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Operator
Ladies and gentlemen, thank you for standing by and welcome to MarketAxess second quarter 2008 earnings conference call.
At this time, all participants are in a listen only mode.
Later we will conduct a question and answer session.
(OPERATOR INSTRUCTIONS).
As a reminder, this conference is being recorded Wednesday, July 30th, 2008.
I will now turn the call over to Stephen Davidson, head of Investor Relations at MarketAxess.
Please go ahead, sir.
Stephen Davidson - IR
Good morning and welcome to the MarketAxess second quarter 2008 conference call.
For the call this morning, Rick McVey, Chairman and Chief Executive Officer, will review the financial -- the highlights for the quarter.
Kelly Millet, President, will provide an update on trends in our businesses and then Jim Rucker, Chief Financial Officer will review the financial results.
Before I turn the call over to Rick, let me remind you that today's call may include forward-looking statements.
These statements represent the Company's belief regarding future events that by their nature are uncertain.
The Company's actual results and financial condition may differ possibly 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, 2007.
I would also direct you to read the forward-looking disclaimers in our quarterly earnings release that was issued earlier this morning and is available on our website.
I would now like to turn the call over to Rick.
Rick McVey - CEO, Chairman
Thank you, and good morning.
I am pleased to share our solid second quarter results with you today that were achieved in spite of tumultuous credit market conditions.
Importantly, we continue to broaden and strengthen our franchise to enhance our long-term potential for our shareholders.
In the second quarter, we delivered record revenue of $25.6 million with EPS of $0.08 versus the prior year period of $0.10.
While overall expenses were up 8.4%, expenses excluding acquisitions were down 4.9% from the year ago period.
Investor demand for our electronic solutions continues to build with U.S.
high-grade inquiry count of 15% and 168 live investor order management system connections at the end of the quarter, up over 50% from 110 connections one year ago.
We attracted a new strategic investor with Technology Crossover Ventures purchase of a minority stake in MarketAxess in early June.
TCVs $35 million investment combined with our continued strong operating cash flow greatly enhances our capital flexibility.
Bob Trudeau from TCV has also joined our Board and is actively contributing to our strategic discussions.
And lastly, we registered $2.7 million in technology, product and service revenue, including the first full quarters contribution from our acquisition of Greenline Financial Technologies.
We are pleased with both the improvement in short-term results and the expansion of our business and shareholder base accomplished during the quarter.
Dealers continue to face balance sheet and credit risk constraints reducing their ability to commit capital to clients in the market making capacity.
This decline in dealer liquidity is having a negative impact on overall credit market trading volumes.
Kelly will talk shortly about some of our plans to expand the pool of liquidity providers on our system.
We will continue to take steps to expand our client base, increase our sources of liquidity and further enhance our technology in order to drive network benefits for our dealer and investor clients.
On slide four we provide an update on factors that are driving trading activity in our core market.
While we have seen short periods of improved liquidity over the past year clear signs of stress in the financial market remain.
In the upper left-hand corner high-grade corporate bond benchmark spreads remain at their widest levels in a decade.
Credit spread volatility, in the upper right hand corner, has remained extraordinarily high over four full quarters straining the risk management capacity of even the most sophisticated institutional players.
The yield curve remains steep and bank funding spreads to Treasuries are stubbornly high.
This picture of sharply elevated credit risk in the system combined with dealer balance sheet constraints has caused a dramatic reduction in market liquidity.
We continue to believe that a normalization of credit spread volatility is needed in order to increase overall corporate bond training volumes.
On slide five, we highlight recent transactions which we believe improve our long-term prospects and our short-term flexibility.
First, we have recently completed two acquisitions, TWS and Greenline consistent with our stated strategy of complementing our organic growth opportunities with strategic acquisitions that expand our technology services business, enhance our client connectivity offering and extend our client base.
Total cash consideration for these acquisitions was $38.1 million.
And in the second quarter we attracted a new strategic investor in Technology Crossover Ventures with their purchase of approximately 9% minority stake in MarketAxess for $35 million.
The TCV investment rebuilds our cash position to pre-acquisition levels and provides significant flexibility for other acquisitions or share repurchase programs.
We implemented the shareholder rights plan simultaneous with the closing of the TCV transaction.
We believe this was a prudent step to protect our shareholders in light of some of the recent stock price activity in MarketAxess.
This plan in no way restricts our ability to consider transactions that appropriately reward our shareholders, but it does deter potential hostile acquirers from accumulating stock at a time when we believe shares are undervalued.
We remain confident in our long-term opportunity and we believe we are taking appropriate steps to protect our shareholders through an extremely difficult period in the market.
With that, let me turn it over to Kelly to discuss trends in our business.
Kelley Millet - President
Thank you, Rick.
On slide six we show the long-term trend in FINRA TRACE.
Our respective shares provide more detail in the contribution of fixed and floating-rate bond trading to our estimated share of trades.
Estimated industry FRN volumes went from $83 billion in the second quarter of last year to $51 billion in this year's second quarter, a decline of 39%.
MarketAxess headline volumes fell further as dealers are wary of committing any capital to the upper end business.
While upper end trading over MarketAxess represented 3.7% of our share in the second quarter last year upper ends were only 0.6% of our share in the second quarter of 2008.
Importantly, our share of the fixed rate business has seen only a slight decline.
Our share of the higher fee per million business was 9.4% in June of this year, which was the highest fixed rate monthly share registered since June of 2007, which was a record at 9.6%.
A reminder on estimated shares.
Estimated market share for U.S.
high businesses can register large short-term swings due to potential shifts and the makeup of trading activity between our client to dealer, dealer to dealer and retail market segments.
Lastly, our estimate of July share is that it will be below June, but above the year-to-date monthly average.
On slide seven, we show the underlying strength of our client franchise.
Institutional investor demand for our platform is stronger than ever.
The number of U.S.
high-grade client inquiries in the U.S.
high-grade platform increased from 132,000 in the first half of 2006 to 179,000 in the first half of this year.
The strong growth rates we have seen are being driven by the highly profitable fixed-rate business which saw a sequential fixed rate inquiry count increases of 21% and 15% respectively since 2006.
Our OMS-driven trade count continues to grow.
Trades executed on the platform that originated from a client on this system have increased from 14,000 in the first half of 2006 to 51,000 in the first half of 2008.
We have significantly increased the number and quality of clients connecting into us since 2006.
As we embed ourselves into client work flows, our system becomes sticky and raises competitive barriers to entry.
In our other product areas we are also seeing strong investor demand with double-digit growth in inquiry counts and inquiry volumes in our emerging markets and high-yield product areas.
These two products continue to be areas of focus for us given the significant market opportunity and revenue potential.
In Europe, while trading volumes are down 50% year over year, we have seen a strengthening of the business with trading volumes up 46% and revenues up 12% from the first quarter of 2008.
Current volatile market conditions have created demand for our online and technology solutions, but dampened appetite for client-to-dealer CES trading and electronic dealer-to-dealer activity under DealerAxess.
We continue to work closely with our customers on different fee and protocol plans to help move these businesses forward.
Slide eight demonstrates the opportunity to expand dealer liquidity on the platform to drive new revenue.
The under $1 million trade size bucket of trades represents approximately 90% of the trade tickets and 10% of the total volume.
Within this segment of the market our fixed-rate inquiry volume continues to grow, but, given dealer risk aversion, and lack of balance sheet our hit ratio declined from 77.7% in the first half of last year to 65% in the first half of 2008.
While this segment only makes up approximately 10% of TRACE, by volume, it is very attractive from a revenue perspective.
The average variable transaction fees earned are significantly above the average variable fees for US high-grade overall.
We are not waiting for markets to rebound, but are actively looking at ways to improve our hit ratio, drive increased share and generate new revenue in this market segment.
So, here's what we're doing.
First, we are in the process of expanding our dealer group by adding regional and diversity dealers to provide liquidity in the other $1 million trade sizes in both high-grade and high-yield.
Second, we are working with our existing dealer group so they are fully engaged in responding to the strong inquiry both through API and auto quoting capabilities.
We expect this new dealer initiative to improve dealer liquidity which should therefore have a beneficial impact on hit ratio, market share and revenue.
Lastly, on slide nine let me discuss Greenline.
Greenline develops software solutions that include a full suite of FIX message testing, monitoring and management support tools designed to ensure reliable, high volume throughput of critical transaction messages.
And it also has a professional services business and capability that provides clients with custom system development and proprietary software solutions.
Based on [TAB] Group estimates by the end of 2009 there are expected to be more than 60,000 end users of FIX, up from approximately 1,400 at the end of 2005.
As a market leader in FIX support software, Greenline has been and will continue to benefit from this growth.
With Greenline we've enhanced our competitive position within fixed income as the market evolves to a fixed base protocol to trade related communications.
And we have diversified our client base away from dealers and large fund managers to include, for example, exchanges while growing our nine U.S.
customer base in new regions such as Asia and the Middle East.
We are pleased with the first full quarter contribution from Greenline.
Based on the quarter results we see an acceleration of revenue growth rates.
Greenline was accretive to earnings during the quarter including the amortization of intangibles and funding costs.
Now, I'd like to turn it to Jim for a review of the financial results.
Jim Rucker - CFO
Thank you, Kelly.
Please turn to slide 10 for our earnings performance.
Our second quarter results include the first full quarter from our acquisition of Greenline Financial Technologies.
Record revenue for the quarter of $25.6 million was $300,000 or 1% above the second quarter 2007 and $2.7 million or 12% above the first quarter of 2008.
Pretax margins of 19% for the quarter were below the 24% margins recorded in the second quarter of 2007, but above the 13% in the first quarter 2008.
Earnings per share of $0.08 were only $0.02 below the prior year's second quarter and $0.03 above the first quarter of 2008.
We feel very good about it as a result given the adverse credit market conditions over the past year.
The effective tax rate was 40% this quarter in line with the 41% rate in the prior-year second quarter, but well below the 46% rate reported in the first quarter of 2008.
The significant decline in the tax rate relative to the first quarter was due to a higher pre-tax contribution from our European business and higher tax-exempt investment income.
We anticipate that the effective tax rate for the full year will be between 42% and 44%.
A quick note regarding the share count.
The 34.8 million diluted share count for the quarter includes the impact of the first traunch of preferred shares and warrants issued in relation to the investment in MarketAxess on June 3rd by TCV.
We estimate that the share count for Q3 will be approximately 37.5 million shares including the impact of the final tranche of TCVs investment which occurred on July 14th.
On slide 11, we've laid out trading volumes in fees per million.
Total trading volume for the quarter of $70 billion was down 37% compared to the second quarter of 2007 with the largest percentage decline being in our European business.
However, compared to the first quarter of 2008 total trading volume was up 8%.
While we're disappointed with the volume trends versus the prior year period we're happy with the quality of business being executed over the platform.
In U.S.
high-grade, we have retained the high end margin longer duration business and as a result variable transaction fees this quarter were $119 per million, up 47% from the $81 per million in the second quarter of 2007.
A decrease in other volume compared to Q2 2007 was primarily due to decreases in CVS and agency volumes.
As agency and CVS transactions incur lower fees per million then some of the other products in this category the average fee per million increased from $123 to $160.
Slide 12 provides the revenue detail.
Let me give some highlights.
Compared to the year ago quarter technology products and services revenue increased to $2.7 million largely as a result of the Greenline acquisition.
And European high-grade commissions were up by $700,000 as a result of the new European fee plan which was introduced in June of last year.
Offsetting these were the lack of minimum fees from our U.S.
high-grade DealerAxess dealer to dealer business as well as a reduction in investment income as a result of lower average investment balances during the quarter following the Greenline acquisition and a decline in interest rates.
Investment income is reflected in the all other revenues line.
It's interesting to note that in spite of the extreme market conditions our total revenue for the first half of this year of $48.6 million was only 1% below revenue for the first half of 2007.
As a result of the recent consolidation in the dealer community we anticipate that our U.S.
and European high-grade distribution fees will be down by approximately $300,000 and $100,000 respectively in the third quarter.
Slide 13 provides you with the expense detail.
Total expenses were 8% above the second quarter of 2007 and included the impact of our acquisitions of Trade Ware Systems and Greenline.
Excluding the impact of expenses related to the TWS and Greenline acquisitions our underlying expenses declined 5% when compared to the second quarter of 2007 reflecting our continued expense discipline.
The 5% decline in our underlying expenses is the result of lower employee incentive compensation and depreciation and amortization, partly offset by higher professional and consulting fees and stock compensation.
Employee compensation and benefits as a percentage of revenue was 45%, up from 44% in the second quarter of 2007, but down from 48% in the first quarter of 2008.
Based on our first half expenses we would expect the full year 2008 expenses will be at the midpoint of our previous guidance range of $81 million to $84 million.
Employee head count as of June 30th was 200 compared to 174 in the second quarter of 2007.
The 200 headcount number includes an additional 35 staff from the Greenline and TWS acquisitions.
On slide 14 we have summary balance sheet data.
Our cash, cash equivalents and securities balances as of June 30th were $118 million.
The increase in the cash from the first quarter was due to TCVs purchase of preferred stock.
The $118 million does not include net proceeds of $6.8 million from the closing of the final tranche of the TCV purchase on July 14th.
Book value on a diluted basis as of June 30th based on the weighted average shares outstanding adjusted to show the full effect of the preferred stock issuance during the quarter was $5.75 per share.
Cash and securities on the balance sheet represent $3.23 per share and deferred tax assets represents another $1.02 per share.
Our free cash flow continues to be well in excess of reported net income.
I expect our free cash flow generation for the full year to be more than two times reported net income.
Now, let me pass the call back to Rick for concluding remarks.
Rick McVey - CEO, Chairman
In conclusion, we're very pleased with our financial results for the second quarter in light of what continues to be a brutal environment for credit trading.
We operate in large OTC markets where our technology solutions are in high demand and electronic trading is still in its infancy.
Our competitive position remains strong with a dominant share of the U.S.
institutional client and dealer electronic credit market and growing barriers to entry.
The strength and depth of our product continues to expand with more dealer and investor clients choosing to connect their trading systems to MarketAxess increasing customer order flow.
With our Greenline acquisition and our growing technology products and services business we are broadening our relationships into both new electronic trading markets and broader technology solutions and this quarter's results show an acceleration in growth rates.
Lastly, we believe that our new dealer initiative will help increase liquidity on the platform, return hit rates to more normal levels and help to grow revenues and market share.
Now, I would be happy to open the line for your questions.
Operator
(OPERATOR INSTRUCTIONS).
Our first question will come from the line of Daniel Harris with Goldman Sachs.
Please proceed.
Daniel Harris - Analyst
Good morning, guys.
How are you?
Rick McVey - CEO, Chairman
Good morning, Daniel.
Daniel Harris - Analyst
I just wanted to follow up with you on the initiative to attract the regional brokers and the smaller brokers to the platform.
How do you think about these guys in terms of pricing plan?
Should we be thinking about them the same way that you have the large guys where you'll have a fixed fee for them on a monthly basis or given their size and probably the different way that they trade would you have something different in mind?
Kelley Millet - President
Good morning.
It's Kelly.
First, just to repeat they will be limited in responding in terms of increase size to under $1 million and acknowledging your perspective a number of these regionals are relatively small and some of them specialize in parts of either the high-grade business or high-yield business.
So, our initial approach subject to review at year end will be transactional based fees as opposed to material fixed licenses at this point.
That being said as I said in my prepared remarks the average fee for this business will be significantly greater than the average dollars per million in the overall U.S.
high-grade business.
Daniel Harris - Analyst
And can you give me a sense, Kelly, about -- you guys got about 30 large brokers.
How many of these smaller and regional brokers are there out there that are actually meaningful participants in the bond market?
My guess is there's a lot of regionals?
Kelley Millet - President
There are a lot of regionals and obviously they've been a bit more important over the last year as the large dealers have probably been more negatively impacted by issues around balance sheet and risk.
If I had to give a broad range of the kind of portfolio of regionals and diversity firms that we think are available, I think in the regionals it would perhaps be mid-teens and in the diversity's it would be low single numbers.
I'm sorry; high single numbers.
That being said I think for the initial entry into the marketplace we hope to have six to eight regionals and something in the order of four to six diversity firms as we kick it off.
Daniel Harris - Analyst
Okay.
That's really helpful as I think about that opportunity.
And can you guys talk a little bit more about the Greenline and TWS impact on the technology line?
Are those revenues more lumpy?
Are they contract based and stable?
How do you think about new sales processes?
Is it a long process to get something done or is it something that you can happen within a couple weeks of meeting somebody?
Kelley Millet - President
Again, it's Kelly.
If you look at the three legs of our tech services business obviously the Greenline business is the largest of the three.
The other two being our connectivity solutions, which is anchored by our TWS acquisition and our organic training solutions, which is our work directly with principally dealers and IDBs in terms of providing technology solution.
Within the Greenline Company, there are really principally three sources of revenue.
One is the license sale itself.
The second is ongoing maintenance.
And the third is professional services.
In terms of the life cycle of a software license sale it's not typically a matter of weeks, but typically anywhere from let's say a 10 to 12 we process.
It's typically the first call, the proof of contact and then the vetting through the technology hurdles within the direct customer.
We've been pleased that we've only seen a modest impact in terms of market conditions on the lengthening of that sales cycle.
And I think a big part of that is their focus client base as I said earlier is a way for the large dealers and asset managers and more towards the exchanges and non-U.S.
firms who focus more on the latency issues and are not as concentrated in the credit market.
Daniel Harris - Analyst
So, based on those three things, the licensing, maintenance and professional services then, it sounds to me like within that mix then that should stabilize revenues.
Always tough to say what a run rate would be, but not right from 2.7 to 1 to 4, right?
Kelley Millet - President
Well, we certainly hope so.
There is a maintenance level and if you talk to other people in the software business it tends to be 15% to 25% of revenues on an annual basis.
We do think the combination of maintenance and some core level of professional services can give us some consistency of earnings, but obviously there's still a sales cycle in terms of either up selling to existing clients or new clients with the software licensing.
Daniel Harris - Analyst
Okay.
And then on the numbers from this quarter was there anything -- onetime sale in their?
You guys closed a couple of things this quarter that you wouldn't have last quarter?
Kelley Millet - President
I see nothing in the numbers this quarter that are unusual in terms of looking back on Greenline's history in terms of to your point concentrated sales or one off sort of things that are not part of the core trend and core part of the business.
Daniel Harris - Analyst
Okay.
And then just lastly for me.
Jim, on the share count on the diluted side, can you sort of walk me through the progression say over the last quarter or two from the different acquisitions you've made plus the shares you've issued leading up to the guidance you provided for the third quarter?
Jim Rucker - CFO
Yes.
Obviously, and Daniel, the most significant impact on the share count is going to come from the TCV sale of preferred stock.
In terms of Greenline, it obviously occurred pretty early on in the last quarter, so I think it's fairly well baked into the numbers.
Because the TCV transaction closed in early June, and it was in two tranches the second of which didn't close until the July 14th, we will have an additional impact from the TCV transaction in the third quarter and that's what I tried to outline when I gave the share guidance for the third quarter.
Daniel Harris - Analyst
So, then that 37.5 would be just maybe a tick higher assuming no other impacts given that it's July 14, so it's a couple weeks into the quarter as we talk about the fourth quarter?
Jim Rucker - CFO
I took that into account, Daniel, when I gave the 37.5 number.
The only thing that will vary will be the stock price and its impact on options and other equity on treated on the Treasury method.
Daniel Harris - Analyst
Okay, guys.
Thanks a lot.
Kelley Millet - President
Thanks, Daniel.
Rick McVey - CEO, Chairman
Thank you.
Operator
Our next question will come from the line of Chris Allen with Banc of America Securities.
Please proceed.
Joe Heary - Analyst
Hi, guys.
This is actually Joe Heary.
Rick McVey - CEO, Chairman
Hi, Joe.
Kelley Millet - President
Hi, Joe.
Joe Heary - Analyst
Just as a quick follow-up on the technology services.
What does the customer pipeline look like right now in terms of how we think about this going forward?
Kelley Millet - President
Well, within Greenline, without getting into too much detail with a consistent basis for managing and qualifying that pipeline.
The pipeline is actually up since our acquisitions.
So, we're pleased by the fact that the pipeline net of sales continues to have that upward trend.
We do think there are some opportunities in our organic trading solutions business.
I would simply caveat that, that the principal consumers are dealers, regional dealers and IDBs at this point and obviously they are under significant cost pressures.
Joe Heary - Analyst
Great.
In terms of the dealers that you already have on the platform, it looks like the fixed fees that you're getting on the U.S.
side dipped a little bit by about-- I guess the amount of one dealer, and on the European side it looks like you actually-- they went up.
Is that just some pricing change you made or has there been a dealer that fell off?
I know you guys said Bear and ABN were likely to fall from the third quarter, so I'm not sure if it's related to that.
Jim Rucker - CFO
Yes, there was one dealer that did come off during the quarter.
That is due to the consolidation in the industry in the US.
In Europe, it will fluctuate a little bit because these dealer distribution fees are denominated largely in euros so you will see some small fluctuation from quarter to quarter based on the exchange rate.
Joe Heary - Analyst
Okay.
Great.
With respect to the July business mix have you continued to see a shift towards the fixed business as opposed to floating rate notes?
We saw that, I think, over the last couple of months.
Kelley Millet - President
Yes, we continue to see the same trend in that dealers are wary of committing any capital in the upper end broadly in the marketplace, so they tend to work it on an agency basis, typically by phone.
And our mix of fixed-rate and floating-rate, at least our (inaudible) would not be materially different than the mix of fixed and floating in the second quarter.
Joe Heary - Analyst
And then just a couple quick numbers question.
Your investment yield was down a lot.
I know you said it was lower average balances, but how much of that is lower balances?
How much is lower interest rates?
Is there a mix shift here?
I notice one of the impacts on the tax rate was higher nontaxable income.
Did you guys shift more into munis and would that lead to a lower run rate going forward or lower yield?
Jim Rucker - CFO
I can't split it out specifically, but it is due to both a reduction in the average balances and the decline in interest rates.
Interest rates are down a fair bit from a year ago.
Typically, we have our investments in shorter-term securities and a good portion of it in tax free municipal securities.
Those rates are down fairly substantially from a year ago.
Joe Heary - Analyst
I guess the last thing is just in terms of the professional services fees.
What the deals behind this at this point.
Should we see that revert to levels close to what we had in '07 or are we sort of stepped up in the current environment?
Jim Rucker - CFO
Joe, which line item was that?
Joe Heary - Analyst
The professional fees.
Jim Rucker - CFO
On the expense side?
Joe Heary - Analyst
That's right, yes.
Jim Rucker - CFO
The professional and consulting fees were higher this quarter for two reasons.
One is the impact of the acquisitions.
So, some of the increase in professional and consulting expenses was the result of the acquisitions.
We also incurred higher legal fees during this quarter then we normally do.
So, I would expect somewhat of a reduction in future quarters as a result of lower legal expenses.
Joe Heary - Analyst
Great.
Thanks guys.
Good quarter.
Rick McVey - CEO, Chairman
Thank you.
Kelley Millet - President
Thank you.
Operator
And our next question will come from the line of Hugh Miller with Sidoti and Company.
Please proceed.
Hugh Miller - Analyst
Good morning.
Kelley Millet - President
Good morning.
Jim Rucker - CFO
Good morning, Hugh.
Hugh Miller - Analyst
Most of my questions were already answered.
Just following up on the professional consulting fees.
You obviously mentioned that the acquisitions played a part in the increase in the second quarter.
You mentioned the legal fees.
Are the legal fees tied to the acquisition or were there additional legal expenses that were abnormal?
Jim Rucker - CFO
No, it was additional legal expenses not tied to the acquisitions that caused the increase there.
Hugh Miller - Analyst
Can you provide some color on that?
Jim Rucker - CFO
Yes.
Primarily it was resulting from an a claim by an employee that went through arbitration during the quarter.
The claim was dismissed in the arbitration, but we did incur legal fees in taking that through the arbitration.
Hugh Miller - Analyst
Okay.
And just the only other question I had was with regard to -- you guys commented that you were reducing the variable rate incentive composition -- I'm sorry, compensation.
Can you just add some insight into the thought process there?
Kelley Millet - President
The employee incentive compensation is directly tied to pretax operating income so that will vary with our business results.
Hugh Miller - Analyst
Okay.
Great.
Thank you.
Operator
(OPERATOR INSTRUCTIONS).
Our next question will come from the line of Howard Chen with Credit Suisse.
Please proceed.
Howard Chen - Analyst
Good morning, everyone.
Rick McVey - CEO, Chairman
Good morning, Howard.
Kelley Millet - President
Good morning.
Howard Chen - Analyst
Rick, you kicked off your prepared remarks highlighting the tumultuous market environment.
Now that we're about a quarter past the initial fall of Bear Sterns, do you have a sense of how much of that agency commission business and proprietary flow was absorbed by the rest of the broker dealer community?
Kelley Millet - President
Well, obviously, total trading volumes are still down in the market, Howard, so I do think that the credit events keep coming.
Obviously, the most recent news was around the GSEs, which we think was primarily responsible for the return of credit spreads back to the high in this cycle.
So, credit risk remains quite high, dealer balance sheet repair is ongoing and as a result in the short-term corporate bond volumes have been lower than we would normally suggest -- expect with credit spreads at these levels.
Howard Chen - Analyst
Okay.
Thanks.
And then switching gears on credit derivatives, I know it's a newer effort for you, but just curious to you thoughts.
There continues to be a lot going on in the industry with the announcements by the clearing corp, the acquisition of Credit X, the outside transition of broker teams.
Can you discuss how you see this market evolving over the next year and maybe where you company fits into that conversation?
Kelley Millet - President
Sure.
Now, we're very enthusiastic about the clearing and netting the initiatives that are taking place in the CDS industry.
I think it's natural, given the level of counterparty risk in the market today that the industry focuses first on improving the clearing and netting and margining structure.
So, our expectation is that that will be the case probably throughout the balance of this year, but as those initiatives start to improve the settlement structure in the CDS industry we are confident that the demand for electronic trading will grow.
Howard Chen - Analyst
Okay.
Thanks.
And then on Capital Management can you discuss how much is currently less than the current share repurchase program and your plans for that.
You alluded to efforts to protect the shareholders.
The balance sheet remains really strong, so I'm curious why maybe perhaps not being more aggressive on the share repurchase program.
Kelley Millet - President
Well, obviously, we were focusing on acquisitions and the TCV investment during the recent past.
And as I mentioned in my comments the strength of the balance sheet does give us plenty of flexibility on share repurchases and those will be subject to the market environment as we go forward.
Our first priority as always is to grow and diversify our business, so we like what we've done with recent acquisitions and if we see future opportunities that will continue to be our priority in terms of the use of cash.
Howard Chen - Analyst
And then, Jim, what's the current share repurchase program stand at?
Jim Rucker - CFO
The current share repurchase program is fully utilized.
So that was actually back in January that we completed the last purchases under the previous program.
Howard Chen - Analyst
Okay.
So, even if you wanted to right now, your Board has not authorized you to repurchase any more?
Jim Rucker - CFO
There's not a program in place, but as you know, Howard, that does not require much time should the Board decide that that's the best use of cash for our shareholders.
Howard Chen - Analyst
Sure.
Okay.
Great.
Thanks so much.
Operator
At this time we have no questions in queue.
I would like to turn the call back over to Rick McVey for closing remarks.
Rick McVey - CEO, Chairman
Thank you very much for joining us this morning and we look forward to talking to you next quarter.
Operator
Thank you for your participation in today's conference.
This concludes your presentation.
You may now disconnect.
Good day.