Q3 2023 MarketAxess Holdings Inc Earnings Call

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Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to the Market Access Third Quarter 2023 Earnings Conference Call.

Ladies and gentlemen, thank you for standing by welcome to the market access third quarter 2023 earnings conference call.

Speaker 1: At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session.

At time, all participants are in a listen only mode. Later, we will conduct a question and answer session. If you would like to ask a question during that time. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one and we ask that you ask that.

Speaker 1: If you would like to ask a question during that time, please press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press star one. And we ask that you limit yourselves to one question and then re-queue.

You limit yourself to one question and then re queue.

Speaker 1: As a reminder, this conference call is being recorded on October 25, 2020.

As a reminder, this conference call is being recorded on October 25th 2023, I would now like to turn the call over to Steve Davidson head of Investor Relations at market access. Please go ahead Sir.

Speaker 2: I would now like to turn the call over to Steve Davidson, head of investor relations at Market Access. Please go ahead, sir. Thank you, Krista. Good morning and welcome to the Market Access third quarter 2023 earnings conference call. For the call, Kristin Cannon, chief executive officer, will provide you with a strategic update on the company. Rich Shiffman, global head of trading solutions, will update you on how we executed this call.

Thank you Chris.

Good morning, and welcome to the market access third quarter 2023 earnings conference call for.

For the call, Chris Concannon, Chief Executive Officer, who will provide you with a strategic update on the company reached.

Shipman Global head of trading solutions will update you on how we executed this quarter and then Christopher <unk> Chief Financial Officer will walk you through the financial results for that.

Before I turn the call over to Kristen Cannon, Let me remind you that today's call may include forward looking statements.

Statements represent the company's belief regarding future events that by their nature are uncertain and the.

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.

Speaker 2: 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.

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 Chris Concannon.

Speaker 3: Good morning. I'm very pleased to update you on the significant progress we made in the third quarter to enhance our franchise and drive long-term growth.

Good morning, I'm very pleased to update you on the significant progress we made in the third quarter to enhance our franchise and drive long term growth.

Speaker 3: First, in terms of the quarter, we generated revenue of 172 million. Earnings per share was $1.46 on net income of 55 million.

First in terms of the quarter, we generated revenue of $172 million earnings per share was $1 46 on net income of 55 million.

Speaker 3: Our quarterly results were impacted by unusually low levels of credit spread volatility during the seasonally slower summer period, but we are seeing some early positive signs of higher volatility in October .

Our quarterly results were impacted by unusually low levels of credit spread volatility during the seasonally slower summer period, but we are seeing some early positive signs of higher volatility in October we.

Speaker 3: We are not happy with our growth rates in US credit, but we believe we are taking the right steps to improve our growth rates in our business in the years ahead.

We are not happy with our growth rates in U S credit, but we believe we are taking the right steps to improve our growth rates in our business in the years ahead.

Speaker 3: Turning to my strategic update on slide three, we continue to innovate through the launch of our new trading platform, XPro. XPro delivers our proprietary data for pretrained analytics and protocol selection. We specifically targeted portfolio trading solutions in XPro to address our US high grade market share challenge.

Turning to my strategic update on slide three we continue to innovate through the launch of our new trading platform X Pro.

<unk> pro delivers our proprietary data for pre trade analytics and protocol selection.

We specifically targeted portfolio trading solutions in X pro to address our U S high grade market share challenges.

Speaker 3: In low volatility market environments, protocols like portfolio trading become more prevalent, with portfolio trading rising to 7% of trace during the quarter.

And low volatility market environments protocols like portfolio trading become more prevalent with portfolio trading rising to 7% of trace during the quarter.

Speaker 3: Activity on dealer centric protocols also increases in low volatility markets. And we are continuing to focus our growing, our mid-X and dealer-arthcube protocols.

Activity on dealer centric protocols also increases in low volatility market and we are continuing to focus our growing on growing our mid acts and dealer or acute protocols.

Speaker 3: We believe that we have a superior DLRQ solution because of our comprehensive open trading liquidity.

We believe that we have a superior dealer, our Q solution because of our comprehensive open trading liquidity.

We are pleased to see our portfolio trading clients increasingly leveraging our unique pre trade analytics like trade ability only available through X pro three.

Speaker 3: We are pleased to see our portfolio trading clients increasingly leveraging our unique pre-trade analytics like tradeability only available through X-Pro. 35% of our portfolio trades were executed on X-Pro in October , month to date, up from 18% in the third quarter. We continue to deliver unique data and functionality enhancements to our portfolio trading offering in X-Pro.

35% of our portfolio trades were executed on X Pro in October month to date up from 18% in the third quarter, we continued to deliver unique data and functionality enhancements to our portfolio trading offering in ex prop.

Speaker 3: Expro integrates our real-time data, our pre-trade analytics, and our trading protocols into a simple trader cockpit that allows a user to seamlessly manage more line items and be more productive.

X pro integrates our real time data are pre trade analytics, and our trading protocols into a simple trader cockpit that allows a user to seamlessly manage more line items and be more productive.

Speaker 3: Adaptive ONOX, a fully automated trader solution, provide the suite of sophisticated AI-driven trading algorithms that integrate all of our trading protocols to programmatically improve execution outcomes while reducing market impact.

Adaptive auto ex a fully automated trader solution provides a suite of sophisticated AI driven trading algorithms that integrate all of our trading protocols to programmatically improve execution outcomes, while reducing market impact.

Speaker 3: Execution solutions like X-Pro and Adaptive Auto X allow traders to fully leverage the power of market access, operating in a far more efficient manner while accessing the best possible liquidity and pricing available in the market. These products answer our clients' growing demand to help them do more with less.

<unk> execution solutions like X pro an adaptive auto ex allowed traders to fully leverage the power of market access operating in a far more efficient manner, while accessing the best possible liquidity and pricing available in the market. These products answer our clients' growing demand to help them do more with less.

Speaker 3: Although adaptive AutoX was still in pilot phase during the quarter, early results show promising transaction cost savings and reduced market impact in US hybrid.

Although adaptive auto ex was still in pilot phase during the quarter early results show promising transaction cost savings and reduced market impact in U S. High grade our client franchise has never been stronger with a record of over 2000 active clients across 67 countries. We.

Speaker 3: Our client franchise has never been stronger with a record of over 2,000 active clients across 67 countries.

Speaker 3: We delivered strong growth in our international businesses and in unisables, as well as record data revenue, as our investments to broaden our geographical and product footprint payoff. We closed the acquisition of Prisma, we integrated the Munibroker platform, and we rolled out open trading to several emerging local markets, further solidifying our global leadership in emerging markets e-trading.

We delivered strong growth in our international businesses and in municipals as well as record data revenue as our investments to broaden our geographical and product footprint pay off we closed the acquisition of pragma, we integrated the muni broker platform and we rolled out open trading to several emerging local markets.

<unk> further solidifying our global leadership in emerging markets E trading.

Speaker 3: Slide 4 illustrates how we are integrating our next gen proprietary data with XPro to help traders do more with less.

Slide four illustrates how we are integrating our nextgen proprietary data with X pro to help traders do more with less.

Speaker 3: Our unique proprietary data helps clients with their portfolio construction objectives by leveraging liquidity scores, tradeability data, and are soon to be launched matchability data. These data tools can help clients predict the price of a bond, the depth of the market, and the likelihood of finding another matching buyer or seller on the platform.

Our unique proprietary data helps clients with their portfolio construction objectives by leveraging liquidity scores trade ability data and our soon to be launched match ability data. These data tools can help clients predict the price of a bond the depth of the market and the likelihood of finding another matching buyer or seller.

On the platform.

Speaker 3: Our data tools also help clients optimize their protocol selection across RFQ, open trading, portfolio trading or automation.

Data tools also help clients optimize their protocol selection across RF Q open trading portfolio trading our automation.

Speaker 3: Last with the launch of our AI dealer select data, we can now help inform our clients about their optimal dealer selection based on the bond they are treated.

Last with the launch of our AI dealer select data, we can now help inform our clients about their optimal dealer selection based on the bonds are trading.

Speaker 3: Slide 5 highlights the expansion of our addressable morph.

Slide five highlights the expansion of our addressable market acquisitions totaling approximately $360 million and significant organic investments in new products and protocols over the past several years have expanded our addressable market by an estimated 3 billion across credit rates data and post trade.

Speaker 3: Acquisitions totaling approximately 360 million and significant organic investments in new products and protocols over the past several years have expanded our addressable market by an estimated three billion across credit rates, data, and post-trade. We believe that our acquisition of PRAGMO will be a key accelerant of our ability to capture this opportunity while enhancing our technology for...

We believe that our acquisition of pragma will be a key accelerant of our ability to capture this opportunity, while enhancing our technology footprint and.

Speaker 3: and expanding market, higher trading reliability, new product expansion, and new protocols and workflows are all additional levers of growth that could enhance our addressable markets. Slide six provides an update.

An expanding market higher trading velocity, new product expansion and new protocols and workflows are all additional levers of growth that could enhance our addressable market slide six provides an update on market conditions. Since the end of the third quarter volatility has continued to move higher which is benefited.

Speaker 3: Since the end of the third quarter, volatility has continued to move higher, which has benefited ETF market maker activity and US high yield estimated share. High yield ETF market maker ADD on our platform is up 94% from the third quarter.

ETF market maker activity in U S high yield estimated share high yield ETF market maker Adv on our platform is up 94% from the third quarter.

Speaker 3: With over 7 trillion and global corporate debt set to mature in the next three years, borrowers will have to refinance their debt at much higher rates, creating the potential for higher levels of turnover in the secondary market.

With over seven trillion in global corporate debt set to mature in the next three years borrowers will have to refinance their debt at much higher rates, creating the potential for higher levels of turnover in the secondary markets.

Speaker 3: Proposed new additional bank capital requirements could lead to further constraints on bank balance sheets for market making highlighting the importance of a diverse liquidity pool like open

Proposed new additional bank capital requirements could lead to further constraints on bank balance sheets for market, making highlighting the importance of a diverse liquidity pool like open trading.

Speaker 3: Before I turn the call over to Rich Schiffen, I wanted to provide an update on Octo.

Before I turn the call over to rich Schiffman I wanted to provide an update on October.

Speaker 3: Current October trends show high-grade estimated market share and market volume slightly above September levels. While high yield estimated share and market volumes are above, both above September levels. We have five important trading days remaining in the month and both high-grade and high-yield market share normally show increases in the last week of the month.

Current October trends show high grade estimated market share and market volumes slightly above September levels, while high yield estimated share and market volumes are above.

Both above September levels, we have five important trading days remaining in the month and both high grade and high yield market share normally show increases in the last week of the month <unk>.

Speaker 3: Additionally, global portfolio trading ADD in October is approximately $770 million, up 77% from Q3 levels. Now, let me turn the call over to Rich to provide you with an update on our market.

Additionally, global portfolio trading Adv in October is approximately $770 million up 77% from Q3 levels now let me turn the call over to rich to provide you with an update on our market. Thanks, Chris we.

Speaker 4: We made significant progress this quarter, advancing our trading.

We made significant progress this quarter advancing our trading business slide eight highlights the strong expansion of our client network. We had a record 2093 active client firms trading on our platforms in the third quarter, which included a record 1625 client firms active.

Speaker 4: Slide 8 highlights the strong expansion of our client network. We had a record 2093 active client firms trading on our platforms in the third quarter, which included a record 1625 client firms active in U.S. credit.

Unknown Executive: Ladies and gentlemen, thank you for standing by.

Unknown Executive: Welcome to the Market Access 3rd quarter, 2023, earnings conference call. At the time, all participants are in a listen only mode.

And U S credit trade.

Speaker 4: Trading volume from hedge fund and private bank clients increased 35% year over year and represented 17% of total credit market volume in the quarter, up from 13% in the prior year period.

Trading volume from hedge fund and private bank clients increased 35% year over year and represented 17% of total credit market volume in the quarter up from 13% in the prior year period.

Unknown Executive: Later, we will conduct a question and answer session. If you would like to ask a question during that time, please press star, followed by the number one on your telephone keypad. And if you would like to withdraw your question, press star one. And we ask that you ask that you limit yourselves to one question and then req.

Speaker 4: A record 1,151 active client firms are trading three or more products on our platforms, reflecting the deep partnership that we have with our clients and the power of our liquidity.

A record 1151 active client firms are trading three or more products on our platforms, reflecting the deep partnership that we have with our clients and the power of our liquidity.

Unknown Executive: As a reminder, this conference call is being recorded on October 25, 2023.

Speaker 4: We had a record 366 active firms on our municipal bond platform and we are continuing to integrate munibrokers with open trading to expand sources of liquidity for investors and dealers.

We had a record 366 active firms on our municipal bond platform and we are continuing to integrate muni brokers with open trading to expand sources of liquidity for investors and dealers.

Stephen Davidson: I would now like to turn the call over to Steve Davidson, head of investor relations at Market Access. Please go ahead, sir. Thank you, Chris.

Speaker 4: On slide 9, we highlight the growing international diversification of our trading.

On slide nine we highlight the growing international diversification of our trading business.

Chris Concannon: Good morning and welcome to the Market Access 3rd quarter, 2023, earnings conference call.

Speaker 4: Third quarter growth in international average daily trade volume and trade count was 15% and 21% respectively.

Third quarter growth in international average daily trade volume and trade count was 15% and 21% respectively.

Chris Concannon: For the call, Chris Concannon, Chief Executive Officer will provide you with a strategic update on the company.

Richard Schiffman: Rich Shipman, who will head of trading solutions, will update you on how we executed this quarter.

Speaker 4: This was driven by strong Eurobond trading volume up 18% and emerging local markets trading volume up 27%.

This was driven by strong euro bond trading volume up 18% and emerging local markets trading volume up 27%.

Stephen Davidson: And then Christopher, Chief Financial Officer, will walk you through the financial results for the quarter. 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 company's 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 10K for the year and the December 31, 2022. I would also direct you to read the forward-looking statements, disclaimer in our quarterly earnings release, which was issued earlier this morning and is now available on our website.

Speaker 4: The launch of enhancements like U.S. high-grade trading on price has been very well received by our private bank clients, particularly in Europe .

The launch of enhancements like U S high grade trading on price has been very well received by our private bank clients, particularly in Europe trading.

Speaker 4: Trading volume on AccessIQ, our front end for private banking clients, increased 130% in Q3 compared to the prior year.

Trading volume on access IQ, our front end for private banking clients increased 130% in Q3 compared to the prior year.

Speaker 4: Adoption of our automation suite of products continues to grow, as shown on slide 10.

Adoption of our automation suite of products continues to grow as shown on slide 10.

Speaker 4: In the third quarter, there were a record 8 million ALGO responses from dealers, an increase of 41% year-over-year, with a three-year CAGR of 30%.

In the third quarter, there were a record 8 million algo responses from dealers and increase of 41% year over year with a three year CAGR of 30%.

Speaker 4: Adoption of automated tools continues to increase with our investor clients. We experienced record AUTOX trade volume and count in the quarter, with three-year CAGRs of 35% and 41% respectively, and a record 167 active client firms.

Adoption of automated tools continues to increase with our investor clients, we experienced record auto ex trade volume and count in the quarter with three year, CAGR of 35% and 41%, respectively and a record 167 active client firms.

Chris Concannon: Now, let me turn the call over to Chris Concannon. Good morning. I'm very pleased to update you on the significant progress we made in the third quarter to enhance our franchise and drive long-term growth. First, in terms of the quarter, we generated revenue of 172 million. Earnings per share was $1.46 on net income of 55 million. Our quarterly results were impacted by unusually low levels of credit spread volatility during the seasonally slower summer period. But we are seeing some early positive signs of higher volatility in October.

Speaker 4: Auto X trade volume now represents a record 11% of total credit volume and trade count was a record 24% of total credit trade.

Auto ex trade volume now represents a record 11% of total credit volume and trade count was a record 24% of total credit trades.

With adaptive auto X, our new suite of client algorithms, we are leveraging our new open trading protocols like live markets and auto responder to reduce execution costs, while increasing the liquidity across our platforms.

Speaker 4: With Adaptive AutoX, our new suite of client algorithms, we are leveraging our new open trading protocols like LiveMarkets and Autoresponder to reduce execution costs while increasing the liquidity across our platform.

Chris Concannon: We are not happy with our growth rates in U.S, credit, but we believe we are taking the right steps to improve our growth rates in our business in the years ahead. Turning to my strategic update on slide three, we continue to innovate through the launch of our new trading platform, X-Pro. X-Pro delivers our proprietary data for pre-trade analytics and protocol selection. We specifically targeted portfolio trading solutions in X-Pro to address our U.S, high-grade market share challenges.

Speaker 4: Historically, traders are responsible for selecting how to engage our comprehensive trading ecosystem.

Historically traders are responsible for selecting how to engage our comprehensive trading ecosystem now they have the ability to use a sophisticated AI driven algorithm that helps make the decision on the size of the order the protocol the counterparty and went to trade.

Speaker 4: Now, they have the ability to use a sophisticated AI-driven algorithm that helps make the decision on the size of the order, the protocol, the counterparty, and when to trade.

Speaker 4: Slide 11 provides an update on open trading, our market-leading all-to-all liquidity pool.

Slide 11 provides an update on open trading our market, leading all to all liquidity pool.

Speaker 4: Open Trading ADV is running at $3.8 billion, compared to $3.2 billion in Q3, up 19%, reflecting some early positive signs of an increase in volatility.

Open trading Adv is running at three 8 billion compared to $3 2 billion in Q3 up 19%, reflecting some early positive signs of an increase in volatility open trading share of total credit volume is running well above the 33% reported in the third quarter of 2023.

Chris Concannon: In low volatility market environments, protocols like portfolio trading become more prevalent with portfolio trading rising to 7% of trace during the quarter. Activity on dealer-centric protocols also increases in low volatility markets, and we are continuing to focus our growing our mid-X and dealer-RQ protocols. We believe that we have a superior dealer-RQ solution because of our comprehensive open trading liquidity. We are pleased to see our portfolio trading clients increasingly leveraging our unique pre-trade analytics like trade-ability, only available through X-Pro.

Speaker 4: Open trading share of total credit volume is running well above the 33% reported in the third quarter of 2023.

Right.

Speaker 4: We continue to expand available liquidity by increasing the number of alternative providers.

We continued to expand available liquidity by increasing the number of alternative providers a record 201 hedge funds provided liquidity on open trading in the quarter, a 13% increase from the prior year.

Speaker 4: A record 201 hedge funds provided liquidity on open trading in the quarter, a 13% increase from the prior year.

Speaker 4: Open trading is consistently the largest single source of secondary liquidity in the U.S. credit market.

Open trading is consistently the largest single source of secondary liquidity in the U S credit markets.

Chris Concannon: 35% of our portfolio trades were executed on X-Pro in October, month to date, up from 18% in the third quarter. We continue to deliver unique data and functionality enhancements to our portfolio trading offering in X-Pro. X-Pro integrates our real-time data, our pre-trade analytics, and our trading protocols into a simple trader cockpit that allows a user to seamlessly manage more line items and be more productive. Adaptive ONOX, a fully automated trader solution, provides the suite of sophisticated AI-driven trading algorithms that integrate all of our trading protocols to programmatically improve execution outcomes while reducing market impact.

Speaker 4: While price improvement has ticked lower, we have delivered approximately $530 million in cost savings year-to-date.

While price improvement has ticked lower we have delivered approximately $530 million in cost savings year to date.

Speaker 4: In U.S. high-grade, no-touch trades executed between AutoX and a dealer Algo represented 21% of trade count on open trading.

In U S high grade no touch trades executed between auto ex and a dealer algo represented 21% of trade count on open trading.

Speaker 4: We recently announced the expansion of open trading to select emerging local markets, including Poland, Czech Republic, Hungary and South Africa.

We recently announced the expansion of open trading to select emerging local markets, including Poland, Czech Republic, Hungary in South Africa. This is a powerful next step in the evolution of our <unk> franchise, providing global dealers and institutional investors with access to unique onshore.

Speaker 4: This is a powerful next step in the evolution of our EM franchise, providing global dealers and institutional investors with access to unique onshore liquidity providers.

Liquidity providers.

Chris Concannon: Execution solutions like X-Pro and adaptive ONOX allow traders to fully leverage the power of market access, operating in a far more efficient manner while accessing the best possible liquidity and pricing available in the market. These products answer our clients' growing demand to help them do more with less. Although adaptive ONOX was still in pilot phase during the quarter, early results show promising transaction cost savings and reduced market impact in U.S, high grade.

Speaker 4: Now let me turn the call over to Chris Jarrosa to review our financial performance.

Now, let me turn the call over to Chris <unk> to review our financial performance.

Speaker 5: Thank you, Rich. On slide 13, we provided summary of our quarterly financial.

Thank you rich on slide 13, we provide a summary of our quarterly financials for the quarter, we delivered revenue of $172 million in line with prior year record information services revenue of $12 million was up 22%. This strong performance was driven by a healthy pipeline of new contracts.

Speaker 5: For the quarter, we delivered revenue of $172 million in line with prior year. Record information services revenue of $12 million was up 22%. This strong performance was driven by the healthy pipeline of new contracts as we continue to experience strong adoption across our data products.

As we continue to experience strong adoption across our data products suite the.

Speaker 5: The favorable interest rate environment contributed to $6.6 million of interest income, up from $1.4 million. The effective tax rate was 23.4%, and we reported diluted EPS of $1.46 per share.

Chris Concannon: Our client franchise has never been stronger with a record of over 2,000 active clients across 67 countries. We delivered strong growth in our international businesses and in unisables, as well as record data revenue as our investments to broaden our geographical and product footprint pay off. We closed the acquisition of PRAGMA, we integrated the Munibropper platform and we rolled out open trading to several emerging local markets further solidifying our global leadership in emerging markets e-trading.

The favorable interest rate environment contributed to $6 6 million of interest income up from $1 4 million. The effective tax rate was 23, 4% and we reported diluted EPS of $1 46 per share.

Speaker 5: On slide 14, we provide more detail on our commission revenue and our fee capture.

On slide 14, we provide more detail on our commission revenue in our fee capture.

Speaker 5: Total commission revenue decreased 2% in a quarter, but year-to-date is running 2% above prior year. The decline in credit commission revenue was due to lower estimated U.S. credit market share and lower total credit fee capture, partially offset by revenue generated from strong international trading volume.

Total commission revenue decreased 2% in the quarter, but year to date is running 2% above prior year. The decline in credit Commission revenue was due to lower estimated U S credit market share and lower total credit fee capture partially offset by revenue generated from strong international trading volumes.

Chris Concannon: Slide 4 illustrates how we are integrating our next-gen proprietary data with X-Pro to help traders do more with less. Our unique proprietary data helps clients with their portfolio construction objectives by leveraging liquidity scores, tradeability data, and are soon to be launched matchability data. These data tools can help clients predict the price of a bond, the depth of the market, and the likelihood of finding another matching buyer or seller on the platform.

Speaker 5: The lower levels of credit spread volatility during the quarter contributed to a decrease in ETF market making, maker activity, which had a negative impact on our US high yield market share. The reduction in total credit fee capture from prior year was driven principally by the lower duration of US high grade bonds traded over our platforms, and a product mix shift in other credit products primarily in US high yield.

Lower levels of credit spread volatility during the quarter contributed to a decrease in ETF market.

Maker activity, which had a negative impact on our U S high yield market share the reduction in total credit fee capture from prior year was driven principally by the lower duration of U S high grade bonds traded over our platforms and a product mix shift and other credit products, primarily in U S high yield.

Chris Concannon: Our data tools also help clients optimize their protocol selection across RFQ, open trading, portfolio trading, or automation. Last, with the launch of our AI dealer select data, we can now help inform our clients about their optimal dealer selection based on the bond they are trading.

Speaker 5: On slide 15, we provide a summary of our operating expenses.

On slide 15, we provide a summary of our operating expenses.

Speaker 5: Third quarter operating expenses increased 10%, mainly driven by the continued investments in trading system enhancements and our data product offer.

Third quarter operating expenses increased 10%, mainly driven by the continued investments in trading system enhancements and our data product offering approximately.

Speaker 5: Approximately 42% of the increase in operating expenses is due to employee compensation and benefits as we increased headcount 17% to support our revenue growth initiative.

Approximately 42% of the increase in operating expenses is due to employee compensation and benefits as we increased head count 17% to support our revenue growth initiatives.

Chris Concannon: Slide 5 highlights the expansion of our addressable market. Acquisitions totaling approximately 360 million and significant organic investments in new products and protocols over the past several years have expanded our addressable market by an estimated 3 billion across credit rates, data, and post-trade. We believe that our acquisition of PRAGMO will be a key accelerant of our ability to capture this opportunity while enhancing our technology for Brent, an expanding market, higher trading reliability, new product expansion, and new protocols and workflows are all additional levels of growth that could enhance our addressable markets.

Speaker 5: The 15% increase in depreciation and amortization expense was due to higher software development costs and acquired and tangible amortization expense.

The 15% increase in depreciation and amortization expense was due to higher software development cost and acquired intangible amortization expense.

Speaker 5: Professional and consulting expenses related to M&A were $1.1 million during the quarter and $2.1 million year-to-date.

Professional and consulting expenses related to M&A were $1 $1 million during the quarter and $2 $1 million year to date.

Speaker 5: Our operating expense growth rate would have been 7%, if you exclude the impact of foreign exchange and M&A.

Our operating expense growth rate would have been 7% if you exclude the impact of foreign exchange and M&A.

Speaker 5: On slide 16, we provide you with our updated full year 2023 expense guidance.

On slide 16, we provide you with our updated full year 2023 expense guidance.

Chris Concannon: Slide six provides an update on market conditions. Since the end of the third quarter, volatility has continued to move higher, which has benefited ETF market maker activity and US high yield estimated share high yield ETF market maker ADD on our platform is up 94% from the third quarter. With over 7 trillion and global corporate debt set to mature in the next three years, borrowers will have to refinance their debt at much higher rates, creating the potential for higher levels of turnover in the secondary markets, proposed new additional bank capital requirements could lead to further constraints on bank balance sheets for market making, highlighting the importance of a diverse liquidity pool like open trading.

Speaker 5: Based on a progression of operating expenses and the acquisition of Pragma, the company is refining its previously stated full year 2023 expense guidance range of $418 million to $446 million to a new range of $432 million to $438 million.

Based on our progression of operating expenses and the acquisition of Pragma. The company is refining. Its previously stated full year 2008, 2023 expense guidance range of $418 million and $446 million to a new range of $432 million to $438 million.

Speaker 5: Lower variable cost savings from incentive compensation expense and clearing costs was mostly offset by 12.5 million of incremental M&A related expenses.

Lower variable cost savings from incentive compensation expense and clearing costs was mostly offset by $12 5 million of incremental M&A related expenses.

Speaker 5: Excluding M&A related expenses, our core expense growth rate is expected to be approximately 8%.

Excluding M&A related expenses, our core expense growth rate is expected to be approximately 8%.

Speaker 5: Our estimated Q4 direct operating expense for Pragna is 8.5 million, which includes acquired intangible amortization expense.

Our estimated Q4 direct operating expense for Pragma is $8 5 million, which includes acquired intangible amortization expense.

Chris Concannon: Before I turn the call over to Richard Schiffman, I wanted to provide an update on October current October trends show high grade estimated market share and market volume slightly above September levels while high yield estimated share and market volumes are above both above September levels. We have five important trading days remaining in the month and both high grade and high yield market share normally show increases in the last week of the month. Additionally, global portfolio trading ADD in October is approximately $770 million up 77% from Q3 levels.

Speaker 5: for modeling purposes. Pregnance 3rd quarter, 2023 total revenue was 6.9 million.

For modeling purposes progress third quarter 2023, total revenue was $6 9 million.

Speaker 5: On slide 17 we provide an update on our Balenci cash flow and capital management.

On slide 17, we provide an update on our balance sheet cash flow and capital management.

Speaker 5: Our balance sheet continues to be solid with cash and investments totaling 553 million ads of September 30th. And we had no outstanding borrowing under the credit facility.

Our balance sheet continues to be solid with cash and investments totaling 553 million as of September 30, We had no outstanding borrowings under the credit facilities.

Speaker 5: On October 2nd, we purchased Pregnant for approximately 129 million, consisting of 81 million in cash and 48 million of stock.

On October 2nd we purchased fragment for approximately 129 million consisting of $81 million in cash and $48 million of stock.

Speaker 5: We continue to actively invest our cash to take advantage of a favorable interest rate environment to continue to deliver strong net interest income in a coming quarter.

We continue to actively invest our cash to take advantage of a favorable interest rate environment to continue to deliver strong net interest income in the coming quarters during.

Richard Schiffman: Now let me turn the call over to Richard for ID with an update on our market. Thanks, Chris. We made significant progress this quarter advancing our trading business. Slide eight highlights the strong expansion of our client network. We had a record 2093 active client firms trading on our platforms in the third quarter, which included a record 1625 client firms active in US credit. Trading volume from hedge fund and private bank clients increased 35% year over year and represented 17% of total credit market volume in the quarter up from 13% in the prior year period.

Speaker 5: During the past 12 months, we've paid out approximately 108 million and quarterly dividends to our shareholders.

During the past 12 months, we paid out approximately $108 million in quarterly dividends to our shareholders and our board of directors declared a regular quarterly cash dividend of <unk> 72.

Speaker 5: and our Board of Director's declared a regular quarterly cash dividend of 72 cents based on the financial performance of the company. Now let me turn to call back the Chris for his closing comments.

Based on our financial performance of the company now let me turn the call back to Chris for his closing comments. Thanks, Chris in summary on Slide 18, we continued to execute very well against our growth strategy. We are pleased to see some early positive signs of increased volatility driving higher levels of ETF market.

Speaker 3: Thanks, Chris. In summary on slide 18, we continue to execute very well against our growth strategy. We're pleased to see some early positive signs of increased volatility driving higher levels of ETF market maker activity in US high yield and higher levels of open trading activity month to date.

Baker activity in U S high yield and higher levels of open trading activity month to date, our client franchise. The network has never been stronger with continued diversification across client segments regions and products, we are making excellent progress with the rollout of expro powered by our proprietary data which is.

Richard Schiffman: A record 1151 active client firms are trading three or more products on our platforms, reflecting the deep partnership that we have with our clients and the power of our liquidity. We had a record 366 active firms on our municipal bond platform and we are continuing to integrate munibrokers with open trading to expand sources of liquidity for investors and dealers. On slide nine, we highlight the growing international diversification of our trading business.

Speaker 3: Our client franchise and network has never been stronger with continued diversification across client segments, regions and products. We're making excellent progress with the rollout of X-PRO powered by our proprietary data, which is increasing trader efficiency while driving better trading outcomes.

Increasing trader efficiency, while driving better trading outcomes portfolio trading on X pro is increasing as more clients leverage our enhanced functionality and trade ability data.

Speaker 3: Portfolio trading on XPRO is increasing, as more clients leverage our enhanced functionality and tradeability data.

Speaker 3: We are not happy with current growth rates in US credit. But as we continue to execute our strategy and the macro backdrop improves, we believe we will be well positioned to deliver higher levels of growth in the quarters ahead.

We are not happy with current growth rates in U S credit, but as we continue to execute our strategy and the macro backdrop improves we believe we will be well positioned to deliver higher levels of growth in the quarters ahead. Finally, I would like to welcome Carlos Hernandez back to our board of directors throughout his career at Jay.

Richard Schiffman: Third quarter growth in international average daily trade volume and trade count was 15% and 21% respectively. This was driven by strong euro bond trading volume up 18% and emerging local markets trading volume up 27%. The launch of enhancements like US high grade trading on price has been very well received by our private bank clients, particularly in Europe. Group. Trading volume on Access IQ are front-end for private banking clients, increased 130 percent in Q3 compared to the prior year.

Speaker 3: Finally, I would like to welcome Carlos Hernandez back to our Board of Direction.

Speaker 3: Throughout his career at JP Morgan, Carlos has been forward thinking about electronic trading and market structure and we are delighted to have him back on the board. Now we would be happy to open the line.

P. Morgan Carlos has been forward thinking about electronic trading and market structure and we are delighted to have him back on the board now we would be happy to open the line for your questions.

As a reminder, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.

Speaker 1: As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad.

Speaker 1: ask that you limit yourself to one question and then reach...

Ask that you limit yourself to one question and then re queue.

Richard Schiffman: Adoption of our automation suite of products continues to grow as shown on slide 10. In the third quarter, there were record 8 million Algo responses from dealers, an increase of 41 percent year over year with a three-year cager of 30 percent. Adoption of automated tools continues to increase with our investor clients. We experienced record AutoX trade volume and count in the quarter, with three-year now represents a record 11 percent of total credit volume and trade count was a record 24 percent of total credit trades.

Speaker 1: Your first question comes from the line of Chris Allen from City. Please go ahead.

Question comes from the line of Chris Allen from Citi. Please go ahead.

Yes, good morning, guys.

Speaker 6: Getting a lot of questions myself, just on kind of the October up here, maybe can help clarify.

Okay.

Questions myself, just on kind of the <unk>.

<unk>, maybe you can help clarify a couple of things can you give us some color just in terms of.

Speaker 6: We give us some color just in terms of how much of high yield activity is, as the story could be driven by ETFs. And then from...

How much of high yield activities at <unk>.

Sure it could be driven by Etfs and.

Then from a portfolio trading perspective, it sounds like Youre, making those advancements there particularly into October.

Speaker 6: there, particularly into October . But from an overall industry perspective, I'm how it's portfolio trading tracking and what is clearly a more volatile environment. That's a frå it.

But from an overall industry perspective house portfolio trading tracking them and what it is.

Clearly a more volatile environment.

Great. Good morning, Chris Thanks for the questions.

Speaker 3: Just with regard to current activity, I think it's important to look at credit spread volatility. Obviously, we do see higher levels of vex volatility in the market, which has been driving high-yield ETF activity. But when it comes to credit spread volatility, it remains fairly unchanged.

Just with regard to your current activity I think it's important.

Look at credit spread volatility, obviously, we do see higher levels of VIX volatility in the market, which has been driving high yield ETF activity.

Richard Schiffman: With Adaptive AutoX, our new suite of client algorithms, we are leveraging our new open trading protocols like live markets and auto responder to reduce execution costs while increasing the liquidity across our platforms. Historically, traders are responsible for selecting how to engage our comprehensive trading ecosystem.

But when it comes to credit spread volatility remains generally unchanged.

Speaker 3: from September , you know, high-yield credit volatility is only slightly up. So we're encouraged by the increase in volatility as I mentioned, high-grade market shares running just slightly above September . Obviously we have the five remaining days in the month.

From September.

High yield credit volatility to only slightly up so we're encouraged by the increase in volatility as I mentioned.

Richard Schiffman: Now they have the ability to use a sophisticated AI-driven algorithm that helps make the decision on the size of the order, the protocol, the counterparty, and when to trade.

High grade market share is running just slightly above September obviously, we have the five five remaining days in the month, which is a critical part of the month where volumes do increase.

Speaker 3: which is a critical part of the month where vimes do increase.

Richard Schiffman: Slide 11 provides an update on open trading, our market leading all to all liquidity pool. Open trading ADV is running a 3.8 billion compared to 3.2 billion in Q3, up 19 percent, reflecting some early positive size of an increase in volatility. Open trading share of total credit volume is running well above the 33 percent reported in the third quarter of 2023. We continued to expand available liquidity by increasing the number of alternative providers.

Speaker 3: and high yield given that slight increase in volatility is above September levels. And then with regard to...

In high yield given that.

<unk> increase in volatility.

Is above September levels.

And then with regard to portfolio trading.

Speaker 3: You know, we are seeing our clients leveraging portfolio trading as a protocol. We've seen that grow this year, certainly in the lower ball months that we saw in the Q3. We continue to see demand for portfolio trading solutions. And we're continuing to.

We are seeing our clients leveraging portfolio trading as a protocol.

We've seen that grow this year or certainly in the lower ball.

<unk> that we saw in Q3, we continue to see demand for pork.

Our portfolio trading solutions.

Richard Schiffman: A record 201 hedge funds provided liquidity on open trading in the quarter, a 13 percent increase from the prior year. Open trading is consistently the largest single source of secondary liquidity in the U.S, credit markets. While price improvement has ticked lower, we have delivered approximately $530 million in cost savings year to date. In U.S, high grade, no-touch trades executed between AutoX and a dealer Algo represented 21 percent of trade count on open trading.

And we're continuing to enhance our <unk> pro as we roll it out to you.

Speaker 3: our X-Pro as we roll it out to users. We specifically built X-Pro to target portfolio trading and rolled that out in August . So it's still very early days of our X-Pro for portfolio trading. And we're encouraged by where we stand today. And as I mentioned, in the month of October , 35% of our global PTs.

Users, we specifically built X pro.

<unk> target portfolio trading and rolled that out in August. So it's still very early days of our <unk> pro for portfolio trading and we're encouraged by.

Where we stand today and as I mentioned in the month of October 35% of our global TTS.

Speaker 3: have been on X-PRO and that's up from just Q3. But again, X-PRO right now is still early days as we roll out additional enhancements. Have

Have been on X pro and Thats up from just Q3, but again ex pro right now it's still early days.

Richard Schiffman: We recently announced the expansion of open trading to select emerging local markets, including Poland, Czech Republic, Hungary, and South Africa. This is a powerful next step in the evolution of our EM franchise, providing global dealers and institutional investors with access to unique, unsure liquidity providers.

As we roll out additional enhancements.

Thanks, and good luck to you.

Your next question comes from the line of Patrick <unk> from Piper Sandler. Please go ahead.

Speaker 1: Your next question comes in the line of Patrick Mollie from Piper Sandler. Please go ahead.

Yeah. Good morning, Thanks for taking my question I just had one on expenses you mentioned in the guide that $8 5 million.

Speaker 7: Yeah, good morning. Thanks for taking my question. I just said one on expenses. You mentioned in the guide that 8.5 million of that was related to pragmas. So just wondering if that is maybe a good quarterly run rate to assume in 24 or whether there could potentially be some opportunity for expense energies or reductions they're going forward.

Christopher Gerosa: Now, let me turn the call over to Christopher Rosa to review our financial performance. Thank you, Rich. On slide 13, we provided summary of our quarterly financial For the quarter, we delivered revenue of 172 million in line with prior year. Record information services revenue of 12 million was up 22%. This strong performance was driven by the healthy pipeline of new contracts as we continue to experience strong adoption across our data products suite.

Some of that was related to pragma. So just wondering if that is maybe a good.

Quarterly run rate to assume in 'twenty four.

Or whether there could potentially be some opportunity for expense synergies reductions there going forward. Thanks.

Speaker 5: yeah this is christ it's a good run rate for 2020 four we're still finalizing the purchase price accounting around that but the the current estimate is a roughly one and a half million of that eight and a half million represents the acquired intangible amortization expense

Yes. This is Chris it's a good run rate for 2024, we're still finalizing the purchase price accounting around that but the current estimate is roughly one $5 million of that $8 5 million represents the acquired intangible amortization expense.

Christopher Gerosa: The favorable interest rate environment contributed to 6.6 million of interest income up from 1.4 million. The effective tax rate was 23.4% and we reported diluted EPS of $1.46 per share. On slide 14, we provide more detail on our commission revenue and our fee capture. Total commission revenue decreased 2% in a quarter, but year to date is running 2% above prior year. The decline in credit commission revenue was due to lower estimated U.S, credit market share and lower total credit fee capture partially offset by revenue generated from strong international trading volumes.

Speaker 5: And so I would expect that to be a decent run rate with modest growth consistent with our core growth for planning a 2024 budget. We're still working through our budget process for 24, but in terms of layering on top of your models, I would assume that's a good run rate for you.

So I would expect that to be a decent run rate with modest growth consistent with our core growth for our planning of 2020 for budget, we're still working through our budget process for 2004, but in terms of layering on top of your models I would assume that's a good run.

Run rate for you.

Alright, Thanks, a lot.

Speaker 1: Next your next question comes from the line of Alex Cram from UBS. Please go ahead.

Your next question comes from the line of Alex Kramm from UBS. Please go ahead.

Yes, Hey, good morning, everyone.

Speaker 8: Yes, hey, good morning, everyone. Just following up on the discussion about the operating environment, you made that comment in your September volume release and you've repeated it today that the last week of September was the second best week ever for the company. So maybe you can just remind us what was so good in that week and how that environment has changed so far in October so we can kind of compare and contrast a little bit here.

Just following up on the discussion about the operating environment you made that comment in your September volume release, and you've repeated it today that the last week of September was the second best week ever for the company. So maybe you can just remind us what was sold goods and as weak and how that environment has changed.

Christopher Gerosa: The lower levels of credit spread volatility during the quarter contributed to a decrease in ETF market maker activity which had a negative impact on our U.S, high yield market share. The reduction in total credit fee capture from prior year was driven principally by the lower duration of U.S, high-grade bonds traded over our platforms and a product makeshift in other credit products primarily in U.S, high yield.

So far in October so, we can kind of compare and contrast, a little bit here.

Sure Alex.

Well, obviously, we're pretty excited about that last week of September because we were coming off of a quarter, a fairly low vol and low volumes.

Speaker 3: Obviously, we were pretty excited about that last week of September because we were coming off a quarter of fairly low vol and low volumes. The month was, if you recall, a very large new issue month.

Christopher Gerosa: On slide 15, we provide a summary of our operating expenses. Third quarter operating expenses increase 10%, mainly driven by the continued investments in trading system enhancements and our data product offering. Approximately 42% of the increase in operating expenses is due to employee compensation and benefits as we increased headcounts 17% to support our revenue growth initiatives.

That the month was if you recall.

Very large new issue months, both in high grade and high yield and we typically see higher closing monthly.

Speaker 3: both in high grade and high yield and we typically see higher closing monthly, month end closing activity with regards to the new issue. So there's a higher level of turnover going into that month end of people repositioning some of that new issue bond activity. So there was that we did see that in September in October . Obviously new issue is slightly lower, but we typically in the last.

And closing activity.

With regard to the new issue. So there is a higher level of turnover going into that month end of people of repositioning some of that.

Christopher Gerosa: The 15% increase in depreciation and amortization expense was due to higher software development costs and acquired intangible amortization expense. Professional and consulting expenses related to M&A were 1.1 million during the quarter and 2.1 million year-to-date. Our operating expense growth rate would have been 7% if you exclude the impact of foreign exchange and M&A.

New issue <unk>.

And activity. So there was that we did see that in September and October obviously, new issue is slightly lower but we typically in the last five days of the month last four days of the month around month end.

Speaker 3: five days of the month, last four days of the month, around month end, see higher levels of volume in the market, but also market access experiences, slightly higher market share during those periods as well.

The higher levels of volume in the market, but also market access experiences slightly higher market share during those periods as well.

Christopher Gerosa: On slide 16, we provide you with our updated full year 2023 expense guidance. Based on a progression of operating expenses and the acquisition of PRAGMA, the company is refining its previously stated full year 2023 expense guidance range of 418 million to 446 million to a new range of 432 million to 438 million. Lower variable cost savings from incentive compensation expense and clearing costs was mostly offset by 12.5 million of incremental M&A related expenses.

Speaker 5: And Chris, I'll just add to that, if you go to the market conditions slides and you track the VIX in the upper right, the VIX was really suppressed for most of Q3 and we saw that return of volatility that Chris alluded to, which was a good tailwind for the high yield volume coming through the platform, and we continue to see that into October .

And Chris I'll just.

And I'll just add to that if you go to the market condition slide you track the VIX in the upper right.

The VIX was really suppressed for most of Q3 and we saw that return of volatility that Chris alluded to which was a good tailwind for the high yield volume coming through the platform and we continue to see that into October and from a credit fee capture perspective, just reminding everybody that high yield is our highest fee capture products.

Speaker 5: Fee capture perspective, just reminding everybody that high yield is our highest fee capture product. So the more high yield volume that comes through, it will naturally elevate our fee capture beyond the bottoms that we experienced in the month of September where that was trading at roughly 150 per million. And, you know, what we're seeing so far in the month of October , it's closer to the 155 that we had seen for the entirety of Q3.

So the more high yield the volume that comes through it will naturally elevate our fee capture beyond the bottoms that we experienced in the month of September where that was trading at roughly 150 per million than what we're seeing so far in the month of October it's closer to the 155 that we had seen after the entirety of Q3.

Christopher Gerosa: Excluding M&A related expenses, our core expense growth rate is expected to be approximately 8%. Our estimated Q4 direct operating expense for PRAGMA is 8.5 million, which includes acquired intangible amortization expense. For modeling purposes, PRAGMA's third quarter 2023 total revenue was 6.9 million.

Excellent thanks for that color.

Speaker 1: Your next question comes from the line of Benjamin Buddish from Barclays Capital. Please go ahead.

Your next question comes from the line of Benjamin <unk> from Barclays Capital. Please go ahead.

Christopher Gerosa: On Slide 17, we provide an update on our balance sheet, cash flow and capital management. Our balance sheet continues to be solid with cash and investments totaling 553 million ads of September 30th, and we had no outstanding borrowings under the credit facilities.

Hi, Thanks for taking the question I wanted to follow up on the prior question on Pragma, Chris You said in your prepared remarks, you think it's going to be a key accelerant of your ability to capture the expanded Tam I Wonder if you could expand on that and then maybe for Chris G. Just on in terms of modeling for next year.

Speaker 9: I wanted to follow up on the prior question on pragma. Chris, you said in your prepared remarks, you think it's going to be a key accelerant of your ability to capture the expanded tam. Oh, and if you could expand on that. And then maybe for Chris G, just on terms of modeling for next year, where the revenue is going to be reported. And how should we think about the growth rate of the key three number you alluded to early?

Christopher Gerosa: On October 2nd, we purchased pregnant for approximately 129 million, consisting of 81 million in cash and 48 million of stock. We continue to act actively invest our cash to take advantage of the favorable interest rate environment to continue to deliver strong net interest income in the coming quarters. During the past 12 months, we paid out approximately 108 million in quarterly dividends to our shareholders, and our board of directors declared a regular quarterly cash dividend of 72 cents, based on the financial performance of the company.

The revenue is going to be reported and how should we think about sort of the growth rate of the Q3 number you alluded to earlier.

Great. Thanks, Ben.

So we're pretty excited about the addition of pragma, we were able to announce and close quite quickly pregnant.

<unk> is a technology company, that's how most people should think about it. So we are enhancing our tech footprint.

With very new technology, and obviously, an algo driven solution that pregnant brings to us they have.

Chris Concannon: Now let me turn to call back the Chris for his closing comments. Thanks, Chris. In summary on Slide 18, we continue to execute very well against our growth strategy. We're pleased to see some early positive signs of increased volatility, driving higher levels of ETF market maker activity in US high yield, and higher levels of open trading activity month to date. Our client franchise and network has never been stronger with continued diversification across clients segments, regions and products.

And equity business as well as an FX algo business. So two areas of interest more importantly, there, we're helping theyre, helping us too.

Enhance our algo offering adaptive auto X, which we launched this year.

So that that technology is quite helpful.

Speaker 3: The other piece of, of Prisma that we are exploring, we find could be synergistic is their EMS functionality. They have a, an EMS platform.

Other piece of pregnant that we are exploring we find could be synergistic is their EMS functionality they have a <unk>.

Chris Concannon: We're making excellent progress with the rollout of that's proud, powered by our proprietors. We're making great progress with the recovery data, which is increasing trader efficiency while driving better trading outcomes. Portfolio trading on X-PRO is increasing, as more clients leverage our enhanced functionality and tradeability data.

Ms platform.

Speaker 3: that they license to the NYC, and it's quite attractive across multi-assets.

That they license to the NYSE and its quite attractive across multi asset solutions. So we are looking to leverage that EMS platform as well.

Speaker 3: Solution so we are looking to leverage that EMS platform as well

Chris Concannon: We are not happy with current growth rates in US credit, but as we continue to execute our strategy and the macro backdrop improves, we believe we will be well positioned to deliver higher levels of growth in the quarters ahead.

Speaker 3: And then we do, you know, given the excitement that we see from our clients around adaptive auto acts.

And then we do see given the excitement that we see from our clients around adaptive auto ex.

Speaker 3: And then given some of the excitement from our clients on unique order types that we've been rolling out in our rates platform, we do anticipate higher levels of demand for both automation and algo solutions.

And then given some of the excitement from our clients on unique order types that we've been rolling out and our rates platform, we do anticipate higher levels of demand for both automation and an algo solutions.

Chris Concannon: Finally, I would like to welcome Carlos Hernandez back to our Board of Directors. Throughout his career at JP Morgan, Carlos has been forward thinking about electronic trading and market structure, and we are delighted to have him back on the board.

Speaker 3: in both credit and rates growing in the years ahead. So we're excited to have that kind of technology, that kind of expertise in-house at Market Access as we see just the excitement around our, you know, first ever algo in credit. And obviously, we're seeing levels of demand for algos in rates as well.

In both credit and rates growing in the years ahead. So we're excited to have that kind of technology that kind of expertise in house at a market access as we see just the excitement around our first ever algo and credit and obviously, we're seeing levels of demand for al goes.

Unknown Executive: Now we would be happy to open the line for your questions. As a reminder, if you would like to ask a question, please press star, follow by the number one on your telephone keypad. We ask that you limit yourself to one question and then recue.

Chris Allen: Your first question comes from the line of Chris Allen from City. Please go ahead. Good morning, guys.

In rates as well.

And then on the on the revenue projections, we are still working through as I mentioned earlier, the the budgeting process for 2004, but I called out the quarterly revenue is roughly around 7 million. So.

Speaker 5: And then on the revenue projections, we're still working through, as I mentioned earlier, the budgeting process for 24. But I called out the quarterly revenue is roughly around 7 million. So there is that slight drag when you layer in the intangible amortization expense on the total baked 8.5 million. But I think those two numbers are good numbers used for a run rate with a modest growth rate in each line item.

Chris Concannon: Getting a lot of questions myself, just on kind of the October update, maybe you can help clarify a couple of things. Can you give us some color just in terms of how much of high yield activity is, as the story could be driven by ETFs. And then from a portfolio trading perspective, sounds like you're making nice advancements there, particularly into October. But from an overall industry perspective, how is portfolio trading tracking and what is clearly more volatile environment?

There is that slight drag when you layer in the intangible amortization expense on the eight total baked $8 5 million, but I think those two numbers are.

Are good numbers to use for a run rate with a modest growth rate in each line item.

Got it very helpful. Thank you.

Chris Concannon: Great, and good morning Chris. Thanks for the questions. Just with regard to current activity, I think it's important to look at credit spread volatility. Obviously, we do see higher levels of vex volatility in the market, which has been driving high yield ETF activity. But when it comes to credit spread volatility, it remains fairly unchanged from September, you know, high yield credit volatility is only slightly up. So we're encouraged by the increase in volatility, as I mentioned, a high grade market shares running just slightly above September.

Speaker 1: Your next question comes from the line of Dan Fanon from Jeffree. Please go ahead.

Your next question comes from the line of Dan Fannon from Jefferies. Please go ahead.

Speaker 10: Thanks, good morning. You mentioned several times the ETF market maker being increased in activity. Can you disclose what percentage of volume they have historically been for you? And then more broadly, are you seeing other parts of the market or other participants starting to pick up in terms of activity as well? You've mentioned volatility, you've mentioned ETF market makers. I was curious about the breadth of activity beyond those or more specifics around.

Thanks. Good morning, you mentioned several times, the ETF market maker being increase in activity.

Chris Concannon: Obviously, we have the five remaining days in the month, which is a critical part of the month where volumes do increase. And high yield given that slight increase in volatility is above September. Charles. And then with regards to portfolio trading, you know, we are seeing our clients leveraging portfolio trading as a protocol. We've seen that grow this year, certainly in the lower ball months that we saw in the Q3. We continue to see demand for portfolio trading solutions.

Disclose what percentage of volume they have historically been.

For you and then more broadly are you seeing other parts of the market or other participants starting to pick up in terms of activity as well you mentioned volatility you mentioned ETF market makers Ms curious about the breadth of activity beyond those.

Or more specifics around that sure.

Speaker 3: Sure, Vince. First, ETF market makers make up about 20% to 25%.

Sure.

First.

<unk> market makers make up about 20% to 25% of that volume.

Speaker 3: of that volume. More importantly, we've certainly seen systematic hedge funds that have been entering the credit market, pick up in activity across both high-grade and high-yield, but particularly large presence in the U.S. credit market. The overall activity, while volumes are slightly up.

More importantly, we've certainly seen a systematic hedge funds that had been entering the credit market pickup in activity across both high grade and high yield but particularly.

<unk> presence in the.

The credit market.

The overall activity while volumes are.

Slightly up the overall activity is across all shapes and sizes of firms both large investment managers as well as ETF market makers in the hedge fund community. So we are seeing a pickup.

Speaker 3: The overall activity is across all shapes and sizes of firms both large investment managers as well as ETF market makers and the hedge fund community. So we are seeing a pickup across all

Chris Concannon: And we're continuing to enhance our expro as we roll it out to users. We specifically built expro to target portfolio trading and rolled that out in August. So it's still very early days of our expro for portfolio trading and we're encouraged by where we stand today. And as I mentioned in the month of October, 35% of our global PTs have been on expro. And that's up from just Q3. But again, expro right now is still early days as we roll out additional enhancements. Thanks. Thank you.

Across all all firms we continue to see.

Speaker 3: We continue to see portfolio trading used as a solution across our largest clients. We're seeing more, more international clients.

Portfolio trading used as a solution across our largest clients, we're seeing more and more international clients.

Speaker 3: using portfolio trading solutions as well. So, again, multi-protocol selection is definitely the theme. The other theme that's critically important is our clients are not adding traders.

Using portfolio trading solutions as well so again.

Multi protocol selection is definitely the theme the other theme.

That's critically important is our clients are not adding traders.

Speaker 3: They are consistently asking us to deliver technology solutions that solves workflow efficiencies for them because they are not adding traders. And so all of it, if you look at the theme of what we're rolling out from a technology perspective, it's really allowing traders to do more with less, consistently more with less. And that's the feedback that we're getting from our clients.

They are consistently asking us to deliver technology solutions that solves workflow.

Efficiencies for them because they are not adding traders.

So all of if you look at the theme of what we're rolling out from a technology perspective, it's really allowing traders to do more with less can consistently more with less and that's the feedback that we're getting from our clients.

Patrick Moley: You are next question comes in the line of Patrick Moley from Piper Sandler. Please go ahead. Yeah, good morning. Thanks for taking my question. I just said one on expenses. You mentioned in the guide that eight and a half million of that was related to pragma.

Thank you.

Your next question comes from the line of Brian Bedell from Deutsche Bank. Please go ahead.

Speaker 1: next question comes from the line of Brian Bedell from Deutsche Bank. Please go ahead.

Christopher Gerosa: So just wondering if that is maybe a good quarterly run rate to assume in 24 or whether there could potentially be some opportunity for expense energies or reductions they're going forward. Thanks. Yeah, this is Chris. It's a good run rate for 2024. We're still finalizing the purchase price accounting around that. But the current estimate is roughly one and a half million of that eight and a half million represents the acquired intangible amortization expense.

Speaker 11: Great. Thanks. Good morning. Thanks for taking my question. Let me just, on Expro, if you can talk a little bit about the timing of the rollout. I think I want to say the last data point was 30 or so clients, I believe, are using it, if that's still a valid number, or if you can talk about how you expect that to grow. And then, in terms of the portfolio trading, I think you said 7%.

Great. Thanks, Good morning, Thanks for taking my questions.

Let me just on on X Pro if you could talk a little bit about <unk>.

But the timing of the rollout I think I mentioned in the last data point was of 30 or so clients who are.

Or using it.

If thats still a valid number or.

Or if you can talk about how that how you.

That to grow.

And then in terms of the portfolio trading I think you said, 7% Chris.

Christopher Gerosa: And so I would expect that to be a decent run rate with modest growth consistent with our core growth for planning a 2024 budget. We're still working through our budget process for 24. But in terms of layering on top of your models, I would assume that's a good run rate for you. All right. Thanks for that.

Speaker 11: Chris was the share of trace. And then I missed the comment on October . I knew they increased a lot.

Chris was.

With the share of trace.

And then I missed the comment on October at any of the increased a lot.

Speaker 11: But if you can just talk about, reiterate that and what portion of portfolio trading share you have of that seven percent now and how you expect that to improve from.

But if you could just talk about reiterate that and what portion of portfolio trading.

Sir you have of that 7% now and how you expect that to improve from EXPAREL.

Alex Kram: Your next question comes from the line of Alex Kram from UBS. Please go ahead. Yes. Hey, good morning, everyone. Just following up on the discussion about the operating environment. You made that comment in your September volume release and you've repeated it today that the last week of September was the second best week ever for the company. So maybe you can just remind us what was so good in that week and how that environment has changed so far in October. So we can kind of come here and contrast a little bit here.

Speaker 4: Hey Brian , it's Rich here and you can talk about the X-Pro adoption and it's been going great. We've got it up now over 100 firms active and 180 traders on it.

Yeah, Hey, Brian it's rich here and can talk about the <unk> adoption.

Ben it's been going great.

Got it up now over 100 firms active in 180 traders on it is.

Speaker 4: As Chris noted earlier, we've been focused quite a bit on our most active PT or portfolio trading users because the productivity gains for them are particularly pronounced.

As Chris noted earlier, we have been focused quite a bit on our most active PT for portfolio trading users because the.

The productivity gains for them or a particularly pronounced.

Speaker 4: It's also out there for those doing large lists.

It's also it's also out there for those doing large list.

Speaker 4: Tending to trade with a lot of small trades X-Pro really is outstanding in that way Because it's easier to manipulate large numbers in large list in large portfolios things of that sort so We're going to continue with that emphasis. It's the big push on PT Outer most active users with lots of large numbers of tickets and we expect you know this type of adoption To continue to at this kind of pace, you know not ???odore and such a huge huge being.

Attending to trade with a lot of small trades X pro really is outstanding in that way because it's easier to manipulate large numbers in large list in large portfolios things of that sort so.

Chris Concannon: Sure. Well, obviously we were pretty excited about that last week of September because we were coming off a quarter of fairly low vol and low volumes that the month was, if you recall, you know, a very large new issue month, both in high grade and high yield. And we typically see higher closing monthly month end closing activity with regards to the new issue. So there's a higher level of turnover going into that month end of people repositioning some of that new issue.

We're going to continue with that emphasis it's the big push on PT at our most active users with large numbers of tickets and we expect.

This type of adoption to.

To continue at this kind of pace should be growing pretty rapidly.

Speaker 3: And just on the portfolio trading overall market, obviously 7% of trace for portfolio trading is above historical averages of closer to 5%. So we are seeing higher levels of portfolio trading, but that's typical in lower volatility environments.

On.

The portfolio trading overall market, obviously, 7% of trace for portfolio trading is.

Chris Concannon: Bond activity. So there was that we did see that in September in October. Obviously new issue is slightly lower, but we typically in the last five days of the month, the last four days of the month around month end. See higher levels of volume in the market, but also market access experiences slightly higher market share during those periods as well. And I'll just add that if you go to the market edition slides, you track the VIX and the upper right, the VIX was really suppressed for most of Q3 and we saw that return of volatility at Chris alluded to, which was a good tailwind for the high yield volume coming through the platform and we continue to see that into October and from a credit fee capture perspective, just reminding everybody that high yield is our high highest fee capture product.

Above historical averages of closer to 5%. So we are seeing.

Higher levels of portfolio trading, but that's typical in lower volatility environments.

Speaker 3: We did what I mentioned in my opening remarks, portfolio trading ADV, global portfolio trading ADV for us in October , with up 77% within the, within the, within the motion.

Did what I mentioned in my opening remarks portfolio trading Adv global portfolio trading Adv for us in October was up 77%.

Within within the U S. Our.

Speaker 3: our market shares now just over 20% of the PT market. And then our US portfolio volumes, portfolio trading volumes are up over 20%.

Our market share is now just over 20% of the PT market and then our.

Our U S portfolio volumes portfolio trading volumes are up over 20%.

Speaker 3: from our Q3 level. So we continue to see more penetration. We are, as Rich mentioned, we're leading with the X-Pro platform. It is a convenient tool for a portfolio trader given the number of line items you can manage and all pre-training analytics.

From our Q3 level. So we continue to see.

More penetration we are as rich mentioned, we are leading with the <unk> pro platform. It is a convenient tool for a portfolio trade or given the number of line items, you can manage and the old pre trading analytics that it delivers and then overall on X pro the rollout we're rolling out slow.

Chris Concannon: So the more high yield volume that comes through, it will naturally elevate our fee capture and the bottoms that we experienced in a month of September, where that was trading at roughly 150 per million. And you know what we're seeing so far in a month of October, it's closer to the 155 that we had seen for the entirety of Q3. Excellent, thanks for that color.

Speaker 3: that it delivers. And then overall on XPRO, the rollout, we're rolling out slowly and carefully because there's a great deal of training that we do with traders. We're only at 183 traders of over 10,000 traders. So it's still early days. Only 4% of our credit volume in the U.S. is coming through XPRO today. So still early days.

<unk> and carefully because there's a great deal of training that we do with traders were only at 183 traders of over 10000 trader. So it's still early days only 4% of our credit volume in the U S is coming through X pro today, So still early days one.

Benjamin Budish: Your next question comes from the line of Benjamin Budish from Barclays Capital. Please go ahead. Hi, thanks for taking the question. I wanted to follow up on the prior question on pragma. Chris, you said in your prepared remarks, you think it's going to be a key accelerant of your ability to capture the expanded tab. Who knows if you could expand on that. And then maybe for Chris G, just on terms of modeling for next year, where the revenue is going to be reported and how should we think about sort of the growth rate of the Q3 number you alluded to earlier.

Speaker 3: One important, you know, trend that we've seen.

Important.

Trend that we've seen.

Speaker 3: We've targeted both portfolio traders as well as what we call our power users.

We've targeted both portfolio traders as well as what we call our power users and we've actually among our power users we've seen a 20% increase in volume from those power users when comparing them on the old platform. So it does it does deliver higher efficiencies to the <unk>.

Speaker 3: And we've actually, among our power users, we've seen a 20% increase in volume from those power users.

Speaker 3: when comparing them on the old platform. So it does deliver higher efficiencies.

Benjamin Budish: Thanks. Great. Thanks, Ben. And obviously we're pretty excited about the addition of pragma. We were able to announce and close quite quickly. Pragma is a technology company that's how most people should think about it. So we are enhancing our tech footprint with very new technology and obviously an algodriven solution that pragma brings to us. They have an equity business as well as an FX algo business. So two areas of interest. More importantly, we're helping, they're helping us to enhance our algo offering adaptive auto X, which we launched this year.

Speaker 3: to the individual trader when they are sitting in that trading tool.

Individual trader.

When they are sitting in that in that.

In that trading tool.

Yes, that's great color. Thank you so much.

Thanks.

Speaker 1: Your next question comes from the line of Simon Clinch from Redburn Atlantic, please go ahead.

Your next question comes from the line of Simon claims from Redburn Atlantic. Please go ahead.

Speaker 12: Hi all, thanks for taking my question. I just wanted to take a step back again and just look at the broader environment, and I'll just pop

Hi, Thanks for.

For taking my question.

Of course.

Take a step back again, and just look at the broader environment and I was just wondering over the.

Speaker 12: the idea of the credit spread volatility being low. But when you look at historically, it looks like it's actually low quite a lot of the time and you get these periods of significant spike. And given that, auto-altrading really delivers its value during those periods of elevated credit spread volatility, I was just wondering if there, how you think about the progression of auto-altrading and open trading penetrates.

The idea of the credit spread volatility being low, but when you look back historically it looks like it's actually.

Quite a lot of the time and you get these periods of significant spike and given that <unk> trading really delivers its value during those periods of elevated credit spread volatility I was just wondering if there.

Benjamin Budish: So that technology is quite helpful. The other piece of pragma that we are exploring, we find could be synergistic is their EMS functionality. They have an EMS platform that they license to the NYC and it's quite attractive across multi-assets solutions. So we are looking to leverage that EMS platform as well. And then we do see, you know, given the excitement that we see from our clients around adaptive auto X and then given some of the excitement from our clients on unique order types that we've been rolling out in our rates platform.

How you think about the progression of <unk>.

Total trading in open trading penetration and where the portfolio trading because volatility tends to be below average for more of a time, where the portfolio trading could actually be quite a bit larger than 7%.

Speaker 12: And whether portfolio trading because volatility tends to be below average for more of the time, whether portfolio trading could actually be quite a bit larger than 7%.

Volumes that we see today.

Speaker 3: Sure, great question. Well, first when it comes to all to all trading and open trading, there's a very important dynamic called the network effect that open trading delivers.

Sure Great question.

First when it come to all to all trading.

Open trading there is a very important dynamic called the network effect that open trading delivers.

Speaker 3: And we are seeing alternative liquidity providers entering the market globally across U.S. credit.

And we are seeing alternative liquidity providers entering the market globally across U S credit.

Benjamin Budish: We do anticipate higher levels of demand for both automation and algo solutions in both credit and rates growing in the years ahead. So we're excited to have that kind of technology, that kind of expertise in-house market access as we see just the excitement around our, you know, first ever algo in credit and obviously we're seeing levels of demand for algos in rates as well.

Speaker 3: Eurobonds as well as EM. So we continue to see new alternative liquidity providers entering the market. We also, if you think about

Euro bonds as well as <unk>.

So we continue to see.

New alternative liquidity providers entering the market. We also if you think about the dynamics and the enhancements that we're adding to our marketplace, we're allowing our clients to be providers of liquidity adaptive auto ex our algo solution and a key ingredient to that is allowing clients to quietly.

Speaker 3: The dynamics and the enhancements that we're adding to our marketplace.

Speaker 3: We're allowing our clients to be providers of liquidity. Adaptive AutoX, our Algo solution, and a key ingredient to that is allowing clients to quietly enter the market, both on the passive side, meaning being a liquidity provider, as well as on the aggressive side.

Christopher Gerosa: And then on the revenue projections, we were still working through, as I mentioned earlier, the budgeting process for 24, but I called out the quarterly revenue is roughly around 7 million. So there is that slight drag when you layer in the intangible amortization expense on the 8 total bait, 8.5 million, but I think those two numbers are good numbers used for a run rate with the modest growth rate in each line item. God, it's very helpful. Thank you.

Enter the market both on the passive side, meaning being a liquidity provider as well as on the aggressive side. So we are growing the all to all networks across all our products. So you can't look at it as a static offering today it continues to expand.

Speaker 3: So we are growing the all-to-all network across all our products.

Speaker 3: So you can't look at it as a static offering today. It continues to expand globally. It does have spikes of activity during higher vol, obviously, and those, we have seen those in the past. The one other important thing to mention.

Globally. It does have spikes of activity during higher vol. Obviously.

And those we have seen those in the past.

The one other important thing to mention.

Dan Fannon: Your next question comes from the line of Dan Fannon from Jeffrey, please go ahead. Thanks.

Speaker 3: when we're thinking out longer term, the regulatory landscape is constantly changing. And right now, we continue to hear from regulators globally.

When we're thinking out longer term the regulatory landscape is constantly changing and right now we continue to hear from regulators globally.

Dan Fannon: Good morning. You mentioned several times the ETF market maker being increased in activity. Can you disclose what percentage of volume they have historically been for you? And then more broadly, are you seeing other parts of the market? Or are there participants starting to pick up in terms of activity as well? You mentioned volatility, you mentioned ETF market makers, but it's curious about the breadth of activity beyond those or more specifics around that.

Speaker 3: on enhancing bank capital rules, and those proposals that are out there are tightening bank capital rules, and we heard from one very large bank recently in their earnings call.

On enhancing bank capital rules and those proposals that are out there are tightening bank capital rules and we heard from one very large bank recently in their earnings call mentioned that it could tightened capital rules by as much as 20%, which would obviously in.

Speaker 3: mention that it could tighten capital rules by as much as 20 percent, which would obviously impact dealer liquidity.

Packed dealer liquidity in the U S in credit globally, and so those the importance of alternative liquidity solutions will gain over time, if those bank capital rules continue to tighten rich.

Speaker 3: in the U.S. in credit globally.

Dan Fannon: Sure, then. First, our ETF market makers make up about 20 to 25% of that volume. More importantly, we've certainly seen systematic hedge funds that have been entering the credit market pick up in activity across both high grade and high yield, but particularly large presence in the credit market. Overall, activity while volumes are slightly up, the overall activity is across all shapes and sizes of firms, both large investment managers, as well as ETF market makers and the hedge fund community.

Speaker 3: And so the importance of alternative liquidity solutions will gain over time if those bank capital rules continue to tighten.

Speaker 4: Rich, do you want to add? Yes, yes. Some, I was just going to add to that. You know, it's about two things that our clients are looking for. You know, and what PT delivers in particular is workflow efficiencies. And it's quite similar to the, to the,

Richard.

So I was just can add to that.

It's about two things that are that our clients are looking forward.

And what <unk> delivers in particular is workflow efficiencies and it is quite similar to the to the.

Speaker 4: Workflow gains that came when Lish Trading was first introduced over 20 years ago. It's much easier to do that collection of bonds all at one time. And now add to that the guaranteed execution that typically comes with a PT to have it all done in one shot. What is missing is the other part that the investor clients are typically looking for, which is execution cost reduction.

Workflow gains that came win win list trading was first introduced over 20 years ago, it's much easier to do that that collection of bonds. All at one time and now add to that the guaranteed execution that typically comes.

With the PT to have it all done in one shot what is missing is the other part that the investor clients are typically looking for which is execution cost reduction and getting and getting high quality.

Dan Fannon: So we are seeing a pickup across all firms. We continue to see portfolio trading used as a solution across our largest clients. We're seeing more and more international clients using portfolio trading solutions as well. So again, multi-protocol selection is definitely the theme. The other theme that's critically important is our clients are not adding traders. They are consistently asking us to deliver technology solutions that solves workflow efficiencies for them because they are not adding traders.

Speaker 4: and getting high quality execution from that. That's where the open trading comes in, and it is on us.

Execution from that Thats, where the open trading comes in.

And.

It is on it is on us to work and come up with the solutions that combine those two things.

Speaker 4: to work and come up with the solutions that combine those two things.

Speaker 4: you know, just having PT, which works great in the low volatility environment, but when the market gets a lot shopier, it becomes a much more expensive trade. And we know that our clients are looking for both of those characteristics, you know, from us. So the focus is on trying to deliver both of those things simultaneously. And with that, we think that's going to, you know, build our business and grow our market share.

Just just having PT, which works great in a low volatility environment, but when the market gets a lot shop here it becomes a much more expensive to trade and we know that our clients are looking for both of those characteristics.

From us so the focus is on trying to deliver both of those things simultaneously.

Dan Fannon: So if you look at the theme of what we're rolling out from a technology perspective, it's really allowing traders to do more with less consistently more with less, and that's the feedback that we're getting from our clients.

With that we think thats going to.

Build our business and grow our market share.

Great I appreciate that answer thank you.

Unknown Executive: Thank you.

Your next question comes from the line of Kyle Voigt from <unk> W. <unk>. Please go ahead.

Speaker 1: Your next question comes from the line of Kyle Voight from KBW. Please go ahead.

Brian Bedell: Your next question comes from the line of Brian Bedell from Deutsche Bank. Please go ahead. Great. Thanks. Good morning. Thanks for taking my question. Let me just on on XPro.

Speaker 13: Hi, good morning. I'm going to try to squeeze in a two-part question on price.

Hi, good morning.

I'm going to try to squeeze in a two part question on pricing.

Speaker 13: Historically there hasn't been much or any transaction pricing pressure in the

Historically, there hasn't been much or any transaction pricing pressure in the industry and.

Rich Schiffman: If you can talk a little bit about the timing of the rollout, I think I want to say the last data point was 30 or so clients, I believe, are using it. If that's still a valid number, or if you can talk about how you expect that to grow. And then in terms of the portfolio trading, I think it fits 7%, Chris was the share of trace. And then I missed the comment on October.

Speaker 13: It seems like there's still a really wide and unique moat around open trading due to your liquidity pool and that network effect you just mentioned.

And it seems like there is still a really wide and unique moat around open trading due to the two year liquidity pool in that network effect you just mentioned in the prior question.

Speaker 13: But with respect to protocols where there may be somewhat less differentiation on liquidity, is pricing becoming even a small part of client decisions on where to trade for protocols like PT or standard RFQ?

With respect to protocols, where there may be somewhat less differentiation on liquidity.

Is pricing, becoming even a small part of client decisions on where to trade for protocols like PT or standard RF <unk> trading. So that's the first part of the question. The second part of that question is really hasnt.

Speaker 13: Second part of that question is really has to do with, do you think any of your clients are becoming sophisticated enough to RFQ out to all platforms where pricing may be already impacting where they execute orders?

It has to do with do you think any of your clients are becoming sophisticated enough to RF <unk> out to all platforms, where our pricing may be already impacting where they execute orders if the copper price the same across those platforms.

Great.

Speaker 3: Great. On pricing, obviously, we don't see a lot of pricing pressure across our market globally.

Rich Schiffman: I know they increased a lot. But if you can just talk about reiterate that, and what portion of portfolio trading share you have of that 7% now and how you expect that to improve from. Hey Brian, it's Rich here and you can talk about the X-Pro adoption and it's been it's been going great we've got it up now over a hundred firms active and 180 traders on it as Chris noted earlier we've been focused quite a bit on our most active PT or portfolio trading users because the productivity gains for them are particularly pronounced.

On pricing obviously.

We don't see a lot of pricing pressure across.

Our market globally in.

Speaker 3: In fact, we've seen competitors like Bloomberg introducing pricing.

In fact, we've seen competitors, Mike Bloomberg introducing pricing.

Speaker 3: uh... where they were free in in the past so we have seen

Were they were free in the past so we have seen a unique price increases across the competitive landscape in certain protocols.

Speaker 3: unique price increases across the competitive landscape.

Speaker 3: in certain protocols, pricing.

Pricing as you mentioned certain protocols that are more workflow functionality and less unique liquidity that youre, bringing together.

Speaker 3: As you mentioned, certain protocols that are more workflow functionality and less unique to the liquidity that you're bringing together. We've seen fairly static pricing, so we haven't seen price competition hit there. Again, clients, if you think about this universe we operate in, it's largely a dealer pay model, so the clients are less price sensitive.

Rich Schiffman: It's also it's all also out there for those doing large lists you know tending to trade with a lot of small trades X-Pro really is outstanding in that way because it's easier to manipulate large numbers in large list in large portfolios things of that sort. So we're going to continue with that emphasis it's the big push on PT at our most active users with lots of large numbers of tickets and we expect you know the type of adoption to continue to at this kind of pace you know it should be growing pretty rapidly.

We've seen fairly static pricing. So we haven't seen price competition hit there again clients. If you think about this this universe, we operate in it's largely a dealer pay model. So the clients are less price sensitive.

Speaker 3: and more focused on workflow solution, ultimately getting execution at higher levels, better pricing, better liquidity. We do not see.

And more focused on workflow solution ultimately getting execution.

At higher levels better pricing better liquidity.

We do not see clients.

Speaker 3: RFQing across multiple platforms with the same RFQ, in fact, that's problematic. And we, if we see that type of behavior, we obviously need to control for that behavior because it creates a really a request for

Rich Schiffman: And just on the the portfolio trading overall market obviously 7% of trace for portfolio trading is above historical averages of closer to 5% so we are seeing higher levels of portfolio trading but that's typical in lower volatility environment as well. We did what I mentioned in my opening remarks portfolio trading ADV global portfolio trading ADV for us in October with up 77% within within the U.S, our market shares now just over 20% of the PT market and then our U.S, portfolio volumes portfolio trading volumes are up over 20% from our Q3 level so we continue to see more penetration we are as rich mentioned we're leading with the X-Pro platform it is a convenient tool for a portfolio trader given the number of line items you can manage and all pre trading analytics that it delivers and then overall on X-Pro the rollout we're rolling out slowly and carefully because there's a great deal of training that we do with traders we're only at 183 traders of over 10,000 traders so it's still early days only 4% of our credit volume in the U.S, is coming through X-Pro today so still early days.

RF queuing across multiple platforms with the same RF Q in fact, that's problematic and we if we see that type of behavior, we obviously need to control for that behavior because it creates.

Really a request for a price that ultimately fails on one platform and is not honored so we do regulate that we are we do pay attention to that.

Speaker 4: that ultimately fails on one platform uh... and it's not on her to read we do regulate that we are uh... we do pay attention to that and i think our clients have been quite professional that that type of behavior rich anything that yeah he could uh... he could just add to christ's comments on the on the uh... fees and and things that come up there

Rich Schiffman: One important trend that we've seen are hard you know we've targeted both portfolio traders as well as what we call our power users and we've actually among our power users we've seen a 20% increase in volume from those power users when comparing them on the old platform so it does it does deliver higher efficiencies to the individual trader when they are sitting in that in that in that trading tool.

Our clients have been quite professional about that type of behavior.

Rich anything to add yes.

Kyle just to add to Chris's comments on the on the fees and things that come up there.

Speaker 4: You know, we price our service commensurate with the value that's delivered.

We price our service commensurate with the value that's delivered with it and Youre aware of that and the fee schedule. There is.

Speaker 4: with it. And you know, you're aware of that in the fee schedule. There's, you know, for, uh, for example, high yield, where, where it's, you know, three to six cents or open trading, where we have our highest fees that we're charging, where we think we're delivering the, the most value to our, to our clients.

For example high yield.

It's 3% to <unk> open trading where we have our highest fees that were charging where we think we are delivering the most value to our to our clients.

Speaker 4: The individual performance through what we call price improvement from open trading that comes, you know, right now we're at lows where it's just shy of two basis points in high grade and it's about 28 cents in the last quarter in high yields.

The individual.

Performance through what we call price improvement from open trading that comes right now we're at Lowe's, where it's just shy of two basis points in high grade and it's about 2008.

In the last quarter and in high yield.

Speaker 4: Those price improvements or execution cost savings, that's net of the fees that we charge. So when it comes to the decision for where someone's going to trade, where you can get that type of performance.

Those price improvements or execution cost savings that's net of the fees that we charge. So when it comes to the decision for where someone's going to trade, where you can get that type of performance.

Speaker 4: additional, you know, quality of execution, net of the fees that we're charging, it's a pretty easy decision about where to spend the inquiries. If there's a competing platform where the actual transaction fee is a little bit smaller, we're talking about tenths of a basis point or, you know, a couple of cents, you know, compared to the performance that gets delivered when open trading wins.

Additional.

Quality of execution net of the fees that we're charging it's a pretty easy decision about where to send the inquiries to if there is a competing platform where the actual transaction fee is a little bit smaller we're talking about tenths of a basis 0.2 or four.

A couple of cents.

Compared to the performance that gets delivered with open trading wins and as I noted before we are the largest liquidity provider.

Speaker 4: And as I noted before, we're the largest liquidity provider.

Speaker 4: on the platform in these products, then the decision is pretty straightforward for the investors. And that's a message that we're continually reminding our clients about.

On the platform and these products then the decision is pretty straightforward for the investors and Thats a message that we're continually.

Brian Bedell: That's great color thank you so much.

Simon Clinch: Here next question comes from the line of Simon Clinch for Redburn Atlantic. Please go ahead. Hi, or thanks for asking to take my question. I wanted to take a step back again and just look at the broader environment and I was just pondering over the idea of the credit spread volatility being low, but when you look at historically it looks like it's actually low quite a lot of the time and you get these periods of significant spike and given that all tall trading really delivers its value during those periods of elevated credit spread volatility.

Reminding our clients about.

Very thorough thank you very much.

Speaker 1: Your next question comes from the line of Michael Cyrus.

Your next question comes from the line of Michael Cyrus Cypress.

Cyprus from Morgan Stanley. Please go ahead.

Speaker 7: from Morgan Stanley . Please go ahead. Great. Thank you. Good morning. I wanted to ask on portfolio trading. You guys continue to show momentum there, growing volumes meaningfully. I was hoping you might be able to unpack how much of the portfolio trading volume is coming across in IG versus in high yield, any notable differences that you're seeing. And as you look out, is there one area where you see a bigger opportunity with portfolio?

Great. Thank you good morning, I wanted to ask on portfolio trading you guys continue to show momentum there growing volumes meaningfully I was hoping you might be able to unpack how much of the portfolio trading volume is coming across.

Versus in high yield any notable differences that youre seeing and as you look out is there one area, where you see a bigger opportunity with Sop portfolio trading.

Simon Clinch: I was just wondering if there if there's, you know, how you think about the progression of all tall trading and open trading penetration and whether portfolio trading because volatility tends to be below average for more of the time whether portfolio trading could actually be quite a bit larger than 7% of the volumes that we see today. Sure, great question. Well, first when it comes to all tall trading and open trading, there's a very important dynamic called the network effect at open trading delivers and we are seeing alternative liquidity providers entering the market globally across US credit, Euro bonds as well as EM.

Speaker 3: Sure, first of all, we're seeing growing demand for portfolio trading, it's such a convenient workflow solution, particularly when our clients are getting large inflows, it's obviously a very easy way to get exposure quite quickly. The other method that we have seen clients use

Sure first of all we're seeing.

Growing demand for portfolio trading.

Such a convenient workflow solution, particularly when our clients are getting large inflows.

Obviously, a very easy way to get exposure quite quickly. The other method that we have seen clients use or just using outright fixed income etfs to get that exposure and then unwinding, the ETF and going into the underlying.

Speaker 3: are just using outright fixed income ETFs to get that exposure and then unwinding the ETF and going into the underlying.

Speaker 3: We do see portfolio trading globally, as I mentioned, we're seeing some of our global clients using portfolio trading and many times they're trading a global list, not just a U.S. high grade or U.S. high yield credit list.

We do see portfolio trading globally.

As I mentioned, we're seeing some of our global clients using portfolio trading and many times, they're trading a global list not just a U S.

Simon Clinch: So we continue to see new alternative liquidity providers entering the market. We also, if you think about the dynamics and the enhancements that we're adding to our marketplace, we're allowing our clients to be providers of liquidity adaptive auto ex or algo solution and a key ingredient to that is allowing clients to quietly enter the market both on the passive side, meaning being a liquidity provider. So we are growing the all to all networks across all our products.

High grade our U S high yield.

Credit list, so we do see that debt offering growing over over time.

Speaker 3: that offering growing over time. And obviously, the tools that our clients are using. Remember, when this portfolio trading was born.

And obviously the the tools that our clients are using remember this when this portfolio trading was born.

Speaker 3: uh... it was born on excel spreadsheet so we've come a long way uh... the real uh... we think the real solution

It was born on Excel spreadsheets, so we've come a long way.

The real we think the real solution that our clients now are looking for is once they think they have a portfolio trade. So either they are buying a very large.

Speaker 3: that our clients now are looking for is once they think they have a portfolio trade. So either they're buying a very large

Simon Clinch: So you can't look at it as a static offering today. It continues to expand globally. It does have spikes of activity during higher wall, obviously, and those we have seen those in the past. The one other important thing to mention when we're thinking out longer term, the regulatory landscape is constantly changing. And right now we continue to hear from regularly un-enhancing bank capital rules and those proposals that are out there are tightening bank capital rules.

Speaker 3: Portfolio where they're selling a portfolio or they're switching

Our portfolio or they are selling a portfolio or are there.

Witching, they need to optimize that portfolio once they construct it meaning they can impact the price of the portfolio by picking certain bonds in the portfolio deselecting or adding a bar.

Speaker 3: They need to optimize that portfolio once they construct it, meaning they can truly impact the price of the portfolio by picking certain bonds in the portfolio, deselecting or adding bonds. And our tool helps them with that portfolio construction. And it does, in fact, optimize their pricing, which is quite helpful. And it's really the pretrained analytics that drives that portfolio construction and that bond selection once you loan the overall portfolio trade that you intend on using.

<unk> and our tool helps them with that portfolio construction and it does in fact optimize their pricing, which is quite helpful. And it's really the pre trade analytics that drives that portfolio construction and that bond selection. Once you lowered the overall portfolio trade that you.

Simon Clinch: And we heard from one very large bank recently in their earnings call mentioned that it could tighten capital rules by as much as 20%, which would obviously impact dealer liquidity in the US in credit globally. And so the importance of alternative liquidity solutions will gain over time if those bank capital rules continue to tighten. Rich, do you want to? Yes, I'm just going to add to that. It's about two things that our clients are looking for.

You intend on unused Inc.

Speaker 3: But to answer your question, the PT volumes.

But to answer your question the PT volumes.

Speaker 3: It's largely weighted towards investment grade with about 70% in investment grade and only about 15% in high yield. And many times we see portfolios that cross both high grade and high yield. We would expect to see growing portfolios.

It's largely weighted towards investment grade with about 70% in investment grade and only about 15% in high yield and many times, we see portfolios across both high grade and high yield.

We would expect to see growing portfolios.

Speaker 3: in Europe and in Asia as well, again using EM or across global bond less as well. And that's that's an offering that we've recently put out our global PT offering Because traders were asking for really a global list of bonds to trade as a portfolio

In Europe, and in Asia, as well again using.

M or across global bond less as well and that's that's an offering that we recently put out our global PT offering because traders who are asking for really a global list of bonds to trade as a portfolio.

Simon Clinch: And what PT delivers in particular is workflow efficiencies. And it's quite similar to the workflow gains that came when when list trading was first introduced over 20 years ago. It's much easier to do that collection of bonds all at one time. And now add to that the guaranteed execution that typically comes with a PT to have it all done in one shot. What is missing is the other part that the investor clients are typically looking for which is execution cost reduction and getting and getting high quality execution from that.

Alright, thanks, so much.

Your next question comes from the line of Alex Blaustein from Goldman Sachs. Please go ahead.

Speaker 1: Your next question comes from the line of Alex Blowstein from Goldman Sachs. Please go in.

Speaker 9: Hey, good morning, thanks for taking the question. I wanted to ask you guys a question around just the expense management philosophy and margin trajectory. When you look at the revenue backdrop, obviously it's been challenging. Chris, you mentioned you guys have been disappointed with how U.S. credit has performed and part of that is environmental, part of it is, I guess, the mix. But as you look at the expense growth, I think you suggested 8% core expense growth in 2023, X kind of some of the deal noise. Is that sort of the appropriate run rate for the business if revenue growth, you know, will improve maybe somewhat, but doesn't necessarily get back to the levels it used to be and are there levers you could pull to get the company back to positive operating leverage or that's really just gonna be a function of mostly revenues and less.

Hey, good morning, Thanks for taking the question I wanted to ask you guys. A question around just the expense management philosophy and margin trajectory. When you look at the revenue backdrop, obviously has been challenged and Chris you mentioned you guys have been disappointed with how U S. Credit has performed and part of that environmental part of it is I guess the mix, but as you look at the expense growth I think you suggested 8% core expense.

Simon Clinch: That's where the open trading comes in. And it is on us, to work and come up with the solutions that combine those two things. Just having TT, which works great in the low volatility environment, but when the market gets a lot shopier, it becomes a much more expensive trait. And we know that our clients are looking for both of those characteristics from us. So, the focus is on trying to deliver both of those things simultaneously. And with that, we think that's going to, you know, build our business and grow our market share. Great. Appreciate that.

Simon Clinch: Also, thank you.

Growth in 2023 ex kind of some of the deal noise is that sort of the appropriate run rate for the business if revenue growth.

We will improve maybe somewhat but it doesn't necessarily get back to the levels I E.

Used to be and other levers you can pull to get the company back to positive operating leverage or that's really just going to be a function of mostly revenues and lessor on expenses.

Speaker 5: Yes, Alex, as you know, we've made a lot of investments over the last three years, Chris alluded to the number of M&A activity which contributed to the elevated levels of acquired and tangible.

Yeah, So Alex.

As you know we've made a lot of investments over the last three years, our Chris alluded to the number of M&A activity, which contributed to the elevated levels of acquired intangibles.

Kyle Voigt: Your next question comes from the line of Kyle Voigt from KBW. Please go ahead. Hi, good morning.

Speaker 5: uh... amortization expense of that provides for a little bit of noise and we built the teams out where it's all come together this year from uh... a core perspective where we're rolling out x-pro rolling out the final

Amortization expense, so that provides for a little bit of noise and we built the teams out where it's all come together this year from a core perspective, where we're rolling out X Pro we're rolling out the final suite of our automation tools with the adaptive auto ex solution, So where we stand today, we're thinking of.

Kyle Voigt: I'm going to try to squeeze in a two part question on pricing. Historically, there hasn't been much or any transaction pricing pressure in the industry. And it seems like they're still really wide and unique mode around open trading due to your liquidity pool and that network effect you just mentioned in the prior question. But with respect to protocols where there may be somewhat less differentiation on liquidity, is pricing becoming even a small part of client decisions on where to trade for protocols like PT or standard RFQ trading.

Speaker 5: suite of our automation tools with the adaptive auto-exolutions. So where we stand today, we're thinking of

Speaker 5: The future is that high single-digit expense growth rate for the core business.

The future is that high single digit expense growth rate for.

For the core business are recognizing that at roughly 17% to 18% of our operating expenses are variable and we've experienced some savings due to the underperformance that we've seen this year, where our variable expenses were more or less down and roughly $12 million to $13 million.

Speaker 5: Recognizing that roughly 17% to 18% of our operating expenses are variable and we've experienced some savings due to the underperformance that we've seen this year where our variable expenses were more or less down to roughly $12 to $13 million.

Kyle Voigt: That's first part of the question. Second part of that question is really has to do with do you think any of your clients are becoming sophisticated enough to RFQ out to all platforms where pricing may be already impacting where they execute orders if they cover price the same across those platforms. Great. On pricing, obviously, we don't see a lot of pricing pressure across our market globally. In fact, we've seen competitors like Bloomberg introducing pricing where they were free in the past.

Speaker 5: from what we were planning for in the beginning of the year. And that more or less was offset by the $12.5 million of M&A-related expenses. So I would say that the levers are built into the model through the variable expenses. But as we think about our expense philosophically internally, we're redirecting and reallocating resources.

From what we were planning for in the beginning of the year and that more or less was offset by the $12 $5 million of M&A related expenses. So I would say that the the livers are built into the model through the variable expenses, but as we think about our expense philosophy internally, we're redirecting and reallocating resources.

Speaker 5: to the top priorities where we think we're going to get near-term revenue growth prospects.

Two the top priorities, where we think we're going to get near term revenue growth prospects.

Speaker 3: And Alex, I would just mention, we're laser focused on expenses right now. We're also in a critical period for the company where we are introducing new technology across our tech stack.

And Alex I would just mentioned we are laser focused on expenses right now.

We're also in a critical period for the company, where we are.

Kyle Voigt: So we have seen a unique price increases across the competitive landscape. In certain protocols pricing, as you mentioned, certain protocols that are more workflow functionality and less unique to the liquidity that you're bringing together. We've seen fairly static pricing. So we haven't seen price competition hit there. Again, clients, if you think about this, this universe, we operate in, it's largely a dealer pay model. So the clients are less price sensitive and more focused on workflow solution, ultimately getting execution at higher levels, better pricing, better liquidity.

We are introducing new technology across our tech stack.

Speaker 3: so that requires higher levels of investment. That's what we've been doing. So when you look at that expense growth, we are covering both the legacy platform and the new platform at the same time. And obviously acquisitions like Pragma enhance that technology footprint as well. So, but these models are designed.

That requires <unk>.

Higher levels of investment and that's what we've been doing so when you look at that expense growth. We are covering both the legacy platform and the new platform at the same time, and obviously acquisitions like pragma enhanced that technology footprint as well so but these models are designed to be highly leveraged.

Speaker 3: to be highly leveraged, and I think, Alex, you cover a number of companies that have great operating leverage in their system, and we look to grow that over time. One important point is that market data revenue, remember, data is just an output. It doesn't really cost anything more to produce.

And I think Alex you cover a number of companies that.

Great.

Operating leverage in their system, and we look to grow that over time one.

One important point is that market data revenue remember data is just an output it doesn't really cost anything more to produce other than the sophistication of the data that you are producing and we see that data our market data as you saw in the quarter grew over 20% and that that will help us grow our <unk>.

Kyle Voigt: We do not see clients RFQing across multiple platforms with the same RFQ. In fact, that's problematic. If we see that type of behavior, we obviously need to control for that behavior because it creates really a request for price that ultimately fails on one platform and is not honored. So we do regulate that. We do pay attention to that. And I think our clients have been quite professional about that type of behavior.

Speaker 3: other than the sophistication of the data that you're producing.

Speaker 3: And we see that data, our market data, as you saw in the quarter, grew over 20%. And that will help us grow our operating margin.

Operating margin.

Speaker 3: as that data revenue piece continues to grow. And again, the data that we're rolling out now on X-Pro is not data for sale today, but could be for sale in the future. It's really designed to grow our...

Data revenue piece continues to grow and again the data that we're we're rolling out now on X pro is not data for sale today, but could be for sale in the future. It's really designed to grow our market share across the various products that we are.

Kyle Voigt: Rich, anything to add? Yeah. Hey, Kyle, I just add to Chris's comments on the fees and things that come up there. We price our service, commensurate with the value that's delivered with it. And you're aware that in the fee schedule, for example, high yield, where it's three to six cents or open trading, where we have our highest fees that we're charging, where we think we're delivering the most value to our clients.

Speaker 3: our market share across the various products that we are trading. And so we're going to be leveraging that data as a way to collect orders.

Trading and so we're going to be leveraging that data as a way to collect orders in the bond market and over time, we will be able to leverage that data into hard dollars as well.

Speaker 3: in the bond market and over time we'll be able to leverage that data into hard dollars as well.

Got it thanks for that.

Yeah.

Speaker 1: Your next question comes from the line of Patrick O'Shaaganesi from Raymond James. Please go ahead.

Your next question comes from the line of Patrick O'shaughnessy from Raymond James. Please go ahead.

Kyle Voigt: The individual performance, what we call price improvement from open trading that comes right now, we're at lows, where it's just shy at two basis points in high grade and it's about 28 cents in the last quarter in high yield, because those price improvements or execution cost savings, that's net of the fees that we charge. So when it comes to the decision for where someone's going to trade, where you can get that type of performance, additional quality of execution, net of the fees that we're charging, it's a pretty easy decision about where to spend the inquiries.

Good morning.

Speaker 14: Good morning. With the innovations that you've been speaking to today, potentially allow market access to better penetrate the bull trade market.

And Ah patients that you've been speaking to today potentially allow market access to better penetrate the trade market.

Speaker 14: I'm sorry Patrick you broke up a little bit most the last part of that question Which of the You've just about help you better penetrate the block trade marks

I am sorry, Patrick you broke up a little bit was the last part of that question.

Okay.

It's about help you better penetrate the block trade market.

Speaker 3: Oh, okay, block trade. So first, in EM, particularly around our local market growth.

Catherine.

<unk> so first.

In particular.

Around our local market growth.

Speaker 3: We are seeing higher levels of block activity. We have been growing our block market share there. We have rolled out a request for a market, which is an important protocol that a number of clients have requested. That tends to introduce the opportunity for a higher block activity. And then with the rollout of our ex pro platform,

We are seeing higher levels of AV block activity, we have been growing our block market share there.

We have rolled out a request for a market, which is an important.

Kyle Voigt: If there's a competing platform where the actual transaction fee is a little bit smaller, we're talking about tenths of a basis point or a couple of cents, compared to the performance that gets delivered when open trading wins. And as I noted before, we're the largest liquidity provider on the platform in these products. Then the decision is pretty straightforward for the investors. And that's a message that we're continually reminding our clients about.

Protocol that a number of clients have requested that tends to introduce the opportunity for our higher blocks block activity.

And then with the rollout of our <unk> pro platform.

Speaker 3: We are introducing what we call high-touch solutions in November in this quarter, in the fourth quarter. And obviously hopefully see an uptake in 2024, but that high-touch offering is really designed to attract larger water sizes.

We are introducing what we call high touch solutions in in November in this quarter in the fourth quarter, and obviously hopefully see an uptake in 2024, but that high touch offering is really designed to attract larger order sizes that knee.

Kyle Voigt: Very thorough. Thank you very much.

Speaker 3: that need to use pretrait analytics to decide on protocol selection. One key ingredient to that is our AI dealer select data, which helps you.

Need to use pre trade analytics to decide on protocol selection, one key ingredient to that is our AI dealers select data, which helps you select one.

Michael Cyprys: Your next question comes from the line of Michael Cyrus Cypress from Morgan Stanley. Please go ahead. Great. Thank you. Good morning.

Speaker 3: one to however many dealers you would choose. When you're managing a larger size order, you obviously want to reduce the market impact and the information leakage of that order. So our new offering in XPRO would help you decide.

<unk>.

However, many dealers you would choose when you're managing a larger size order you obviously want to.

Michael Cyprys: What's the ask on portfolio trading? You guys continue to show momentum there. Growing volume is meaningfully. I was hoping you might be able to unpack how much of the portfolio trading volume is coming across in IG versus in high yield. Any notable differences that you're seeing.

Reduce the market impact and the information leakage of that order. So are our new offering in X Pro would help you decide number one what protocol as their levels of liquidity using things like trade ability to go into an all to all market, where you're requesting price from the entire market.

Speaker 3: Number one, what protocol can is this, is there levels of liquidity using things like tradability?

Chris Concannon: And as you look out, is there one area where you see a bigger opportunity with portfolio trading? Sure. First of all, we're seeing growing demand for portfolio trading. It's such a convenient workflow solution, particularly when our clients are getting large inflows. It's obviously a very easy way to get exposure quite quickly. The other method that we have seen clients use are just using outright fixed income ETFs to get that exposure and then unwinding ETF and going into the underlying.

Speaker 3: to go into an all-to-all market where you're requesting price from the entire market.

Chris Concannon: We do see portfolio trading globally. As I mentioned, we're seeing some of our global clients using portfolio trading. And many times they're trading a global list, not just a U.S, high-grade or U.S, high-yield credit list. So we do see that offering growing over time. And obviously the tools that our clients are using.

Speaker 3: Or if you're looking at lower levels of tradability, you may want to use a number of dealers, discrete dealers. And then if you choose to only use dealers, you would want to know which dealers you should select from. So that offering is really targeted to launch in November , but really hopeful to see it on client desktops across the first quarter of 2020.

Or if you're looking at lower levels of trade ability you may want to use.

Number of dealers discrete dealers and then.

If you choose to only use dealers you would want to know which dealers you should select from so that offering is really targeted.

Our launch in November, but really hopeful to see it on client desktops across the first quarter of 'twenty four.

Speaker 4: Hey Patrick, it's rich and you know one other thing we were talking about adaptive and adaptive auto-ex and it's you know against still early days just coming out of the pilot phase but even from the small number of clients that we have in this initial phase we're seeing larger orders coming from it.

Hey, Patrick it's rich and one other thing we were talking about adaptive an adaptive auto ex.

Again still early days, just coming out of the pilot phase.

But even from the small number of clients that we have in this initial phase, we're seeing larger orders coming from it so.

Speaker 4: So remember, it gives the ability to tap into the different protocols that we have available. A common type of operation in the algo is to leave part of a block order resting in the

Remember it gives the ability to tap into the different protocols that we have available so a common type of.

The operation and the Algo has to leave part of our block order resting in the order book and then when other parties engage being able to then work that order up to a larger size that gets completed we call that multi party work up.

Speaker 4: And then when other parties engage, being able to then work that order up to a larger size that gets completed, we call that multi-party workup.

Chris Concannon: Remember, when this portfolio trading was born, it was born on Excel spreadsheet. So we've come a long way. The real solution that our clients now are looking for is once they think they have a portfolio trade. So either they're buying a very large portfolio or they're selling a portfolio or they're switching, they need to optimize that portfolio once they construct it. Meaning they can truly impact the price of the portfolio by picking certain bonds in the portfolio, deselecting or adding bonds.

Speaker 4: And we've seen some really encouraging early examples of that being used, where the initial trade starts out at $500 or $1 million or a couple of million. And we've had cases where it gets worked up to $15 or $20 million. And that's all done quietly, without.

Chris Concannon: And our tool helps them with that portfolio construction. And it does in fact optimize their pricing, which is quite helpful. And it's really the pre-trade analytics that drives that portfolio construction and that bond selection once you load the overall portfolio trade that you intend on using. But to answer your question, the PT volumes, it's largely weighted towards investment grade, with about 70% in investment grade and only about 15% in high yield. And many times we see portfolios that cross both high grade and high yield.

And we've seen some some really encouraging early examples of that being used where the initial <unk>.

<unk> starts out at 500, or a $1 million or a couple of million dollars and we've had cases, where it gets worked up to 15 or $20 million and thats all done quietly without showing.

Speaker 4: full size initially, you know, people are concerned about that information leakage and then quietly working that up to a larger size without the information leakage. So, you know, we expect to see greater adoption of that as the adaptive auto ex, you know, rollout expands.

Full size initially people are concerned about that information leakage and then quietly working that up to a larger size without the information leakage. So.

We expect to see.

Greater adoption of that as the as the adaptive auto ex.

Rollout expands.

Thank you.

Speaker 1: Your next question comes from the line of Chris Allen from Citi. Please go ahead.

Your next question comes from the line of Chris Allen from Citi. Please go ahead.

Hey, Chris.

Chris Your line is open.

Sorry, guys I had it on mute.

Speaker 6: Sorry guys, I had to unmute. Just wanted to ask where you guys in the hiring cycle would have teased up 17% year-to-year, you kind of at the end of that cycle. And do you expect the pragmat to basically afford any expense efficiency opportunities along the term? Why do they do that?

Just wanted to ask where you guys in the hiring cycle with Ftes up 17% year over year, you're kind of at the end of that cycle.

Chris Concannon: We would expect to see growing portfolios in Europe and in Asia as well, again, using EM or across global bond less as well. And that's an offering that we've recently put out our global PT offering, because traders were asking for really a global list of bonds to trade as a portfolio.

Do you expect to.

To afford any expense efficiency opportunities longer term.

Sure obviously.

Speaker 3: The hiring cycle was quite high over the last few years, quite a competitive market that we entered into in 22 and into the first quarter of 23.

The hiring cycle was quite high over the last few years.

Unknown Executive: Thank you. Great. Thanks so much.

Quite a competitive market that we entered into an <unk>.

'twenty, two and into the first quarter of 'twenty three.

Speaker 3: with the layoffs among the large investment banks and across the technology companies that market dynamic has reduced. So it's a much more friendly hiring environment. We are obviously focused on rolling out products and rolling out solutions. And Prisma brings with us, you know, probably around 50.

With the.

The layoffs, among the large investment banks and across the technology companies that that market dynamic has reduced.

Alexander Blostein: Here our next question comes from the line of Alex Blostein from Goldman Sachs. Please go ahead. Hey, morning. Thanks for taking the question. I wanted to ask you guys a question around just the expense management philosophy and margin trajectory. When you look at the revenue backdrop, obviously, he's been challenged and Christy mentioned you guys have been disappointed with how you as credit has performed in part of that environmental part of it as a guess of the mix.

Alexander Blostein: But as you look at the expense growth, I think you suggested 8% core expense growth in 2023 X kind of some of the deal noise. Is that sort of the appropriate run rate for the business if revenue growth, you know, we'll improve maybe somewhat, but doesn't necessarily get back to the levels. It used to be and are there lovers you could pull to get the company back to positive operating leverage, or that's really just going to be a function of mostly revenues and less selling expenses.

So it's a much more friendly hiring environment. We are obviously focused on rolling out products in rolling out solutions in.

<unk> brings with us.

Probably around 50, 50, technologists, which is a great add to the overall footprint of market access.

Speaker 3: SISTI technologist, which is a great ad to the overall footprint of market access.

Speaker 3: And we just see going into 2024, we're quite comfortable with the hiring marketplace and obviously the addition of heads that we've already added to the overall footprint of market access.

And.

We just see going into 2024.

Quite comfortable with with.

The hiring marketplace and obviously.

The addition of heads that we've already added to the to the overall footprint of market access.

Speaker 3: And then more importantly, we have a number of things that we're doing on the tech side of replatforming our platform rolling out X-Pro and continue to grow the overall automation solution. So we continue to see sizeable investments.

And then more importantly, we have a number of things that we're doing on the tech side of re platforming our platform Rolling out X pro and in continuing to grow the overall automation solution. So we continue to see sizeable investments in all of those those.

Alexander Blostein: Yes, Alex, as you know, we've made a lot of investments over the last three years, Chris alluded to the number of M&A activity, which contributed to the elevated levels of acquired intangibles, amortization expense. So that provides for a little bit of noise, and we've built the teams out where it's all come together this year from a core perspective where we're rolling out X pro, we're rolling out the final suite of our automation tools with the adaptive auto X solution.

Speaker 3: in all those, those tech points and all those opportunities.

Plants and all of those opportunities.

Thanks, Chris.

And we have no further questions in the queue at this time, Chris Concannon I'll turn the call to you for closing remarks, great well. Thank you for joining US today, obviously, we have a very important quarter ahead and are pretty excited about the levels of activity in a number of things that we're rolling out in this.

Speaker 3: We have no further questions in the queue at this time. Chris Concanon, I will turn the call to you for closing remarks. Great. Well, thank you for joining us today. Obviously, we have a very important quarter ahead and are pretty excited about the levels of activity and the number of things that we're rolling out in this quarter and the quarters ahead. So thank you for joining us, and we'll talk to you in another quarter.

Alexander Blostein: So where we stand today, we're thinking of the future is that high single digit expense growth rate for the core business, recognizing that it roughly 17 to 18% of our operating expenses are variable. And we'd experienced some savings due to the underperformance that we've seen this year, where our variable expenses were more or less down and roughly 12 to $13 million from what we were planning for in the beginning of the year.

Alexander Blostein: And that more or less was offset by the 12 and a half million dollars of M&A related expenses. So I would say that the levers are built into the model through the variable expenses. But as we think about our expense philosophy internally, we're redirecting and reallocating resources to the top priorities where we think we're going to get near term revenue growth prospects. And Alex, I would just mention we're laser focused on expenses right now.

Quarter end in the quarters ahead. So thank you for joining us and we'll talk to you in another quarter.

And this concludes today's conference call. Thank you for your participation and you may now disconnect.

Speaker 1: And this concludes today's conference call. Thank you for your participation, and you may now disconnect.

Yes.

Alexander Blostein: We're also in a critical period for the company where we are introducing new technology across our tech stack so that requires higher levels of investment. And that's what we've been doing. So when you look at that expense growth, we are covering both the legacy platform and the new platform at the same time. And obviously acquisitions like pragma enhance that technology footprint as well. So but these models are designed to be highly leveraged.

Alexander Blostein: And I think Alex, you cover a number of companies that have great operating leverage in their system and we look to grow that over time. One important point is that market data revenue. Remember data is just an output. It doesn't really cost anything more to produce other than the sophistication of the data that you're producing. And we see that data are market data as you saw in the quarter grew over 20% and that that will help us grow our operating margin as that data revenue piece continues to grow.

Alexander Blostein: And again, the data that we're rolling out now on expro is not data for sale today but could be for sale in the future. It's really designed to grow our market share across the various products that we are trading. And so we're going to be leveraging that data as a way to collect orders in the bond market. And over time we'll be able to leverage that data into hard dollars as well. Thanks for that.

Patrick O'Shaughnessy: Your next question comes from the line of Patrick O'Shaggednessy from Raymond James. Please go ahead. Good. With the innovations that you've been speaking to today, potentially allow Marketaxess to better penetrate the market. I'm sorry, Patrick, you broke up a little bit. Was the last part of that question? Which of the innovations that you've been speaking about help you better penetrate the block trade market? Oh, okay, block trade. So first, in EM, particularly around our local market growth, we are seeing higher levels of block activity.

Patrick O'Shaughnessy: We have been growing our block market share there. We have rolled out a request for a market, which is an important protocol that a number of clients have requested that tends to introduce the opportunity for a higher block activity. And then with the rollout of our X-Pro platform, we are introducing what we call high-touch solutions in November in this quarter and the fourth quarter. And obviously, hopefully see an uptake in 2024.

Patrick O'Shaughnessy: But that high-touch offering is really designed to attract larger water sizes that need to use pretrait analytics to decide on protocol. One key ingredient to that is our AI dealer select data, which helps you select one to however many dealers you would choose. When you're managing a larger size order, you obviously want to reduce the market impact and the information leakage of that order. So our new offering in X-Pro would help you decide, number one, what protocol is there levels of liquidity using things like tradability to go into an all-to-all market where you're requesting price from the entire market?

Patrick O'Shaughnessy: Or if you're looking at lower levels of tradability, you may want to use a number of dealers, discrete dealers. And then if you choose to only use dealers, you would want to know which dealers you should select from.

Patrick O'Shaughnessy: So that offering is really target launch in November, but really hopeful to see it on client desktops across the first quarter of 24.

Rich Schiffman: Hey Patrick, it's rich. And you know, one other thing we were talking about adaptive and adaptive auto X and it's, you know, against the early days just coming out of the pilot phase. But even from the small number of clients that we have in this initial phase, we're seeing larger orders coming from it. So remember, it gives the ability to tap into the different protocols that we have available. So a common type of operation in the algo is to leave part of a block order resting in the order book.

Rich Schiffman: And then when other parties engage, being able to then work that order up to a larger size that gets completed, we call that multi-party workup. And we've seen some really encouraging early examples of that being used where the initials, you know, trades starts out at, you know, 500 or a million or a couple of million. And we've had cases where it gets worked up to, you know, 15 or 20 million. And that's all done quietly without showing full size initially.

Rich Schiffman: You know, people are concerned about that information leakage. And then quietly working that up to a larger size without the information leakage. So, you know, we expect to see greater adoption of that as the adaptive auto X, you know, rollout expands.

Chris Allen: Your next question comes from the line of Chris Allen from Citi. Please go ahead. Hey, Chris. Chris, your line is open. Sorry, guys. I had an unmute.

Christopher Gerosa: Just wanted to ask where you guys in the hiring cycle with FTEs, and up 17% year-to-year, you kind of at the end of that cycle. And do you expect the pragma to basically afford any expense, efficiency opportunities, longer term? Sure. Obviously, the hiring cycle was quite high over the last few years, quite a competitive market that we entered into in 22 and into the first quarter of 23 with the layoffs among the large investment banks and across the technology companies that market dynamic has reduced.

Christopher Gerosa: So it's a much more friendly, hiring environment. We are obviously focused on rolling out products and rolling out solutions. And pragma brings with us probably around 50, 50 technologists, which is a great add to the overall footprint of market access. And we just see going into 2024, we're quite comfortable with the hiring marketplace. And obviously, the addition of heads that we've already added to the overall footprint of market access. And then more importantly, we have a number of things that we're doing on the tech side of re-platforming our platform, rolling out expro and continue to grow the overall automation solution. So we continue to see sizable investments in all of those tech plants and all of those opportunities.

Unknown Executive: Thanks, sis.

Unknown Executive: And we have no further questions in the queue at this time.

Chris Concannon: Chris Cronkannon, I will turn the call to you for closing remarks. Great. Well, thank you for joining us today. Obviously, we have a very important quarter ahead and are pretty excited about the levels of activity and the number of things that we're rolling out in this quarter and the quarters ahead. So thank you for joining us and we'll talk to you in another quarter.

Unknown Executive: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Unknown Executive: Thank you very much.