Q4 2021 Marketaxess Holdings Inc Earnings Call

January 26, 2022

Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience. Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

[music].

Ladies and gentlemen, thank you for standing by at this time all participants are in listen only mode. Later, we will conduct a question and answer session at that time. If you have a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key at any.

Hi.

As a reminder, this conference call is being recorded on January 26, 2022, I would now like to turn the call over to Dave Cresci Investor Relations manager and market access. Please go ahead Sir.

Good morning, and welcome to the market access fourth quarter 2021 conference call.

For the call, Rick Mcvey, Chairman and Chief Executive Officer, who will provide a strategic update for the company Chris.

Chris Concannon, President and COO will review the progress, we're making on our growth initiatives and then Chris <unk> Chief Financial Officer will walk you through the financial results and our full year 2022 guidance.

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 companys belief regarding future events that by their nature are uncertain.

The company's actual results and financial condition may differ materially from what is indicated in those forward looking statements.

For a discussion of some of the risks and factors that could affect the company's future results.

Please see the description of risk factors in our annual report on Form 10-K for the year ended December 31 2020.

I would also direct you to read the forward looking statement disclaimer in our quarterly earnings release, which was issued earlier. This morning and is now available on our web site.

Now, let me turn the call over to Rick.

Good morning, and thank you for joining us to review, our fourth quarter and full year results.

<unk> 2021 was an important year of investment and execution on the long term growth strategy, we outlined at our recent Investor day.

Importantly, we maintained a strong leadership position in the U S credit institutional client E trading space.

The institutional client segment is the largest segment and global credit markets and the highest quality order flow for banks and other market makers.

Our international credit business showed strong momentum, reaching new highs and estimated market share for global emerging markets and eurobonds.

Large banks report that market access is now the largest E trading venue in emerging market debt trading in all regions around the world.

Open trading continues to be a key differentiator in our liquidity offering.

And we have added new and valuable trading protocols in both credit and rates.

Approximately 1700 counterparty firms were active in open trading during the year driving over $500 million in transaction cost savings.

We are the only major fixed income marketplace fully promoting all to all trading across all products and regions.

Beyond our leadership in our core business, we made significant progress expanding our foundation for growth in new product areas.

Our portfolio trading launch and May lead to rapid adoption among among approximately 68 large investor firms and 14 dealers.

Portfolio trading is a natural complement to our leadership in bid and offer list trading which sees over 1000 bond basket inquiries per day.

Our goal is to be the number one portfolio trading provider this year.

U S government bond volume on market access reached a new record of $4 one trillion in 2021.

Importantly, we are seeing growing large dealer and investor participation due to the launch of our all to all U S. Treasury live markets Order book.

Client on boarding is expected to accelerate this quarter.

In municipal bond trading the combination of our organic growth this year and the integration of the fully electronic volume from Muni brokers creates the largest E trading platform in the muni market with plenty of runway ahead for growth.

As we start 2022, our foundation for growth with global clients, a diversified product base and a wide range of trading protocols is stronger than ever.

Slide four highlights our full year results.

For the full year market access reported our 13th straight year of record revenues.

2021 credit trading conditions were unusually quiet following a robust year in 2020.

Take it in the aggregate our two year compound growth rate for revenue was 17% consistent with long term averages.

Operating income compound growth was 16% during the same period.

Importantly, our investments in geographic and product diversification are paying off with 24% two year compound revenue growth in product areas outside of our core U S corporate bond business.

Full year records in estimated market share were set in 2021 in U S high yield emerging markets euro bonds and municipal bonds.

The health of our business also comes through with a new record for active trading firms as well as client firms trading three or more products.

Slide five provides an update on market conditions.

Conditions in 2021 were challenging due to historically low credit spreads and low credit spread volatility.

Low volatility reduces price dispersion and compresses bid offer spreads.

Total credit market volumes reported by trace and market access post trade were down in all major product areas year over year as a result of the low volatility.

Volatility in rates markets is showing improvement driving increased activity in our open trading U S Treasury marketplace.

I believe that the extended period of Central Bank quantitative easing led to historically low interest rates and depressed volatility.

The combination of strong economic growth and much higher inflation is causing central banks to reduce bond purchases and prepare for rate increases.

I believe this will lead to more normal levels of interest rates and bond market volatility in the quarters ahead.

With four important trading days remaining in January high grade and high yield estimated market share is running similar to Q1 last year, while trace market volumes are down about 17%.

And market share is running well above last year with estimated market volumes down about 7%.

Our U S. Treasury average daily volume is up approximately 35% from last January .

Slide six illustrates the tremendous growth opportunity that is driving our approach to investing.

All of the major product area is trading on market access are in early stages of electronic vacation.

We believe that the trading efficiency and transaction cost savings available to dealers and investors will ultimately lead to electronic market share of over 50% in global fixed income.

We have established a strong leadership position in U S high grade high yield and global emerging markets.

We believe our competitive position is stronger than ever in euro bonds and municipal bonds and we now have a unique offering with compelling liquidity in U S treasuries.

Open trading delivers additional all to all liquidity in global fixed income trading and expands market participation.

Trading automation and open trading provide the ingredients for a higher trading velocity in the years ahead.

We will continue to invest to capture this large opportunity for our shareholders.

Now, let me turn the call over to Chris to provide more detail on the significant progress we are making with our investments in new initiatives.

Thanks, Rick.

Slide seven provides an update on open trading and protocol expansion, our all to all open trading solution continues to be a key driver of our growth strategy across all products in the fourth quarter over 29000 orders and $15 billion in notional value were available daily through our open trading.

Marketplace.

Record of nearly 1700 firms were active across our open trading network during the quarter.

Dealers are increasingly seeking anonymous all to all liquidity deal, where our Q volume grew 27% in 2021% to 272 billion.

The increased diversity of participation continues to drive cost savings opportunities despite <unk>.

Credit market spreads.

Client saved an estimated $128 million in transaction costs during the quarter due to price improvements in open trading.

Our investment in new protocols is also fueling growth U S. Treasury volume executed over our live markets Order book reached one two trillion during the quarter early adopters of live markets for Treasuries report high quality trade execution with unique order capabilities relative to incumbents. We also.

<unk>, our live market order book to new credit markets with support for U S high yield liquidity.

Lastly, our mythic sessions protocol was recently expanded beyond eurobonds to include support for U S investment grade and U S high yield bonds.

Slide eight illustrates the powerful diversification of our model across markets protocols and services, providing choice across market trading protocols and training protocols for all participants as a key competitive advantage investing in new markets by offering innovative electronic trading solutions and the.

Development of robust data and post trade services to complement the fixed income trading lifecycle are critical to our long term growth strategy. Following enhancements made to our portfolio trading functionality. In 2021, we saw increased engagement that drove record volume of $13 1 billion in the fourth quarter.

<unk>, we are seeing significant traction with this functionality in a relatively short amount of time.

Municipal bond trading on market access grew 42% to six 6 billion in the quarter. Additionally, $17 9 billion in volume was conducted through Muni brokers in the fourth quarter. The integrate gration of Muni brokers into the market access trading system was completed in the fourth quarter to combine our client to dealer.

With dealer to dealer workflows, using our open trading solution.

The acquisition of regulatory reporting hub helped drive total post trade services revenue to $9 4 million in the quarter up 43% year over year organic post trade revenue was up 18% at clients were on boarded for new FTR services <unk>.

Demand for intelligent market data solutions within fixed income continues to grow given our significant bond trading market share in our expanded regulatory reporting services. We are in a unique position to offer differentiated data products. This includes the launching of our liquid index the market axis investment grade four.

<unk> and enhancements made to our AI powered pricing engine composites, plus with the launch of our CP plus total markets, which produces a price on over 250000 bonds globally.

Slide nine highlights the growing momentum of automation in credit trading automated trading on market access reached new records in the quarter growing to $44 4 billion in volume and over 242000 trades today auto ex represents 19% of total trade count and 7% of our total vol.

<unk>.

The use of dealer algorithms is continuing to grow on the platform with approximately $4 6 million algo responses in the fourth quarter up 18% from the same period last year the growth of automation and algo pricing. It's also driving a steady increase in the average number of responses to any inquiry on the market.

Access platform in the fourth quarter there were on average eight five responses per enquired. This demonstrates improved liquidity on the platform and increased engagement from our diverse investor and dealer community now, let me turn the call over to Chris to provide an update on our financials.

Thank you Chris.

Slide 12, we provide a summary of our quarterly earnings performance.

Fourth quarter revenue was $165 million down 4% from the prior year, a 6% decrease in credit trading volume and lower all credit fee capture resulted in a 6% decline in commissions.

Partially offsetting this decline is commission.

Decline in commission revenue was the 9% increase in information services revenue and a 43% increase in post trade services revenue.

The $2 $8 million, increasing fourth quarter post trade services revenue included $1 8 million of incremental revenue from regulatory reporting on the acquisition.

The sequential decrease in other net is due to foreign currency transaction gains that did not repeat in the fourth quarter.

The effective tax rate was 27, 1% in the fourth quarter and our full year effective tax rate came in at 22, 8%.

The higher effective tax rate in the quarter was due to lower excess tax benefits and return to provision adjustments related to new state income tax filing requirements.

Fourth quarter, EBITDA was $86 3 million and diluted EPS was $1 37.

On slide 13, we laid out our commission revenue trading volumes and fees per million.

The 11% decline in variable transaction fees was attributable to lower U S credit trading volume and lower overall fee capture the.

The year over year decline in U S high grade fees per million was mainly due to shorter duration, which was driven by an increase in yields and a decrease in the average years to maturity bonds traded on the platform.

The year over year increase in other credit distribution fees was due to the migration of certain dealers do a high yield fixed speed plans from an all variable fee plan and $1 $2 million of subscription and license fees from immediate brokerage acquisition.

Slide 14 provides the expense detail.

Fourth quarter expenses were up 16% year over year and include an incremental $5 million of operating expenses amortization of acquired intangibles and nonrecurring integration costs associated with direct reporting hub and muni brokerage acquisitions.

If we exclude these acquisition related costs expenses were up 10, 1%.

The increase in compensation and benefits reflected higher salary and benefit expense as we continue to invest in talent to support our product and geographical expansion.

The $4 million increase in depreciation and amortization expense includes $1 8 million of acquired intangible amortization expense from acquisitions and higher software development costs as we continue to invest in trading system enhancements.

The 25% increase year over the 25% year over year decline in theory cost is due to lower open trading volume and transaction cost savings from our peering model conversions.

On slide 15, we provide an update on cash flow and capital management.

As of December 31, our cash and investments were $543 million and our trailing 12 month free cash flow was $297 million.

During the fourth quarter, we paid out $25 million in quarterly dividends to our shareholders and repurchased approximately 112000 shares for a total cost of $45 million.

We exhausted the $100 million repurchase program that was approved last year.

And our board of directors authorized a new $150 million share repurchase program.

During the fourth quarter, we did not have any borrowings on our $500 million revolving credit facility or the $200 million secured facility.

Our board of directors approved a 6% increase in our regular quarterly dividends of 70.

On slide 16, we have our 2022 guidance for expenses capital expenditures and the effective tax rate.

We expect that totaled 2022 expenses will be in the range of 385 million to $415 million.

Approximately 60% of the increase is due to our continued investment in trading systems and personnel to support our product and geographical expansion.

2022 capital expenditures are expected to range from 58 million to $62 million of which roughly two thirds relates to capitalized software development costs, resulting from the investments we are making a new protocols and trading platform enhancements.

We expect that the effective tax rate for full year 2022 will be in the range of 24% 26%.

The increase in the effective tax rate versus 2021 districts significantly.

Driven significantly lower.

Estimated tax benefits related to share based compensation awards now.

Now, let me turn the call over to Rick.

Thank you Chris and.

In summary, 2021 was an important year of investment and execution to expand our gross cylinders and increased product diversification.

Our competitive position remains strong and U S credit and has improved materially in international product areas.

Our investments have led to attractive ROI and free cash flow for our shareholders.

We believe that the future will bring more normal fixed income market conditions with higher volatility and grower growing trading velocity.

And finally, we would like to welcome Steve Davidson to market access as our head of Investor Relations.

Steve spent several years with us as a new public company beginning in 2005, and then worked with the New York Stock Exchange and MSCI.

Steve and Dave Cresci will both be available to analysts and investors to provide the information and transparency you need from us.

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

As a reminder to ask a question you will need to press star one on your telephone.

Withdraw your question press the pound key.

We ask that you please limit yourself to one question and one follow up question. Please.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Rich Repetto from Piper Sandler Your line is now open.

Yes, good morning, guys and welcome Steve as well.

From the past.

There will be helpful.

So first question is I guess for Rick and I guess, the non contenting Chris.

On expenses.

11% increase at the midpoint similar to the 10%.

This past year.

I guess the question is if revenues were either significantly up and we get volatility in spreads widening or if it was flat to down if we get more of the same.

How could that.

Yes.

How could we how variable could be expense guidance I guess, how could you move expenses.

Yes rich.

Thank you for the question if you notice we did widen the goalposts in this year's guidance range from last year was around $20 million. This year. The goalposts are $30 million, recognizing that favorable or adverse market conditions can drive our variable expense up or down and if you look at the overall expense base are very very.

<unk> expenses are roughly 18% to 20% of the total expense base.

And so we recognize that in a year like last year, we saw variable expenses in the low end of the range and Thats what caused us to reset our guidance towards the end of the year, but as you look next year or this year into 2022, you need to keep in mind that 20% of that operating expense base is subject to market condition volatility.

Sure.

Got it that's helpful.

Then my follow up would be for the Concannon, Chris Chris Concannon.

And that would be on slide nine.

I just wanted to get an update on.

On the new products that we rolled out all to all trading for Muni is in rates I guess, when you say client <unk> is that the all that mean all to all trading has rolled out for those products.

Thanks, Rich so for <unk>, we have the full complement of both.

Dealer disclosed arc <unk> as well as the all to all solution in fact immunity to all to all is quite a sizable part of the Muni business.

It's about 46% of our volume is all to all in munis.

<unk> in our rate solution in U S treasuries.

Our current platform is an all to all platforms. So the live markets that we use in treasuries is an all to all streaming price platform.

And it's anonymous and Thats the piece that we're seeing growth and had a sizable growth in the fourth quarter.

<unk> complement to that platform was rolled out in the fourth quarter.

At the end of the fourth quarter, we plan to have all to all and disclosed RF Q4 Treasury. This quarter. So that's being rolled out as we speak and worked on as we speak and we're pretty excited about.

And all to all solution for things like off the runs.

And even on the runs so we're pretty excited about the rollout coming this quarter.

Okay. Thank you.

Thanks Rich.

Thank you. Our next question comes from the line of Michael <unk> from Morgan Stanley . Your line is now open.

Hey, good morning, Thanks for taking the question I was just hoping you could talk a little bit about the opportunity set that you see for secure electronic <unk> securitized market. So ABS non agency RMB clo's among other products, where do you where do you see the industry today on that front in terms of electronics it seems pretty niche.

Some days I guess, how do you see that evolving over the next couple of years can you talk about some of the hurdles that you see for that part of the marketplace and how do you see potentially overcoming some of those hurdles.

Sure I'll start with that one and then thanks for the question.

The level of electronic vacation there today is extremely low.

The hurdles are fragmentation and generally lower levels of secondary turnover.

But as we talk to clients and dealers. They do believe that in open trading solution makes a lot of sense for those markets.

So it is on the list of potential future product expansion that we have here what we've outlined today are the things that are alive that we're working on now and we're excited about in terms of impact on revenue and earnings growth. This year, but clearly the securitized markets are on the list and I would have those in the in the bucket of potential.

Product expansion that fits with the protocols that we run in credit.

Great. Thanks, and maybe just a follow up on the expense side I was hoping maybe you could elaborate a bit on the investment spend I think you mentioned about 60% of the overall increase in the expense space for 'twenty. Two is coming from investments I guess, maybe you could just elaborate on what those investments are.

How youre thinking about head count growth into 'twenty, two and maybe what are some of the items that did not make it on the investment list for this year that maybe could be on for 23.

Yes, that's.

A good question and the investments of 60% it really comprises of investing in our people investing in a trading system enhancements and as we expand not only the product and protocol offerings, but recognizing we are expanding our footprint in Asia and Europe .

So it's a combination of head count and our software development and system enhancement investments.

With respect to any investments that we don't have on that roster I don't think we're tabling anything until 2023.

Recognizing that there is.

An existing list.

Opportunities that we want to capitalize on and they're all embedded in part of that investment agenda for 2022.

Great. Thank you.

Thank you. Our next question comes from the line of Alex <unk> Kim.

From Goldman Sachs. Your line is now open.

Alex <unk> from Goldman Sachs. Your line is now open please check your mute button.

Our next question comes from the line of Dan Fannon from Jefferies. Your line is now open.

Hi, Thanks, good morning.

<unk> is on the buyback authorization as well as the <unk> repurchase activity I believe previously you guys had talked about mainly just offsetting dilution. So wondering about your kind of view going forward in terms of execution of that authorization and maybe also just in the context of M&A and capital deployment update us on your on your thoughts around inorganic.

<unk> as well.

Yes good.

Good question at our capital management strategy continues to remain the same our number one investment priority is to continue to invest in a trading platform.

We continue to seek opportunistic M&A opportunities.

On the balance of our capital management program focuses on returning capital to the shareholders either in the form of dividends and repurchase programs.

During the fourth quarter, we recognized there was a dislocation in the share price.

We did have the existing program, which had around roughly $80 million of capacity heading into the fourth quarter.

So we employ that strategy to capitalize on the opportunity and accelerate.

The offsetting dilution from equity grants in the future, but the fact that the board approved a new $150 million plan is through the ordinary course of business. It gives to the management team flexibility to enter the market either opportunistically or to continue with our strategy to offset dilution from equity ex.

Equity awards given to the employees.

Got it that's helpful. And then just as a follow up if you could update us on.

Outlook for the non transactional revenues at the Investor Day, you talked a lot about the market size and the Tam is I'm wondering as you've kind of improve the product offering we.

We should see some acceleration as we think about 'twenty two versus the low double digit numbers I believe you've cited before for post trade and information services.

So Dan.

Great question.

Our information services, obviously, we're seeing double digit growth in 2021.

We're excited about the new products CP, plus and access all have been really the drivers in that growth engine. In 2021, we're launching really two new products entering into 'twenty two.

Our total markets, our CP, plus total markets, which really expands the overall coverage and another product trade ability, which really allows people to understand the true depth of the market and how to execute in the market.

It is quite valuable and portfolio construction sizing orders as you entered the market. So really critical information that we're launching here in 'twenty two so excited about.

The opportunities.

<unk> growth in CP, plus and then the new product total markets post trade. Obviously, you saw it grow year over year quite substantially given the the increase in Reg reporting the transaction closing of the transaction Reg reporting hub we've integrated.

About 73% of the clients in 2021 expect.

Additional integrations throughout the first quarter, the great opportunity around our post trade businesses. It is a resource of data for our information services business. So phenomenal resource of trade data across all of Europe , and it gave us the opportunity in 'twenty one to launch.

Our CP plus four European government bonds, which we have a small but growing footprint, but largely leveraged the value of that post trade business. So pretty excited about 'twenty two the new new products and the growth of our are really flagship product <unk> plus.

Great. Thank you.

Thank you. Our next question comes from the line of Brian Bedell from Deutsche Bank. Your line is now open.

Great. Thanks, Good morning, folks and also welcome to Steve as well.

Maybe.

Alright.

If we can doing it on a portfolio trading.

If my calculations are right it looks like around 1% of your.

High grade volume in <unk>, I guess correct me if I'm wrong.

Wrong on that but maybe if you could share your view on expanding that.

We've seen.

Attraction. This year from your main competitor, but if you can talk about how you see that market evolving for portfolio trading in 'twenty two given.

Potentially higher volatility in corporate bonds, and then how you see that tracking versus your list trading business and what kind of.

Yes market share would you like to get some portfolio beginning by the end of the year.

Sure Good question and as I've said in the past I.

I do think.

The blend between portfolio trading and bid and offer list will be dependent on market volatility and market conditions.

This year, we did see strong growth in portfolio trading during several quarters, a very benign credit market conditions, but it's important to keep it in context.

<unk> months, we estimate we're around 6%.

Trace secondary volume conducted through portfolio trades.

Interesting because the tracker that we have on tres to.

To identify portfolio trades is currently.

Knowing about 25 portfolio trades on average per day, and we've already had 14 dealers involved so theres a lot. There is a lot of competition in a low vol market for a limited number of portfolio trades, but importantly, they are large in line items and large in volume.

That's an important piece for us to offer and we are pleased with the progress we've made since the may launch and the number of clients and dealers that are involved.

If you look back at 2020, when volatility was very high clearly the added liquidity of open trading in bid and offer list was essential.

To the functioning of the market during the course of that higher volatility year, it's kind of interesting because even in the last two months with a very slight increase in volatility from the end of November through this week, we're seeing portfolio trading percentage of trace decline.

That period has been closer to 4% or a little bit more of secondary trading and trade. So.

We're starting to see that.

It's more difficult for dealers to manage the risk in large portfolios. When there is a pickup in volatility.

As a result, we think the clients toggle back to bid and offer lists and use open trading in a deeper and broader pool of liquidity.

During those periods, our belief as I mentioned earlier, it's unlikely that volatility in credit would be as low in.

In 2002 as it was last year, it's highly unusual to have two years in a row like that.

My belief is that at the end of quantitative easing from central banks around the world is a big deal.

They have been buying up a lot of the net supply and government bonds and even mortgages here.

And so if market forces are at work to determine bond prices I think it's likely to come with greater volatility.

We're well aware of the appeal of our portfolio trading to clients.

That's why we have been investing very actively in that solution.

In terms of my expectations as I mentioned in my prepared remarks.

Thereafter being number one in portfolio trading as we are elsewhere at other protocols in global credit and.

And we believe we're making the investments and we have the client connectivity and dealer connectivity and sales effort around that community to achieve that goal.

And Brian I'll, just add on portfolio trading we are seeing.

Demand for Rick.

Rick mentioned, a very long line items. So we are up to 1500 line items, we're expanding that out even further this quarter. So there is demand for very large line items sizable trades, but it does go across high grade high yield were now seeing portfolio traded in Europe .

Bonds, which is helping our market share there and even emerging market bonds. So we're seeing a diversity of product.

And our solution and our liquidity the support of our dealer community is certainly helping us support portfolio trading demand. We're also seeing at month end higher demand for portfolio trading says our clients try to move sizable portions of their portfolio. There is demand for.

Portfolio trading at month end, but as Rick mentioned, we want to be number one in portfolio trading we want to use our lift trading in our portfolio trading as ways with analytics to compare what's the right trade for the client is it individual list trade based on our unique proprietary pricing.

Or is it a portfolio trade and we think we can provide better analytics around of both list trading and portfolio trading for clients to make the right decision at the individual bond level.

Yes.

Super interesting.

Maybe just to follow up on the.

On pricing and the potential if we ease up with quantitative easing and move into a tightening type of environment.

If we do get a pickup in the yield maturity, what kind of impact that could have on your on the pricing.

The favorable impact.

Yes, I'll start and Chris can follow up on any specifics but.

The only product that has.

Duration is a factor in our average pricing as U S high grade.

So higher rates.

All else equal reduces the duration of bonds and as a result reduces fee capture.

The rest is dependent on the average maturity of bonds traded not surprising that as we enter into this new environment in 'twenty, two where there are expectations of the.

The fed raising rates that we're seeing a slightly lower average years to maturity of the high grade bonds traded on our platform. So.

We're happy to follow up with the historical goalposts are pretty clear.

Our personal view is that bring on the volatility because we excel in more volatile markets.

The offset in the benefit that we get with higher volatility and higher rates in market share and volume gains is well worth it even even if we get slightly lower duration of average bonds traded into high grade.

Alright, great.

Makes sense. Thank you.

Thank you. Our next question comes from the line of Alex Chang from Goldman Sachs. Your line is now open.

Hey, guys. Good morning apologize for I phone issues earlier.

I wanted to go back on the commentary you just made around <unk>.

Per ICH and sort of pricing dynamic so it feels like most of the movement. We've seen in capture even it's been really a function of the mix.

Not so much direct kind of pricing changes as you continue to evolve the business are you starting to see any changes in pricing.

More competitive perspective across all of the kind of asset classes that you guys trade.

Maybe what are the areas, where you're seeing that to be a little more pronounced than others and then with respect to portfolio trading specifically could you talk about how your offering and the pricing there compared to the competitors offering.

Okay.

Sure.

<unk> question, Alex I think if you really look at the blended fee capture for our primary competitor here in the U S. There is not a big difference in their average credit fee capture versus the market access average so.

There are small differences actually explained by the much larger high yield and EM franchise that we have relative to that competitor with higher fee capture in those product areas. So there really arent significant differences in the fee capture when you look at the blended rates that are being <unk>.

Indicated publicly.

With respect to <unk>, we think we're very competitive on pricing and it really when markets get more volatile or open trading cost savings go up.

So we're delivering more valuable value to the clients due to the transaction cost savings, which is why we've had a very long track record of maintaining.

Our pricing and then the last thing I'll say is that there is a new pricing scheme in our space as well as you know.

Broadly communicated by dealers and investors that Bloomberg is started to charge transaction fees and when we look outside the U S. Bloomberg has been our biggest competitors. So the fact that they've gone from zero transaction fees to now charging and doing something more comparable to what we've always done is actually a benefit to us.

On a competitive basis and what we are hearing from the large banks when we look at globally <unk> in particular is our very significant share gains across the world and <unk> are partly because of the expansion of the electronic market and partly because of the strengthening of our competitive position.

Especially vis vis Bloomberg so we feel good about our pricing relative to the value we deliver back to our clients and even in an incredibly incredibly benign year for credit trading our transaction cost savings, we're very close to our total transaction fees. So.

So we think that the value for money equation holds up very well in the large banks as you know favor the fix.

Fixed fee.

Models that we have here in the U S. So we think we're in a really good place around our fee models.

Great. Thanks for that and then my follow up is around the rates business.

Obviously, given the pickup in rate volatility and the move in rates, we're seeing across the board that should bode quite well for volumes this year.

What are some key kind of milestones, you're hoping to achieve with that business. This year sort of legacy liquidity edge maybe.

Maybe an update on where you guys stand with respect to net spotting and sort of integration with the rest of the business.

Sure Alex.

On the right solution.

Obviously, we look at that market, it's one of the largest markets that we're active in.

And it's still has a phone based.

Offering.

So we do see sizable share.

On the phone conducted on the phone non electronic there are two large competitors in this space.

From a pricing standpoint on the last topic, we are very competitively priced against the competition. So we feel good about our pricing position as we grow share in that market. We really have two two offerings in that market.

Our live streaming order book offering which has been growing in.

And that was a direct result of the liquidity edge transaction, a number of years ago.

Other offering is our traditional RF Q offering those two offerings, our combined side to side, which makes it quite attractive for our clients to decide if you are trading a more liquid product you can trade. It in real time on a live market if youre trading a less liquid off the run product you can trade it via traditional <unk>, which is <unk>.

Really offered by the competition so we have.

Quite sizable goals in that market, particularly given our offering is an all to all live order book with an all to all our Q.

Supported by.

By our all to all marketplace.

We think we can grow that market.

Over the course of 'twenty two.

Just add on on top of that as well.

It's really interesting to us that in as we start 'twenty two that the majority of <unk>.

Institutional investor.

Treasury electronic business is still conducted in an RF <unk> protocol, which is where both of the incumbents are with their investor offering my belief is that the market is fully ready and welcomes and order book solution.

And we think we are the right provider for that solution, we have 1700 counterparties.

You can access the order book that Chris described.

We have merged the two broker dealers. So theres no additional documentation any longer for clients to access that pool, we've made important post trade.

<unk> solutions in average ticket ticket pricing to help with investor activity, we have one more piece.

It will be completed this quarter in terms of management connectivity to make it even easier to access. So when you think about the treasury market. The on the run cash market is trading one way the U S. Treasury futures market has been trading in exchange order book for decades and we.

I think everything we hear from both dealers and investors as they welcome a new offering with an order book because of the additional flexibility and the additional distribution through this very wide client network that we now have installed on market access. So we're super excited about it we recognize that we have to have the <unk> offering as well.

Especially as you think about <unk>.

Off the run treasuries, but here again, we think open trading and order books have a role to play and we're happy to be out in front, providing that to a very large network of clients and dealers.

Great Alright, guys. Thanks, a lot.

Thank you. Our next question comes from the line of Kyle Voigt from <unk>. Your line is now open.

Hi, Good morning, maybe you can just ask a question about the mid X launch in the U S.

Just wondering if there's any numbers you can share in terms of the uptake of <unk>.

Offering in Europe , thus far to help us think about how meaningful those launch in the U S could be from your 2022 growth.

And I also think that the <unk> offering in the U S. As with all to all from from day, one of the launch I just wanted to confirm that.

Curious to hear your thoughts as to whether that's the kind of key differentiator for that protocol versus versus competitors that will drive adoption.

Sure.

Great question mid <unk> by definition, all to all it leverages that all to all marketplace. So it's a fully anonymous.

Anyone can participate.

In that match.

European our eurobond mid ex offering we saw $3 2 billion in Q4 volume.

The sizes of average trade sizes are.

Matt sessions are still quite sizeable close to 300 million. So we continue to see.

Demand for our session based trading in Europe . It is particularly dominated by dealers unloading inventory. So it is truly a.

First a dealer to dealer offering clients are still taking their time engaging the mid ex solution with regard to U S high grade and U S high yield we see particular demand for our dealer RF Q again, that's really a dealer solution for dealers to.

Exit inventory unwanted inventory using the traditional RF Q.

Through the open trading network.

<unk> is just now launching here in the U S. We're excited about offering our session based solution to dealers here in the U S as well and we continue to hear demand from our dealer community on assessing assertion based solution for them to load large amounts of inventory are looking for a mid <unk>.

Market priced.

Execution, we are using.

Our premium CP, plus mid price, which is quite an attractive.

<unk> compared to some of the competitor pricing dynamics, so pretty excited about mid <unk> for high grade and high yield in 2022.

And I would just expand on that with one other piece there is some.

Some interesting similarity between the market environment that seems to work well for sessions and the market environment that works well for portfolio trading because sessions depend on realm.

A relatively matched order book of buys and sells in a lot of confidence in our model driven mid market price and those two things decline when volatility picks up.

So if you look back at the Q2 last year in 2020, whether you had very high volatility.

Protocol did not work as well.

Sessions based when we studied the trace tape is we do very regularly when we look at sessions based volume within the trace tape that too has declined in a material way since late November running right through this week.

So.

These protocols.

Best position, we can be in.

Is what exactly what we're doing and that is to offer the whole range of protocols across our entire network. All supported by open trading and there will be times, where the open trading <unk> is the dominant.

Tenant theme and there'll be other times, where portfolio trading and matching sessions work well and we're really pleased that our investments are putting us in a place where we've got the entire offering and we can benefit from any of those environments.

That's really helpful.

And then I just had maybe a bigger picture question on treasuries treasury market structure.

Honestly as you noted it's still growing.

Differentiated marketing market structure between the dealer to dealer space and the client to dealer space and you are trying to kind of bridge that.

I guess I'm just.

I just wanted some more clarity on.

On two pieces, one and do you think there's going to be any any real material material regulatory change.

In terms of there's been a lot of talk about treasury clearing do you think that's realistic to get some sort of proposal. This year I guess what are the expectations, there and will that help kind of this transition CIT to all to all whatsoever.

Are you the solution and basically you don't you don't think that that's going to have a big impact.

The adoption of <unk>.

All to all and that Treasury space, and then secondarily just in terms of.

A lot of other platforms I think I have tried to launch more all to all solutions in this space.

Before trying to open up some of the the interdealer offerings to buy side clients, but it sounds like you are really encouraged by the uptake youre seeing and it's kind of a breakup the opportunities right for these buy side clients too.

To be more engaged and actually use the platform.

There's a lot of appetite for that so do you think it's just the.

Times come for that or is it just youre hearing more.

Lauder cries from the buy side that they really need us I guess I'm, just curious to get a better sense of what your clients are really.

Talking to you about it.

Terms of the desire for that hotel offering. Thank you sure so too.

Two very different questions, but on the same topic, but.

First on regulatory focus there is a lot of regulatory focus on the U S. Treasury market as you know in fact.

I think as we speak there is an SEC call public call going on about ATSG, which is the rulemaking that they're undertaking around that new category within Ats specific to the government bond market and.

I think the observation is that the fragmentation in the market has not worked particularly well at times of very high volatility.

And there have been significant gaps in pricing and liquidity that are really important to U S treasury and to the functioning of all fixed income markets because the U S treasury market as the benchmark for the entire world.

So we think that the regulatory focus is will remain favorable to all to all trading solutions and some of the thinking around that is that central clearing would be a good outcome to help to support.

All to all trading as well as less risk in the settlement process for U S treasuries.

So we obviously.

Have been the most successful open trading platform without central clearing for corporate bonds.

We've been able to support that successfully with our own settlement solutions.

But longer term I think there's a lot of benefit to centralized.

Clearing solutions.

There is a foundation of DTC to to be able to help to promote that down the road and.

We will have to see how the regulators view that but we do see some potential benefits of moving in that direction as far as.

I don't I don't think you've ever seen a foundation like ours that already has success in open trading is 350 or 400 dealers in 1700 clients old connected with order management system connectivity and counterparty authorization to trade through market access.

As before.

Before in any of the other offerings so.

We have liquidity, we have a very broad client network. That's already that has the Oems connectivity has the counterparty and settlement agreements already done and we think that that's that's creating a really unique offering to complement the offering that's been out there for a long time so.

I think when you look at the others.

They had the inter dealer liquidity.

But they really did not have the functionality or the Oems or the counter party.

Connections to the end clients at all and.

As we've seen it takes a long time to build that up and we've been at it.

Starting year 'twenty two.

So we have that network already built up we're fully committed to all to all trading and I think we are the obvious choice to promote this in a successful way.

That's great. Thanks, Rick.

Thank you.

Our next question comes from the line of Patrick Ho.

From Raymond James Your line is now open.

Hey, Good morning, guys. Just one question from me.

What's your view on why industry wide credit trading volumes have been so tepid, thus far in January despite volatility picking up a bit trading volumes and other asset classes have been reasonably healthy and related to that how much trace volumes typically stair during periods of fed rate hikes.

Yes.

I think that part of what's going on is that is.

The risk off mentality, but the reality it Patrick is that.

The volatility that we've seen recently has been mostly focused on the right space. So we have price volatility in the corporate bond market, but we do not yet have much spread volatility.

If you look there's been a modest widening of credit spreads from where we were for two or three quarters.

Leading into the end of last year. So my expectation is youre more likely to get both.

This year, but credit spreads have been pretty stable so far.

And we do notice from the fed data that the dealer balance sheets are pretty pretty low right now they were going into year end as you would expect but they remain low.

In the in the weekly data that we've seen pretty recently so.

I think there is.

Certainly a chance that this is the calm before the storm.

But I do think right now the volatility has been focused on the right space more than it has credit spreads.

And I would expect that we'll see better turnover in credit products, when we see better volatility in spreads.

Got it and then I guess.

To follow up on that one.

When you think back in periods, where the fed has been hiking.

<unk> 2016 was that generally a favorable environment as you guys were kind of looking at.

Thinking about market share trends in industry wide volumes are what are the puts and takes as you kind of think about what might happen as the fed potentially raises during 2022.

Yeah.

We're happy to follow up with more more specific data, which obviously has been public in our reporting for a long time I can tell you there's a very clear.

Correlation between the periods, where we've done the best with market share and revenue growth and volatility.

So I think it's a safe assumption given how different the central bank environment could be over the next two years relative to where we've been.

The outcome of that could very well be better fixed income market volatility.

And those are the environments, where we do the best.

Alright got it thank you.

Thank you. Our next question comes from the line of Rich Repetto from Piper Sandler Your line is now open.

Yes, Hi, guys. Most of my my follow Up's been asked and answered but.

Excuse me one quick one.

Just trying to understand whats the driver when you say you're going to take the number one position portfolio trading so what.

Leaps you.

Beyond the competitors the number of dealers signed up or.

Just trying to understand.

How you get to that.

So look I think.

We're really encouraged by the last six months and how much of the PT share we've been able to.

To attract onto the market access system, but rich I think going back to my prepared remarks.

We've been the leader in this space for a long time and we've.

<unk> been going head to head with trade web since 2002, when they launch their corporate bond offering and we.

We have successfully innovated and lead that market for a long time. So the reality is.

Yes.

Client eyeballs in the client mind share and attention is largely on the system and as I mentioned, we do well over a thousand bid and offer list every day.

So that compared to the 25 portfolio trades now that we've we have a terrific.

Technology solution for portfolio trades. It sits alongside those 200 or so bid and offer list that clients are trading every day, we have primary sales focus on the credit trading desk.

We have all 14 of the dealers that we know that are active in portfolio trading that are alive on market access. So we have the same liquidity pool of dealers those dealers just happened to do most of their client trading on market access not any of our competitors.

So we think we have an incumbent position thats going to benefit as Chris mentioned earlier getting that functionalities through its easy to toggle back and forth based on market conditions and the situation between bid and offer list and portfolio trading is where we think clients want to be so we're encouraged by the last six months and we think Theres a lot more.

To come and we're focused on.

Taking the lead in the portfolio trading space.

Got it thank you very helpful.

Thank you at this time I'm showing no further questions I would like to turn the call back over to Rick Mcvey for closing remarks.

Thank you for joining us this morning, and we look forward to talking with you again next quarter.

This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Sure.

[music].

Any time as a reminder, this conference call is being recorded on January 26, 2022, I would now like to turn the call over to Dave Cresci Investor Relations manager and market access. Please go ahead Sir.

Good morning, and welcome to the market access fourth quarter of 2021 conference call.

The call, Rick Mcvey, Chairman and Chief Executive Officer will provide a strategic update for the company.

Chris Concannon, President and COO will review the progress we are making on our growth initiatives and then Chris <unk> Chief Financial Officer will walk you through the financial results and our full year 2022 guidance.

<unk> actual results and financial condition may differ materially.

From what is indicated in those forward looking statements.

For a discussion of some of the risks and factors that could affect the company's future results.

Please see the description of risk factors in our annual report on Form 10-K for the year ended December 31 2020.

I would also direct you to read the forward looking statement disclaimer in our quarterly earnings release, which was issued earlier. This morning and is now available on our website.

Now, let me turn the call over to Rick.

Good morning, and thank you for joining us to review, our fourth quarter and full year results.

2021 was an important year of investment and execution on the long term growth strategy, we outlined at our recent Investor day.

Importantly, we maintained a strong leadership position in the U S credit institutional client E trading space.

The institutional client segment is the largest segment in global credit markets and the highest quality order flow for banks and other market makers.

Our international credit business showed strong momentum, reaching new highs and estimated market share for global emerging markets and eurobonds.

Large banks report that market access is now the largest E trading venue and emerging market debt trading in all regions around the world.

Open trading continues to be a key differentiator in our liquidity offering and we have added new and valuable trading protocols in both credit and rates.