difficult market to trade because of the breadth of product in that market. Data analytics will prove to be very helpful in the muni market as we break down the more manual parts of the market and add electronic trading. I'm encouraged by our growth in muni's. Obviously, the 75% year-over-year increase in that market is encouraging. Also, I'm encouraged by the size of our all-to-all market in muni's. So all-to-all is proving to be a very important component to our growth rate. It's now 43% of our volume in munis. The other areas that -- we're seeing areas like dealer RFQ in munis grow over 170% year-over-year. So we are seeing dealers using our platform similar to the way they would use an inter-dealer market -- inter dealer broker market. We obviously have closed the acquisition of MuniBrokers that's approximately 4% of the muni market, heavily weighted towards exempt Munis. So we're working on the integration of that market, and we plan to have that integrated more largely in 2021.

I do think, as you think about that market, there's sizable costs to large investors to maintain their large -- small trade size across the muni market. And we're seeing investments from the large investment managers to reduce their costs in that market, similar to the way they've embraced electronic trading across their investment-grade, high-yield trading guests. So we just see that trend continuing. We see getting higher penetration rates in those large client flows in the muni market. I can't predict how far it goes. But given the small ticket sizes, the complexity of the market, I would expect high dependency on electronic solutions for the years to come.

And Alex, just one last thing, just on the size of the market. And think about where we are today. We're at about 2% market share. And we've talked about this before in terms of revenue opportunity. For us, every 1% of share equates to about $10 million in annual revenue. We don't know where this will end up in terms of electronic adoption, but you can do a little math around it. If half the market goes electronic, this is an enormous opportunity. That's why we're so focused on it. That's how we continue to invest. That's all part of the strategy around bringing on board MuniBrokers. So big opportunity ahead of us.

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

Just hoping you could talk a little bit about block trades, maybe some of the initiatives you have there to further penetrate that. Where you stand today in terms of a block trade penetration? And how you're seeing client behavior change around that?

Sure. I'm happy to take a start on that, Mike. Thank you. But listen, it's an important part of the market. We're investing in new solutions to address blocks, and we're seeing good progress in some areas as well. And I would point to high-yield, in particular, where for many years, almost all of our volume was in odd lot trade sizes. And if you see the big jump year-over-year in high-yield share, the majority of that is driven by more success in what is considered to be block size trades in high-yield over $1 million. So we've moved our market share up primarily by investors and dealers in high yield, getting more comfortable with large trade sizes. In high grade, we've been pretty flat around the 10% area lately. Clearly, live markets is intended to attack part of the block trading market in very liquid bonds, where both new issues and benchmark deals trade actively in block size and very tight bid offer. And we're encouraged, as you heard Chris say, about some of the developments in Live Markets that we think over the coming quarters are going to make that a viable new addition to activity on our trading platform and especially in blocks.

And I'll just add, Rick, that we have a very unique view of the credit market. And we have been developing a number of data solutions that help traders identify the true depth of the market, things like our tradeability data solution. So we do think we can be super helpful to the average trade desk when they're determining true size of a block and how to engage the market. And we do think that will attract larger-sized orders on our platform when we can define for them. What the execution could be, execution costs for that block and the true depth of the market at the moment in time they want to trade.

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

If I can squeeze a 2-parter in here. I apologize, I joined a few minutes late. But just on -- back to the high-grade market share question. Given the growth initiatives and a pretty good client traction that you have across the different protocols, including Auto-X and the transaction savings, given that versus the challenges of the lower volatility as a sort of a more of a macro headwind. When do you -- maybe start to answer, but when do you think you could cross those initiatives and client traction could outweigh that headwind of volatility as we sort of move through '21 in terms of having a year-over-year gain in high-grade market share? And then the second part is just -- I don't think you talked about this Chris yet, but just an update on the green bond trading as that seems to be gaining momentum globally.

Well, I'll start on the volatility question, and then I'm sure Chris would like to update you on the green bond initiative and client adoption as well. But listen, volatility comes and goes in every market, right? So yes, it's temporarily a headwind in credit. It's not to say that it will be that way next week or next month or next quarter. So we do have a goldilocks scenario right now where people are quite optimistic on economic growth for the quarters ahead, and that leads to better credit quality among a lot of corporate bond issuers. But our business keeps getting more diversified, right? So our European business is more important than ever. We talked about Asia, global EM is loaded with opportunities. All of them have different cycles and volatility characteristics along the way that it's not something that we worry that much about. We would not have encouraged anybody last spring to use those volatility levels as the new normal, and we would not encourage you today to leave -- to use current levels as the new normal either.

And what we do is focus on the long-term is -- and that's where we've had great success is investing in important trading protocols and new markets around the world and new clients onboarding, and there's a lot of that going on right now. And there's a lot of reason to believe that over the coming quarters, there are multiple factors that could increase volatility. So it's a short term headwind, but we are -- we're not -- it's not something we have sussed over because we've been through all kinds of market environments over the last 17 years.

And I'll just add, just when it comes to long-term growth rates. We are encouraged by the growth of fixed income ETFs. We clearly have correlation to some of the growth around fixed income ETFs and the trading of fixed income ETFs. And that long-term growth is underway and quite powerful as you look at the numbers that AUM pouring into fixed income ETFs globally. One reflection of that is in investment-grade, in the first quarter, our Open Trading, which is an important component of the fixed income ETFR, grew 24% in Q1 over 2020. So important fundamental growth rates are happening even in the face of macro wins. With regard to green bonds, we're doing a lot of exciting things in the whole ESG area. I'll note that our ESG report is now live, up on our website. So please take a look. There's been a lot of work into that report. And it reflects all the different things we're doing as a company, but also some of the things that we're doing for our client investors who trade green bonds. First quarter green bond volume was $13 billion. So we continue to see increases on our platform in green bonds. More importantly, we launched last year, the green bond -- the Trading for Trees initiative. So not only are we benefiting from the growth of green bonds trading on our platform, but we're taking a stand in the environment and planting trees. We planted 65,000 trees in the first quarter. That's on top of what we planted in 2020, which was 130,000 trees. So we continue to see a progress there -- and we have a small fire alarm test going on in our background, so please ignore that. But trees are being planted, green bonds are being traded. And we're super excited about what we can do in that environment.

The last thing I'll say is that the other trend that's important for all of you to keep an eye on is the increase in trading velocity that's taking place in credit. And a variety of factors for that, right? All-to-all trading is bringing a lot of new market participants into credit trading many for the first time. So you have a new base of market makers, a new base of systematic credit investors. They are clearly adding to the mix around trading velocity. And then you see all-to-all trading reducing transaction costs, which also traditionally will increase velocity. So lots of reasons to be optimistic that we could see higher levels of market turnover in global credit as all client segments seem to be embracing greater levels of electronic trading and trading automation.

(Operator Instructions)

Our next question comes from the line of Sean Horgan from Rosen Black.

I was wondering if you could talk about hiring plans for the year. How many new hires are you targeting for 2021? And how many of those are -- will be technology hires?

Yes, sure, Sean. Happy to take the question. And a big component of our expenses, it is compensation and benefits. It's more than 50% of our cost. And this year, as we entered the year, we were looking to add somewhere around 60 or 70 personnel. And the majority of that -- the vast majority of that would be in the technology space. We've got -- when you look at where we ended the first quarter with around 610 people, we've got -- just to put in perspective right now, we've got about -- line of sight on 50 roles with names attached to those roles. And about half of those are part of our college grad program, but we've got line of sight on around 50 roles today. So we feel pretty good about hitting that target of adding 60 or 70 personnel over the balance of the full year.

And our next question will come from line Ari Ghosh with Crédit Suisse.

Tony, just a quick clean up item, and again, apologies if I missed this one. But just looking at the 1Q non-op expense of that $1.7 million, I'm wondering if that's a good starting point for 2Q. I know there's a commitment fee here in the numbers, but I was wondering if the other moving parts that might drop off next quarter?

Yes, sure, Ari. And I know it's been a challenge to predict that line item. There's a variety of nonoperating items in there. So you've got foreign currency transaction gains a lot hard to predict that one. You've got unrealized and realized gains and losses on the investment portfolio. Again, hard to predict. There are items like our credit facility fees in there as well. But it was around $1.6 million in the first quarter. That did have some foreign currency transaction losses in there. Absent these unpredictable items -- this is what I had in the prepared remarks, absent the unpredictable items, foreign currency transaction gains or losses, unrealized and realized gains and losses on the investment portfolio, we think it's going to be about $1 million per quarter. That's where it would have been in the first quarter that's where it would have been in the fourth quarter. Again, absent these unpredictable items, that's where we think it will be over the balance of the year.

And there are no further questions. So I'll turn the call over to Rick McVey for any closing comments.

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

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