Q1 2020 Earnings Call
Based on what they said it budget it probably doesn't begin shortly again, thank you for your paycheck.
Please standby.
[music].
Ladies and them if they can certified I, just some offices and as I was talking about.
Later, we'll conduct a question answer session.
How does have a question first starts in a number one all your telephone keypad.
What I can withdraw your question.
Okay. It inside.
No each person's limit to one question before being asked to rejoin the queue.
As I'm honored this conference call this quarter on April 20 or 21.
I would now like to turn the call them today classy Investor Relations manager at market assets. Please go ahead sorry.
Good morning, welcome to the market access first quarter 2020 conference call for.
For the call, Rick Mcvey, Chairman and Chief Executive Officer.
I'll review the highlights for the quarter.
Chris containing president and COO will discuss automation in our operational resiliency and then Tony to lease 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 statement.
These statements represent the company's belief regarding future events that by their nature are uncertain.
Companies actually result, and financial condition may differ materially from what do you see indicated in those forward looking steep.
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 2019 in our quarterly report on form 10-Q for the first quarter.
It also direct you to read the forward looking Stephen disclaimers in our quarterly earnings release, which was issued earlier. This morning and is now available on our website now let me turn the call over to Rick.
Good morning, and thank you for joining goes to review our first quarter 2020 results.
First let me start by sending our heartfelt thoughts to all of those suffering through hardship in laws caused by the cobot 19 pandemic around the world.
Sure extraordinarily difficult times, and we hope to begin to see the seeds of recovery in the coming months.
The sharp increase in credit market volatility beginning in late February.
Led to record quarterly credit trading volume on market access of 666 $660 billion up 29% versus Q1 2019.
The value of our leading electronic trading platform was evident in record quarterly volumes for all of our core products.
You as high grade high yield.
Energy markets and euro bonds.
We also set new volume records in new and important product areas, including municipal bonds at U.S. treasuries.
Hi, great market share was 20% for the quarter.
Up from 17.6% one year ago.
Open trading provided unique trading conductivity to institutional market participants during the crisis and volumes were a record $209 billion up 55% year over year.
The acceleration of trading activity led to record financial results as well.
Revenues of $169 billion were up 36%.
Operating income jumped 44% and he asked was $1.96 cents up 41%.
Operating leverage came through clearly during the quarter with operating margins of 54% up from 51%.
Slide four highlights market conditions.
The sharp increase in credit market volatility started during the week of February 24th.
Unlike the global financial crisis in 2008.
Average daily market volume recorded your trace increased 27% in high grade and 24% in high yield in the last five weeks of the quarter.
Marketshare on market access also jumped higher during the volatile weeks.
Unique liquidity available through open trading differentiated our platform.
Open trading average daily volume was up 67% in the last five weeks for the quarter.
Versus levels seen before the event.
The speed of credit widening in Q1 was far greater than 2008.
For example, the high yield spread index jump from 400 over treasuries. The 1300 over in just four weeks in Q1.
That same level of spread widening occurred over 11 months in 2008.
We have seen an improvement in credit trading conditions over the last three to four weeks.
Partly due to the liquidity programs launched by the fed and other central banks.
Corporations rush to issue more debt as markets began to stabilize in late March leading to a record $480 billion of new high grade debt in the quarter.
Many companies also tap their bank credit lines to improve their liquidity position.
It is likely the debt issuance will continue to grow in both the private and public sector is leading to even greater secondary trading opportunities.
Slide five provides an update on open trading.
Open trading played a valuable role in keeping global market participants connected for trading throughout this credit event.
1500, institutional firms utilize the unique open trading liquidity available on market access during the quarter.
Open trading average daily volume grew to a record $3.4 billion up 53% from a year ago.
Open trading represented 31% of Tope total trading volume for the full quarter up from 26%.
As price dispersion in credit markets exploded in March.
Open trading delivered sharply higher transaction cost savings to clients.
Liquidity taker estimated savings reached $201 million for the quarter.
And liquidity providers saved an estimated $87 million.
Estimated client transaction cost savings on the trading system exceeded company revenues for the quarter.
During the quarter investment managers reached a new volume record for providing liquidity on market access and dealers reached a new volume record as liquidity takers.
We believe this demonstrates a trading behavior change that will lead to an even better global fixed income market in the years ahead.
The old open trading marketplace is the only broad based continuous all to all electronic market in global fixed income.
For the quarter market access had over 30000 daily institutional client orders available to both dealers and investors in open trading totaling $16 billion in notional value on average per day.
We believe we played an important role at improving overall market liquidity and reducing market risk during times like this.
We also believe that are significant competitive lead in electronic credit trading for the institutional markets widened to even further during the quarter.
Now, let me turn the call over to Chris to provide an update on automation and our operational resiliency.
Thank you Rick slide six demonstrates the growing momentum of automation and credit trading.
Automated trading volumes rose to over 31 billion in the first quarter up from 12.5 billion in the first quarter of 2019.
84 firms used our auto execution functionality in the first quarter up from 50 to the prior year.
Use of dealer algorithms is also growing with approximately 3 million algo responses in the first quarter, resulting in 249000 trades.
While we saw modest reduction in the average number of responses per inquiry. We believe this was largely due to the extreme market volatility in the second half of the quarter. Thus far in April we have seen algo responses returned to pre crisis levels.
We're seeing a growing adoption of our automated training tools for both liquidity providers and liquidity takers and we are actively working with both in <unk>.
On enhancing our functionality.
Slide seven provides a summary of our trading volume across product categories.
Are you were high grade volumes were up 19% year over year to 330 billion for the quarter due almost entirely to an increase in estimated market share.
Well estimated U.S. high grade trace volumes were up 28% year over year in March market volumes were up marginally year over year for the full quarter.
And the other credit category U.S. high yield emerging markets and Euro bond trading volume were each up 30% or more compared to the first quarter 2019.
You as high yield was the standout up 70% on the heels of record estimated market share of 12.2% coupled with a 25% increase in estimated trace market volumes.
We're also highly encouraged by the growing adoption of municipal bond trading in the first quarter 316 unique client and dealer firms traded a record 3.3 billion municipal bond volume on the market access platform up 143% from the prior year.
Our rates category is mainly composed of trading volume in U.S. treasuries and reflects the post acquisition contribution of liquidity edge now known as market access rates on a pro forma basis average daily volume for US treasuries was up 57% year over year, we believe these.
Volume gains were primarily driven by an increase in estimated market share.
Our April month to date average daily credit volume is tracking more than 35% higher than April 2019, and currently above the Q1 level.
I'm also thrilled with the progress we have made with our recently announced Green bond trading initiative.
Ports Cline U.S.G. related investment mandate.
In the first quarter over 6.5 billion worth of Green bonds for traded over the platform.
Resulting in over 32000 trees being planted in critical regions across the world.
Slide eight provides information on our operational resiliency and a response to the covert 19 penda.
I'm proud to say that our teams across the globe, we're able to swiftly and safely transition to a work from home environment, all while providing an honor interrupted level service to our clients.
Our client service and operational teams enabled over 10000 individual trading system users. During this time, allowing them to seamlessly connect to the market access trading system from home and remain engaged with the market.
Given our ability to quickly mobilized and connect clients to our credit trading marketplace. We saw a record number of active firmed and active users trade over the market access platform in March this drove a significant rise in average daily inquiry volume transactions and open trading settlements the market exits trading system.
Remained resilient, while experiencing high trade volumes and abroad level to access a risk control breast can control processes were affected throughout this period now let me turn the call over to Tony who will walk through the financial results in more detail.
Thank you Chris.
On slide nine we provide a summary of our quarterly earnings performance.
Overall revenue was a record $169 million ups, 36% year over year.
The 29% increase in credit trading volume and the inclusion of U.S. Treasury trading conditions resulted in a 38% uplifting and commissions.
Information services revenue was up 17% in the first quarter and includes a one time data sales of approximately $800000.
Expenses were up 27%.
And operating income was up 44% year over year.
We're particularly pleased with their operating margin of 54% in the first quarter.
Strong trading results are providing the resources required to simultaneously expanded margins increase investments in new growth areas and increased dividends to our shareholders.
The effective tax rate was 18.4% in the first quarter and reflects $6.3 million of excess tax benefits.
I got to share based compensation awards.
We continue to expect the full year effective tax rate.
Be within our previously stated guidance range of 20% 22%.
Although we do expect variability in our quarterly rate based on the timing of equity award exercises and best things.
Our diluted EPS was a record $1.96 cents.
The year over year increase in our diluted share count.
Was largely due to the 146000 shares issued as part of the liquidity edge acquisition.
On slide 10, we had laid out our commission revenue trading volumes and fees per million.
Total variable transaction fees were up 45% year over year, driven by the increase in credit trading volume.
Higher U.S. high grade fee capture and the inclusion of U.S. Treasury trading commissions.
U.S. high grade fee per million was $5 higher on a sequential basis.
Mainly due to slightly longer years to maturity on bonds traded over the platform.
Our other product category feet per million increased $8 on a sequential basis, principally due to a shift in volume mix among products.
He capture at the individual product level was very similar to the fourth quarter.
As expected rates feet per million declined sequentially.
$3.87 in Q1.
Shifting a full quarter to be west treasuries trading activity.
As a reminder, the rates category as a combination of treasuries and U.S. agencies.
And there could be some variability in rates fee capture due to product mix and due to volume tiering under our treasury sequence.
U.S. high grade distribution fees were $1.3 million higher than the fourth quarter level.
Primarily due to several dealer transitions to distribution fee plans during the quarter.
Slide 11 provides you with the expense detail.
On a year over year basis expenses were up 27% for the quarter.
Compensation and benefits accounted for over half of the year over year change from expenses as we continue to add personnel to support growth initiatives.
A year over year increase in had kind of 60.
An uplift in the variable bonus provision and higher stock based compensation expense for the main contributors to the rise in compensation of benefits.
Clearing costs more than doubled year over year, reflecting the 55% increase in open trading volume.
And inclusion of match principal Treasury trading volume.
The increase in depreciation and amortization reflects the continuing investment in product development and the trading platform.
Along with the amortization of acquired intangibles.
And the tickets factor influencing increase in technology communication costs was higher software licensing fees.
Some of which are tied to trading activity.
On slide 12, we provide balance sheet information.
Cash and investments as at March 31st were $499 million and trailing 12 months free cash flow reached a record $250 million.
During the first quarter, we paid out yearend employee bonuses and related taxes of roughly $40 million and the quarterly cash dividend of $23 billion.
We also repurchased 76000 shares in total during the quarter, including 15000 shares under our share buyback program and 61000 shares associated with vesting of employee stock Awards.
We continue to have no bank debt outstanding and didn't borrow against our revolving credit facility.
Based on those first quarter results. Our board has improved to 60 cents regular quarterly dividend now.
Now, let me turn the call back to Rick.
Thank you Tony.
This was the most challenging quarter in modern times for people and economies around the world.
We certainly hope that medical advancements in good judgment will bring into end to this pandemic in the quarters ahead.
We are proud of the roll market access played in helping to keep credit markets functioning.
We will continue to invest heavily to create lasting improvements in global fixed income markets.
I would like to thank all of our employees for their dedication and unwavering client focus.
We could not have achieved these results without their extraordinary efforts.
We would now be happy to open the line for your questions.
As a minus asked the question you need to press Star one on your Touchtone telephone.
One other thing.
Our first question costs are rich for P.. So apart the family your line is open.
Yeah, Good morning, Rick and Chris and Tony I guess, I believe Chris said.
April today car was up 35% year over year, or if that and just making sure. That's correct, but it is I just want to get sort of the open trading percentage and I think he said that Algo response is you know had gone back to pre crisis levels. So does that speak to open trading as well.
Sure.
Rich I'll take the call the question in.
Yeah, you did hear my comments correctly for April volumes, we have seen.
Liquidity stabilize across the market in April and we have seen consistent.
Market share of our open trading platform as you are well aware liquidity in in March was much like toilet paper was hard to fine.
But oh T. open trading solution clearly was a critical part of the eco system throughout the the March crisis and.
So its market share did increase but relative to the first quarter weve.
We continue to see open trading perform at.
Quite high levels in terms of the overall volume on the platform, but even across individual.
Assets like Muni.
Like he and other products so continued to see robust.
Performance in the open training solution.
So I guess I interpret that as the open trading percentage of Bhagyam is.
Similar to one Q err on the percentage basis, and I guess and a lot, which I I I'll just say, it's it's actually similar to two March levels. So we still have very high credit market spread volatility and that is creating the important layer of new liquidity through open.
Trading and.
The open trading percentage of our volume is is actually closer to March levels.
Wow that's impressive.
And then my my follow up would be a you know yet the fed stepping in and just trying to get to see whether you can sort of parse out sort of the impacts you know did that how did the fed stepping in improved liquidity did improve volumes.
During the month that carried over and I know there was lot of new issuance at the ended the quarter.
So that probably you know trading in the secondary.
Mark could you maybe more freely now so just trying to parse out sort of the impacts of those two things on on volumes out too yeah sure.
Happy to you know I think the Feds initial focus was on.
Short term funding markets and.
The liquidity programs, where we're generally focused on on repo. Another short term funding markets to to make sure that they were a functioning properly.
It's our understanding that they continue to make preparations to be able to participate actively.
In the primary and secondary corporate bond markets and the tee up markets for fixed income shares.
We are are not certain that any of that has started yet, but we believe that they're making their preparations to be able to do so.
So right right now in terms of the bond activity I don't think that is directly related.
To the fed, but they obviously had a material impact in improving liquidity conditions in the short term financing markets.
So do you think that well the volumes in lease on well the volumes.
In April so far more driven by the it be incremental borne by the issuance.
I think that they're driven by ongoing credit spread volatility.
Our credit markets bottomed out around March 23rd and and Fortunately credit spreads have been narrowing that weve retraced about half the move over the four weeks since the lows.
And it is these are.
Unbelievable new issue numbers and a you know we were up around 250 billion in new issuance in March.
Most of it in the last 10 days of the money.
And it looks like we're going to be even higher than that in April add a that those are remarkable of new issue numbers. As corporations are are really capping the high grade market in particular are to create more liquidity on their balance sheet, but to put that in context, a good month for high grade new issuances normally a bit.
Over 100 billion. This will be the second month in a row that we've been up at around 250 billion and for you and others that have been following us for a long time, you'll know that when new issuances high you normally see some short term dip in our share that has not been the case in March and April.
So I I think it speaks very well to the long term trend in market share on the market access system that.
Share has has remained high even though new issue levels are ours ours, so robust.
Super Thank you, Rick and hope you and your team and your families all stay safe and health.
You too rich thanks, thanks very much.
Thank you. Our next question comes from Dan Fannon. Your line is open.
Thanks.
Following up on that last toward portion just trying to disaggregate come out. So some of the long term structural changes that continue to get your benefit versus.
The near term benefits of spread widening and show you gave some good stats around price improvement and activity I guess, if you could just elaborate in terms of how you're thinking about either new customers that have been in working with your.
Your your venue or how we can think about you know kind of on some level of normalization and one thing I think would be interesting is you know the work from home environment wanting to be dynamics around adoption of electronic trading has been need to promote user perspective and wondering if you can do this is somewhat of a kick start work.
Catalyst around some of that.
Sure happy to take that one thank you but in March.
It was a really interesting month, because we started the month with all of the major dealers and major investment managers trading off their main trading floors and by the middle of the month, everyone was trading from home and I think its personally remarkable that trace volumes grew the way that they did and market.
Axis volumes grew the way they did.
Through that difficult transition and I do think the work from home environment puts a premium on electronic trading it's just easier to access the entire market from home.
Using electronic venues and I do think that that was one of the reasons for uplift didn't share and and volume on our system.
We expect that to last through most of the second quarter. When we look at the plans to return back to made headquarters in trading floors. It's a very gradual process that most people expect to begin in June so.
So I think this quarter will be a full quarter of work from home third quarter will be a little bit of mix of both.
As people test getting back into their main offices, but what we saw in March and they are carrying into April is that our volume gains were a very healthy mix of more volume from existing clients and new clients.
Using the system for the first time.
I did not only new firms, but new individual trading users within.
Existing firms and the net result was in March we had a new record in terms of the total number of active trading firms and a new record in terms of total active individual trading users.
So where are you know, we're really seeing this as an inflection point, where more firms and more individuals are taking advantage of the efficiency of electronic trading as well as the transaction cost savings that are available.
Thank you again, ladies and gentlemen.
Let me just up to one question and then rejoin the queue. Thank you.
Our next question comes the German Kim of Barclays.
Hey, Thank you.
Rick So the fed taps Blackrock to quarterback the credit purchases in the market and obviously Blackrock is a very large user of the market access electronic platform.
I'm just kind of wondering if you guys are seeing any disproportionate part of the fed purchase flow through the electronic venue either on you know a first order level like Black rock said purchasing cash bonds themselves to the electronic venue, where maybe through a second order level like the fed purchases of credit eats, yes, where the underlying odd lot baskets might traits.
Electronic pipes.
Sure you know first of all we don't comment on any individual client activity on the trading system. We it's our belief that Blackrock is actively advising the fed on all aspects of the program including.
Primary and secondary corporate bond activity and eat.
Fixed income share purchases.
But we don't believe that there's been any sign that they've been in the market yet.
So what you're seeing right now is traditional customer and dealer business flowing through our platform.
At very high levels.
And I remain optimistic that credit spread volatility is likely to remain high through the balance of this year.
I made the comment in my prepared remarks, we would expect issuance levels to stay very high.
Throughout the balance of this year given the challenges that going are going on for many corporations that are likely to last for a few quarters.
There's also more credit spread dispersion than we've seen a long time across different sectors and across different issuers and that leads to more trading activity.
So our expectation is that you know you're going to have higher levels of credit spread volatility than we expected.
Throughout this year and that and combined with with active new issuance and that combination as likely to keep market trading volumes elevated throughout the balance of the year.
Great. Thanks.
Our next question comes Argos persons, who aren't as open.
Hey, good morning, everyone. So heading into the yet several growth initiatives from from light markets were fully treating arm expansion of Y'all have you reached complex give us a lot of these different initiatives.
In place so could you give us an update on maybe how some of these initiatives look I'm you know for this yet should give than you know ones that might get pushed back because of the cool the crisis versus others that up perhaps you know easy to execute near term. Despite the disruption and then Tony like the way some of these ins and outs might filtered into the.
So it looks the year as well.
As it stands right now thank you.
Great and Great question, a little open ended but I'll try and cover as much as I can obviously as you could see from our prepared remarks, our employees were for phenomenal throughout the cobot crisis in their ability to migrate to home office.
While maintaining high levels of performance and even in some situations improving their overall performance.
That we've seen and so we are on track across all of our initiatives for 2020. There are couple initiatives, where we're relying on some third parties that are likely going to be slightly to delayed but in terms of rates.
Certainly excited about the rates performance.
On the D to de business.
In the first quarter, obviously record volumes there with regard to our integration of the rates platform. We continue to move forward.
Impeded by the current crisis.
Our hedging which went live in Q4.
It's continues to roll out we have several dealers already live and a robust pipeline of dealers right behind them.
Our integration of the liquidity.
Formerly known liquidity edge platform into our institutional business is underway as well.
Our first phase of that.
Integration begins at the end of May where we will have.
Institutional clients trading through the market Ass access network.
The market access broker dealer.
Into the rates platform, so I'm happy to see that integration moving smoothly.
Two of that integration is where our institutional clients can use full omit own mess integration.
Into our rates platform and that's in second half of 2020 in on schedule the less piece of rates.
Integration is our net hedging a solution, which is on track as well for second half of 2020, I certainly the oil earlier part of second half, a where we'll be able to provide net hedging of client orders across the platform. So we're excited about those integration.
And other areas of initiatives, obviously, we talked about the munis see municipal bond initiative.
That saw record volume in the first quarter as well, we rolled out our taxable munis solution for you in UK MTF, such an important introduction in the first quarter.
Which had immediate adoption by several of our major institutional clients. It wanted access to those muni products and needed to use in MTF portfolio trading also was.
So of phenomenal growth in the first quarter over 1 billion in portfolio trades in the first quarter, 50% of those came in March. So we saw an active adoption.
In in the crisis, we now have eight active clients and six active dealers.
We plan to rollout European.
Products credit products and additional functionality in Q2, and an important component of our portfolio trading solution is that we provide.
A multi dealer in competition solution. So you can actually have.
Dealers bidding on your portfolio at the same time, which is important to improve the price efficiency. Obviously, we continue rollout product in our data business.
The data business.
Had great success in the first quarter as well, we've launched a treasury composite product and CP plus our our pre trade analytical tool continues to grow.
So right now I think the only impact that we're seeing from.
The crisis.
In the pandemic is really a slight delay in our self clearing project largely due to our reliance on third parties as we roll that project out so while we're fully prepared internally we are slightly delaying I'm told that delay is really to the end of the second.
In quarter potentially into the sorry ended the second quarter potentially into the beginning of the third quarter.
Great color. Thank you very much.
Thanks.
Our next question comes on Kalvoda KBW Your line is okay.
Thank you. Good morning. Thanks for taking my question first is just on the U.S. Treasury market. There's a lot of press around illiquidity in the U.S. cash treasury market in late March.
Dealers kind of stepped back from providing liquidity, especially in house. The runs just wondering if your experience in the U.S. credit markets with open trading being a real solution to the market as dealer stepped away because that experience make you more confident that some form of all to all trading solution could eventually be successful.
In the U.S. cashed treasuries.
It's a great question because.
We've all seen.
The U.S. treasury.
Market was.
Was hampered by a liquidity challenge across the market, obviously, not just in off to runs but.
Even on the runs and so it was an unusual liquidity event for the treasury market.
We did however on our rates platform C market share increase.
Because of a we think the unique liquidity solutions that are platform provides its not a traditional club. It does allow for customized liquidity provision both for dealer and per client. So we do think that that model is the future of.
Of the liquid product market. It also was.
Anonymous all to all so to your point, our anonymous all to all open trading solution that performed exceptionally well in the middle of the most challenging.
Crisis, most challenging times of the crisis, we do expect that a an all to all solution.
That does allow you to customize liquidity for rates would be very.
Very viable solution as we go for it so the performance of both our open trading.
For credit and the performance of our rates platform.
The most severe moments of stress I really provides us with great confidence as we start to integrate those two two markets.
Thank you. Thank you next question next question.
Okay.
Hey, Good morning, guys I would just wanted to ask a quick one on pricing specifically investment grade.
Maybe just walk through some of the dynamics, how that filtered through in the quarter in terms of duration yield to maturity in yields and then just how is how the second quarter is kind of setting up in the elk. So just trying to think about other it'd be changing moving forward.
Sure Chris This is Tony on the.
On the investment grade side, you know, there's lots and lots of different factors that influence.
And the investment grade fee capture you've got.
Yes, the maturity where yields are trade size matters under our tiered fee plan dealer mix matters, whether dealers are on distribution fee plans are all variable plans at times floating rate node activity all also matters, but.
When you look if you look at it sequentially the fee capture was that.
$5 from the fourth quarter to the first quarter.
Years to maturity, where we're a little bit longer and less than a half of the year longer. There was there was no impact from.
Can changes in the size buckets. There was there was a little bit of dealer mix.
Change there. So it really was all about all of that years to maturity. When you look year over year much bigger change year over year first quarter of last year to first quarter this year, but.
But again that was all duration related it was longer years to maturity on on average lower yields.
You know going forward and.
On the April numbers, what would I tell you on on April right now is that Miss not just for not just for investment grade, but looking across the board. It's early in the quarter right. Now there are lots of factors that I, just mentioned that could influence fee capture but if you're looking at April activity, there's not a lot to report on and.
He variance of note that set any products not only not only investment grade, but but three.
Yield emerging markets.
Robot right now those the fee capture all look similar to the first quarter remember, though early in the quarter and that could change right now it looks looking similar to the first quarter.
Got it takes us.
Thank you. Our next question comes from Chris Shutler of William Blair. Your line is open.
Good morning, Hope, you're all well.
Can you talk about the the breadth and depth of long only asset managers, providing liquidity.
You know being price makers on the platform in March and then also touch on what you've been seeing a in April any longer term changes you see from the current crisis to a client workflows.
Yeah happy to take that one Chris.
The the number of client firms that are providing liquidity on the system continues to grow and.
We think thats the differentiator when you have volatility like we had in the last five weeks of the quarter.
The.
More trading connections you have the better you off you will be in terms of sourcing liquidity and reducing transaction costs.
We had a record during the quarter of over 900 firms.
That provided liquidity on the market access system, the vast majority those over 700.
We're asset managers.
So this is where we think we're making a big differences that when markets get this to these sorts of this of stress levels.
Our technology Connex investors and dealers all around the world.
And the best price can come from anywhere and day, you did see asset managers, taking advantage of opportunities when there was heavy selling in the market.
You saw dealers, taking advantage of using the platform to take liquidity when they needed to reduce risk.
So we think that this was an important quarter in terms of the advancement of all to all trading and clearly the transaction cost savings that were approximately three times greater than the average quarter in 2019.
Validates the value of what we're doing and create behavioral changes because the pricing.
During mistrustful days oftentimes was just so significantly better.
Then what clients were able to find through other means.
So very broad based in terms of liquidity providers.
1500 active firms utilized open trading during the quarter.
It's a it's really becoming of a very important global marketplace for credit.
Thank you.
Our next question comes from Alex.
One of Goldman Sachs lines open.
Hi, guys. Good morning. Thanks for thanks for taking the question I was hoping to Peel back the layers a little bit on the the trading activity that you saw in the course of margin, maybe where you seen today in terms of the average trade size.
Both on the I decided not yield side I'm, just curious to think about you know whether penetrating some of the larger size trades was also part of the story here given the illiquidity in the rest of the market or the majority of the increase.
It was really predicated on some of the smaller kind of typical side streets for market access.
Yes, Alex it's Tony I'll I'll take the question that you're looking at.
The market share gains were.
Obviously pretty healthy year over year, and those market share gains were across all trade sizes and all maturity buckets. So even in an eye realizing our block trading market share was around 10%. If you looked at it year over year.
More than a point that so regardless of trade size, regardless of the maturities.
<unk> market share get improved year over year.
Great. That's helpful. And then just as a quick follow up I was wondering if you guys could.
Give us a sense of how a potential a large number of downgrades in the energy market.
Play a role into kind of opportunities opportunity sat for high yield opportunity on the market exercise to me that.
We'll be is obviously big part of the market, we're probably going to see bunch of downgrades as those occur do they come through as a high yield trade and obviously higher capture rate for market access or or an AG trade now.
Yeah. Good good question, Alex happy to take that one or two things when you have a period like we're we're seeing currently with more downgrades and we've seen though in a long time and fallen Angels. It does create trading opportunity right those.
Bonds oftentimes have to come out of investment grade portfolios and move into high yield or crossover.
Portfolios or.
Insurance portfolios that have the flexibility to operate any in either plays so it's it's it's good for overall trading activity and yes at the margin.
As large high grade issuers slide into high yield and begin to trade off on price not spread.
That is also positive for our fee capture and as you can see from the first quarter.
Volumes byproduct high yield was the standout volumes were up nearly 30% overall.
Hi yield more like 70%, so that's where the standout as Ben were taking share there and high yield volumes have been robust. This too is something I would expect to carry on throughout the year. We have not had an active period of default concerns and nearly 10 years.
There you know there really hasn't been a distressed market a large concerns about defaults Intel we got into this this crisis earlier in the first quarter. So this is you know very different credit market than what we expected. When we started the year in January and I do think for a host of reasons that it will require more risk.
Transfer, which leads to secondary trading and and I think we'll also continue to bring out the importance of all to all trading to source liquidity from any any place in the world.
Great. Thanks for the answers there.
Our next question comes from.
The Dallas.
Okay.
Great. Thanks, Good morning, guys.
Mostly because she's been answered, but maybe just to follow on on the issuance question the market share yeah, I've, obviously, the the markets your tends to dip a when new issuance is heavy.
And I appreciate your your your comments about the calendar likely remaining pretty intense but is there any way to in this environment assess what kind of headwind do you think that is on on your market share in other words, if that did normalize how much your market share would increase.
Yes, and the underlying question. There is you know how much.
Is the is the through the permanent changes that have that you think might occur in electronification of treating.
You know via the underlying growth of that actually increasing and being masked by the new issuance, having you wish.
You know it it varies and there are so many factors that that come into play in terms of overall market volume as well as the electronic sheer volume that it does vary but more often than not when you get a new issue as high as it's been the last.
Couple of months, you also see the block trading percentage or trace grow and our share can be one 2% lower.
During those months before those bonds are distributed and start trading with the rest of the secondary market over the following three or four weeks.
So we do feel really good about March and April share trends.
Given that new issue activity is is well above.
Anyone's expectations.
For the pace that we would be on this year.
And it is it's clear that you know, there's there's that a transition going on with institutional client behavior, 95% of our order flow is initiated by institutional customers and when we look at our institutional share of trace for high grade for institutional customer.
Our volume, it's now up around 24%.
So we're getting close to a quarter of the activity with institutional clients taking place on the platform. You know, we think that the combination of trading efficiency and transaction costs that we can reduce it. We also saw an incredible number of orders that were completed in March were open trading was.
The only price.
So.
This is to us all going to create a more permanent behavioral change given they experienced the clients have had on our platform sourcing liquidity at the most difficult time.
We're we're pleased to see the underlying trends and in share taking place across all of our products quite frankly.
That's great respect to thank you.
Thank you next question comes from Ken Hill of Rosenblatt, Okay.
Hi, good morning.
Wanted to build on fees, it's had a lot of success with open trading during the quarter. We also had that explosion in new issuance activity, but I kind of thought something like life markets, which was supposed to build on the open trading activity could help maybe kind of get you guys until a little bit more flow the new issuance has that kind of.
Gets into the secondary market there I was hoping to comment I know that's still early days, but maybe.
If I kind of the recent activity seen in the market has helped some clients along.
Getting life markets kind of going on their platform or you're seeing any increased interest because of that thanks.
So great question I'll take that one.
Five markets, which we were piloting in the first quarter late fourth quarter.
Obviously, we are we've been focused on onboarding dealers to provide their streams.
Process, obviously is.
Out of a setback given the current crisis, but what we have seen is a number of our clients as Rick mentioned looking to provide liquidity seeking methods and techniques for providing liquidity live markets is an obvious a solution for them to provide liquidity because they.
Can join.
The bid side or the offer side of that market. So we are seeing higher levels of demand.
From our client base looking to provide liquidity and achieved some of those huge cost savings that the OTI market is providing so again slight step back given dealers have been distracted with the crisis in their own internal technology needs.
So but again.
Hindsight demand continues to grow as a result of the crisis in the current liquidity challenges.
Got it thanks for the update there.
Thank you.
Again, ladies and gentlemen to ask a question. Please press Star then one on your Touchstone tell them all.
Our next question comes from Cowen.
Yes.
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Hi, Thanks for taking my follow up.
There's a lot of press yeah, especially in late March around each white GE and some other bond yes, there were trading at.
Any significant discounts there NAV intra day.
Which could have been made worse given the lack of liquidity at that time, just wondering if you think the regulators will be looking at the bond DTF market in the wake of this in terms of maybe putting certain liquidity requirements on underlying holdings or something of that nature.
Or do you think thats going to be low in the priority less for for regulators.
So a quick how happy to take that one I guess I have a different perspective on.
The E T outperformance during extremely volatile times and.
Important to remember that the credit market is so fragmented and there's so many unique issues that often times in my opinion. What you were seeing was that the the bond that was were behind not the tee up share price.
So when you got seven 8000 different bonds in any tee up then.
Anyone with a real time pricing mechanism is dealing with the level of volatility that we had during March.
Those prices are whipping around there was an actual transactions taking place between two parties when the shares trade.
And in my opinion, that's the best form of price discovery is an actual transaction.
And when you look at at the major each <unk> fixed income shares in March it's a great story for risk transfer AD market liquidity.
Sure volumes were up over 100% in the major fixed income shares and up over 70% for the full quarter. So I I actually think that DTF market held up incredibly well I. It was part of the liquidity solution not part of the liquidity problem.
I think you you're you're seeing very clearly this new liquidity model evolves were 80 of share trading is definitely part of the fabric for the institutional fixed income market now almost all dealers that investors are using you tee up shares as a way to transfer risk when they need it they clearly did that in March.
Portfolio trading held up well at March and that's another way to transfer risk and of course, all to all trading is providing an essential layer of liquidity.
For all market participants as well so I think it was a great indication that the reason that trace volumes were able to grow in March when they fell so sharply in 2008 is because all of those liquidity tools were at work during the crisis CTF shares portfolio trading and all to all trading through market access.
Open trading that's why market volumes were able to go up and clients and dealers were able to transfer the risks that they needed to during those chaotic weeks.
Thanks, and then maybe a.
Second question for Tony Obviously, it's been a really strong volume environment to start the year and especially through April over 35% year over year growth. It if we see similar type volume growth for the remainder of the year not 30% ish type range. Just wondering how you think about the expense guide and.
Where that where that leaves you in terms of.
The current extends guide from when you started the year, because I think theres multiple things obviously the volumes are going to push up.
Certain areas of the expenses, but then the cobot 19 impact specifically, maybe that reduces key any insight and some other areas of expenses. So just wondering how we should kind of put those pieces together because any any help there would be great. Thank you.
Sure sure Capex happy to answer that in.
Yes, the fact that we Didnt say anything in the prepared remarks about the expense guidance and can probably assume from that that you.
We're still expecting expenses to be within that original guidance range of.
297 million to $340 million, but but under this scenario you you suggest there port repos.
It's market volumes for the balance of the year were consistent with the first quarter, we could be near the high end of that have that guidance range and I would tell you that that that would be that would be good news and we've got a number of of.
Variabilities in there so people, we've got a fairly healthy.
Hiring plan as we entered 2020.
We can't.
In some ways, we can't we can't control that like the level of attrition or the timing of higher necessarily but we're on budget with our hiring to April were effectively onboarding, new new hires even in this environment.
Expect to continue to.
Higher to support our growth initiatives that that's all good news.
Other line items like variable compensation that are tied directly to results you can imagine the first quarter. We had exceptional results off of the back of significant market volumes effect continued.
That would be good news if that expense line item is running higher than expectations same with clearing costs. You. So clearly called the doubled year over year and that's because open trading volume was up massively and we had a great quarter in treasuries as well.
So those clearing costs are running higher than expectations that that's all good news so it.
I would.
I would suggest that if we hit that high end of the range. It also likely means that the topline performance topline revenue growth.
Is higher than expectations as well.
Got it thank you.
Thank you I'm showing no further questions at this time I'll, then turn the conference back over to Rick Mcvey for any closing remarks.
Thank you so much for joining us this morning, and we wish you all the best getting through this crisis, and b, well and be safe. Thanks very much.
Thank you ladies and gentlemen, this does conclude todays conference. Thank you participating you may now disconnect.
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