Q1 2023 MarketAxess Holdings Inc. Earnings Call
[music].
Please standby were about to begin.
Ladies and gentlemen, thank for standing by and welcome to the market access first quarter 2023 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
I'd like to ask a question. During this time simply press star one on your telephone keypad. If you would like to withdraw your question that somebody press the pound key and as a reminder, this conference call is being recorded on April 26, 2023, I would now like to turn the call over to Mr. Stephen Davidson head of Investor Relations at market access. Please go ahead Sir.
Thank you good morning, and welcome to the market access first quarter 2023 earnings conference call for.
For the call, Chris Concannon, Chief Executive Officer provide you with an update on key business trends, Chris <unk>, Chief Financial Officer will walk you through the financial results for the quarter, and then Rick Mcvey, founder and executive Chairman, who will provide an update on the market environment and the long term opportunity ahead for the company.
Before I turn the call over to Chris Concannon, Let me remind you that today's call may include forward looking statements. These statements represent the 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 2022.
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 Kristin.
Good morning, I'm very pleased to share with you our strong first quarter results on my first earnings call as CEO of market access we continued to execute our growth strategy during the quarter and delivered record revenues with increase which increased 9% or 11% on a constant currency basis.
Earnings per share grew 15%, reflecting the continued improvement in our underlying revenue and earnings growth trends as shown on slide three these strong results were broad based across products protocols and geographies, reflecting the powerful diversification of our model driven by the investments we have.
Made over the past several years.
Specifically, we delivered record levels of average daily trading volumes across nearly all products, but for the fourth consecutive quarter of strong estimated market share gains and record levels of commission revenue across U S high yield emerging markets and eurobonds record levels of revenue and trading.
Volume contribution from our international businesses.
And record levels of volume from newer clients segments, new new initiatives and record levels of automation in summary, we had a very strong quarter with records across key products and protocols.
The impact of rapid rapid rate rise.
In 2022 has now filtered into the broader market, resulting in the banking sector market dislocation in March while we have seen a retracement in industry volumes over the last several weeks. We believe this is a temporary pause as the markets digest the events of March and their impact on the trajectory of rate.
Hikes for the Federal reserve.
Lastly, I could not be more pleased to have Nancy ultra Belo as our new lead independent director of the board, which was announced earlier. This week Nancy brings a wealth of audit talent management diversity and corporate culture experience to the role and I'm looking forward to our combined our continued collaboration and partnership.
Slide four highlights the strength of our unique all to all solution open trading.
We were very pleased with the performance of open trading in March as liquidity became more challenging in March we saw daily highs of open trading share grow to 57% in high grade and 61% in high yield for the quarter. We registered record open trading average daily volume of $4 5 billion.
21% with record U S high grade share of 34%. We are executing approximately 13000 trades per day in open trading and approximately 32000 trades per day across total credit.
Open trading also delivered total price improvement of 252 million well in excess of our quarterly revenue.
Slide five highlights our multi dimensional growth across new products, new initiatives, new client segments and geographies.
First in new products, we grew estimated municipal market share to a record six 4% in the quarter with 376 active client firms trading. We have also recently integrated the muni broker system with the market access pool of liquidity to provide clients with more trading options and <unk>.
With treasuries, we continue to see client growth in our treasury offering with 250 active participants on the platform up from 145 in the prior year. We have established a very strong pipeline of future growth cylinders with record volume across dealer RF Q portfolio trading our diversity dealer.
<unk> and access IQ, our front end for private banks in Europe .
We are also seeing strong contributions to our growth from newer clients segments, including hedge funds systematic funds dealer initiated flow and private banks.
Generation a record $216 billion in trading volume from these important client segments, which now represent 25% of our total credit trading volume our estimated share of U S. High grade can fluctuate given various market factors, including the banking crisis, while trading activity new issue.
<unk> and growth in client segments outside of our focus on institutional client flow. For example, we estimate that the dealer to dealer retail segments of trace grew 31% year over year and now represent a combined 28% of high grade trades up from 25% in the prior year lastly in <unk>.
<unk> markets, we had record Adv this quarter with local market volume growing 10% year over year to a record 71 billion in the quarter.
Slide six shows the continued strong adoption of automation tools by our clients powered by CP plus automated trading increased to a record 69 billion in volume and a record 398000 trades importantly, our automation tools have continued to grow through periods of significant market dislocation.
<unk>, which is a testament to the quality and accuracy of our CP plus data today <unk> represents 20% of total credit trade count and 8% of our total credit trading volume at.
At the core of our automation tools and workflow as CP plus our world class algorithmic pricing engine, which was a key driver of our record record data revenue in the quarter with the recent launch of adaptive Auto X, which is currently in pilot we are delivering an algo trading solution that automates trading across protocol and <unk>.
Liquidity pool, while seeking to greatly improve their execution quality before I turn the call over to Chris <unk> I wanted to provide an update on market trends with three important trading days remaining in the month market volumes are weaker in April but U S. High grade estimated market share has improved from March and is running.
<unk> first quarter levels now, let me turn the call over to Chris for a review of our strong financial results.
Thank you Chris on slide eight we provide a summary of our quarterly financials for the quarter, we delivered record revenue of $203 million up 9% driven by strong market share gains across most products on a constant currency basis revenues would have increased approximately 11%.
Information services revenue was up 12% or 18%, excluding the impact of foreign exchange and the benefit of the contract signed in the fourth quarter and increased adoption of CP plus access salt prints and Trax data was a positive driver of our strong year over year performance.
First quarter post trade revenue included a negative impact of approximately $700000 on the strengthening U S dollar compared to the prior year quarter, excluding the impact of foreign exchange the year over year growth rate would have been approximately 8%.
Lower contribution from our key hub was driven by a tax adjustment related to the 2022 financials.
The effective tax rate was 25% below the prior year prior year period.
On slide nine we provide more detail on our commission revenue in our fees per million total Commission revenue increased 10% our growth in total product Commission revenue was driven by record increases in estimated market share and healthy increases in our trading volume, but was partially offset by lower average fee.
Sure across U S high grade.
The reduction in high grade fee capture from prior year was driven principally by the lower duration of U S high grade bonds traded over our platform compared to the prior year.
While U S high grade fee capture declined year over year duration has remained relatively stable over the last several months as reflected in the corporate bond duration index.
On slide 10, we provide a summary of our operating expenses.
First quarter expenses increased 10% driven principally by investments to enhance the trading system and our data product offering and excluding the impact of foreign exchange expenses would have increased 12%.
Employee compensation and benefits increased $5 million on a 12% increase in head count mainly in technology and customer facing roles to support revenue growth initiatives.
Packing communications expenses increased $3 million.
Due to higher subscription and data hosting expenses.
<unk> costs were flat despite higher open trading volumes due to renegotiated clearing fees related to U S treasuries and the favorable impact of foreign exchange.
Our marketing and G&A expenses increased principally due to increases in advertising G&A costs higher office related expenses that had been reduced in the prior year due to the pandemic.
On slide 11, we provide an update on our balance sheet cash flow and capital management or.
Our balance sheet continues to be solid with cash and investments totaling $440 million and we had no outstanding debt at quarter end, we are prudently investing our cash to take advantage of the favorable interest rate environment to continue to deliver strong net interest income in the coming quarters.
We are a strong cash flow generator as our trailing 12 month free cash flow came in at $271 million.
Based on the financial performance of the company now.
Now, let me turn the call over to Rick to provide an update on market conditions and our long term growth opportunity ahead of us.
Thank you Chris Slide 13 provides an update on market conditions and U S credit as we have noted over the last several quarters last year's rapid rate increases dramatically impacted investment grade index returns and a higher rate environment is now beginning to flow through to the investment portfolios.
Banks.
The distressed trading conditions in some parts of the bank and finance sector in March led to a short term increase in trace volumes with transactions in distress bank names moving back to the fallen due to the extreme volatility.
We believe that the recent softness in corporate bond volumes reported to trace is likely to be temporary due to the uncertainty in the banking sector and the upcoming may fed meeting.
The overriding theme in my view is the highest yield environment, we have seen in over 13 years and the opportunity for global investors to reallocate assets back into fixed income.
That trend was apparent in our record high grade trace volumes in Q1, reflecting higher trading velocity.
<unk> volumes and credit normally fall in April from March due to the holiday calendars. So part of what we're seeing currently is seasonal.
Investment grade trace ticket count in Q1 grew 59% and average trade size has declined 25% as fixed income becomes an investable asset class again and investors re entered the market.
Both retail and institutional investors are seeing higher ticket count leading to an essential need to embrace trading automation for efficiency.
Lastly, all of these positive market drivers are manifesting themselves in increased velocity of trading.
<unk> turnover was an annualized 74% in the first quarter in U S high grade up from 64% in the first quarter of 'twenty two.
Yields are at their highest levels since 2009 and at that time high grade annual trading turnover was around 80%.
Trading velocity is benefiting from higher yields greater market participation and the technology benefits of improved trading efficiency.
Slide 14 illustrates the total revenue opportunity, we have before us which has expanded significantly in the last few years as we have invested to expand our product offering.
The product set that we had in 2018 gave us access to a total addressable market of approximately $4 billion in revenue.
Since 2018, we have diversified our products and protocols and expanded geographically.
For example, we acquired unique capabilities in the U S. Treasury market, we complemented our organic growth in municipal bonds with many brokers, we have expanded into ETF share trading with our investment in our Q hub and we accelerate our growth in post trade data with the acquisition of regulatory.
<unk> hub.
We have also increased our investment in data products, including our comprehensive real time data product <unk>, plus and our entry into the index space with both high grade and high yield indices.
The investments that we have made over the last several years have expanded our total addressable market by $3 billion to our current estimate of $7 billion.
We are in early stages of executing in many of these areas and we feel more confident than ever in the long runway of growth opportunities still in front of us.
In summary on slide 15, we continue to execute well against our growth strategy.
We delivered the fourth consecutive quarter of accelerating revenue growth driven by a combination of strong market share gains and improved market volumes.
Our global footprint continues to broaden and deepen as we diversify our product offering.
We have a strong pipeline of new products, and new trading protocols and increased client diversification driven by growth with hedge funds private banks and dealer initiated order flow now.
Now we would be happy to open the line for your questions.
Thank you Mr Mcveigh, ladies and gentlemen at this time and do you have any questions.
The star one and if you do find your question has been addressed you can remove yourself from the queue by pressing the pound key we will take our first question. This morning from rich Repetto of Piper Sandler.
Yes, good morning, Chris and Rick and Chris.
First congrats Chris for taking over the helm.
I guess first question is.
First question is you come from a long background.
Automation or other experienced in other asset classes and you talked about a lot of metrics here, but smaller trade sizes increase velocity.
I'd point to this electronic vacation, so I guess <unk>.
Question is this adaptive auto works.
What kind of impact do you think is that a key to further along.
The automation trend or what other what tools do you see besides auto exit.
Yes.
That is going to really spur.
That conversion.
Well first thanks for the question and thanks for the congrats.
Richard probably you've covered me for <unk>.
Along enough a number of years as you probably already know my answer to the question I'm quite bullish about electronic vacation of the bond market.
I'll start by mentioning we did have record volume and record revenue in our automation suite.
But the first.
The key ingredient to automation is data.
<unk> is a key ingredient if you have good data youre going to have good automation.
Secondly, if automation replicates what.
Manual traders do identically.
Or a similar rapid rapid.
This location then.
Youll have all have constant growth in automation, meaning people will adopt it to gain efficiencies.
Key ingredient to what I'd call accelerated growth of automation as it achieves.
Better results than the human execution and does it efficiently and that's really what we're targeting adaptive order auto X to do which is.
<unk> achieved better results by automating the execution solution across protocols across liquidity pools and.
And giving it unique data.
Our automation, it's important to point out our automation suite, which.
<unk> is just in pilot now and just launched just a couple of weeks ago, but our overall automation suite grew 40% year over year, which is quite healthy growth to hit those records and more recently we saw in.
We launched auto ex in in Municipals, and we saw that grow quickly to 23% of total exempt trades, which is pretty impressive growth. So my point is rich that automation when it starts to be adopted it can have a pretty healthy growth rates even in the more.
Challenging market that we saw in the first quarter the automation tools held up throughout the difficulties of March.
With all that said and all of that growth and all of those records.
When you really add up our total automation footprint in the U S corporate bond market.
It's just under 2% of the market. So we have a really long way to go.
When it comes to automation.
To put that in comparison, the FX market.
Has seen.
<unk> client Algo has now achieved over 20% of the market.
So while we've still seen record volume and record growth in our automation suite. We're at the early stages of automating the full bond market.
Got it Kevin and Chris.
I think you guys addressed some of this but we are seeing volumes now lighten up from the upfront.
Mid March and you talked about.
Seasonality of April .
Reallocation I think is still going on but can you just make investors a little bit.
The outlook.
The outlook for 2023 weeks I thought Super strong is that still the case or is this just a momentary pause or.
Has anything changed your outlook for volumes credit volumes.
For the year I would say.
So great question I mean, we couldnt be any more bullish about the bond market.
Despite what.
What I will call momentary or temporary disruption in the market.
Rich bonds are cool again.
We're seeing higher interest from our clients as well as their clients in terms of allocation of investment dollars towards fixed income market.
It's certainly a market that is providing better yield and better principal protection than the stock market I would say we are in a risk off environment coming off the heels of.
The market disruption in the banking sector, but we also are seeing.
Unique April month of holidays, I will tell you my friends in the in the equities the FX to the derivatives and even the crypto market. They are all complaining about volumes. So it is not unique to the fixed income market, it's really market wide that we're seeing this risk off environment.
We do have.
The fed next week, so I do think a lot of investors are sitting on the sideline waiting to see some of the fed moves and we are going through earnings season as well.
This week, we are seeing higher levels of activity. So it's encouraging now that all the vacation and spring breaks are over with.
Seeing higher levels of activity.
More importantly, we do see and expect higher new issue market.
In may so we're hearing more positive things around the new issue market in may.
Got it got it.
Most of the top level managing fixed income trading.
Improve your golf skills.
So that's a very appropriate question rich I would say my my golf score is correlated to our revenue and market share.
As our revenue market share goes up my golf score My Handicap will continue to rise.
Got it thank you.
Okay.
Okay.
Thank you the next now Chris Allen of Citi.
Yes, good morning, guys.
Sure.
We won't comment on your golf game Knowhow challenge of this.
Just on the <unk> plus.
And the market data.
Is that just a longer term ongoing trend or is that maybe in anticipation of adapting a lot of ex <unk> launch and then maybe you could just give us some color just on what the feedback has been on the pilot phase there and kind of a.
I spoke to expectations around when that will be formally launched the broader marketplace.
Sure.
Your first question on market data or just CP plus general agents.
Boeing through into market data like what's what's driving that yes. So obviously the growth in market data and as we mentioned we saw record revenues in our market data in Q1, largely driven by the growth of CP plus across U S high grade high yield.
Yes.
And euro bonds, it's certainly becoming the benchmark of real time pricing in the U S corporate bond market.
That's where we're seeing the demand for.
<unk> plus <unk>.
So we're excited about that that CP plus is a key driver of our automation success again record revenue and record.
Volumes in our automation suite driven by the superiority.
<unk> of CP plus.
It's a key ingredient as well too our adaptive auto wax, which allows clients to take advantage of across all of our different protocols and also take advantage of providing liquidity based on CP Pos pricing. So it's certainly a sign that our largest institutional clients.
Comfortable with.
The price point of CP, plus and what it produces in terms of price of U S bonds adaptive.
Adaptive auto axes early days I will tell you the excitement as as we went out to talk to our largest clients across the U S and Europe , they're all extremely excited about access to adaptive auto X, we had to actually reduce the pilot because of over overwhelming that.
And to get into the pilot but.
It's early days and something that we're super excited about.
Thanks, guys I'll get back in queue.
Thank you the next now to Kyle Voigt of Tw.
Hey, good morning.
I like the addition of that chart on slide five that shows the volume growth from some of these newer user segments I guess, the one that I wanted to hone in on that saw record record volume in the quarter was this hedge fund clients and growth. There I'm just wondering if you could provide a bit more color as to.
How thats ramped over the last couple years, and where youre seeing a lot of the growth from is that from systematic funds or is it from credit hedge funds.
And also if you could comment on whether youre continuing to see growth in the number of those hedge fund clients being onboard it onto the platform.
As we.
Trying to think about whether this growth from this segment is has momentum and is sustainable as we look ahead.
Yes, no. It's an exciting area Kyle that we've spent a lot of time on we have a team dedicated to our hedge fund segment.
And particularly focused on the systematic of fund complex. That's an area that's exciting to me because I've known these clients from my equity and FX days.
And they're all ramping up and gearing up to take advantage of the current fixed income market structure.
All to all is a key ingredient to them they are both the.
They both cross the spread but more importantly, they are providers of liquidity and see that as a huge opportunity to launch some of their trading strategies in the fixed income market in an environment, where you only across spread it's very difficult for systematic hedge funds to engage their strategies in that.
Market and.
Our all to all platform provides them with <unk>.
<unk> to both provide liquidity as well as cross spread at a much more reasonable cost.
And that's the key part of their trading strategy I would say there is a healthy pipeline of new entry from this systematic fund group I think we're still early days, we've seen some fund groups have substantial success.
In the U S credit market across both high yield and high grade and Theyre, certainly expanding that success into other product areas, but.
I'd say, it's a healthy pipeline.
And we're still we're still a long way off from our more mature entry of that segment.
That's really helpful and if I can ask just a follow up on the Muni business. Just wondering if you could talk about the transition of the munis broker business and what that means for revenues and revenue captures revenue capture rates as we go through that transition and then maybe you can provide some updated thoughts on kind of the long term potential revenue capture that.
You see for that Muni bond business I think it was just under maybe 200 200 per million in the quarter, but I recall that when you launched into the Muni space I think the opportunity at that time felt like the fee capture rates could be closer to 400 or $500 per million. So I'm. Just wondering maybe if we can get just an update is kind of view in terms of long.
Long term.
What the fee capture opportunity is and then maybe what the market share opportunity as you see it today too.
Sure first on overall Muni.
The Muni business is thriving.
Did hit a record market share in the Muni market. So again another record.
For the quarter.
Super excited about the integration of Muni brokers, our vision of the Muni brokers acquisition was one collection and acquisition of data to help us.
Build our data products across all of our products, but also it was the acquisition of more liquidity and more transaction volume.
So not only the muni broker business, but also integrating a large quantity of that business into our market access pool of liquidity. We've started that final step of integration and are very excited about the outcome, so far but it's not a big Bang integration.
It's a multi step integration over the course of the next quarter.
With regard to capture I'll, let Chris jump in and answer the capture question Tayo.
And just a reminder, the medium broker fee model was a subscription based model.
It ranged anywhere from 60 to 80 per million and our plan is to convert that volume into open trading level recapture our open trading key modeling mining everyone. This is a tax exempt muni product, which typically ranges between $150 million to $204 million. So we're looking to capture that.
D card as we transition that volume into our platform.
Great. Thank you.
Thank you. We'll go next now to Alex <unk> of Goldman Sachs.
Hey, guys. Good morning, Thanks for the question.
I wanted to zone in a little bit on that on the high yield business. Chris I think you gave an update on the high grade market share. So I was wondering if you can comment on high yield as well in April .
And bigger picture, we've seen just more volatility in the market share.
High yield over the last call it six to nine months.
Maybe you could just kind of comment what is the bigger driver of market share shifts have seen month to month and sort of what do you think about is the ideal environment for high yield share to sort of accelerate in a more consistent basis.
Sure first of all we obviously saw.
A record volume.
Record revenue in our high yield market in the first quarter. So again, a number of records.
In the first quarter.
As we look at April obviously volumes in.
In trade volumes are down substantially across both high grade and high yield so it's a more challenging market.
And then but overall the high yield market.
Super excited about we continue to make headway in the high yield market or Ot penetration is a key ingredient in high yield we saw 51% of our high yield volume.
Be through open trading liquidity, which obviously is where were gaining a great deal of market share, but overall, we see a high yield.
Participants enjoying that alternative liquidity.
Particularly when the market continues to get stress. So when there is volatility in the high yield market open trading dose spike as I mentioned in my opening remarks, so to the extent there is additional volatility to the extent, we see high grade bonds dropping into the high yield market.
Continue to see that volatility throughout the course of the year and that volatility does has historically led to higher market share for our open trading.
Okay got you and I guess the dynamic in March with the decline in high yield market share was almost too much volatility is that kind of how you would describe it.
There is clear.
Volatility in March.
Throughout and more importantly, there is a number of distressed bonds that we don't we don't.
Great in open trading during those times, but.
Yes, we saw.
Substantial volatility in March, which also led to some of those spike.
Market shares in our open trading solution.
Okay. Thanks, and then just maybe my follow up.
Was hoping you guys could hone in a little bit more on the retail trading opportunity you see maybe.
Maybe frame what kind of the retail trading contribution is in credit today across the platform.
And maybe help delineate what the fee per million differences, there and how that could ultimately drive an improvement in our blended fee per million over time. Thanks.
Yes.
First are our primary business is the institutional credit business.
The institutional fixed income business Thats, our distribution channel and has been historically, we have seen a recent rise in retail in the market.
An area that we havent dedicated full resources too we do see an opportunity in retail we've made headway with access IQ, our private bank offering in Europe , we're seeing higher demand for that offering we've launched it in two in Asia client in Asia as well.
So we do see an opportunity in retail, particularly given where.
Our execution quality.
In terms of the institutional market. If you look at the Muni market, even high grade and high yield the overall market trade size is declining.
Our historic level, so we're seeing smaller trade sizes across our platform and across.
The trace market. So we do think we have a very viable a retail offering.
Given the.
Quality price that we can deliver within open trading.
Trade execution, just higher quality price.
And being able to deliver at much smaller sizes than historically, so we think there is a wonderful retail opportunity as retail.
Reinvest in the fixed income market given the yields that this market is showing.
Awesome. Thanks, so much.
Yes.
Thank you we'll go next to Brian <unk> of Deutsche Bank.
Great. Thanks, good morning folks.
Maybe you could just zoom in a little bit on just as just volatility in general.
And then thinking about obviously some of the more extreme trading in March.
If we do have that type of environment often on this year.
How do you view.
The market share dynamic.
Or I should say really more like behavior.
Trading.
Jeff do you tend to see more usage of the phone or is that is that more on distressed bonds like you alluded to Chris.
And.
What can you talk about the education process I guess.
The merits of the open trading platform and the price improvement that you can get in those type of environment and that is that sort of an uphill battle.
To try to sort of gain share or.
What do you think it's really achievable.
Yes.
So first.
We thrive in volatile markets.
We do if you look back at 2020.
There was obviously records set across 2020, so our platform our offering does thrive in volatile markets.
More importantly, and March was evidence of this our automation tools ran.
Insistently throughout the disruption.
Volatility in March so.
Which is a key differentiator from prior volatile times like 2020, so we feel really good about the offering we feel exceptionally good about the liquidity that is provided through our all to all during more volatile times as I mentioned.
Our Ot market to our open trading all to all market share did spike upwards. During the most most volatile times of March reflecting alternative liquidity providers stepping into the market when traditional providers are stepping back from that market. So we feel good if there's volatility.
In the market.
We feel really good about our position in the market and.
But particularly around the distressed bonds, that's a market where and again they are not frequent but thats a market that does tend to go to the phone or go to chat.
When there is a distressed bond situation, but.
We do enjoy the benefits of volatility so volatility comes back into the market.
We would expect.
An offering that is.
Quite comfortable for our clients.
Great and then and then a follow up just going back to the slide where you showed the market.
We show the growth in the.
And the new segments.
And that new segments for growth and particularly hedge funds and systematic strategies.
Can you talk about your market share.
Uh huh.
In those areas versus your overall market share in other words I guess, if you continue to penetrate those markets.
Should we expect that to be a positive contributor to your market share going forward.
Well first of all the new entry, particularly the systematic fund complex.
I think it actually has a benefit to our market share but overall.
Turnover in the market. These are new strategies that are being launched into the fixed income market that we haven't seen before so it's really new turnover.
And tractive to both both us and our clients our bank clients and our liquidity providers.
<unk> with that.
That kind of liquidity. So the new entry is a positive for not only the liquidity in the bond market, but also overall turnover and velocity of trading in the bond market obviously.
The new entry takes full advantage of all to all.
So we're obviously favored given our all to all offering.
Across all of our products from our high grade to high yield to munis and even our treasury product is another place where we're seeing entry so super positive for the market Super positive for velocity and turnover in the fixed income market, but particularly positive for.
Our market access and our all to all offerings across all the products.
Great great. Thank you so much.
Thank you we'll go next to Matthew Daniel Fannon of Jefferies.
Thanks, Good morning wanted to follow up Chris on some of your comments in your prepared remarks around the factors that impact your market share and obviously new issuance has always been something you've talked about but I think there was also discussion around products our growth in areas that you don't for parts of the market that you don't participate in so maybe you could expand upon what your true <unk>.
Vessel market is within kind of high grade as we can think about what the.
The factors are what your market share should look like it based upon what you are currently in and maybe what you plan to enter in terms of additional markets going forward.
Sure.
I want to point out that we had.
First quarter record revenues and record volumes across most of our products we certainly.
We also.
Sizable growth in share in our U S Corp.
Products as well high yield grew over three percentage points in market share and we had records in open trading Adv across U S corporate bonds as well.
So overall growth in records across our U S. Corporate products is quite exciting when we look at if we want to get granular and look at our market share of high grade we saw across trace higher levels of retail that's a client segment that we have not chase.
After or spent resources on <unk>.
Retail clients do have connectivity to us, but the overall retail market did grow in investment grade bonds over the course of the first quarter.
Explain some of the lower average trade size in the <unk> market as well.
But.
Frankly, we're quite happy with record revenues and record volumes across.
Our U S corporate market and quite happy with.
Our market share growth across the U S corporate market.
Understood Okay.
I guess then just a separate question following up on the distribution fees were higher you said there was some dealer.
I think new dealers as well as upgrades from existing fee plans. So maybe as we think about the good run rate from here is that is the upgrade cycle is something that we should think about it is ongoing.
Any more color that would be helpful. Yes, yes, Dan It was really a combination year over year and sequentially.
Both upgrades and new dealers signing on for fixed fee plans, but as you point out it's difficult to anticipate what that number or how it could change going forward from a modeling perspective, we would recommend that we're looking at it as Q1 being the run rate, but also recognizing that there is risk to.
Our fixed distribution fees to the extent, there's consolidation in the dealer sector, we could see fees.
Page or alternatively, we could see new dealers from our board to offset that.
Thank you.
Thank you the <unk> signing clench the Atlantic equities.
Hi, Thanks for taking my question.
I recall that.
It was last quarter, you mentioned that.
You are looking at ways to I guess sharing more of the value creation of open trading with your clients and I was wondering if you could just update us on your thoughts around that.
How you would expect to implement such strategy over time, and how meaningful that could be.
Sure first of all.
Open trading continues to set records.
Our record river revenue in open trading and.
And we honestly you see saw record spikes of open trading market share of our overall market and then also continues to deliver substantial cost savings.
Our clients and as I mentioned in my opening remarks cost savings that are actually higher than our total revenue.
So very attractive to our client base the other.
Practice piece that open trading delivers is the ability for clients to avoid crossing spread.
And reduce and improve their overall execution quality and that's an area of focus of ours as we encourage clients more clients to use open.
Open trading to provide other clients with liquidity.
A key ingredient to our treasury offering as well, where we're offering open trading our all to all in the treasury market for the first time and seeing a number of very large clients taking advantage of that offering.
Exciting activities in our open trading offering in treasuries.
But also across open trading across all our products that continues to be a driver of market share in munis in our emerging markets in high yield and high grade so.
Super exciting activity in the quarter on our all to all open trading offering.
And we're continuing to see clients and client behavior change to take advantage of that.
Okay. Thanks, and then just secondarily in terms when we think about the.
The comments about market share so far in April for U S high grade being back above.
Q1 levels. So I was wondering if you could perhaps put it in terms of.
The market share if you adjust out the.
Just sort of distressed bonds that distorted everything.
Has the market share being pretty stable. After you adjust for that in March to April or has there been a pickup even relative to that sort of adjusted level.
So.
I appreciate the question there is three important days left.
In the month.
Obviously, it's month end.
So we certainly enjoy higher levels of activity around month end.
We'll be putting out our monthly volumes and market share next week.
So it's just a little bit too early to predict where our market share levels are going to end up but as I mentioned in the opening remarks, we are seeing.
Market share in high grade above Q1.
Alright, thank you.
Thanks.
Yes.
Thank you we'll go next to Michael Cyprus with Morgan Stanley .
Great. Thank you for taking the question maybe just continuing with the theme just on April maybe you could just comment a little bit of what you're seeing around pricing trends on the fee per million signed so far in April how does that sort of stack up versus the first quarter and then if maybe you could elaborate on some of the moving pieces around the AG versus high yield fee capture in the first quarter.
Yes, I'll take this one.
I made comments in my prepared remarks that with respect to the high grade fee capture we've seen stability and its very indicative of a Bloomberg duration index thats out there for everybody to monitor.
There's a lot of factors that contribute to our fee capture you have the product mix you have the protocol mix across our Q in open trading and so it really depends month to month on what mix of product is coming through now point to where we saw upside in historical quarters was we saw a heavier mix of high yield which is our.
Our highest <unk> product and that product set and in this month, we're seeing elevated volumes with euro bonds relative to the market volumes that were seeing sequentially, which is one of the lower fee capture products, So really bearish down to what's the product mix.
Not seeing the same impact that we saw with the high grade duration compressing our fee capture year over year.
Okay, Great and then just a follow up question is you guys have more and more success with open trading.
Does I believe tie up more working capital for clearing of those trade just because yourself Claire. So maybe you could just remind us how much of the balance sheet resources are being used to support the clearing of customer trades and have open trading volume, it's hard to say double.
Should we think about that translating into incremental balance sheet resources being used to help support that and then how do you think about driving more balance sheet efficiency for that overtime.
Yes.
Peak of March we had.
Add enough capital resident within our two clearing broker dealers to support the elevated trading volumes that we were seeing in light of it contributing to increased sales and increased deposit requirements. So the $330 million of cash that you saw at the end of March.
Roughly $200 million of that was residing within the two clearing entities to support open trading so as we think about our balance sheet today, we feel very comfortable with the amount of capital resident in the company to support our business.
And not seen on the balance sheet and we didn't have any outstanding debt at quarter end, but we do have access to $750 million of borrowing facilities secured facility at the holding company and $250 million or <unk>.
Unsecured facility at the holding company and $250 million secured at the broker dealers, which we have not had to borrow on.
But we do have the ability to secure additional funds if we need to.
And I would just point out.
In open trading.
Particularly a doubling of open trading will produce additional cash to our balance sheet pretty dramatically given our current corporate margin. So.
That's a healthy problem to have as you grow open trading.
To.
Produce more cash into the balance sheet. So again, Chris mentioned spikes in open trading we are plenty of capital.
To support open trading spikes in an open trading growth as it stands today.
Great. Thank you.
Now to Patrick O'shaughnessy at Raymond James.
Hey, good morning can you provide an update on the current competitive dynamics and the recently issued component of the corporate bond market and how much of total market volume does that represent.
So.
The competitive dynamic of.
Corporate bond market.
The recently issued components.
So Patrick I'll jump in here, but.
As you know following us for a long time, those numbers ebb and flow with the calendar. So the newly issued bonds in peak periods can get up to 12% 13% of trace in the short term and they averaged something lower than that probably more like seven 7%. So it ebbs and flows with the calendar, but quite honestly I don't think.
The dynamic has changed in terms of the competitive landscape around new issues.
Got it thank you.
Then can you provide an update on what youre seeing in terms of client interest in your portfolio trading solution.
Sure our portfolio trading solution had a record volume in Q1.
It's grown substantially year over year, we have obviously been delivering.
Numerous features and functionality to clients.
Throughout the course of 'twenty, two and even today.
We're constantly delivering functionality. So the reception is is in the numbers given the records that we've seen in portfolio trading.
I do think portfolio trading in particularly in March and part of the first quarter is a little bit challenged.
To provide portfolio trading during more volatile times, but portfolio trading is an important part of the market and we will continue to be here as a workflow solution for clients and we continue to deliver high value.
Our high value tool for clients to manage their portfolio I think the next step in portfolio trading is really building the analytics to decide what to portfolio and what not to put in your portfolio trading.
Which is really what we're hearing from our clients in terms of demand they want to understand.
Analytics around the portfolio.
To adjust their portfolio, either pull bonds out or put bonds in to improve the pricing of our portfolio, but <unk>.
Certainly.
Very pleased with our performance in the portfolio trading landscape.
Great. Thank you.
Thank you and it seems we have no further questions. This morning, I would like to turn the conference back to the company.
Thank thank you all for your time today, and we look forward to talking to you in next quarter.
Thank you, Sir ladies and gentlemen that will conclude the market access first quarter 2023 earnings conference call I would like to thank you all so much for joining us and wish you all a great day Goodbye.
Okay.
Okay.