Marketaxess Holdings Inc (MKTX) 2020 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 27, 2021.

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

Good morning. Welcome to the MarketAxess Fourth Quarter 2020 Conference Call. For the call, Rick McVey, Chairman and Chief Executive Officer, will review the highlights for the quarter and full year 2020; Chris Concannon, President and Chief Operating Officer, will discuss automation and growth initiatives. 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 conditions 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, 2019, and our quarterly report on Form 10-Q for the third quarter. 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 2020 results. We finished the year strong with significant business momentum in the fourth quarter. Market share gains in core products fueled a 32% year-over-year increase in revenue and a 51% increase in operating income.

Revenue for the quarter was $171 million, and EPS of $1.91 was up 45% versus last year. High-grade market share reached a new high of 22.8%, and high-yield share surged to a new record of 17.1%, up from 10.6%. Open Trading volume grew 63% to $218 billion in the fourth quarter, driving estimated transaction cost savings of $225 million to our clients. We closed on the acquisition of Deutsche Börse's Regulatory Reporting Hub during the quarter, and client onboarding and integration is underway. On the back of the strong results, our Board of Directors approved an increase in our quarterly dividend to $0.66 per share, up from $0.60.

Slide 4 highlights our record full year results. Our long-term results show consistent execution of our growth agenda with strong 5-year and 10-year compound revenue growth of 18% and compound EPS growth of 25%. For full year 2020, revenue growth was 35% and EPS growth was 45%. The results this year reflect strength in all of our core credit products, with record volume and revenue in U.S. high-grade, high-yield, global EM, Eurobonds and munis.

Total credit trading volume was up 29% in 2020 to $2.6 trillion. Active trading client firms during 2020 surpassed 1,800, about half of which are outside of the U.S. Open Trading grew 33% of our traded volume, up from 26% in 2019. Estimated transaction cost savings from Open Trading skyrocketed to $1.1 billion for the full year. Investors and dealers both initiated record order flow into our Open Trading liquidity pool in 2020.

Slide 5 provides an update on market conditions. As of year-end, high-grade credit spreads have recovered to pre-pandemic levels. Credit spread volatility has also been declining over the last several quarters. High-grade and high-yield bond issuance peaked in Q2 and fell back to more normal levels in Q4. As a result of the combination of lower volatility and more normal new issue activity, TRACE volume was up just 9% year-over-year in the fourth quarter.

Average years to maturity for corporate bonds traded on the system remained at the high end of the historical range at 9.4 years. This is one of the factors contributing to our increase in fee capture per million in high-grade. These market conditions are normally not favorable for volume growth. However, market share grew strongly during the second half of the year, driving superior revenue and earnings growth.

Slide 6 provides an update on Open Trading. Open Trading saw sustained growth, even though market conditions normalized in the second half of the year, demonstrating the central role of our marketplace in today's credit market. Open Trading credit volume in the fourth quarter increased 63%, and overall credit trading revenue grew 34% versus last year.

For the quarter, Open Trading represented approximately 34% of our global credit trading volume, up from 27% in the fourth quarter of 2019. Dealer-initiated Open Trading volume grew 70% year-over-year, and over 1,600 unique client firms completed at least 1 trade in Open Trading during the quarter. Open Trading volume show strong growth trends in each of our core products. We are creating new trading and portfolio opportunities for our clients by delivering over 28,000 Open Trading orders per day, totaling $15 billion in daily notional value.

During the year, we also delivered important protocol enhancements, including Live Markets, our order book for actively traded corporate bonds as well as Mid-X, our sessions-based matching platform that utilizes our composite plus mid-market data.

Now let me turn the call over to Chris to provide an update on automation, information services and post-trade.

Thank you, Rick. Slide 7 demonstrates the growing momentum of automation and credit trading. Automated trading volumes rose to $32 billion in the fourth quarter, up from $24.3 billion in the fourth quarter of 2019. Auto-X trade count grew in the quarter to 163,000, up 28% from the prior year. We are also seeing a healthy adoption of Auto-X across Eurobonds, high-yield and emerging market bonds. The average trade size conducted through Auto-X is also rising. In U.S. investment-grade, the average trade size in 2020 grew 14% compared to 2019 and 40% compared to 2018.

Clients continue to increase the size of their orders as they gain comfort with the execution quality of our Auto-X solution. The use of dealer algorithms continues to grow on the platform with approximately 3.9 million algos -- algo responses in the fourth quarter, resulting in 308,000 trades. The average number of responses per inquiry remains strong, which ultimately improves the likelihood of execution across the platform.

Our new automated liquidity provision solution, Auto-Responder, has seen early traction. This solution allows investors to automatically respond to request for liquidity through Open Trading. In 2020, over $10 billion in notional value was automatically made available through our Auto-Responder solution. As the overall share of electronic trading grows in credit, we are seeing continued demand for our automated trading solutions.

Slide 8 provides an update on product diversification. Market data and analytics have never been more in demand than today. Information services revenue reached $34.3 million for the year, with a 5-year compounded growth rate of 11%. Our unique data solutions are assisting bond pricing and liquidity providers on our trading platform, thus helping to generate greater transaction volume.

In the years following the implementation of MiFID II, our post-trade services business has grown substantially. Post-trade revenues were $19.5 million in 2020, up 23% year-over-year. Reflecting hour commitment to post-trade, we recently announced the completed acquisition of Deutsche Börse's Regulatory Reporting Hub, which adds significant client penetration in Continental Europe and strengthens our data capabilities.

Our Rates business hit a critical milestone in the fourth quarter by integrating U.S. Treasury trading capabilities within the MarketAxess platform, providing a centralized fixed income trading solution with a full Click-To-Trade suite of products. This allows current credit trading users to seamlessly access this unique rates trading solution with complete post-trade integration. We also launched our net hedging solution in Q4, which supports our credit trading clients' ability to efficiently hedge their corporate bond transactions.

Slide 9 provides a summary of our trading volume across product categories. Our U.S. high-grade volumes were up 26% year-over-year to $318 billion for the quarter, largely due to market share gains and an increase in market volumes. Estimated U.S. high-grade market share increased by 2.8 percentage points year-over-year to 22.8%, while estimated U.S. high-grade market volumes were up 10% year-over-year.

Volumes in our other credit category were up 36% year-over-year to $321 billion for the quarter. Market share gains account for the vast majority of the 74% increase in U.S. high-yield volume.

Eurobond volumes experienced a 31% increase, and emerging market bond volume grew by 19% year-over-year. I am also excited to report that our municipal bond volume doubled year-over-year.

Our Rates business maintained its dealer-to-dealer market share compared to Q4 of 2019 in what was a difficult market environment. We believe the investment made in new trading technology, expanded product coverage and enhanced data tools will continue to differentiate our Rates offering.

Our 2020 green bond trading initiative was very successful, with $27 billion green bonds traded on the platform, resulting in nearly 135,000 trees planted in critical regions across the world. With 3 trading days remaining in January, estimated U.S. TRACE market volumes are running more than 10% above January 2020, while estimated Eurobond and emerging market volumes are similar to January 2020. Estimated combined market share across our 4 core products is seasonally below the fourth quarter levels, but well above the January 2020 levels. Our month-to-date average daily trading volume in credit products is up more than 20% versus January 2020.

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

Thank you, Chris. On Slide 10, we provide a summary of our quarterly earnings performance. Revenue was $171 million, up 32% year-over-year. The 31% increase in credit trading volume and higher overall credit fee capture resulted in a 33% uplift in commissions.

Post-trade services revenue was up 67% to $6.6 million and reflects 1 month of trade reporting activity from clients added to the regulatory reporting hub acquisition. Operating income was up 51% year-over-year, and operating margin reached 53.5% during the quarter. Full year 2020 operating margin was up more than 5 percentage points to 54.4%.

The effective tax rate was 19.2% in the fourth quarter, and our full year effective tax rate came in at 20%, which was right at the low end of our 2020 guidance range.

On Slide 11, we have laid out our commission revenue, trading volumes and fees per million. Total variable transaction fees were up 40% year-over-year, driven by the increase in credit trading volume and higher U.S. high-grade fee capture. U.S. high-grade fee per million was down $12 versus the third quarter level, but $17 higher year-over-year. A combination of shorter duration and higher weighting to larger trade sizes accounted for the sequential decline in fee capture.

Our other credit category fee capture decreased by $6 on a sequential basis, but was $11 higher year-over-year. The slight drop in sequential other credit fee capture was principally due to a mix shift with a greater weighting towards Eurobonds and emerging markets sovereign bonds. The sequential change in distribution of fees was due to variances in unused minimum commitment fees under all variable dealer plans.

Slide 12 provides you with the expense detail. The year-over-year rise in compensation and benefits was due to an increase in headcount of 79 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 and the trading platform, along with the amortization of acquired intangibles.

Clearing costs were up almost 50%, reflecting the 63% increase in Open Trading volume. As I mentioned on the third quarter earnings call, we expect our steady-state third-party clearing costs for credit trading, measured as a percentage of Open Trading revenue or on a per-ticket basis, to decline by upwards of 1/3. Excluding M&A transaction and integration costs and the amortization of intangible assets associated with the regulatory hub acquisition, expenses were up 12% in the fourth quarter.

On Slide 13, we provide balance sheet information. Cash and investments as of December 31 were $489 million, and free cash flow reached a record $340 million in 2020. Dividends and share repurchases aggregated $150 million and capital expenditures were $46 million in 2020. With the announced increase in the quarterly dividend to $0.66 per share, we have tripled the dividend level over the past 5 years, which matches the growth in earnings and free cash flow generation.

Our Board recently authorized a new $100 million share repurchase program to replace the plan expiring at the end of March. As has been our practice, the principal purpose of the repurchase plan is to offset dilution from employee equity grants.

During the fourth quarter, we also entered into a new $500 million revolving credit facility with the syndicated banks to support our clearing activities and add financial flexibility. There were no borrowings outstanding at year-end under this facility.

On Slide 14, we have laid out our 2021 guidance for expenses, capital expenditures and the effective tax rate. We expect that total 2021 expenses will be in the range of $362 million to $382 million. Employee compensation and benefit costs are expected to represent around 50% of total expenses consistent with the trend over the past several years.

We have built the plan using a sterling to U.S. dollar exchange rate of 1.35, which has the effect of adding around $4 million to the expense guidance. This guidance range reflects a full year of operating expenses related to the regulatory reporting hub acquisition, including an estimated $5 million for amortization of acquired intangibles and $5 million in nonrecurring integration costs. Excluding the expenses related to regulatory reporting hub, the midpoint in the guidance range would represent an approximate 13% year-over-year increase in expenses on a constant currency basis.

2021 capital expenditures are expected to range from $50 million to $55 million, of which roughly 2/3 relates to capitalized software development costs resulting from the investments we are making in new protocols and enhancements to the trading platform.

We expect that the effective tax rate for full year 2021 will range from 22% to 24%. The increase in the effective tax rate versus 2020 is driven by lower estimated excess tax benefits related to share-based compensation awards. Based on the expected timing for realizing the excess tax benefits, the effective tax rate will likely be in the 20% range in the first quarter and then the 24% to 25% range in the second, third and fourth quarters.

Now let me turn the call back to Rick.

Thank you, Tony. 2020 was an outstanding year for revenue and earnings growth. I want to thank all MarketAxess employees for their dedication that led to these terrific results. Market share momentum in the second half of 2020 positions us well for continued growth in the years ahead. We are investing heavily to grow our portfolio of products, protocols and clients in order to continue our track record of long-term sustainable growth.

We would now be happy to open the line for your questions.

(Operator Instructions) Our first question comes from Dan Fannon with Jefferies.

I guess my first question is for Tony on the expenses and just kind of the outlook. Looking at the organic expense growth slightly higher than where I think you started out last year in terms of what you were going to spend on, could you maybe highlight some of the areas of spend and kind of initiatives that might be different year-over-year? And then -- yes, that and then also just any other kind of normalization of spending that might be factored in, in terms of travel and spending around kind of the macro and COVID-related expenses?

Yes. Sure, Dan. Happy to take that one. So on the expense guidance, we try to give you the pieces. It's easier to explain in the 2 pieces which is the organic growth and then the regulatory reporting hub overlay on top of that.

I'd say we're guiding to a 13% constant currency increase. It probably shouldn't be a surprise. If you look at history, Rick had given some color on the revenue and earnings CAGR. So if you look at the expense CAGR over the past 5 or 10 years, it's 15%. So the 13% that we're guiding to is really right in line with history. And I would tell you also that I'd suggest that shareholders would continue to support that type of continuing investment if you look at the revenue and earnings growth that we've delivered over the years.

But put that aside, in terms of the pieces, the -- on the organic piece, we entered 2021 with a full investment agenda. We've got new protocols, newer product areas, geographic expansion efforts. So we're continuing on that investment path.

Individual line items, and this won't be a surprise, where you're going to see most of the absolute expense increase is in comp and benefits. It's really headcount-driven. If you think about the 80-or-so people that we added in 2020, we have plans to add another 60-or-so personnel to support our growth agenda in 2021. So it won't be a surprise that that's the line item that will dominate the expense increase.

The other piece. You look at -- and this will be along the investment theme. Depreciation and amortization is expected to be 25% or so higher than 2020 on an organic basis. And that reflects the investment we've been making in trading protocols and the platform. And specifically, it revolves around the amortization of software development costs. So those are the big items.

And I'd give you 2 other items, just to give you a little bit of color. Yes, we expect an increase in marketing and advertising and G&A expenses, which would be driven by the resumption of T&E. Right now, in our models, we've got travel and entertainment resuming sometime in the second half of the year. So you'll see some increase there, but that's not what's dominating the absolute numbers.

The other one, just to give you a little bit of color. We're expecting clearing costs to be flattish year-over-year. And I do want to spend just 2 minutes on that because there's 2 components to clearing costs. You have clearing costs related to credit and then you have clearing costs related to U.S. Treasuries. And we're budgeting in the aggregate to be flat. The savings that we anticipate from going to self-clearing and transitioning settlement agents in the U.K., those savings will likely be offset by an increase in expected volume from Open Trading and an increase in U.S. Treasury trading volume. So even though we're expecting steady-state savings from the transition in clearing of $5 million or $6 million, we expect that to be offset. So I just want to give you a little bit of color on that.

Boy, that was a long-winded answer, wasn't it?

I fell asleep.

Our next question comes from Rich Repetto with Piper Sandler.

I had a question on automated trading, but Chris covered it so well, I can skip it. So I'll go right to the other -- the long-winded answer that Tony had. On the self-clearing, you mentioned that you reduced it by -- I thought you said a 1/3. But I thought that percentage -- I thought it was like -- it's running at 12% of Open Trading revenue right now, and I thought that could cut in half. And I'm just trying to understand why. It doesn't seem like we saw any impact in this quarter, and I thought we ramped -- or started to launch it in August. And where are we at as we enter the new year in regards to fully have all the capital in place, et cetera?

So Rich, no, and I'm happy to answer the follow-on question on this. And really, you need to look at the clearing cost in 2 pieces. And we have the costs associated with clearing, Open Trading, corporate bond transactions. And that has to do with self-clearing in the U.S., transition to the settlement agent in the U.K. And that's what we've been talking about, a reduction in those clearing costs by upwards of 1/3.

But the second component, and this is part of why you're not seeing the reduction, the second component is clearing cost for U.S. Treasury trading, where MarketAxess intermediates those trades. In the near term, we're leaving that treasury clearing model in place. And I've talked about this in the past. Clearing cost for treasuries run somewhere around 30% of treasury revenue. It depends on the protocol, it depends on trade size during the quarter. Longer term, we'll look at rationalizing the broker-dealers and ultimately addressing the clearing model longer term. But you have to look at those 2 pieces.

Now in the fourth quarter, and I -- admittedly, we did see some improvement in clearing cost. So for example, as a percentage of Open Trading revenue for credit. Clearing costs were a little more than 9%. They had been running the prior year with a little higher than 11% in the fourth quarter. So we did see some improvement, but we acknowledged that there were some teething pains in the fourth quarter.

We're still -- we're looking at 2021 expenses. Third-party clearing cost expenses for credit, we believe that the savings will be upwards of 1/3 on a steady-state basis, whether you look at it as a percentage of Open Trading revenue on a per-ticket basis, on a per-million traded basis. We're still looking at about a 30% or so savings. So it doesn't come through clearly in the numbers, but some of it has to do with, again, with -- we have 2 elements to our clearing costs, both corporate bonds and then on the treasury side.

And Rich, just to complete that thought, the -- if you look at our self-clearing, it's fully converted in the U.S. across our products in OT. So we're fully up and running. Our conversion in Europe is targeted for the end of the first quarter. And then with regard to our treasury platform, anything that we recently launched, as I mentioned, our Click-To-Trade solutions and our integrated rates trading platform, that all comes through our self-clearing solution today. So growth in rates in 2021 as part of our new offering, our unique new offering, will be self-cleared. We're also looking at our third-party clearing relationships and with regard to our current D2D platform, and we continue to look at optionality, whether we want to self-clear and when. So a lot of movement will happen in -- continue to happen in 2021 with regard to third-party clearing.

Our next question comes from Chris Allen with Compass Point.

I wanted to ask just on the fully integrated Rates trading capability now and the net hedging. Just what kind of uptake you've seen so far, what's the client participation been like and just kind of how the outlook on that product suite?

Sure. Great question. Just going back to 2020, on our Rates business, we launched auto hedging, which is really a dealer solution to protect dealers on their hedging capability. Net hedging was launched late in the fourth quarter and rolled out on a pilot basis. It is now go live in Q1, and we're seeing, obviously, a long list of clients that have had interest in that net hedging solution for some time. So the client take-up should roll out here in the first and second quarter with additional enhancements to net hedging over the first half of the year.

With regard to the fully live rate solution, a couple of movements there. I think one of the more exciting things is our integrated trading solution, fully Click-To-Trade, liquid streams in both on-the-run and, more importantly, our very unique off-the-run streaming solution, which really no other platforms have streaming off-the-runs to institutional clients. So that's new as part of our offering.

We also plan to launch RFQ in the first half of this year. So we'd have a combined Click-To-Trade. So for your more liquid front end of the curve would be Click-To-Trade solutions, and then you'd be able to RFQ across the curve for larger trade size or less liquid products. And that right now is being communicated to our clients, and the demand is quite high, particularly around the events of last year and the liquidity constraints that were on some of the other platforms offering rates trading. So there's some excitement from our clients on providing not only a full breadth of product with unique off-the-run Click-To-Trade solutions, but also having a unique liquidity on the platform similar to how we run our credit trading solutions.

Our next question comes from Ari Ghosh with Crédit Suisse.

Maybe a quick one for either Rick or Chris on the evolution of the muni and the EM markets, so there. Looking at both EM and especially munis, they have lower levels of electronification, the unlimited data and transparency. So I was hoping that you could talk about your broader strategy, including initiatives, leverage and platform data and your recent acquisitions to kind of solve these inefficiencies. And if you have a sense for the size of the revenue opportunity there and potential time line of some of these structural changes to take hold.

Yes, I'm happy to take a start at that, Ari, and I'm sure Chris will have some follow-up points. But I'm glad you pointed out 2 enormous growth opportunities for us. And we're excited about the progress that we made in the municipal bond market during the course of 2020, and all signs are that we can add a lot of value there in terms of transaction cost savings and efficiency in the years ahead.

And you're right, the institutional market really hasn't been electronic historically. So there's a lot of market share available there that is still done either through instant messaging or through phone conversations that we think will benefit from our platform. And as you know, the muni market is the most fragmented bond market in the world. So Open Trading adds a tremendous amount of value where we can connect all market participants into our all-to-all liquidity pool and add value in terms of connecting people and finding the other side of the trade.

EM is much the same. It's been an important growth area for us for many years, but we're more excited about what's still ahead. And when you're here at MarketAxess, you don't really think all that much about the part of the market that's already electronic. You think about the 75% of global credit that's not yet electronic. And global EM is a great example of that where we are connecting not only hard currency debt in EM, but 26 local markets all in one marketplace, with a combination of dealer liquidity and alternative liquidity through all-to-all or Open Trading.

So we think we've got a tremendous opportunity there. We're excited about the signs we see at beginning of electronic trading adoption in important areas like Asia. We are seeing really good client take-up going on there, and that will be an important part of our global EM strategy. But this is why we're investing the way that we are, as Tony talked about earlier, is the future opportunity is just so large. And munis and global EM are just 2 of many examples that we're looking at right now.

And just to put it in context of the whole market, if you look at the full year 2020, the top 5 banks alone had global FICC revenue of $68 billion. MarketAxess had a record year of about $690 million or 1% of that revenue pie. So we see tremendous opportunity ahead as the market continues to adopt to the structural changes that are taking place, new forms of liquidity, the growth in ETF assets, the growth in portfolio trading. We're really excited about what we see as the change in the market taking place that will undoubtedly increase market turnover and velocity. And that's what really fuels our interest in continuing to invest in this business.

Our next question comes from Michael Cyprys with Morgan Stanley.

I just wanted to circle back to some of the commentary earlier around automated trading. I'm hearing that the size of the trades going through there is increasing. Just curious if you could add any color on the block size penetration, where that is now, how that's evolving and how you might be able to increase the block penetration on the automated trading side even further, whether it's in terms of new protocols and innovation. Just how you're thinking about that.

Sure. And again, the automated trading solution has been largely adopted by clients for small-ticket solution. It hasn't been targeted for larger ticket. However, as we think about developing the automated suite of products, our target is for block trades, particularly when you start to integrate both Auto-Responder, which is the ability to provide liquidity to other parties who are requesting price, and Auto-X and putting together those products into a single suite or a single order similar to a client algorithm would allow larger block orders to provide liquidity throughout the day and then Auto-X at the end of the day. So both liquidity provider and a liquidity taker all-in-one automated solution.

Those are some of the targets that we have in 2021 as part of the initiatives around automation. But today, as we see the current client experience, the execution quality for trades, somewhere around $2 million in size is quite similar to anything $5 million in size. So that's why we're seeing a nice growth, a 14% growth year-over-year in trade sizes in automation.

Our next question comes from Kyle Voigt with KBW.

Maybe a bigger-picture question on the high-yield business. I think when we've talked about the liquidity characteristics of that high-yield market versus high-grade in the past, there was an agreement that the eventual electronic penetration rate in the high-yield market will be lower than the high-grade market. Just curious to hear updated thoughts there and if they changed at all, just given that we've just seen tremendous growth in high-yield, electronic trading last year. Just wondering if there's something different about the ETF market or the hedge fund adoption or growth there that's changed your long-term view on kind of the high-yield eventual electronic penetration rates.

Great. Thanks for that, Kyle. And you're right. This is undoubtedly the best year-over-year market share growth story we've ever had at MarketAxess, seeing the inflection point in high-yield during the course of 2020.

But I'd point to a number of things. It's the size of our open order trading -- Open Trading order book now is so significant that it's drawing new interest into our platform for high-yield trading. And the results are very good in terms of the quality of execution and the transaction cost savings that we can deliver. So that creates this virtuous cycle where investors are more inclined to continue to put more orders into the system because of the transaction cost savings that they are achieving.

I'd also say this is a market which is a great example of the changes taking place in fixed income because we have very active alternative market makers that are now committing new capital to the high-yield market. This is their primary way of transacting with end institutional clients is through the MarketAxess system.

The hedge funds are getting much more involved in our high-yield platform and finding great trading opportunities. And then there's significant growth going on in systematic credit trading strategies. And we see a lot of activity in rebalancing from systematic strategies coming into the high-yield platform. So it's really a combination of factors. And yes, I do -- we all have higher thoughts now about where that electronic share will go.

The other thing that's been really interesting to observe over the last 3 or 4 quarters is that a year ago, the bulk of our activity in high-yield was really in $1 million and under trade sizes. We're now doing significantly better in round lot high-yield trading, which is a terrific sign that the market is getting much more comfortable putting larger trade sizes through on the high-yield system. So we're really pleased with the results, but we think there's a long way to go. We're 17% of the market in the fourth quarter and the other 83% is mostly conducted through traditional means. So there's a lot of runway left in the high-yield market, and we're excited about what we see.

Our next question comes from Chris Shutler with William Blair.

Just another big-picture question to kind of follow up on that last one. I know market share is going to vary in any given year based on the conditions in the market. But over, let's say, a 5-year horizon, at this stage, what is your expectation for your market share gains in high-grade and high-yield given the acceleration we saw in 2020?

I just think that there are many favorable macro trends that are working their way through the global credit markets and leading to very positive market share trends on MarketAxess. And I mentioned them briefly earlier. But the growth in ETF, funds under management is driving a lot of activity in the underlying bonds. It's creating a lot of relative value trading activity between the ETF shares and the underlying bond market. Portfolio trading is really driving a lot of activity into our system on managing the tail risk in block bulk transactions that take place. And you're seeing this huge growth in both buy side and sell side, new entrants and new participants in global credit markets.

So it leaves me feeling like we are going to see 5 years of very healthy growth in market share and a significant portion of global credit over the next 5 to 10 years is likely to be electronic. And this is why we have no hesitation about investing heavily in the business. Because the majority of the business today is still conducted through traditional means. And I think the direction of travel is very clear that electronic trading percentage of the market will continue to grow because of the transaction cost benefits that we are delivering and the efficiency it brings to all market participants and the fact that it does allow everybody to participate on a level playing field. So we see many good years ahead in terms of market share gains.

And Rick, I'll just add. When you look at electronic market share growth in the global credit market, it should experience similar characteristics to other markets where you also see combined with that electronic growth and market share turnover growth. We've witnessed that in 2020, and we expect that to continue. So as the electronic piece of the market grows and, certainly, people in the industry forecast it can be as high as 90% of the overall market, you will likely see higher turnover rates across the global corporate bond market as well.

And we're seeing elements of that happening where certain hedge funds -- systematic hedge funds are entering the market using our platform. And we've seen those entries in other asset classes where turnover does increase. So you can't just look at it as a single number, what is electronic market share of the overall market. You do typically experience higher turnover rates in the market.

Our next question comes from Alex Blostein with Goldman Sachs.

Just maybe building on that last response. Can you provide some evidence over the course of the last, call it, year, maybe 1.5 years of where larger-size trades get broken down into smaller trades that ultimately kind of make their way into your market? I know that's also a big part of some of the initiatives and the protocols that you guys have been putting together. I'm just trying to put some numbers around that and to see how much of that has actually been coming through.

Yes. The only thing I would -- I mean we see large blocks go up. We see large portfolios go up on TRACE. And then we obviously see activity on our platform as a result of those trades. I think one area of evidence that we're benefiting from some of the block trades, aside from just our overall block trade growth rate, and then IG block trading were up 11% in Q4. It's just our dealer RFQ initiative that we really were pushing throughout 2020 has seen exceptional growth where dealers are coming to us for liquidation of positions.

And largely, those liquidations are as a result of a larger block trade that was done. And they have either pieces of that trade that they're unloading or other pieces of a portfolio that they are liquidating. So our -- really, our dealer RFQ growth rate -- and in Q4, in high-yield alone, our dealer RFQ offering doubled in volume. And overall, dealer RFQ was up substantially throughout 2020. So I think that's an area of evidence where we may not be capturing the original block, but we're seeing the benefits of the liquidation of block pieces.

And our own view is that trading automation is still in early innings in global credit. And I think as that takes hold over the coming years, you're going to see more optionality among institutional investors in terms of how they execute blocks. It's not evident in terms of the percentage of block trading in TRACE yet, but I think automation will play a part of that story in the years ahead. And I think it will give another option to investors when they think about the best way to execute blocks.

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

Yes. I have a follow-up for Mr. Automation over there. So if we look at 2020, it appears that like it was a year of Open Trading. Like you talked about earlier, Rick, it helped high-yield market share, et cetera. But when you look at all the initiatives you got going on, whether it be blocks -- high block trades or high turnover portfolio trading, let's just say the next to 12 months, like what really think -- which area do you think will really hit are you expected to hit in 2021?

Well, I think our -- I'll start with our investment in treasuries and the Rates business. That's an area that I'm most excited about because of our unique offering. It also comes with a little bit of automation. So remember, you can wrap automation around the treasuries offering that we're launching in 2021.

I think I said a year ago that I loved munis. And if you look at our performance in munis in 2020, we're more excited about the opportunity in 2021 given our growth rate. We had a record day for munis in January, just recently. So continued excitement around that.

Our plan for automation is quite sophisticated in how we're starting to combine Auto-X and Auto-Responder together to create what are the early days of the traditional algorithm for clients to help clients take a large block order, be passive throughout the period of the day, have a timed auto-execution later in the day, so they can still see the success of the position getting executed, but they can improve their execution quality throughout the day. Features where we're providing own methods with trades, partial trades on a larger-size order is all being rolled out in 2021. So just a great deal of activity in the automation area across all of our products.

And as I mentioned in talking points, we're seeing automation uptake across not only just high-grade and high yield, but also Eurobonds, EM as well. So pretty big agenda for automation in 2021. I'm not sure if I answered your question, Rich.

You did.

Our next question comes from Brian Bedell with Deutsche Bank.

Great. Maybe just a follow-on from the market share, electronic kind of penetration market share even. The flip side of that, can you characterize what you think is the headwind from new issuance as banks conduct this new bonds and largely trade those unseasoned bonds? Maybe some commentary about sort of that part of the market, which I guess would be sort of untouchable, so to speak, or not as viable for electronic penetration. Maybe if you can sort of comment on that thought, and roughly what percentage of the market you believe that is?

Sure. I'm happy to take a shot at that, Brian. But I think what you're referring to is the very robust and record levels of new issuance last year and how that impacts new issue activity this year. And you're right, it would be unreasonable to expect that new issue volume and activity this year will mimic last year. However, when we look at the dealer estimates, it's still expected to be an active year on any normal basis. It was just last year, it was extraordinary because of the needs for so many corporations to bolster liquidity on their balance sheet during the pandemic.

So we are -- we would temper our views on new issue secondary trading activity this year relative to last. But we still think the long-term macro trend is toward more market turnover and higher velocity. And the greater electronification of credit markets is one piece of that. And as I mentioned, the new tools around portfolio and ETF to transfer risk are part of that story. And then the massive increase in credit market participants is part of that story. So we still think, in the short term, yes, we might have a minor headwind from slightly less newly issued bond trading. But in the long term, we're really bullish on overall market volume and market turnover.

We have new protocols, Live Markets, Mid-X, others that are really designed around actively traded bonds, including newly issued bonds. So we think we have a role to play in that market after the bonds break into the secondary market, and we'll continue to push ahead on that as well.

Our next question comes from Dan Fannon with Jefferies.

Just a follow-up on the nontransactional revenue and just kind of the outlook for info services as well as post-trade, and if you could separate out the recent acquisition and then the underlying growth rates as we kind of think about 2021.

Yes, sure, Dan. So on the info services side, Chris had some comments that full year revenue was up around 12%. And even when you look at the 5-year compounded annual growth rate for information services, it's right around that 11% or 12% range.

In terms of a little bit of guidance for 2021, we've got a pretty decent pipeline as we enter 2021. We think we can deliver another year of double-digit revenue growth. And we had new data sales last year of about $6.5 million. It was about $5.5 million the year before that. We've got a pretty good pipeline entering 2021. But I just would reiterate what we've said in the past around data that we're also using data to incent clients to trade more on the platform. And that's a principal use of the content that we're capturing. So we expect to grow the info services revenue double digits. But again, it is an important piece of the information we're delivering to help clients make pricing decisions.

On the post-trade side, take it in 2 pieces on the post-trade side. And we have given some color on regulatory reporting hub what the impact would be. We gave some color in the third quarter. Take that piece, it's somewhere around $1 million per month in revenue is what we're expecting, maybe a little bit higher than that what we're expecting in 2021. On the organic side, we're expecting double-digit growth on the organic side, and it's really a full year impact of SFTR reporting, which came online midway through 2020.

And it's also -- we've been adding clients organically. So the combination of those 2 items, we think we're looking at double-digit organic growth, overlay regulatory reporting hub, $1 million or so in revenue a month. And that gives you a sense for what we're expecting for 2021.

Our next question comes from Chris Allen with Compass Point.

Dan actually asked my question. I guess just one quick one. There's been some recent calls in Europe for consolidated bond tape. Any thoughts around the impact there and how you could participate?

Sure. Happy to take that. I think it's early days in the new regulatory structure in Europe post-Brexit in terms of where this all lands. Clearly, MiFID II included some commentary on consolidated trade tape.

It's -- and I would start by saying we are big fans of market transparency. We think they -- transparency increases participation and creates a fair marketplace. And Europe is lacking some of that transparency today, so we are supportive of transparency improving in the region. We, obviously, with our reg reporting and our e-trading business, have a substantial amount of transaction data. And we do think we have a role to play, but it's not exactly clear yet where this will all land. I think we'll learn more about it over the next year or 2. And it will take time before anything is implemented, but we do believe with the vast base of transaction data that we have, we have ways to participate in that.

Our next question comes from Brian Bedell with Deutsche Bank.

Just a quick one on green bonds for Chris. It looks like it's worth about 1% of your volumes overall. It's still pretty small. Growing, though. I guess what's your outlook for volume growth in there or maybe share of the market? Maybe just sort of as you see a characterization of client demand for that over the next 2 to 3 years, and then your economics on trading that, any significantly different than your overall revenue capture rate?

Great question. I appreciate the question on the green bond initiative because it's something we work closely on all year. Obviously, the goal of the green bond initiative was certainly to provide our clients with a better solution as they went out to look for filling some of their ESG mandates that they were getting from their own clients. We certainly made green bonds much more available on the platform.

The nice thing about the solution is we were planting trees for every $1 million of green bonds that you traded on the platform. So the economic incentives are there, but also the benefits for the environment are there as well and planting over 135,000 trees as a result of those green bonds traded on platform.

Green bonds and really ESG-related bonds saw a record issuance in 2020. The forecast for 2021 are even larger. So we expect ESG-related bonds to make up a much larger portion of the new issue market in 2021. And we will continue to run our green bond trading for tree solution. Clients are getting -- will be getting certificates for the trees that they planted. We're also excited to pick the #1 trading for trees trader on the planet, so they'll get an award as we roll out some of the awards for the environmental efforts that our clients participated in.

There's another initiative that's related that I think is worth mentioning because it cuts across many of our products. And that's our diversity dealer solution that we rolled out in the fourth quarter. It's quite exciting because it really solves some of the similar mandates that our clients have around ESG. And this allows diversity dealers to take advantage of our all-to-all marketplace, Open Trading, and attach themselves to that market and participate in trades where they can also save our clients -- better execution quality and save them money on their actual execution.

So our clients are seeing the ability to select a diversity dealer at the same time as achieve best execution in their execution. So I expect the diversity dealer solution and our green bond solution to be quite exciting solutions as we look into 2021 and all the ESG-related mandates that are coming down from investors across the globe.

We're showing no further questions in queue at this time. I'd like to turn the call back to Rick McVey for closing remarks.

Thank you for joining us this morning, and all the best to all of you for 2021. And stay safe, and stay healthy.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.