Marketaxess Holdings Inc (MKTX) 2024 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the market access Third Quarter 2024 earnings conference call.

At this time, all participants are in listen only mode.

Later, we will conduct a question-and-answer session.

If you'd like to ask a question.

During that time, please press star and number one on your telephone key pad.

As a reminder, this conference is being recorded on November sixth, 2024.

I would like to turn the call over to Stephen Davidson, Head of Investor Relations at MarketAxess.

Please go ahead, sir.

Good morning, and welcome to the MarketAxess Third Quarter 2020 Earnings Conference Call.

For the whole Chris Concannon, Chief Executive Officer, will provide you with a strategic update.

Richard Goodman, Global Head of Trading Solutions, will update you on the performance of our markets, and then I leave his alveolar Chief Financial Officer, will review the financial results.

Before I turn the call over to Chris, 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 operating 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 31st.

The forward statement disclaimer in our quarterly earnings release, which was issued earlier this morning.

It is now available on our website.

Now let me turn the call over to Chris Premier and thank you for joining us to review our third quarter results.

As announced earlier today, Rick McVey, our Founder and Executive Chairman, has informed our Board of Directors that he will be retiring from the Board at the end of the year to spend more time with is growing family and his philanthropic endeavors.

Richard, the pioneer in the electronic trading arena, and he is the reason why I came to market access his vision, his innovation and his tenacity or why market access is the company.

It is today for six years of fixed income experience has been an extraordinary resource for me and the Board.

Well, Rick is retiring from the Board.

We were very lucky to still have him as the Chairman of our International Board.

I would also like to congratulate Carlos Hernandez on his appointment as our next Chairman of the Board, Carlos rejoined our Board in 2023.

After concluding a highly distinguished career, JP Morgan.

Throughout his career, Carlos has been passionate about electronic trading solutions and financial market structure by encumbered by what Rick has built, and I'm looking forward to continuing his work with Carlos in his role.

As Chairman said, let's turn to the third quarter results.

Turning to Slide 3 of my strategic update.

We continued to execute our strategy this quarter and deliver 20% growth in revenue, driven principally by strong growth in market volumes.

We continue to be disciplined around our expense management, which helped to unlock the curve upward operating leverage in our model and drove a 30% increase in diluted earnings per share.

We released our October trading metrics yesterday, which reflect continued strong growth in market volumes year over year.

We have always guided investors to look at the longer-term trends and not read too much into the month-to-month fluctuations in our market share.

As we experienced in October, we believe the decline in our U.S. high-grade market share was driven by lower portfolio trading at a cost shift to large block trading in the market.

As we have mentioned before, large portfolio trades in the market and changes in the mix of client activity can generate significant short-term swings in market share without materially impacting revenue generation.

We have a clear strategy to return to market share growth in US credit.

While we continue to deliver growth across the global fixed income market, we continue to enhance our global portfolio trading solution, and we are pleased with the early returns we are seeing in terms of market share gains, we have now launched the key elements of our targeted block trading capability to attack the highest value client order flow, representing 40% of the U.S. high-grade market.

We are on track to deliver traditional RFQ on that's Pro to our European clients in the first quarter of 2025.

Last, we continue to see momentum in our emerging market offering with a block trading solution rolling out to clients.

This quarter, we are pleased to announce a strategic fixed income data partnership with S&P Global last week.

With this partnership, we are combining our CP. plus market data with S & P's global evaluated bond pricing solution.

Slide 4 highlights the power of our product and geography, Epic diversification across global credit and rates.

As illustrated by our strong third quarter trading data commission revenue generated outside of US credit represented 37% of total commission revenue, up from just 25% in first quarter of 2019.

Our Emerging Markets franchise is a key growth cylinder of this powerful diversification story.

Slide 5 provides more detail on the strength of our expanding Emerging Markets franchise.

We are seeing strong growth in emerging markets trading activity across regions with record last him and A-Pac.

Emerging markets trading volume up 51% and 30%, respectively.

The EM local markets are the largest opportunity in EM from an addressable market perspective, one of our fastest growing protocols and local markets is requests for market or RFM, which is helping to drive record levels of block trading in local markets.

Dealer RFQ across hard and local currency is also showing strong growth of 47%.

We're very excited about the emerging market opportunity ahead of us, which we believe is still in very early stages of electronification.

Slide 6 lays out our strategic priorities to grow market share.

In terms of our high-touch strategy, we recently completed the initial rollout of our global PT. solution in Europe, and I'm also pleased to report that we just completed an update to X Pro to create a more intuitive interface for clients focus on portfolio trading at our proprietary trading analytics, the client feedback has been strong with record portfolio trading 80 day in September.

We delivered third quarter estimated market share of US credit portfolio trading of 20%, several hundred basis points higher than second quarter levels.

We believe that the investments we have made in our new platform that supports client portfolio trading, traditional RFQ and automation are beginning to pay dividends.

In the coming months, we will begin the initial rollout of traditional RFQ On-X prior to our European clients.

While the initial focus of escrow and our high touch strategy was portfolio trading, we are now leveraging the deep enriched content and pre-trade analytics we have in X proud for block trade sizes.

This targeted solution for clients streamlines the transition of block size trace from phone and chat to electronic solution while reducing information leakage.

The two key elements of our block strategy is RAI. driven dealer selection tool and are now new proprietary data sets TP. plus for blocks last in the dealer to dealer segment, we are seeing green shoots in that important segment as we look to expand Auto-X for dealer RFQ to emerging markets Eurobonds immunities, we generated 28% growth in dealer RFQ you and then 11 fold increase in mid-August in euro bonds in the third quarter.

Slide 7 highlights select macro factors that we believe indicate we are moving into a more constructive operating environment.

The new issue calendar has been very robust in 2024, with US high grade, up 27% in US high yield, up 86% year to date.

The velocity of trading in U.S. high-grade was above 80% in the third quarter with an exit rate of 91% in September.

Yields have come down with the recent rate cuts but remain attractive.

As a result, fund flows into hybrid ETFs and mutual funds are up 158% from the prior year.

Fund flows have been one of the factors keeping credit spreads tight, but we do believe that volatility should pick up in the coming months.

Lastly, in advance of the rate cuts in September, client activity on the platform and high-grade reflected an uptick in trading and higher duration bonds, which benefited U.S. high-grade fee has continued into October as well.

Now let me turn the call over to Rich to provide you with an update on our markets.

Thanks, Chris.

On Slide 9, we highlight the expansion of our trading business across geographies, products and workflows.

We generated strong growth in international client trade volume and trade count.

In the third quarter, trade volume was up 23% versus last year with a three year CAGR of 17%.

Trade count was up 16% versus last year for the three year CAGR of 24%.

We are also seeing strong contributions from growing client segments, including hedge funds, systematic trading firms, dealers and the private banks.

We generated 254 billion in trading volume, up 41% from these important client segments, which now represents 1098% of our total credit trading volume, up from 26%.

Dealer initiated trading volume, which includes dealer RFQ and mix on this chart, was over $80 billion in the quarter, representing a 34% increase over the prior year and included an 11,000 fold increase in Eurobonds Medex trading volume.

While we are in the early innings of our expanded Dealer Services strategy, we are encouraged by the improvement we are seeing in mid ex activity in Europe.

Access IQ, our order and execution workflow solution designed for wealth management and private banking clients delivered a 32% increase in ADV. year over year.

We recently onboarded one of the largest U.S. banks to access IQ as we seek to grow our private banking business.

Beyond Europe, we are also seeing strong product diversification and municipal bonds with record estimated market share of 8.7%, up from 5.8% in the prior year.

We launched connectivity with ICE bonds the first week of September for Moody's and then corporates a week later.

The feedback we have received from clients has been very positive, and we believe ice bonds, complementary liquidity will support further market share growth.

We are also very pleased with the growth of portfolio trading for muni's, which we launched in the second quarter of 24.

Year to date, through October, we have executed over EUR500 million in trading volume.

Lastly, on muni's, we are expecting to launch CP plus for annuities in December with full integration with our protocols in the first quarter of 25.

Slide 10 provides an update on Open Trading.

Our market leading all liquidity pool Open Trading ADV was $4 billion and share of total credit volume was 35%, up from 34% in the prior year.

Open Trading generated record trade count, up 27% from the prior year.

Hedge fund trade activity has continued to expand on our platform with record ADV of 1.9 billion in the quarter, up 57% from the prior year.

A record 206 hedge funds provided liquidity through Open Trading in the quarter, a 2% increase from the prior year.

The price improvement opportunity in Open Trading, as shown on the lower left side of this slide ticked up in the quarter on slightly higher levels of credit spread volatility.

Open Trading continues to be the largest single source of secondary liquidity in the US credit markets, driven by by our diverse liquidity pools.

Adoption of our automation suite of products continues to grow.

As shown on slide 11, we experienced another quarter of strong growth in automation, trade volume and record trade count with three-year caterers of 31% and 40% respectively, and a record 249 active automation client firms.

Automation.

Trade volume now represents a lot 7% of our total credit volume and a record 27% of our total credit trade count.

There were over 10 million algo responses from dealers, an increase of 24% year over year.

We are increasingly leveraging the technology that we obtained through the plasma acquisition with our entire automation suite moving into its tech stack, which will allow us to launch the next generation of Auto-X based on pragmatic algorithms.

Our Adaptive Auto-X provide algo is a great example of a workflow that allows clients to respond to other clients and dealers RFQs further supporting our Open Trading all to all model.

Now let me turn the call over to Eileen to review our financial performance.

Thank you, Rich.

Turning to our results on slide 13, leases at Emory and our third quarter financials.

We delivered revenue of $270 million, up 20% from the prior year.

Strong top line growth, driven by robust market line, combined with continued cost discipline adopted in the first quarter of positive operating leverage in the fourth quarter at 2020, that incremental margin of approximately 60%.

Looking at each of our revenue line, churn commission revenue increased 20% on strong broad-based strength across most product areas, more than offset and a decrease in US high yield information services revenue of $13 million was up 10% and included a $300,000 benefit of that act.

The increase was driven by new contracts as we continue to experience strong adoption of our data privacy, especially in place.

Post-trade services revenue was $10 million was up 6% and included a $200,000 and an attack.

Total other income increased approximately 1 million, principally to mark to market gains on our U.S. Treasury portfolio effective tax rate of 23%, and we reported diluted earnings per share of $1.19, representing an increase of 30% and 14.

We provide more detail on our commission revenue and our fee capture.

Total commission revenue was $180 million, representing an increase of 30 million or 20% for the quarter.

The increase in credit conditions, revenue with strong breadth of U.S. tax rate of 24% in emerging markets, up 18%, Urovant at 28% and municipals at 28.

The reduction in total Tennessee content in the prior year was driven principally by type and kind of On-X, specifically lower higher activity and increased portfolio training.

Total added a capture was slightly up from 2Q 2014 level, declining six distribution ages, driven principally by the consolidation of key global bank trading desk operation accretions to variable eight plan and lower unused minimizes any timeframe.

Thank you.

Kindly provide a summary of our operating expenses.

Third quarter.

Operating expenses of 120 million increased 14% compared to the prior year and include the impact of tax, which will anniversary in the fourth quarter with a higher than anticipated.

Variable contracts from increased trading activity has lost about 40% of the 10 million in additional expenses that were not previously included in the second quarter earnings call.

As you know, there are always it can take a country mix and pricing.

And at this time, we expect M&A, we anticipated expenses will shift each period.

As such, we expect to absorb the increase in variable and fit within the original an incremental 10 million.

Keeping in mind that variable costs can always change and market conditions.

We expect our full year 2020 fourth at the same, more or less in line with our previous guidance of slightly below a low end and our range 480 million to 500 million.

On slide 16, we provide an update on our capital management and cash flow.

Our balance sheet continues to be strong with cash, cash equivalents and corporate bonds and U.S. Treasury investments totaling 610 million as of September 30th, up from 559 million at the end of last quarter.

We generated $310 million in free cash plan of an accounting top nine, an increase of 4% over last quarter.

Peter touched 297,000 shares year to gain share count for 2024 for a total of 54 million, a 66,000 shares repurchased during the third quarter at a cost of 15 million kids content and $36 million remaining on the current authorization.

We believe we are setting the right time and investing to drive future growth while at the same time a disciplined stewards of capital.

Now let me turn the call back to press for any closing comments.

Finally, in summary, on slide 17, we continued to execute our growth strategy.

In the third quarter, we delivered significantly improved financial results, driven by very strong market volumes.

A robust new issue calendar and an increase in the velocity of trading are all contributing to a more constructive macro backdrop for us, we are continuing the rollout of Tax Pro by extending the platform to our global client base and across most products, and we are executing our plan to grow market share.

We are seeing early signs of success with portfolio trading and our dealer solutions product in Europe.

The next phase is to extend share gain to block size trades in the US credit market with the recent launch of our targeted block trades solution.

Given the strong market volumes, more constructive market backdrop and our focus on our strategic priorities, we believe we are well positioned to deliver continued growth in the coming quarters.

Now would be happy to open the line for questions.

From here.

We are now opening the floor for question and answer session.

If you'd like to ask a question, please press star one on your first question comes from costs are known as holiday line small cell phone.

Good morning, everyone.

Call personal once the Congress to look on the lead time and also hope you enjoyed our two wanted to dive a little bit on until October and block Palm on for over the course of the recall, you are calling our BOP activities, an impediment to stare and noted that you block solution is now in the March because he brought some details on.

And just in terms of what's the game plan on accelerating penetration of the solution move forward?

And what does the current level of client uptake on solution runoff?

Sure.

Great.

Thanks, pressing on up and take that question.

First, just putting October and perspective on, we did have record overall volumes in the month of October.

It was the 1st month that we crossed over 1 trillion in volume traded on the platform, which is quite exciting.

Total credit of volume.

We set a record.

We set records in our rates average daily volumes.

We set a record in emerging market volumes in October when we set a record in our Eurobonds total volumes in October.

So overall, when I look across the platform, a very strong month, we also saw an increase in US high yield market share and as we reported an increase in U.S. high-grade fee capture.

So a lot of all good stories are throughout the month of October.

We did see in the overall market a slow the decline from September in portfolio trading across the overall market.

I think that did impact not just us, but some of the other competitors in this space that have a portfolio offer.

We do think that's a natural level that October delivered around 10% of the total market was portfolio trading of September was at all actually a spike up to that 13% level.

So I think the 10% number right now is a more natural number on that.

We'll see in the market.

What was, as you mentioned, what was out of the norm that we haven't seen at these levels.

Our overall block trading some trades, a larger than 5 million in size, increased pretty dramatically up to a close to 40% of the entire market.

And that's up from August.

There was somewhere around 36%.

So we it was a sizable move in overall block volume.

I think we saw something similar to that in April of this year where we saw on close to that same levels above 40% of traits.

And we did we did experience a depressed our high-grade market share during that period as well.

And so the so the bad news is that that those those large blocks moved to the phone into chat on the good news is that that's still very market that we're attacking with the recent launch of our high-touch strategy and X Pro, we refer to this is a targeted Bob off trading solution, and it was only launched just about two weeks ago.

So it's still early days, but it's the exact part of the market that we've been talking about targeting for some time.

And we feel very good about the fact that we're on offense now and not playing defense anymore.

We're going after the phone market.

It's a powerful part of the market.

It can be anywhere from 30% to 40% of the overall market, and we have now an offering in the market.

The key ingredient to that offering on is really the of the pre-trade analytics that we're providing.

When you think about fault blocks of traders or point sensitive about information leakage and providing tools that the protect that inflammation, the information around the block and reduce that inflammation leakage and a key ingredient to some of the data that we're providing.

Obviously, DealerAxess is an important tool for our clients to pick their counterparties.

But we are also offering a I drew Robin dealer selection data, which really that's the feedback we've been getting that, that selection tool has been quite powerful for clients to select dealers that on increased their likelihood of response.

So you're sharing that large block inflammation want to have certainty that the dealer will be responsive to that blocking that AI. selection tool and some just getting feedback from clients point powerful.

So again, some very early days.

We just have it out with a few pilot clients, but the feedback is quite positive.

And again, we're well on our strategy.

There is replicate what has gone on phone and chat, either inflammation and fewer clicks for the for the trader to get to trade down on and off and reduce overall information leakage for the trade are so early days, but I'm very excited about the market opportunity that sits in front of us.

And just a quick follow-up on that.

So we should be thinking about time for India more than 2025 or maybe even later 25 opportunity.

This could be a client of trying to buy to enter into a type of rollout.

You need to educate them on the tools?

Definitely, it's a 2025.

We have a series of enhancements in before the end of this year to the platform.

And then we continue those enhancements in the first quarter.

We're still on, again, as part of our high-touch strategy.

We have both block trading as well as portrayed folio trading.

We include both of those in the high-touch strategy, and we continue to roll out enhancements in both categories.

But as you mentioned, it is a trader by trader on targeting that we're doing the key ingredient and you see this in portfolio trading on its larger size.

So share moves with those larger sizes.

So we we are hopeful that the offering well will attract larger block sizes as well as additional portfolio trading sizes.

And as I mentioned, the key ingredient is our proprietary data.

This is data that comes from the size and breadth of our platform.

And we just think it's unique to the marketplace.

And it's really providing traders with insights on how to trade the volume and who to trade with and that some something that can only be on glean from our proprietary data that we have, as said, something like that, Chris.

And then yes, just one extra comment.

It's Richard is going to make about that is that depending upon the Hermes, Chris is talking about traded a trader behavior changes.

There is some shops where these kind of high touch large block trades or maybe being done by someone who's not as involved in electronic trading, not doing the typical flow trades with and taking advantage of our automation solutions and things.

We do a meaningful amount of blood business.

Now the numbers ran in the 23% or so of our volume and in blocks in IGT, much of that has had happening from from traders that are using our solutions across the range of sizes and activity they have to do so.

A big part of our focus with the high-touch effort is getting to these traders that are not the most active electronic traders at this time in the market.

Thanks comes from Alex Kramm from UBS.

Your line is now open.

Yes, yes, hey, good morning, everyone.

Want to shift gears quickly to a portfolio training.

Obviously very nice gains in the quarter and good to see that the market has kind of in line with the overall market share for you guys now.

But obviously, curious why why the gains and what would we go from here?

So just maybe specifically in June, see as a clot and science basically now thinking that you are on par with your primary competitor and giving you may be, you know, 20% of the share, or do you think your products actually superior to hearing from clients that there's still more to come?

And yes, we are at different client types when it comes to having fully embraced your portfolio training offerings so far, sir, grayed out on our own portfolio training on, I'll be candid, we're coming from behind in our offering.

So we are continuing to deliver more and more on solutions around portfolio trading.

We just rolled out of two weeks ago, an enhancement to our portfolio trading tools to make it seamless for what we call benchmark trading trading relative to a benchmark on plus or minus a benchmark is an important feature in the portfolio trading market at some widely used in Europe and widely used used across the high yield market.

So we do see that we're adding on components that are critical to both high yield and obviously our opportunities in glove with our global PT. offering and in Europe in Europe.

In EM, I would say we are not on par on the honesty.

And sir, we have more work to do to be on par.

That's the exciting part of we are growing share, despite not being on par with the competition.

We feel really good about first quarter releases in our portfolio through training tool, where we will probably add in our perspective, crossover in the offering and the benefits that we provide again on clients and traders are asking for unique on data and analytics on how to address their portfolio, what to put in their portfolio and then how to manage their portfolio once the deal or provides price thing.

And that's an area that we continue to Accel at given the data and the analytics that we have.

But I'm very encouraged by the growth, as you mentioned, that we've seen in portfolio trading, but I'm excited about the additional features that we're adding in the first quarter and coming at that market with a fully enhanced product offering by ended the first quarter.

And so as I mentioned earlier, we are moving from defense to offense across these protocols and pretty excited about what's being delivered just two weeks ago and what we're going to delivering the first quarter fund.

And since you were just talking about data analytics that the and a little bit, can you maybe just quickly touch upon on the the new S and P partnership that PRA., what's the revenue and costs kind of direction on?

Because I think that getting a lot of data from you, but obviously getting something from them to and then in and what you're getting from them, to what degree is it going to help your pre-trade analytics and hopefully help enable clients in mind?

And when would that be coming?

Thanks.

Sure.

On both mobile on a great partnership, S&P Global as a firm that we've partnered with in the past, and we all know quite well from their index.

Own footprint is a substantial not only in equities, but across the fixed income arena.

They do run indices.

The iBoxx index powers some of the largest fixed income ETFs on the planet.

And here in the US, a key ingredient to the partnership is of were supplying them with our CP plus data to help them power there end-of-day evaluated pricing tool.

That tool does a price of these large ETS. given their index relationship.

And that's an important component.

When you look at our overall market share of particularly in U.S. high-grade in US high yield, it's heavily on tilted toward it's components of large ETFs.

And so we feel like we fit in the ETF arbitrage point nicely and having our data integrated with them, how ETFs are priced at the end of day is an important component to complete the relationship with S&P with regard to the data they're providing on their providing a reference data.

And that's exciting, and we'll be rolling out that reference data at the end of the quarter.

So just thing really going live at the end of Q1, early Q2.

So on, but excited that we're expanding our data footprint through this partnership.

Hi.

Thank you, guys.

Your next.

Your next question comes from Benjamin Reitzes from Barclays.

Your line is now open.

Hi, good morning and thanks for taking the questions.

I wanted to follow back up on the block trading discussion.

Just curious if you could give any color on the RPM impact.

Should you see that that share really pick up?

It sounds like that's sort of feeds the biggest chunk of remaining non electronified share.

I understand with portfolio trading, it comes in at a lower than average FPM.

And then it sounds like it all the or the out of the dollars, but just curious how we should think about the trade-off between volume and what the associated revenues might be if you're successful in this endeavor.

Sure.

Right now as set on any in top of large trades would fall under our regular pricing fee schedule on there are scenarios on, for example, single dealer trades where they would be at a discount or at a free level, similar to our PTR. single all deal or PT. solution.

We also are offering process trading and doing that for free.

I think some of the competition charge for process trading, we want to make that trade or the buy-side trader feel the full breadth of workflow from trading over the phone.

They're able to process made up of Crosstex Pro trading with a single dealer being able to deliver in fewer clicks than chat on a single block trade to a dealer.

And then if they choose, they can select a shortlist of dealers where they can quietly request price and interact with though the winner of that pie private RFQ while protecting market information.

So components of that high-touch strategy, our at our traditional fee capture and other components will be at a far reduced fee capture, particularly things like port from process trading and single dealer trades.

Yes.

I would just add one thing, Benjamin on that.

Again, as I said in previous calls, how the fee capture is definitely a function of the value add that we can we can bring to the trade.

So one of the reasons we're so excited about Adaptive Auto-X.

And when we can bring in some of those capabilities for breaking blocks into smaller trades, it means that we can capture higher fee relative to the trader, getting that block done just as a liquidity taker going to the market, right?

So if you think about it, they go kind of narrow and the narrowest as if they've got directly negotiated trade with the dealer and we're processing at that belief, East value add and leased fee capture, it might be at a courtesy that we offer.

But then as they go in greater competition, including if they're choosing to go with Open Trading as a as liquidity taker, that raises our fee capture opportunity.

And then the the best cases where they're acting more as the provider than taking a bit more time.

And they're working say that 20 million block in pieces of ones and twos.

And then we will benefit from that from those smaller trades in the higher capture.

So it's kind of a spectrum.

And it really depends on the urgency the trader has and how they are choosing to operate in market information leakage concerns come in.

There's a lot of factors that they're going to weigh in on how they choose to execute that trade.

We want to be there for every one of those different ways.

They trade with different fee capture again, depending upon the value we add.

Got it.

Thank you.

That's all from me.

I'll jump back in queue.

Your next question comes from Patrick Foley from Piper Sandler lines.

Follow-up.

Good morning.

Thanks for taking the questions.

Just going back to the fee per million I want on total credit fee per million.

It's starting to trend upward again, last I checked the Bloomberg duration, and that's the key points in the past and the directional proxy somewhere in the seven year range.

I think in 2020 and 2021, our numbers was closer to 8.5 or nine years.

So just broadly speaking, we think will happen to get that average duration document 8.5 to 9 range.

And how quickly do you think we can get for Oman?

Just as a follow-up last quarter, you said you expect to see the $15 million increase in hiring team for every one year increase in duration and then 3 to five nine for every hundred basis point decline rates.

Is that still how we should kind of think about the dynamic there?

Thanks.

Hi, thanks so much for the question.

Yes, I mean, we actually are at about that nine year level that you mentioned for the third quarter, and that was up from that 8.6 years that we saw in terms of the weighted average years to maturity in the second quarter.

And so if you think about what you just saw in October, right, we were at about 9.1 in weighted average years to maturity, which was roughly in line with September than we are consistently seeing our weighted average maturity on the platform above the Bloomberg numbers that you just talked about.

In terms of the sensitivity, you're right, the first and we think about it this way, right?

It's about duration.

And so there are pieces to it that the weighted average years to maturity that we talked about, and that is still that's still remain tight for every one year increase in the weighted average years to maturity trading on that platform, we expect to see a benefit of approximately $15 or sales per million and high graded.

But the other component of that, right, when you think about duration is yield.

And so if you look at yield in terms of the sensitivity in the first 100 basis points lower in terms of yield is likely to be a benefit to high-grade fee capture of about three to $5 per million.

So when you think about duration, we think about both of those pieces, weighted average maturity is also really important.

But just to run round out that discussion on the sensitivity, I wanted to bring that other point out that as well.

All right.

That's it for me.

Thanks.

Your next question comes from Jeff Schmitt from William Blair.

Your line is now open.

Morning hub.

So growth in emerging markets continued to be really strong sense on how much your market share is increasing there.

And what does the competitive landscape look like in places like Latin America and Asia Pac, which are for your time growing at a high rate and Sure, happy to take that one in emerging markets, obviously, there's a lot of excitement around our emerging markets growth.

Just looking at our Q3 numbers, up 19% year over year.

one area of growth that's exciting is our block trading.

We did hit a record in volume and block trading that was up 24%.

And another area that we rarely talk about is our portfolio trading solution in EM.

We're seeing growth in our portfolio trading solution as well.

I would say there on what's exciting about EM. is both our harbor dollar position on So dollar denominated EMI. bonds and then our growth in local market.

Obviously, it's a process point of 50 50 split, but a lot of our growth is in those local markets.

When I look at the competitive landscape on, it's quite clear, the phone is the number one competitor, um, we see in those local markets a heavily brokered market where electronic trading has not really penetrated those markets.

And so we from a competitive landscape, we're quite a trust solutions coming to market, not not just some additional competitors in this space.

And then the on the other area that we're seeing great growth in EM is a new protocol.

Our request for a market which is really driving some of our block trading success.

Again request for market is it reduces the amount of information a client provides to the dealer community when they requests for price because they're just they're just asking they're not showing their on their side or direction.

So it's a very powerful tool and trading blocks, and that's an area where we're seeing on a great deal of growth is Jeff, it's Rich.

I'll just add one more one more thing.

To that when one of the reasons we feel really strongly about this business in the mode that we are building around it and increasing our competitive position here, and that's with Open Trading in emerging markets.

So we've spent years building up a global network of participants, especially in the emerging markets areas in LatAm.

Them in the A-Pac region are really pleased to see that Open Trading now now is representing almost 45% of the liquidity that we're providing to our clients that are taking there.

That's up over 600 basis points year on year in the third quarter.

So that's a really difficult thing to build up.

And it's a big differentiator is drawn and clients to trade electronically to get that extra liquidity and that improved pricing.

So and that's and that's in the hard currency area.

We've recently introduced it also in select local markets as well, which allows international investors to tap into live liquidity providers from in those local markets.

So that's something else that's not so easy to do on the phone, and it's drawing people to the platform.

So feeling really good about the OEM business.

And then in the dealer to dealer channel, could you discuss kind of some of the things you're doing to increase share there?

I mean, it seems to be, I guess, largely focused on kind of extending automated services.

But could you discuss that in more of that opportunity more detailers?

Or is there other things you plan on the sort of narrow over time?

Yes.

The dealer business is definitely one area of significant investment for us.

We know there's a lot of activity.

Typically 20 doses as high as 30% of any of the given markets that we're in is is coming from business dealers, looking for liquidity, looking to moving out of their books more quickly and they can't sell bonds to their clients, they want to move it and electronic trading and the services software we think is a great a great option for that.

So it starts with our flagship protocol, which is our FQ.

And we continue to invest and make that more productive for the sales traders to use at the same capabilities as our buy-side clients in terms of their ability to seek liquidity that way.

We've brought our automation solutions into these for the traders on the sell side so they can operate more efficiently.

And importantly, the automation is tied into the ability to elevate the awareness of particular inquiries so that if they have a target of, let's say, they want to trade at made or they want to trade at side that will that will raise the awareness of those increase to the liquidity providers on the other side and serves to get them better responses.

So that's another key thing.

We recently announced a protocol called Work Cup, which is it's always been kind of prevalent in the interdealer broker space going by voice.

And it allows us to bring in parties who want to trade at a level that's been established in the market from a trade that begins on our FQ.

So for example, someone might they go out for liquidity on 1 million bonds.

They execute that trade and they have more behind that.

They might have another EUR9 million, let's say they didn't want to show the market the full amount and now they can work up that trade into a larger size.

And we've been getting great initial reception.

We just went out with this a few weeks ago, and we're really pleased with the attraction on it.

Then lastly, we are investing also in the single price options or the matching space with our products that we called Mid-Tex and dumb.

We've been getting really nice responses to that in Europe, especially in the Eurobond market where we're running daily sessions and and we're getting good traction there.

We're bringing that to the U.S. as well and expect to to get good results going into into 25.

So major areas of investment for us in the dealer business, given given how significant a portion of the market it is.

Great.

Thank you.

Your next question comes from Dan Fannon from Jefferies.

Your line is now open.

Thanks, and good morning.

I wanted to follow up on some comments around I think you said deferred fixed investments here as you exit 24.

So curious if you could talk about what the priorities of spend and then maybe how that informs.

I know it's really kind of a 2025 expense build based upon the actions this year.

Sure.

Thanks to the question.

And yes, if you remember last quarter, when we touch about that, as we talked about at the time, that was about 10 million that were not in the run rate in the first half of the year and how we categorize those fixed costs.

At the time we things like tech investments, marketing, teeny and new hires.

And so about 40% of those came in in the quarter.

And at the same time, however, you heard me talk in the prepared remarks about the fact that we saw an increase in variable costs, right?

And that was about call it, nine and a half or sell it increased variable costs that we had otherwise anticipated.

Judah, the increase in volumes and activity on the platform that you heard Crescent and Rich talked about.

And so what I was saying in my prepared remarks is we still think that we're going to be within that envelope, let's call it of the 10 million we talked about, but there's a little bit of shift strike some of those fixed costs that I just explained to you.

We expect are going to move out a little.

So for instance, maybe not all of those hires are coming in.

And within 2020, for having said that, we saw an increase in variable.

So we still think we're going to be right there at the same guidance, right?

And again, variable costs can have swings and roundabouts, but that's what I was talking about when I when I made that statement.

And in terms of 2025, you know, to be honest, it's really a bit early for that.

We are right in the middle of our planning and budgeting process for 2025.

And what I can tell you, and you probably know that having covered the stage for a while is that over the last two years, you've really seen us deploy significant resources to those two investments, right?

We've seen all the development Expro building out proprietary data to help our clients.

That's really a big focus for the firm.

But you've also seen us really instill a culture of expense discipline.

And I was very pleased to see the positive operating leverage that you saw this quarter, our rate.

And so you know, you've seen in we had on the slide in our presentation, I believe it was on Slide 6.

Chris talk through a number of a very excited and exciting initiatives that we have, obviously, the additional technology in our investment in the pipeline, different things that are expected.

So to wrap this up, I would say we're super focused on ensuring the right balance between investing for growth as well as keeping us very laser focused on disciplined expense management.

Great.

That's helpful.

And then just a quick question for Chris or maybe not so quick, but curious, change in White House as we think about competition and maybe the dealers being less regulatory constraints, you think this changes, anything behavior or the electronification process on the.

Tom, as you know, there's this and potentially less restrictions around some of the financial institutions as a result of the new president.

Thanks for that very short.

Simple question.

On a what I really the way I look at our business and just more broadly regulation across the market, we are in a very favorable position where both clients and most dealers are adopting electronic trading at increasing rates, not because of regulation, but because of commercial reasons.

And so if you look at the large institutional asset manager, while they are growing AUM in the fixed income market, given the rate levels that we're seeing, they are doing it at a lower on a per million of revenue capture just given the expense ratios that are they are running and where they are attracting those assets.

So they are all on very focused on on expenses and electronic trading.

And as I think about our business, we provide the large institution investors around the world with technology solutions that simplify their life and reduce their overall fixed costs.

And so sitting in that environment right now, regardless of what changes from a regulatory perspective or a political perspective, we're in a good position globally.

The good news is we had a hedge on the election of both parties like to like debt and like to spend government money.

And so sitting in the fixed income market, we felt well positioned going into the the election last night presenters, and thank you.

Question comes from Alex Blostein from Goldman Sachs.

Your line is now open.

Hey, good morning and thanks for the question.

I was hoping you guys could expand a little more on your partnership with ICE.

Um, I think you mentioned it in the prepared remarks.

And now does this offering was originally announced maybe last quarter, but hasn't gone so far.

How are you thinking about the benefits to both of you guys?

And are there other areas you can collaborate?

And as you kind of get deeper into that into that endeavor.

Yes, hi, Alex.

It's Rich.

And thanks for that question.

We've had a long-standing relationship with with ICE and it goes back years on the on the data side in terms of US consuming some of their data and then we sell them some of ours.

So we've worked with them for a while.

And then to our acquisition of plasma.

They've been a technology provider to the NYSE for some time.

So we have we have worked with them closely in terms of the the initial aspects of our partnership on trading with them.

It's been off to a great start.

We're really happy with the liquidity that we are getting them from them.

It started with muni's in terms of responding to have a trader's on our side who were looking for liquidity and having a nice response through Open Trading and it expanded into credit with in the high-yield space, they are focused more in small sizes.

We often call it might plus, although we've been surprised to see them than winning some larger trades as well.

And they've immunities, especially they've kind of quickly become one of the top Open Trading liquidity pressure.

Yes.

So that's really positive for our investor participation side, traders.

Looking for liquidity, you know, it's interesting that the in the retail a bid, they're connecting that with institutional investors looking for liquidity can be can be quite promising.

So it's just the start, I think of our work with them.

We have other things I know in the roadmap in terms of connecting our Adaptive Auto-X so that our traders using that tool can tap into the liquidity available in ICE, including even the ability to leave resting orders out there as well.

And um, you know, it's an example of something we're trying to do to serve our clients and get them liquidity anywhere that we can find it was, I should say, unique liquidity where it where it is supplemental to the what we already provides, who are pretty vast network.

So in this case with ICE, that was something they brought that we didn't have.

And it's a win for our for our traders is that are on the system.

Looking for liquidity.

And Alex, I'll just add it's an important partnership for us.

I was on I was pleased and quite amazed at how quickly their tech team worked with our tech team to get data back of the announcements.

So is quite impressive from their side.

We have long-standing partnerships, as Rich mentioned, from the data side on.

But there are no ICE is doing fairly unique things around both data and now on potentially clearing treasuries, which is another area that we will stay close to them on any opportunities for treasury clearing in the near future.

But as Rich mentioned today, on the bond partnership is off to a great start.

There's connections that we are building Entyce bonds as well.

So it is a quite a cool reciprocal relationship across the board.

That's great color.

Thank you, guys.

Your next question comes from Kyle Voigt from KBW.

Your line is now open.

Hi, good morning, everyone.

My name, just a question from me on the velocity of trade.

You've noted in the prepared remarks that we see this increase in 2020 for this has continued into October.

I mean hybrid industry volumes are up 30% year on year.

Is there any way to frame how much of this increase and velocity in 2024 has been driven by the stronger new issuance environment and the flow-through impact of that to the secondary market versus more secular factors?

And if you had identified kind of the main secular drivers that have helped velocity this year and could continue to help velocity in 2025, what would those be?

Sure.

And look, we're thrilled with the increase in velocity.

We're still not at historic levels of turnover, but we've certainly started to achieve a record levels relative to recent history.

So it's exciting to see that level of velocity.

I think there are a number of factors that are leading to this higher velocity.

Some of the basic factors are just where yields are in our fixed income market there at attractive levels relative to recent history.

And you see that in the data with just the inflows into ETFs and mutual funds.

So we continue to see in 2020 for high levels of inflows, which are clearly attracted by the higher levels of the yield.

And we don't see an end in that site, right?

The CPO driver that money has to be invested.

We're seeing tools that allow them them to invest to allow our clients to invest quicker.

So our portfolio trading at 10% of the overall market is part of the velocity.

It allows faster exposure to the fixed income market.

It also allows changes in portfolio faster so that electronic solution isn't impacting of velocity.

The overall macro market is also of interest on.

We're pretty excited about not only where rates are, but some that new issue market that you've mentioned.

While numerous, you can have impacts to our market share.

It does lead to higher levels of turnover, higher levels of velocity.

And so we've seen a record new issue volume in 2024.

And certainly, when we look out further into 2025 and look at where some of the large corporations have did that are doing maturity levels coming, do expect new issue to continue into 2025 to help overall market volumes.

So I would say it's one part macro market driven by higher rate environment.

one part on where we are in that rate adjustment, we're going to hear more about rates tomorrow, and that will impact a portfolio management and turnover.

So as rates are moving, we'd expect higher levels of velocity.

The last remaining piece in the macro market that we think we are so waiting for volatility and we're starting to see some level of credit issues show itself and reveal itself in the market.

Talking about downgrades from high-grade high-yield.

We've seen some of that as we face a more difficult economic time as you can actually predict higher levels of downgrades in the market.

And that leads to a two things, higher spreads, wider spreads in the market and wider and higher levels of spread volatility to things that are quite helpful to our overall economics here.

So other macro backdrop right now is actually quite exciting for us.

We see that as a wind at our back and we're really not through the full cycle where you start to see those higher levels of volatility.

Right now, we're seeing point high levels of volatility in the rates market.

That's why we're seeing record rates volume, particularly in the month of October, but we're still not seeing that bleed into other credit market, but it's still early days for that.

Great.

Thank you.

Yes.

Your next question comes from Simon French from Ready-Frame Atlantic in line is now open.

Hi, thanks for taking my question.

I was wondering if we could just go back to a fee per million.

And I guess the question about the changes to the White House right now, but just in terms of the environment that we might now see with potentially a high high bond yields from here, the mix that we announced and portfolio trading and some of the other protocols, could you talk about, I guess, the longer term, the way we should think about the longer-term normalized level of total credit fee per million and sort of where that can go?

I know we've got the sensitivity to movements in yields and so on right now, but it feels to me like, yes, potential upside might be limited by some of these other factors like on Nielsen and the mix.

Yes, sure.

Good question.

And I mean, obviously, we know there are so many different things that go into 8 million and that impact our fee capture rate.

And so some of that, I think you just mentioned when you talk about if we see a greater or and Christian talked about this a little bit, we were talking about the environment that we see a greater percentage of high yield, obviously, which is our highest average in if the product area, that's helpful for capture rate.

And so that's part of what he was just mentioning.

On the other hand, as you see growth and PT., that has a negative impact on capture add to that.

Another thing that you balance and I looked back over ours but say called the last five years, right?

And you had an average of about $173 per million when you talk about like certain collapse of blood level.

And if you recognize that, that included capture of about $241 8 million during COVID, which we would not expect to see, again, given all of the factors that happened during that time period, that will likely run rate for better capture than than what we are seeing a number of things happen, right.

And so we saw, for example, the improvement of $154 in October, which was up from 150 in September.

So when you see an increase in duration, which we talked a little bit about in high-grade debt, how straight Another thing to keep in mind is what Rich mentioned a moment ago about Open Trading right now are premium priced liquidity.

Any.

So an increase in Ball, we believe, but also enhanced 8 million because of the increase in activity that could be expected through Open Trading right now, what we most likely would not get back in that sort of average fees per million price range that I just talked about was the impact of portfolio trading in that's been running at, let's call it, a net headwind of, call it five to $6 up eight point.

So I just spent a lot of different things, right?

And but net-net, when you do a combination of, let's say, a lower rate environment, an upward sloping yield curve for high grade, higher mix of high yield, increased activity in Open Trading.

All of those things can healthy levels.

And that should make us in a place that is slightly higher than what you're seeing right now.

But again, there's a lot said about moving pieces to that and we'll have to see where it all turns now.

Great.

Thank you very much.

That's all from me.

Your next question comes from Brian Bedell from Deutsche Bank.

Your line is open.

Great.

Thanks for taking my question.

Most of it and have been asked and answered.

Maybe just one big picture.

one for you, Chris, you said before, I think the high-grade market you think will eventually become some 90% electronified, and that's the that's up from like 50% today.

I'm just looking back, obviously, over the last 25 years, it's been a long journey, call it, 2% of share gains per per annum.

And that piece is kind of slowed in the last few years.

Do you see that turning around, given everything you've been saying about tackling into the block trade and the behavior on the dealer side, do you see that pace inflecting upward in the near term?

Or do you still think this will become a bit this last 40%?

It's just something to be kind of kind of a grind and if you could just compare versus that first, 25 years?

And to what extent would that be a faster and electronification from the prior 25?

Sure.

I'd like to say on it will be quicker than the last 25 fabric for hard through the first to accept the pace, given all the work.

He's done a really I when I look at the market and the electronic conversion in the base of that change, I think that the first part of that change was more of a network effect, getting everyone on the network getting people used to at Trader by trader, um, I see a higher level of what I call electronic capitulation.

Both dealer and clients are embracing electronic trading.

They have made necessary investments to adopt it at a faster rate.

And the reason why I am encouraged by the current adoption is if you look at portfolio trading just three years ago, a portfolio trading by definition is an electronic solution.

It has now reached a 10 and sometimes 30% of the market.

It has accelerated.

The velocity of trading clients have benefited from that solution, and they are embracing electronification at the trader level on the more manual traders are tend to lead the portfolio trading tool.

They are the block traders, the high-touch traders at our various clients.

So they have made the conversion.

And so that's why we think it's a very the right time to start delivering similar efficiencies in the block trading area where they they will not change how they price bonds.

They will just convert from chat to electronic click to trade solution with dealers.

Their information will be protected.

They're the dealers will be protected when trading with those clients, which is important component.

And more importantly, they will have access to data that they haven't seen before as part of that trade.

So I am encouraged by what we're seeing in the adoption of our early days of block trading, but more employ currently, how fast a trader's adopted portfolio trading and portfolio trading tools and moved electronically quite quickly because of the ease of use.

And more importantly, the overall pressure that we're seeing from our clients to reduce costs and reduce and bring in more and more efficiencies.

If you just look at the growth of our automation solution growing at 30% to 40% a year, it's now to adapt the same pressure on that.

We're through that we think will lead to success in electronic adoption of block trades.

So we're quite excited about the commercial pressures to move to electronic trading, and we're more excited about the offering that we're putting in front of the clients right now.

That's great perspective.

Thank you.

Your next question comes from Michael Cyprys from Morgan Stanley.

Your line is now up.

Hey, good morning.

Thanks for squeezing inherent.

Just a question on the automation suite, exciting to see representing 11% of volumes today.

Just curious, do you see that progressing over the next couple of years?

What hurdles do you see that limit that from moving higher?

Maybe talk about some of the steps you're taking to overcome that?

And in particular, if you can elaborate on the next generation of the adaptive automatically, what might that look like, how you see that offering evolving?

And how do you see that progressing as we look out over the next 12 months?

Sure home automation has been a high area of interest among our clients.

On some encouraging data.

Not only are we growing automation grew in the third quarter to a record level on at 32% year over year.

So exciting growth rates in that area.

But what I am encouraged by is the differentiation for the different penetrations of our clients, agents in the automation area, not all clients look the same.

We have very high penetration users of automation, both in terms of the breadth of product that they put on automation, but also the size.

We are seeing clients using larger and larger trade sizes in their automation suite lead.

And in fact, in the quarter, we had some record science trades flowing through automation.

Oxides.

Trades in automation is quite an encouraging set of facts on the automation suite is across all products, which is also exciting.

So it's it's in EM that's in euro bonds and across high-grade and high-yield.

So it's a cross product solution that we're seeing adopted, not just here in the U.S. but across the globe.

High demand for automation.

With regard to next gen automation, I'm happy to report we've just rolled out our new take solution, which is a leveraging our fragment technology.

It really replicates our very successful AutoWeb solution.

But in prior months, just a technology and onto fragments footprint, it allows what would be a traditional auto XRQ. to see other alternative liquidity on its path to going into an RFQ.

So it really manages order smartly while allowing the client to choose to very aggressive at the request metal.

And it's seamless, no touch solution.

So we're excited about the new, the new enhancements that we're putting in our Adaptive Auto-X tool.

But we're wildly excited about the success that the whole automation suite is having on.

If you look at new needs, which was the last launch of auto automation, we're continuing to see growth in our muni's automation tool, an area where it's it's really prime, given the very small trade sizes in our muni market.

Things like automation are perfectly positioned to reduce workflow for the buy side.

Great.

Thanks much.

Your next question comes from Eli, a boost from Bank of America.

Your line is now up.

Good morning, everyone, and thanks for taking the question.

Quick one on EM., how much of your emerging markets business is coming from US-domiciled asset managers?

And if we get higher tariffs next year and U.S. managers reduced allocations to emerging markets, how material should we expect that to be for your credit business?

First, a great question, Chris.

Our EM business is quite diversified across clients.

In the U.S., it's probably about a third closer to 30% of clients engaged in EM.

Next and larger size is about 40% comes from our Amir based clients.

So most large institutions will trade there.

Em business from Europe and the UK.

And then the remainder is split between our own new clients in A-Pac, which has been growing.

So a pack is a big investor across the the the EM landscape and our clients in Lat-Am, another area.

So it's really diversified across region.

And if you think about LatAm and A-Pac, that's where we continue to add clients where we're growing and onboarding clients, and they have some interest in not only trading EM, but also on it's very helpful because they're trading US, high-grade and high-yield as well.

But really a diversified motocross when it when you look at that diversified book of clients and from where it comes to U.S. tariffs, some less of an impact from their investment perspective, they are looking at the globe from from their unique lens and making investments more around and the rate of return and the attractiveness of the sovereign debt, which is a big key part of the local market.

So we feel quite comfortable with them.

The ECM market where rates end up in and really where on the EM economies and up those macro issues will pop Dr. Dr. investment investor appetite in the EM markets in the EM regions across the board.

But the good news is our clients are quite diversified across region.

And more importantly, the product of the M is quite diversified across regions.

So there's lots of different investment strategies deployed across all the different regional bonds that we offer in our OEM products.

Great.

Thanks, guys.

I'd now like to hand back over to Chris King Kong for furniture very much.

Great.

Thanks.

Thanks for joining us this quarter.

Obviously, I want to thank Rick for his 25 years and has the confidence in me in taking on the company going forward.

I certainly want to thank our Carlos Fernandez for agreeing to be our new Chair.

And I especially want to thank Nancy Altobello, our Lead Director.

She has worked tirelessly to make us a better company.

I joke with Nancy, that we might be violating some of the New York state minimum wage rules given the number of hours that she has worked.

And lastly, Rick is a very important investor of ours.

So you should expect to see him somewhere in the queue next quarter.

I'm asking some of the hardest question.

So with that, we look forward to talking to you next quarter.

Thank you.

Thank you for attending today's call.

You may now disconnect.

Have a wonderful day.