Marketaxess Holdings Inc (MKTX) 2023 Q1 法說會逐字稿

Ladies and gentlemen, thanks for standing by. Welcome to the MarketAxess First Quarter 2023 Earnings Conference Call. (Operator Instructions) And as a reminder, this conference call is being recorded on April 26, 2023. I would now like to turn the call over to Mr. Steve Davidson, Head of Investor Relations at MarketAxess. Please go ahead, sir.

Thank you, Bo. Good morning, and welcome to the MarketAxess First Quarter 2023 Earnings Conference Call. For the call, Chris Concannon, Chief Executive Officer, will provide you with an update on key business trends. Chris Gerosa, Chief Financial Officer, will walk you through the financial results for the quarter. And then Rick McVey, Founder and Executive Chairman, will provide an update on the market environment and the long-term opportunity ahead for the company.

Before I turn the call over to Chris Concannon, 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, 2022. I would also direct you read the forward-looking statement disclaimer in our quarterly earnings release, which was issued earlier this morning and is now available on our website.

Now let me turn the call over to Chris Concannon.

Good morning. I'm very pleased to share with you our strong first quarter results on my first earnings call as CEO of MarketAxess. We continue to execute our growth strategy during the quarter and delivered record revenues which increased 9% or 11% on a constant currency basis. Earnings per share grew 15%, reflecting the continued improvement in our underlying revenue and earnings growth trends, as shown on Slide 3. These strong results were broad-based across products, protocols and geographies, reflecting the powerful diversification of our model driven by the investments we have made over the past several years. Specifically, we delivered record levels of average daily trading volumes across nearly all products.

The fourth consecutive quarter of strong estimated market share gains, record levels of commission revenue across U.S. high yield, emerging markets and eurobonds, record levels of revenue and trading volume contribution from our international businesses and record levels of volume from newer client segments, new initiatives and record levels of automation. In summary, we had a very strong quarter with records across key products and protocols.

The impact of the rapid rate rise in 2022 has now filtered into the broader market, resulting in the banking sector market dislocation in March. While we have seen a retracement in industry volumes over the last several weeks, we believe this is a temporary pause as the markets digest the events of March and their impact on the trajectory of rate hikes for the Federal Reserve. Lastly, I could not be more pleased to have Nancy Altobello as our new Lead Independent Director of the Board, which was announced earlier this week. Nancy brings a wealth of audit, talent management, diversity and corporate culture experience to the role, and I'm looking forward to our continued collaboration and partnership.

Slide 4 highlights the strength of our unique all-to-all solution, Open Trading. We were very pleased with the performance of Open Trading in March. As liquidity became more challenging in March, we saw daily highs of Open Trading share grow to 57% in high grade and 61% in high yield. For the quarter, we registered record Open Trading average daily volume of $4.5 billion, up 21%, with record U.S. high-grade share of 34%. We are executing approximately 13,000 trades per day in Open Trading and approximately 32,000 trades per day across total credit.

Open Trading also delivered total price improvement of $252 million, well in excess of our quarterly revenue.

Slide 5 highlights our multidimensional growth across new products, new initiatives, new client segments and geographies. First, in new products, we grew estimated municipal market share to a record 6.4% in the quarter with 376 active client firms trading. We have also recently integrated the MuniBrokers system with the MarketAxess pool of liquidity to provide clients with more trading options. In U.S. treasuries, we continue to see client growth in our treasury offering with 250 active participants on the platform, up from 145 in the prior year.

We have established a very strong pipeline of future growth cylinders with record volume across Dealer RFQ, Portfolio Trading, our diversity dealer initiative and Axess IQ, our front end for private banks in Europe. We are also seeing strong contributions to our growth from newer client segments, including hedge funds, systematic funds, dealer-initiated flow and private banks. We generated a record $216 billion in trading volume from these important client segments, which now represent 25% of our total credit trading volume.

Our estimated share of U.S. high-grade can fluctuate given various market factors, including the banking crisis, block trading activity, new issuance and growth in client segments outside of our focus on institutional client flow. For example, we estimate that the dealer-to-dealer retail segments of TRACE grew 31% year-over-year and now represent a combined 28% of high-grade TRACE, up from 25% in the prior year. Lastly, in emerging markets, we had record ADV this quarter with local market volume growing 10% year-over-year to a record $71 billion in the quarter.

Slide 6 shows the continued strong adoption of automation tools by our clients, powered by CP+. Automated trading increased to a record $69 billion in volume and a record 398,000 trades. Importantly, our automation tools have continued to grow through periods of significant market dislocation, which is a testament to the quality and accuracy of our CP+ data. Today, Auto-X represents 20% of total credit trade count and 8% of our total credit trading volume.

At the core of our automation tools and workflow at CP+, our world-class algorithmic pricing engine, which was a key driver of our record data revenue in the quarter. With the recent launch of Adaptive Auto-X, which is currently in pilot, we are delivering an algo trading solution that automates trading across protocol and liquidity pool while seeking to greatly improve their execution quality.

Before I turn the call over to Chris Gerosa, I wanted to provide an update on market trends with 3 important trading days remaining in the month, market volumes are weaker in April, but U.S. high-grade estimated market shares improved from March and is running above first quarter levels.

Now let me turn the call over to Chris for a review of our strong financial results.

Thank you, Chris. On Slide 8, we provide a summary of our quarterly financials. For the quarter, we delivered record revenue of $203 million, up 9%, driven by strong market share gains across most products. On a constant currency basis, revenues would have increased approximately 11%. Record information services revenue is up 12% or 18% excluding the impact of foreign exchange. The benefit of the contracts signed in the fourth quarter and increased adoption of CP+ Axess All Prints and Trax data was a positive driver of a strong year-over-year performance.

First quarter post-trade revenue included the negative impact of approximately $700,000 on the strengthening U.S. dollar compared to the prior year quarter. Excluding the impact of foreign exchange, the year-over-year growth rate would have been approximately 8%. The lower contribution from RFQ Hub was driven by a tax adjustment related to the 2022 financials. The effective tax rate was 25% below the prior year period.

On Slide 9, we provide more detail on our commission revenue and our fees per million. Total commission revenue increased 10%. Our growth in total credit commission revenue was driven by record increases in estimated market share and healthy increases in our trading volume but was partially offset by lower average fee capture across U.S. high grade. The reduction in high grade fee capture from prior year was driven principally by the lower duration of U.S. high-grade bonds traded over our platform compared to the prior year. While U.S. high-grade fee capture declined year-over-year, duration has remained relatively stable over the last several months as reflected in the corporate bond duration index.

On Slide 10, we provide a summary of our operating expenses. First quarter expenses increased 10%, driven principally by investments to enhance the trading system and our data product offering. Excluding the impact of foreign exchange, expenses would have increased 12%. Employee compensation and benefits increased $5 million on a 12% increase in headcount mainly in technology and customer-facing roles to support revenue growth initiatives.

Tech and communications expenses increased $3 million due to higher subscription and data hosting expenses. Clearing costs were flat despite higher open trading volumes due to renegotiated clearing fees related to U.S. treasuries and the favorable impact of foreign exchange. Our marketing and G&A expenses increased principally due to increases in advertising, D&A costs, higher office-related expenses that have been reduced in the prior year due to the pandemic.

On Slide 11, we provide an update on our balance sheet, cash flow and capital management. Our balance sheet continues to be solid with cash and investments totaling $440 million, and we had no outstanding debt at quarter end. We are prudently investing our cash to take advantage of a favorable interest rate environment to continue to deliver strong net interest income in the coming quarters. We are a strong cash flow generator as our trailing 12-month free cash flow came in at $271 million. During the past 12 months, we paid out $107 million in quarterly dividends to our shareholders. And our Board of Directors declared a regular quarterly cash dividend of $0.72 based on the financial performance of the company.

Now let me turn the call over to Rick to provide an update on market conditions and a long-term growth opportunity ahead of us.

Thank you, Chris. Slide 13 provides an update on market conditions and U.S. credit. As we have noted over the last several quarters, last year's rapid rate increases dramatically impacted investment-grade index returns, and a higher rate environment is now beginning to flow through to the investment portfolios of banks. The distressed trading conditions in some parts of the bank and finance sector in March led to a short-term increase in TRACE volumes with transactions and distressed bank names moving back to the phone due to the extreme volatility.

We believe that the recent softness in corporate bond volumes reported to TRACE is likely to be temporary due to the uncertainty in the banking sector and the upcoming May Fed meeting. The overriding theme, in my view, is the highest yield environment we have seen in over 13 years and the opportunity for global investors to reallocate assets back into fixed income. That trend was apparent in the record high-grade TRACE volumes in Q1, reflecting higher trading velocity. Market volumes in credit normally fall in April from March due to the holiday calendars, so part of what we are seeing currently is seasonal.

Investment-grade trace ticket count in Q1 grew 59% and average trade sizes declined 25% as fixed income becomes an investable asset class again and investors reenter the market. Both retail and institutional investors are seeing higher ticket count, leading to an essential need to embrace trading automation for efficiency. Lastly, all these positive market drivers are manifesting themselves in increased velocity of trading. Turnover was an annualized 74% in the first quarter in U.S. high grade, up from 64% in the first quarter of '22. Yields are at their highest levels since 2009. And at that time, high-grade annual trading turnover was around 80%. Trading velocity is benefiting from higher yields, greater market participation and the technology benefits of improved trading efficiency.

Slide 14 illustrates the total revenue opportunity we have before us, which has expanded significantly in the last few years as we have invested to expand our product offering. The product set that we had in 2018 gave us access to a total addressable market of approximately $4 billion in revenue. Since 2018, we have diversified our products and protocols and expanded geographically.

For example, we acquired unique capabilities in the U.S. treasury market, we complemented our organic growth in municipal bonds with MuniBrokers, we have expanded into ETF share trading with our investment in RFQ Hub and we accelerated our growth in post-trade data with the acquisition of Regulatory Reporting Hub. We have also increased our investment in data products, including our comprehensive real-time data product, CP+, and our entry into the index space with both high-grade and high-yield indices.

The investments that we have made over the last several years have expanded our total addressable market by $3 billion to a current estimate of $7 billion. We are in early stages of executing in many of these areas, and we feel more confident than ever in the long runway of growth opportunities still in front of us.

In summary, on Slide 15, we continue to execute well against our growth strategy. We delivered the fourth consecutive quarter of accelerating revenue growth, driven by a combination of strong market share gains and improved market volumes. Our global footprint continues to broaden and deepen as we diversify our product offering. We have a strong pipeline of new products and new trading protocols and increased client diversification driven by growth with hedge funds, private banks and dealer-initiated order flow.

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

Thank you, Mr. McVey. (Operator Instructions) We'll take our first question this morning from Rich Repetto of Piper Sandler.

First, congrats to Chris for taking over the helm. I guess first question is you've come from a long background of automation -- or other experience in other asset classes. And you talked about a lot of metrics here that smaller trade size has increased velocity that point to this electronification. So I guess one question is, this Adaptive Auto-X, what kind of impact do you think? Is that a key to further along the automation trend? Or what other -- what tools do you see besides Auto-X at -- that are going to really spur that conversion?

Well, first, thanks for the question, and thanks for the congrats. Rich, you've probably -- you've covered me for a long enough number of years that you probably already know my answer to the question. I'm quite bullish about electronification of the bond market. I'll start by mentioning we did have record volume and record revenue in our automation suite. But the first key ingredient to automation is data. Data is a key ingredient. If you have good data, you're going to have good automation.

Second, if automation replicates what manual traders do identically or a similar replication, then you'll have constant growth in automation, meaning people will adopt it to gain efficiencies. The key ingredient to what I'd call accelerated growth of automation is if it achieves better results than the human execution and does it efficiently. And that's really what we're targeting Adaptive Auto-X to do, which is achieve better results by automating the execution solution across protocols, across liquidity pools and giving it unique data.

Our automation -- it's important to point out, our automation suite, which Adaptive Auto-X is just in pilot now and just launched just a couple of weeks ago. But our overall automation suite grew 40% year-over-year, which is quite healthy growth to hit those records. And more recently, we saw in -- we launched Auto-X in municipals, and we saw that grow quickly to 23% of total exempt trades, which is a pretty impressive growth. So my point is, Rich, that automation, when it starts to be adopted, it can have a pretty healthy growth rates even in the more challenging market that we saw in the first quarter.

The automation tools held up throughout the difficulties of March. With all that said and all that growth and all those records when you really add up our total automation footprint in the U.S. corporate bond market, it's just under 2% of the market. So we have a really long way to go when it comes to automation. To put that in comparison, the FX market has seen algos -- client algos now achieve over 20% of the market. So while we've still seen record volume and record growth in our automation suite, we're at the early stages of automating the full bond market.

Got it, got it. And Chris, I think you guys addressed some of this, but we are seeing volumes now lighten up from mid-March. And you talked about seasonality of April and sort of reallocation, I think, is still going on. But can you just make investors a little bit -- has the outlook for 2023, which I thought super strong, is that still the case? Or is this just a momentary pause? Or has anything changed the outlook for volumes -- credit volumes for the year, I would say?

So great question. I mean, we couldn't be any more bullish about the bond market despite the, what I'll call, momentary or a temporary disruption in the market. Rich, bonds are cool again. We're seeing higher interest from our clients as well as their clients in terms of allocation of investment dollars towards fixed income market. It's certainly a market that is providing better yield and better principal protection than the stock market.

I would say we are in a risk-off environment coming off the heels of the market disruption in the banking sector. But we also are seeing unique April month of holidays, I will tell you my friends in the equities, the FX, the derivatives and even the crypto market, they're all complaining about volumes. So it's not unique to the fixed income market. It's really market-wide that we're seeing this risk-off environment. We do have the Fed next week. so I do think a lot of investors are sitting on the sideline waiting to see some of the Fed moves. And we are going through earnings season as well. This week, we are seeing higher levels of activity. So it's encouraging now that all the vacation and spring breaks are over, we're seeing higher levels of activity. More importantly, we do see and expect higher new issue market in May, so we're hearing more positive things around the new issue market in May.

Got it, got it. And lastly, most of the top level managers in fixed income trading platforms are skilled golfers. So I guess my question, Chris, what have you done to improve your golf skills?

So that's a very appropriate question, Rich. I would say my golf score is correlated to our revenue and market share. As our revenue market share goes up, my golf score, my handicap will continue to rise.

We'll go next now to Chris Allen of Citi.

I won't comment on your golf game, I know how challenged it is. Just on the CP+ uptake up in the market data, is that just a longer-term ongoing trend? Or is that maybe in anticipation of Adaptive Auto-X launch? And then maybe you could just give us some color just on what the feedback has been on the pilot phase there and kind of expectations around when that we formally launched the broader marketplace?

Sure. And your first question on market data or just CP+ generally?

Just how that's kind of flowing through into market data, like what's driving that?

Yes. So obviously, the growth in market data and as we mentioned, we saw record revenues in our market data in Q1 largely driven by the growth of CP+ across U.S. high-grade, high-yield, EM and Eurobonds. It's certainly becoming the benchmark of real-time pricing in the U.S. corporate bond market, and that's where we're seeing the demand for CP+. So we're excited about that. That CP+ is a key driver of our automation success. Again, record revenue and record volumes in our automation suite driven by the superiority of CP+. It's a key ingredient as well to our Adaptive Auto-X, which allows clients to take advantage of across all of our different protocols and also take advantage of providing liquidity based on CP+ pricing. So it's certainly a sign that our largest institutional clients are comfortable with the price point of CP+ and what it produces in terms of price of U.S. bonds.

Adaptive Auto-X is early days. I will tell you the excitement as we went out to talk to our largest clients across the U.S. and Europe, they're all extremely excited about access to Adaptive Auto-X. We had to actually reduce the pilot because of overwhelming demand to get into the pilot. But it's early days and something that we're super excited about.

We go next now to Kyle Voigt of KBW.

I like the addition of that chart on Slide 5 that shows the volume growth from some of these newer user segments. I guess the one I wanted to hone in on that's all record volume in the quarter was these hedge fund clients and growth there. Just wondering if you could provide a bit more color as to how that's ramped over the last couple of years and where you're seeing a lot of the growth from? Is that from systematic funds? Or is it from credit hedge funds. And also if you could comment on whether you're continuing to see growth in the number of those hedge fund clients being onboarded onto the platform as we try to think about whether this growth from this segment has momentum and is sustainable as we look ahead.

Yes. No. It's an exciting area, Kyle, that we've spent a lot of time on. We have a team dedicated to our hedge fund segment and particularly focused on the systematic fund complex. That's an area that's exciting to me because I've known these clients from my equity and FX days, and they're all ramping up and gearing up to take advantage of the current fixed income market structure. All-to-all is a key ingredient to them. They are both -- they both cross the spread, but more importantly, they are providers of liquidity and see that as a huge opportunity to launch some of their trading strategies in the fixed income market.

In an environment where you only cross spread, it's very difficult for systematic hedge funds to engage their strategies in that market. And our all-to-all platform provides them with the ability to both provide liquidity as well as cross spread at a much more reasonable cost. And that's the key part of their trading strategy. I would say there's a healthy pipeline of new entry from the systematic fund group. I think we're still early days. We've seen some fund groups have substantial success in the U.S. credit market across both high-yield and high-grade, and they're certainly expanding that success into other product areas. But I'd say it's a healthy pipeline, and we're still a long way off from a more mature entry of that segment.

That's really helpful. And if I can ask just a follow-up on the Muni business. Just wondering if you could talk about the transition of the MuniBrokers business and what that means for revenues and revenue capture rates as we go through that transition. And then maybe you provide some updated thoughts on kind of the long-term potential revenue capture that you see for that muni bond business. I think it was just under maybe $200 per million in the quarter. But I recall that when you launched into the muni space, I think the opportunity at that time felt like the fee capture rates could be closer to $400 or $500 per million. So just wondering maybe if we can get an updated kind of view in terms of long term, what the fee capture opportunity is and then maybe what the market share opportunity is as you see it today, too.

Sure. First, on overall muni, the muni business is thriving. We did hit a record market share in the muni market, so again another record for the quarter. We're super excited about the integration of MuniBrokers. Our vision of the MuniBrokers acquisition was, one, collection and acquisition of data to help us build our data products across all our products; but also it was the acquisition of more liquidity and more transaction volume so not only the MuniBrokers business, but also integrating a large quantity of that business into our MarketAxess pool of liquidity. We've started that final step of integration and are very excited about the outcome so far, but it's not a big bang integration. It's a multistep integration over the course of the next quarter.

With regard to capture, I'll let Chris jump in and answer the capture question.

Kyle, and just a reminder, the MuniBroker fee model was a subscription-based model. And it ranged anywhere from $60 to $80 per million. And our plan is to convert that volume into Open Trading, where we'll capture our Open Trading team model. And minding everyone, this is a tax-exempt muni product which typically ranges between $150 to $200 per million. So we're looking to capture that either fee card as we transition that volume into our platform.

We'll go next now to Alex Blostein of Goldman Sachs.

I wanted to jump in a little bit on the high-yield business. Chris, I think you gave an update on high-grade market share. So I was wondering if you could comment on high yields as well in April. And bigger picture, we've seen just more volatility in the market share within high yield over the last, call it, 6 to 9 months. Maybe you could just kind of comment what is the bigger driver of market share shifts we've seen month-to-month, and sort of what do you think about is the ideal environment for high-yield share to sort of accelerate on a more consistent basis?

Sure. First of all, we obviously saw record volume and record revenue in our high-yield market in the first quarter. So again, a number of records in the first quarter. As we look at April, obviously, volumes -- and TRACE volumes are down substantially across both high grade and high yield. So it's a more challenging market. And then -- but overall, the high-yield market, I'm super excited about. We continue to make headway in the high-yield market.

Our OT penetration is a key ingredient in high yield. We saw 51% of our high-yield volume be through Open Trading liquidity, which obviously is where we're gaining a great deal of market share. But overall, we see high-yield participants enjoying that alternative liquidity, particularly when the market continues to get stressed. So when there's volatility in the high-yield market, Open Trading does spike, as I mentioned in my opening remarks. So to the extent there's additional volatility, to the extent we see high-grade bonds dropping into the high-yield market, we'll continue to see that volatility throughout the course of the year. And that volatility does -- has historically led to higher market share for our Open Trading.

Okay. Got you. And I guess the dynamic in March with the decline in high-yield market share was almost too much volatility. Is that kind of how you describe it?

Well, there was clear volatility in March throughout. And more importantly, there's a number of distressed bonds that we don't trade in Open Trading during those times. But yes, we saw substantial volatility in March which also led to some of those spike market shares in our Open Trading solution.

Okay. And then just maybe my follow-up. I was hoping you guys could hone in a little bit more on the retail trading opportunity you see. Maybe frame what kind of the retail trading contribution is in credit today across the platform and maybe help delineate what the fee per million difference is there and how that could ultimately drive an improvement in the blended fee per million over time.

Yes. Well, first, our primary business is the institutional credit business, the institutional fixed income business. That's our distribution channel and has been historically. We have seen a recent rise in retail in the market, an area that we haven't dedicated full resources to. We do see an opportunity in retail, and we've made headway with Axess IQ, our private bank offering in Europe. We're seeing higher demand for that offering. We've launched it to a client in Asia as well.

So we do see an opportunity in retail, particularly given where our execution quality sits in terms of the institutional market. If you look at the muni market, even high-grade and high-yield, the overall market trade size is declining from a historic level. So we're seeing smaller trade sizes across our platform and across the TRACE market. So we do think we have a very viable retail offering given the quality price that we can deliver with an Open Trading trade execution, just higher quality price and being able to deliver at much smaller sizes than historically. So we think there's a wonderful retail opportunity as retail reinvest in the fixed income market given the yields that this market is showing.

We'll go next now to Brian Bedell at Deutsche Bank.

Great. Maybe if you could just zone in a little bit on just volatility in general, thinking about obviously some of the more extreme trading in March, if we do have that type of environment off and on this year. How do you view the market share dynamic -- or I should say, really more like the behavior of trading across desks? Do you tend to see more usage of the phone? Or is that more in distressed bonds like you alluded to, Chris?

And what -- can you talk about the education process, I guess, and the merits of the Open Trading platform and the price improvement that you can get in those types of environments? And if -- is that sort of an uphill battle to try to sort of gain share? Or do you think it's really achievable?

So first, we thrive in volatile markets. We do -- if you look back at 2020, there was obviously records set across 2020. So our platform, our offering does thrive in volatile markets. More importantly, and March was evidence of this, our automation tools ran consistently throughout the disruption and volatility in March. So -- which is a key differentiator from prior volatile times like 2020. So we feel really good about the offering. We feel exceptionally good about the liquidity that is provided through our all-to-all during more volatile times.

As I mentioned, our OT markets or Open Trading all-to-all market share did spike upwards during the most volatile times of March, reflecting alternative liquidity providers stepping into the market when traditional providers are stepping back from that market. So we feel good if there's volatility in the market. We feel really good about our position in the market. And -- but particularly around the distressed bonds, that's a market where -- and again, they're not frequent. But that's a market that does tend to go to the phone or go to chat when there's a distressed bond situation. But again, we do enjoy the benefits of volatility. So if volatility comes back into the market, we would expect an offering that is quite comfortable for our clients.

Great. And then a follow-up, just going back to the slide where you showed the market -- where you showed the growth in the new segments -- or actually not new segments but growth in particularly hedge funds and systematic strategies. Can you talk about your market share in those areas versus your overall market share? In other words, I guess, if you continue to penetrate those markets, should we expect that to be a positive contributor to your market share going forward?

Well, first of all, the new entry, particularly the systematic fund complex, I think it actually has a benefit to our market share but overall turnover in the market. These are new strategies that are being launched into the fixed income market that we haven't seen before. So it's really new turnover and attractive to both us and our clients, our bank clients and our liquidity providers to interact with that kind of liquidity.

So the new entry is a positive for not only the liquidity and the bond market but also overall turnover and velocity of trading in the bond market. Obviously, the new entry takes full advantage of all-to-all, so we're obviously favored given our all-to-all offering across all of our products from high-grade to high-yield to munis, and even our treasury product is another place where we're seeing entry. So super positive for the market, super positive for velocity and turnover in the fixed income market, but particularly positive for MarketAxess and our all-to-all offerings across all the products.

We'll go next now to Daniel Fannon of Jefferies.

Wanted to follow up, Chris, on some of your comments and your prepared remarks around the factors that impact your market share. And obviously, new issuance has always been something you've talked about, but I think there was also discussion around products or growth in areas that you don't -- or parts of the market that you don't participate in. So maybe if you could expand upon what your true addressable market is within kind of high grade as we can think about what the factors or what your market share should look like based upon what you are currently in and maybe what you plan to enter in, in terms of additional markets going forward.

Sure. First, I want to point out that we had first quarter record revenues and record volumes across most of our products. We certainly -- and we also had a sizable growth in share in our U.S. corporate products as well. High yield grew over 3 percentage points in market share. And we had records in Open Trading ADV across U.S. corporate bonds as well. So overall growth and records across our U.S. corporate products is quite exciting.

When we look at -- if we want to get granular and look at market share of high grade, we saw across TRACE higher levels of retail. That's a client segment that we have not chased after or spent resources on. Retail clients do have connectivity to us, but the overall retail market did grow in investment-grade bonds over the course of the first quarter. And that explains some of the lower average trade size in the TRACE market as well. But quite frankly, we're quite happy with record revenues and record volumes across our U.S. corporate market and quite happy with our market share growth across the U.S. corporate market.

Understood. Okay. I guess then just a separate question following up on the distribution fees were higher. You said there was some dealer -- I think, new dealers as well as upgrades from existing fee plans. So maybe as we think about the good run rate from here, is that -- is the upgrade cycle something that we should think about as ongoing? Any more color there would be helpful.

Yes, Dan, it was really a combination year-over-year and sequentially, both upgrades and new dealers signing on for fixed fee plans. But as you point out, it's difficult to anticipate what that number or how it could change going forward. From a modeling perspective, we would recommend that we're looking at it as Q1 being the run rate, but also recognizing that there is risk to our fixed distribution fees. To the extent there's consolidation in the dealer sector, we could see fees dissipate or alternatively we could see new dealers come onboard to offset that.

We'll go next now to Simon Clinch of Atlantic Equities.

I recall that, I think it was last quarter, you mentioned that you were looking at ways to, I guess, share in more of the value creation of Open Trading with your clients. And I was wondering if you could just update us on your thoughts around that, how you'd expect to, I guess, implement such strategy over time and how meaningful that could be.

Sure. First of all, Open Trading continues to set records. So we had a record revenue in Open Trading, and we obviously saw record spikes of Open Trading market share of our overall market. And it also continues to deliver substantial cost savings to our clients, and as I mentioned in my opening remarks, cost savings that are actually higher than our total revenue. So very attractive to our client base. The other attractive piece that Open Trading delivers is the ability for clients to avoid crossing spread and reduce and improve their overall execution quality.

And that's an area of focus of ours as we encourage clients -- more clients to use Open Trading to provide other clients with liquidity. It's a key ingredient to our treasury offering as well, where we're offering Open Trading or all-to-all in the treasury market for the first time and seeing a number of very large clients taking advantage of that offering. So exciting activities in our Open Trading offering and treasuries but also across Open Trading across all our products. It continues to be a driver of market share in munis, in our emerging markets, in high yield and high grade. So super exciting activity in the quarter, on our all-to-all Open Trading offering. And we're continuing to see clients and client behavior change to take advantage of that.

Okay. And then just secondarily, in terms -- when we think about the comments about market share so far in April for U.S. high grade being back above Q1 levels, I was wondering if you could perhaps put it in terms of the market share. If you adjust out the sort of distressed bonds that sort of distorted everything, has the market share been pretty stable after you adjust for that in March through to April? Or has there been a pickup even relative to that sort of adjusted level?

So there's -- I appreciate the question. There's 3 important days left in the month. Obviously, it's month end, so we certainly enjoy higher levels of activity around month end. And we'll be putting out our monthly volumes and market share next week. So it's just a little bit too early to predict where our market share levels are going to end up. But as I mentioned in the opening remarks, we are seeing market share in high grade above Q1.

We go next now to Michael Cyprys of Morgan Stanley.

Maybe just continuing with the theme just on April. Maybe you could just comment a little bit on what you're seeing around pricing trends on the fee per million side so far in April, how does that sort of stack up versus the first quarter. And then if maybe you could elaborate on some of the moving pieces around the high G versus high-yield fee capture in the first quarter.

Yes, I'll take this one. The -- I made comments in my prepared remarks that with respect to the high-grade fee capture, we've seen stability, and it's very indicative of the Bloomberg duration index that's out there for everybody to monitor. And there's a lot of factors that contribute to our fee capture. You have the product mix, you have the protocol mix across RFQ and Open Trading. And so it really depends month-to-month on what mix of product is coming through.

And I'll point to where we saw upside in the historical quarters, which we saw a heavier mix of high yield, which is our highest fee product in the product set. And in this month, we're seeing elevated volumes with eurobonds relative to the market volumes that we're seeing sequentially, which is one of the lower fee catcher products. So it really bears down to what's the product mix because we're not seeing the same impact that we saw with the high-grade duration compressing our fee capture year-over-year.

Okay. Great. And then just a follow-up question. As you guys have more and more success with Open Trading, that does, I believe, tie up more working capital for clearing of those trades just because you're self-clear. So maybe you can just remind us how much of the balance sheet resources are being used to support the clearing of customer trades. And if Open Trading volumes were to, say, double, how should we think about that translating into incremental balance sheet resources being used to help support that? And then how do you think about driving more balance sheet efficiency for that over time?

Yes. So in the peak of March, we had enough capital resident within our 2 clearing broker dealers to support the elevated trading volumes that we were seeing in light of it contributing to increased sales and increased deposit requirements. So the $330 million of cash that you saw at the end of March, roughly $200 million of that was residing within the 2 clearing entities to support Open Trading. So as we think about our balance sheet today, we feel very comfortable with the amount of capital resident in the company to support our business.

And not seen on the balance sheet, and we didn't have any outstanding debt at quarter end, but we do have access to $750 million of borrowing facilities so secured facility at the holding company, and $250 million -- unsecured facility at the holding company and $250 million of secured at the broker-dealers, which we have not had to borrow on of late. But we do have the ability to secure additional funds if we need to.

So I would just point out, a growth in Open Trading and particularly a doubling of Open Trading will produce additional cash to our balance sheet pretty dramatically given our current corporate margins. So that's a healthy problem to have as you grow Open Trading to produce more cash into the balance sheet. So again, Chris mentioned spikes in Open Trading, plenty of capital to support Open Trading spikes and Open Trading growth as it stands today.

And we go next now to Patrick O'Shaughnessy at Raymond James.

Can you provide an update on the current competitive dynamics in the recently issued component of the corporate bond market? And how much of total market volume does that segment represent?

So the competitive dynamic of corporate bond market?

The recently issued component.

So Patrick, I'll jump in here. But as you know, follows for a long time, those numbers ebb and flow with the calendar. So the newly issued bonds in peak periods can get up to 12%, 13% of TRACE in the short term, and they average something lower than that, probably more like 7%. So it ebbs and flows with the calendar. But quite honestly, I don't think the dynamic has changed in terms of the competitive landscape around new issues.

Got it. And then can you provide an update on what you're seeing in terms of client interest in your Portfolio Trading solution?

Sure. Our Portfolio Trading solution had a record volume in Q1. It's grown substantially year-over-year. We have obviously been delivering numerous features and functionality to clients throughout the course of '22, and even today, we're constantly delivering functionality. So the reception is in the numbers given the records that we've seen in portfolio trading. I do think portfolio trading in -- particularly in March and part of the first quarter is a little bit challenged to provide portfolio trading during more volatile times.

But portfolio trading is an important part of the market, and we'll continue to be here as a workflow solution for clients and we continue to deliver a high-value tool for clients to manage their portfolio. I think the next step in portfolio trading is really building the analytics to decide what to portfolio and what not to put in your portfolio trading which is really what we're hearing from our clients in terms of demand. They want to understand analytics around the portfolio to adjust their portfolio, either pull bonds out or put bonds in, to improve the pricing of a portfolio. But certainly, very pleased with our performance in the portfolio trading landscape.

Thank you. And it appears, we have no further questions this morning. I would like to turn the conference back to the company.

Thank you all for your time today, and we look forward to talking to you next quarter.

Thank you, sir. Ladies and gentlemen, that will conclude the MarketAxess First Quarter 2023 Earnings Conference Call. We'd like to thank you all so much for joining us and wish you all a great day. Goodbye.