Q3 2024 MarketAxess Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Market Access 3rd 43224 earnings conference.
At this time, all participants are in Lissian Only Mode. Later, we will conduct a question and answer session.
If you'd like to ask a question during that time, please press star and number one on your telephone keypad.
as a reminder this conference is being recorded on November 6, 2024. I would now like to turn to call over to Steve Davidson, head of investor relationship market access. Please go ahead, sir.
Steve Davidson: Good morning and welcome to the Market Access 3rd quarter, 2024 earnings conference call
Steve Davidson: for the call, Chris Concannon, Chief Executive Officer, will provide you with a strategic update.
Rich Schiffman, Global Head of Trading Solutions will update you on the performance of our markets. And then I lean to Zell Bieler, Chief Financial Officer will review the financial results.
Steve Davidson: Before I turn the call over to Chris, let me remind you that today's call may include forward-looking statements.
Steve Davidson: These statements represent the company's belief regarding future events that by their nature are uncertain.
Steve Davidson: The company's actual results and financial condition may differ materially from what is indicated in those forward-looking statements.
Steve Davidson: for a discussion of some of the risks and factors that could affect the company's future results.
Steve Davidson: Please see the description of risk factors in our annual report on Form 10-K for the year ended December 31, 2023.
Steve Davidson: 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.
Speaker Change: Now let me turn the call over to Chris. Good morning and thank you for joining us to review our third quarter results.
Steve Davidson: As announced earlier today, Rick McVeigh, our Founder and Executive Chairman, has informed our Board of Directors that he will be retiring from the Board at the end of the year to spend more time with his growing family and his philanthropic endeavors.
Chris: Rick is a pioneer in the electronic trading arena, and he is the reason why I came to Market Access.
Chris: his vision, his innovation, and his tenacity are why Market Access is the company it is today.
Rick's years of fixed income experience has been an extraordinary resource for me and the board. While Rick is retiring from the board, we are very lucky to still have him as the chairman of our international board.
Chris: I would also like to congratulate Carlos Hernandez on his appointment as our next Chairman of the Board. Carlos rejoined our Board in 2023 after concluding a highly distinguished career at J.P. Morgan.
Chris: Throughout his career, Carlos has been passionate about electronic trading solutions and financial market structure. I am humbled by what Rick has built, and I am looking forward to continuing his work with Carlos in his new role as chairman. Now let's turn to the third quarter results.
Chris: Turning to slide 3 of my strategic update, we continue to execute our strategy this quarter and deliver 20% growth in revenue driven principally by strong growth in market volumes.
Chris: We continue to be disciplined around our expense management, which helps to unlock the powerful operating leverage in our model and drove a 30% increase in diluted earnings per share.
Chris: We released our October trading metrics yesterday, which reflect continued strong growth in market volumes year over year.
We have always guided investors to look at the longer-term trends and not read too much into the month-to-month fluctuations in our market share as we experienced in October.
Chris: We believe the decline in our U.S. high-grade market share was driven by lower portfolio trading and a client shift to large-flock trading in the market.
Chris: As we have mentioned before, large portfolio trades in the market and changes in the mix of client activity can generate significant short-term swings in market share without materially impacting revenue generation.
Chris: We have a clear strategy to return to market share growth in U.S. credit while we continue to deliver growth across the global fixed income market.
Chris: We continue to enhance our global portfolio trading solution and we are pleased with the early returns we are seeing in terms of market share gains.
We have now launched the key elements of our targeted block trading capability to attack the highest value client order flow, representing 40% of the U.S. high-grade market.
Chris: We are on track to deliver traditional RFQ on Expro to our European clients in the first quarter of 2025. Last, we continue to see momentum in our emerging market offering, with a block trading solution rolling out to clients this quarter.
Chris: We are pleased to announce a strategic fixed-income data partnership with S&P Global last week.
Chris: With this partnership, we are combining our CP Plus market data with S&P's Global Evaluated Bond Pricing Solution.
Chris: Slide four highlights the power of our product and geographic diversification across global credit and rates as illustrated by our strong third quarter trading data.
Chris: Commission revenue generated outside of U.S. credit represented 37% of total commission revenue, up from just 25% in first quarter 2019.
Chris: Our Emerging Markets franchise is a key growth cylinder of this powerful diversification story.
Chris: Slide 5 provides more detail on the strength of our expanding emerging markets franchise.
Chris: We are seeing strong growth in emerging markets trading activity across regions, with record LATAM and APAC emerging markets trading volume up 51% and 30% respectively.
Chris: The EM local markets are the largest opportunity in EM from an addressable market perspective. One of our fastest growing protocols in local markets is Request for Market, or RFM, which is helping to drive record levels of block trading in local markets.
Chris: Dealer RPQ across hard and local currency is also showing strong growth up 47%.
Chris: We are very excited about the emerging markets opportunity ahead of us, which we believe is still in very early stages of electronification.
Chris: Slide six lays out our strategic priorities to grow market share.
Chris: In terms of our high-touch strategy, we recently completed the initial rollout of our global PT solution in Europe.
Chris: And I'm also pleased to report that we just completed an update to XPro to create a more intuitive interface for clients focused on portfolio trading and our proprietary trading analytics. The client feedback has been strong.
Chris: With record portfolio trading ADV in September, we delivered third quarter estimated market share of U.S. credit portfolio trading of 20%, several hundred basis points higher than second quarter levels.
Chris: We believe that the investments we have made in our new platform that supports client portfolio trading, traditional RFQ, and automation are beginning to pay dividends.
Chris: In the coming months, we will begin the initial rollout of traditional RFQ on XPro to our European clients.
Chris: While the initial focus of XPro and our high-touch strategy was portfolio trading, we are now leveraging the deep, enriched content and pre-trade analytics we have in XPro for block trade sizes.
Chris: This targeted solution for clients streamlines the transition of block-sized trades from phone and chat to electronic solution while reducing information leakage.
Chris: The two key elements of our block strategy is our AI-driven dealer selection tool and our new proprietary data set, CP Plus for Blocks.
Chris: Last, in the dealer-to-dealer segment, we are seeing green shoots in that important segment as we look to expand AutoX for dealer RFQ to emerging markets, Eurobonds, and munis.
Chris: We generated 28% growth in DLRFQ and an 11-fold increase in MIDEX in Eurobonds in the third quarter.
Chris: Slide seven highlights select macro factors that we believe indicate we are moving into a more constructive operating environment.
Chris: The new issue calendar has been very robust in 2024, with U.S. high grade up 27% and U.S. high yield up 86% year-to-date.
Chris: The velocity of trading in U.S. high-grade was above 80% in the third quarter, with an exit rate of 91% in September.
Chris: Yields have come down with the recent rate cuts but remain attractive. As a result, fund flows into high-grade ETFs and mutual funds are up 158% from the prior year.
Chris: Fund flows have been one of the factors keeping credit spreads tight, but we do believe that volatility should pick up in the coming months.
Chris: Lastly, in advance of the rate cuts in September, client activity on the platform in high-grade reflected an uptick in trading in higher-duration bonds, which benefited U.S. high-grade fee capture in the quarter.
Chris: That client trend has continued into October as well. Now let me turn the call over to Rich to provide you with an update on our markets.
Rich Schiffman: Thanks Chris. On slide 9 we highlight the expansion of our trading business across geographies, products, and workflows.
Rich Schiffman: We generated strong growth in international client trade volume and trade count in the third quarter.
Chris: Trade volume was up 23% versus last year, with a three-year CAGR of 17%.
Rich Schiffman: Trade count was up 16% versus last year with a three-year CAGR of 24%.
Rich Schiffman: We are also seeing strong contributions from growing client segments, including hedge funds, systematic trading firms, dealers, and private banks.
Rich Schiffman: We generated $254 billion in trading volume, up 41%, from these important client segments, which now represents 28% of our total credit trading volume, up from 26%.
Chris: Dealer-initiated trading volume, which includes dealer RFQ and MIDEX on this chart, was over $80 billion in the quarter, representing a 34% increase over the prior year, and included an 11-fold increase in Eurobond's MIDEX trading volume.
Chris: While we are in the early innings of our expanded dealer services strategy,
Chris: We are encouraged by the improvement we are seeing in MIDEX activity in Europe.
Chris: AccessIQ, our order and execution workflow solution designed for wealth management and private banking clients, delivered a 32% increase in ADV year over year.
Chris: We recently onboarded one of the largest U.S. banks to AccessIQ as we seek to grow our private banking business beyond Europe.
Chris: We are also seeing strong product diversification in municipal bonds, with record estimated market share of 8.7%, up from 5.8% in the prior year.
Chris: We launched Connectivity with ICE Bonds the first week of September for munis and then corporates a week later
Chris: The feedback we have received from clients has been very positive, and we believe Icebond's complementary liquidity will support further market share growth.
Chris: We are also very pleased with the growth of portfolio trading for munis.
Chris: which we launched in the second quarter of 2024.
Chris: Year-to-date through October, we have executed over 500 million in trading volumes.
Chris: Lastly on Munis, we are expecting to launch CP Plus for Munis in December.
Chris: with full integration with our protocols in the first quarter of 2025.
Chris: Slide 10 provides an update on Open Trading, our market-leading all-to-all liquidity pool.
Chris: Open Trading ADV was $4 billion and share of total credit volume was 35%, up from 34% in the prior year.
Chris: OpenTrading generated record trade count up 27% from the prior year.
Chris: Hedge fund trade activity has continued to expand on our platform with record ADV of 1.9 billion in the quarter, up 57% from the prior year.
Chris: A record 206 hedge funds provided liquidity through open trading in the quarter, a 2% increase from the prior year.
Chris: The price improvement opportunity in open trading, as shown on the lower left side of this slide, ticked up in the quarter on slightly higher levels of credit spread volatility.
Chris: Open trading continues to be the largest single source of secondary liquidity in the U.S. credit markets driven by our diverse liquidity pools.
Chris: Adoption of our automation suite of products continues to grow as shown on slide 11.
Chris: We experienced another quarter of strong growth in automation trade volume and record trade count, with three-year CAGRs of 31% and 40% respectively, and a record 249 active automation client firms.
Chris: Automation trade volume now represents 11% of our total credit volume and a record 27% of our total credit trade count.
Chris: There were over 10 million ALGO responses from dealers, an increase of 24% year over year.
Chris: We are increasingly leveraging the technology that we obtained through the Pragma acquisition with our entire automation suite moving into its tech stack which will allow us to launch the next generation of AutoX based on Pragma algorithms.
Chris: Our Adaptive AutoX Provide algo is a great example of a workflow that allows clients to respond to other clients and dealers RFQs, further supporting our open trading all-to-all model.
Chris: Now let me turn the call over to Ilene to review our financial performance.
Ilene: Thank you, Rich. Turning to our results, on slide 13, we provide a summary of our third quarter financials.
Ilene: We delivered revenue of $207 million, up 20% from the prior year.
Ilene: Strong top-line growth, driven by robust market volumes combined with continued cost discipline, resulted in the first quarter of positive operating leverage since the fourth quarter of 2020, with incremental margins of approximately 60%.
Chris: Looking at each of our revenue lines in terms, commission revenue increased 20% on strong broad-based growth across most product areas, more than offsetting a decrease in US high yield.
Chris: Information Services revenue of $13 million was up 10% and included a $300,000 benefit from FX. The increase was driven by new contracts as we continue to experience strong adoption across our data product suite, especially CP+.
Chris: Post-trade services revenue of $10 million was up 6% and included a $200,000 benefit from FX.
Chris: Total other income increased approximately $1 million, due principally to mark-to-market gains on our U.S. Treasury portfolio.
Chris: The effective tax rate was 23% and we reported diluted earnings per share of $1.90, representing an increase of 30%.
Chris: On slide 14, we provide more detail on our commission revenue and our fee capture. Total commission revenue was $180 million, representing an increase of $30 million, or 20% for the quarter.
Chris: The increase in Credit Commission revenue was due to strong growth across U.S. high-grade, up 24 percent, emerging markets, up 18 percent, Eurobonds, up 25 percent, and municipals, up 28 percent.
Chris: The reduction in total credit fee capture from the prior year was driven principally by product and protocol mix, specifically lower high-yield activity and increased portfolio trading. Total credit fee capture was slightly up from 2Q24 levels.
Chris: The decline in fixed distribution fees was driven principally by the consolidation of two global bank trading desk operations, migrations to variable fee plans, and lower unused minimums in U.S. high grades.
Chris: On slide 15, we provide a summary of our operating expenses.
Chris: Third quarter operating expenses of $120 million increased 14% compared to the prior year.
Chris: and include the impact of Pragma, which we will anniversary in the fourth quarter.
Chris: We saw higher-than-anticipated variable costs from increased trading activity, as well as about 40% of the $10 million in additional expenses that were not previously included in the run rate from the first half of the year that I mentioned on the second quarter earnings call.
Chris: As you know, there are always puts and takes that come through the expense line. And at this time, we expect some of our anticipated fixed expenses will shift future periods.
Chris: As such, we expect to absorb the increase in variable expenses within the original incremental $10 million, keeping in mind that variable costs can always change based on market conditions.
Chris: So, we expect our full year 2024 expenses to be more or less in line with our previous guidance of slightly below the low end of our range of $480 million to $500 million.
Chris: On slide 16, we provide an update on our capital management and cash flow. Our balance sheet continues to be strong, with cash, cash equivalents, and corporate bond and U.S. Treasury investments totaling $602 million as of September 30, up from $559 million at the end of last quarter.
Chris: We generated $310 million in free cash flows over the trailing 12 months, an increase of 4% over last quarter.
Chris: We've repurchased 297,000 shares year-to-date through October 2024 for a total of $64 million, including 66,000 shares repurchased during the third quarter at a cost of $15 million.
Chris: $236 million remains on the current authorization.
Chris: We believe we are striking the right balance of investing to drive future growth while at the same time being disciplined stewards of capital.
Speaker Change: Now, let me turn the call back to Chris for his closing comments.
Chris Concannon: Thanks, Ilene. In summary, on slide 17, we continued to execute our growth strategy in the third quarter. We delivered significantly improved financial results driven by very strong market volumes.
Chris Concannon: A robust new issue calendar and an increase in the velocity of trading are all contributing to a more constructive macro backdrop for us.
Chris: We are continuing the rollout of XPro by extending the platform to our global client base and across most products, and we are executing our plan to grow market share.
Chris: We are seeing early signs of success with portfolio trading and our dealer solutions product in Europe. The next phase is to extend share gains to block size trades in the U.S. credit market with the recent launch of our targeted block trade solution.
Chris: Given the strong market volumes, more constructive market backdrop, and our focus on our strategic priorities, we believe we are well positioned to deliver continued growth in the coming quarters. Now we would be happy to open the line for questions.
Speaker Change: We are now opening the floor for question and answer session. If you'd like to ask a question, please press star 1. Your first question comes from Chris Allen of Citi. Your line is now open.
Chris Allen: Good morning, everyone. First, I want to say congrats to Rick on the retirement. I hope you enjoy it.
Chris Allen: Two wanted to dive a little bit into October and block. October is the first month I recall you
Chris Allen: calling out lower block activities as an impediment to share, and noted that your block solution is now in the market. Can you throw out some details and just in terms of what's the game plan on accelerating the penetration of the solution moving forward and what is the current level of client uptake on the solution right now?
Speaker Change: Sure. Great. Thanks, Chris. And I'm happy to take that question. First, just putting October in perspective.
Chris Allen: We did have record overall volumes in the month of October. It was the first month that we crossed over $1 trillion in volume traded on the platform, which was quite exciting.
Chris Allen: Total credit volume, we set a record, we set records in our rates, average daily volumes.
Chris: We set a record in emerging market volumes in October, and we set a record in Eurobonds total volumes in October. So overall, when I look across the platform, very strong a month. We also saw an increase in
Chris: And as we've reported, an increase in U.S. high-grade fee capture.
Chris: good stories throughout the month of October.
Chris: We did see in the overall market a slight decline from September in portfolio trading across the overall market. I think that did impact not just us, but some of the other competitors in the space.
Chris: that have portfolio offerings.
Chris: We do think that's a natural level that October delivered. Around 10% of the total market was portfolio trading. September was actually a spike up to that 13% level. So I think the 10% number right now is a more natural number that we'll see in the market.
Speaker Change: What was, as you mentioned, what was...
Speaker Change: out of the norm that we haven't seen.
Speaker Change: at these levels, overall block trading, so trades larger than 5 million in size increased pretty dramatically, up to close to 40% of the entire market.
Speaker Change: and that's up from August, it was somewhere around 36%. So it was a sizable move in overall block volume.
Speaker Change: I think we saw something similar to that in April of this year, where we saw close to the same levels, about 40% of trace, and we did experience depressed high rate market share during that period as well.
Speaker Change: And so the bad news is that those large blocks moved to the phone and to chat. The good news is that that's the very market that we're attacking with the recent launch.
Chris: of our high-touch strategy in XPRO. We refer to this as a targeted block trading solution.
Chris: and it was only launched just about two weeks ago, so it's still early days.
Chris: but it's the exact part of the market that we've been talking about targeting for some time.
Chris: 30-40% of the overall market.
Chris: the pre-trade analytics that we're providing.
Chris: When you think about blocks, traders are quite sensitive about information leakage.
Chris: and providing tools that protect that information, the information around the block.
Chris: and reduce that information leakage is a key ingredient. So some of the data that we're providing, obviously dealer access is an important tool for clients to pick their counterparties, but we're also offering.
Chris: AI-driven dealer selection data, which really, that's the feedback we've been getting. That selection tool has been quite powerful for clients to select dealers.
Chris: that increase their likelihood of a response. So if you're sharing that large block information, you wanna have certainty.
Chris: that the dealer will be responsive to that block and that AI selection tool is just getting feedback from clients.
Chris: are quite powerful. So again,
Chris: very early days. We just have it out with a few pilot clients.
Chris: But the feedback is quite positive and and again, we're what our strategy there is replicate
Chris: what is done on phone and in chat, but do it with better data, better information, and fewer clicks for the trader to get the trade done and off and reduce overall information leakage for the trader. So early days, but I'm very excited about the market opportunity that sits in front of us.
Speaker Change: And just a quick follow-up on that. So we should be thinking about time frame here more as a 2025 or maybe even later 25 opportunities. It's going to be a client, a trader-by-trader type of rollout. We need to educate them on the tools.
Speaker Change: Definitely. It's a 2025. We have a series of enhancements.
Chris: before the end of this year.
Chris: to the platform, and then we continue those enhancements in the first quarter. We're still, again, as part of our high-touch strategy, we have both block trading as well as portfolio trading. We include both of those in the high-touch strategy, and we continue to roll out enhancements in both categories.
Chris: But as you mentioned, it is a trader-by-trader targeting that we're doing. The key ingredient, and you see this in portfolio trading, it's larger size, so share moves with those larger sizes. So we are hopeful that the offering will attract larger block sizes as well as additional portfolio trading sizes.
Chris: And as I mentioned...
Chris: The key ingredient is our proprietary data. This is data that comes from the size and breadth of our platform.
Chris: And we just think it's unique to the marketplace, and it's really providing traders with insights on how to trade the bond and who to trade with, and that's something that can only be gleaned from our proprietary data that we have.
Chris: I'll just add something to that, Chris, and yeah, just one extra comment. It's Rich here is going to make about that is that, you know, depending upon the firm, Chris is talking about, you know, a trader to trader behavior changes. There are some shops
Chris: where, you know, these kind of high-touch, large block trades are maybe being done by someone who's not as involved in electronic trading, not doing the typical flow trades where they're taking advantage of our automation solutions and things.
Chris: You know, we do a, you know, a meaningful amount of block business now, the number's around, you know, 23% or so of our volume in blocks in IG. You know, much of that is happening from traders that are using...
Chris: our solutions across the range of sizes and activity they have to do. So, you know, a big part of our focus with the high-touch effort is getting to these traders that are not the most active electronic traders at this time in the market.
Chris: Thank you.
Speaker Change: comes from Alex Cram from UBS. Your line is now open.
Alex Cram: Good morning, everyone. I want to shift gears quickly to portfolio trading.
Alex Cram: Obviously, very nice gains in the quarter and good to see that the market share is kind of in line with the overall market share for you guys now.
Alex Cram: I'm obviously curious why the gains and where we go from here. So just maybe specifically, do you see clients basically now thinking that you're on par with your primary competitor and giving you maybe 20% of the share? Or do you think your product's actually superior and you're hearing from clients that there's more to come? And yeah, where are different client types when it comes to having fully embraced your
Speaker Change: Sure, great, Alex. On portfolio trading...
Speaker Change: I'll be candid, we're coming from behind in our offering, so we are continuing to deliver.
Speaker Change: We just rolled out two weeks ago an enhancement to our portfolio trading tool to
Alex Cram: So we do see that we're adding components that are critical to both high yield and obviously our opportunities with our global PT offering and in Europe and EM.
Alex Cram: I would say we are not on par. The honest answer, we have more work to do to be on par. That's the exciting part. We are growing share despite not being on par with the competition.
Alex Cram: We feel really good about first quarter releases in our portfolio trading tool where we will probably, in our perspective, cross over in the offering and the benefits that we provide. Again, clients and traders are asking for unique data and analytics.
Alex Cram: on how to address their portfolio, what to put in their portfolio, and then how to manage their portfolio once a dealer provides pricing. And that's an area that we continue to excel at given the data and the analytics that we have.
Alex Cram: But I'm very encouraged by the growth, as you mentioned, that we've seen in portfolio trading.
Alex Cram: But I'm excited about the additional features that we're adding in the first quarter and coming at that market with a fully enhanced product offering by end of the first quarter. And so, as I mentioned earlier, we are moving from defense to offense.
Alex Cram: across these protocols and pretty excited about what's being delivered just two weeks ago and what we're going to deliver in the first quarter.
Speaker Change: Thank you.
Speaker Change: Excellent. And since you were just talking about data analytics there at the end a little bit,
Speaker Change: Can you maybe just quickly touch upon the new S&P partnership here? A, what's the revenue and costs kind of direction? Because I think they're getting a lot of data from you, but obviously you're getting something from them too. And then in what you're getting from them, to what degree is it going to help your pre-trade analytics and hopefully help enable clients even more? And when would that be coming? Thanks.
Speaker Change: Sure. Well, number one, it's a great partnership.
Speaker Change: S&P Global is a firm that we've partnered with in the past and we all know quite well.
Alex Cram: The Fixed Income Arena. They do run indices, the IBOX index powers some of the largest fixed income ETFs on the planet and here in the U.S.
Alex Cram: A key ingredient to the partnership is we're supplying them with our CP Plus data to help them power their end-of-day evaluated pricing tool.
Alex Cram: That tool does price these large ETFs, given their index relationship, and that's an important component. When you look at our overall market share, particularly in U.S. high-grade and U.S. high-yield, it's heavily tilted towards...
Alex Cram: components of large ETFs and so we feel like we fit
Alex Cram: in the ETF arbitrage quite nicely and having our data integrated with how ETFs are priced at the end of the day is an important component.
Alex Cram: to complete the relationship with S&P.
Alex Cram: With regard to the data they're providing, they're providing our reference data.
Alex Cram: And that's exciting, and we'll be rolling out that reference data at the end of the quarter. So just super excited about the partnership. Everything is really going live at the end of Q1, early Q2.
Alex Cram: but excited that we're expanding our data footprint through this partnership.
Alex Cram: All right, thank you guys.
Speaker Change: Your next question comes from Benjamin British from Barclays. Your line is now open.
Benjamin British: Hi, good morning and thanks for taking the question. I wanted to follow back up on the block trading discussion. Just curious if you could give any color on the FPM impact. You know, should you see that share really pick up? It sounds like that's sort of the biggest chunk of remaining, you know, non-electronified share. I understand with portfolio trading, it comes in at a lower than average FPM. And, you know, it sounds like it all would be additive dollars, but just curious how we should think about the trade-off between, you know, volume and what the associated revenues might be if you're, you know, successful in this endeavor.
Alex Cram: Richard Schiffman, Ilene Bieler, Chris Concannon, Richard Schiffman, Ilene Bieler, Chris Concannon,
Alex Cram: There are scenarios, for example, single-dealer trades where they would be at a discount or at a free level, similar to our PT, our single-dealer PT solution. We also are offering process trading.
Alex Cram: and doing that for free. I think some of the competition charged for process trading.
Alex Cram: We want to make the trader, the buy-side trader
Alex Cram: feel the full breadth of workflow from trading over the phone. They're able to process trade across XPro, trading with a single dealer, they're able to deliver in fewer clicks than chat.
Alex Cram: a single block trade to a dealer, and then if they choose, they can select a short list of dealers where they can quietly request price.
Alex Cram: and interact with the winner of that private RFQ while protecting market information.
Alex Cram: Components of that high-touch strategy are at our traditional fee capture and other components will be at a far reduced fee capture, particularly things like process trading and single dealer trades.
Alex Cram: It means that we can capture a higher fee relative to the trader getting that block done Just as a liquidity taker going to the market
Speaker Change: Right, so if you think about if they go kind of narrow, and the narrowest is if they've got, you know, a directly negotiated trade with a dealer and we're processing it, that's the least value-add and least fee capture. It might be a courtesy that we offer, but then as they go in greater competition...
Speaker Change: And then the best case is where they're acting more as a provider, they're taking a bit more time, and they're working, say, that 20 million block in pieces of ones and twos, and then we will benefit from that, you know, from those smaller trades and the higher capture.
Alex Cram: So it's kind of a spectrum and it really depends on the urgency the trader has and how they're choosing to operate in the market you know
Alex Cram: information leakage concerns come in. There's a lot of factors that are going to weigh in on how they choose to execute that trade. We want to be there for every one of those different ways they trade with different fee capture again depending upon the value we add.
Speaker Change: Thank you. That's all for me. I'll jump back into the queue.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Patrick Foley from Piper Chandler. Your line is now open.
Patrick Foley: Good morning. Thanks for taking the question.
Patrick Foley: Just going back to the fee-per-million, everyone on total credit fee-per-million, it's starting to trend upward again.
Patrick Foley: Last, I checked the Bloomberg duration index that you've pointed to in the past as a directional proxy.
Speaker Change: is somewhere in the seven-year range. I think in 2020, 2021, that number was closer to 8 1⁄2 or 9 years.
Speaker Change: So, just broadly speaking, what do you think needs to happen to get that average duration back in that eight-and-a-half to nine-year range, and how quickly do you think we could get there? And then, just as a follow-up, last quarter you said you expect to see, I think, a $15 million increase.
Speaker Change: in high-grade feed-per-million for every one-year increase in duration, and then $3-5 million for every 100 basis point decline in rates. Is that still how we should kind of think about the dynamic there? Thanks.
Speaker Change: Hi, thanks so much for the question. Yeah, I mean we actually are at about that nine-year level that you mentioned for the third quarter and that was up from about 8.6 years that we saw in terms of the weighted average years to maturity in the second quarter.
Speaker Change: And so if you think about what you just saw in October, right, we were at about 9.1 in weighted average years to maturity, which was roughly in line with September. So we are consistently seeing our weighted average years to maturity on the platform above the Bloomberg numbers that you just talked about.
Speaker Change: In terms of the sensitivity, you're right, the first, you know, and there's
Speaker Change: You think about it this way, right? It's about duration.
Speaker Change: And so there are pieces to it. There's the weighted average years to maturity that we talked about, and that still remains, right? For every one year increase in the weighted average years to maturity traded on the platform, we expect to see a benefit of approximately $15 or so per million in high grade.
Speaker Change: But the other component of that, right, when you think about duration, is yield. And so if you look at yield in terms of the sensitivity, the first 100 basis points lower in terms of yield is likely to be a benefit to high-grade bee capture of about $3 to $5 per million.
Speaker Change: So when you think about duration, we think about both of those pieces, weighted average years of maturity is also, you know, really important, but just to round out that discussion on the sensitivity, I wanted to bring that other point up as well.
Speaker Change: All right, that's it for me. Thanks.
Speaker Change: Your next question comes from Jeff Schmidt from William Blair. Your line is now open.
Jeff Schmidt: Good morning.
Jeff Schmidt: So your growth in emerging markets continues to be really strong. A sense on how much your market share is increasing there.
Jeff Schmidt: And, you know, what does a competitive landscape look like in places like Latin America and APAC, which you're growing at a high rate in?
Speaker Change: Sure, happy to take that one. In emerging markets, obviously, there's a lot of excitement around our emerging markets growth.
Speaker Change: Just looking at our Q3 numbers, up 19% year over year. One area of growth that's exciting is our block trading. We did hit a record in volume in block trading. That was up 24%.
Speaker Change: And another area that we rarely talk about is our portfolio trading solution in EM. We're seeing growth in our portfolio trading solution as well.
Speaker Change: I would say what's exciting about EM is both our hard dollar position
Speaker Change: So dollar-denominated EM bonds, and then our growth in local market. Obviously, it's at this point a 50-50 split, but a lot of our growth is in those local markets.
Speaker Change: When I look at the competitive landscape, it's quite clear, the phone is the number one competitor. We see in those local markets a heavily brokered market where electronic trading has not really penetrated those markets.
Speaker Change: And so, from a competitive landscape, we're quite excited that it's really new electronic solutions coming to market, not just additional competitors in the space.
Speaker Change: And then the other area that we're seeing great growth in EM is a new protocol or a request for market, which is really driving some of our block trading success.
Rich Schiffman: Jeff, it's Rich. I'll just add one more thing to that. One of the reasons we feel really strongly about this business and the moat that we are building around it in increasing our competitive position here, and that's with open trading and emerging markets. So we've spent years.
Speaker Change: building up a global network of participants, especially in the emerging markets areas in LATAM, in the APAC region. Really pleased to see that OpenTradings now is representing almost 45%.
Speaker Change: of the liquidity that we're providing to our clients.
Speaker Change: that are taking there, that's up over 600 basis points year on year in the third quarter. So that's a really difficult thing to build up, and it's a big differentiator, and it's drawing clients to trade electronically to get that extra liquidity and that improved pricing.
Speaker Change: So, and that's in the hard currency area. We've recently introduced it also in select local markets as well, which allows international investors to tap into liquidity providers from in those local markets.
Speaker Change: So that's something else that's not so easy to do on the phone and It's drawing people to the platform. So feeling really good about the EM business
Speaker Change: And then, in the dealer-to-dealer channel, you know, could you discuss kind of some of the things you're doing to increase share there? I mean, it seems to be, I guess, largely focused on kind of extending automated services, but could you discuss that and more of that opportunity in more detail? Or is there other things you plan on sort of doing there over time?
Speaker Change: Yeah, the dealer business is definitely one area of significant investment for us. We know there's a lot of activity.
Speaker Change: You know, typically 20 to as high as 30% of any of the given markets that we're in.
Speaker Change: is coming from business dealers looking for liquidity, looking to move risk out of their books more quickly. And if they can't sell bonds to their clients, they want to move it, and electronic trading and the services we offer we think is a great option for that. So it starts.
Speaker Change: with our flagship protocol, which is RFQ.
Speaker Change: And we continue to invest and make that more productive for the sell-side traders to use that have the same capabilities.
Speaker Change: as our buy-side clients.
Speaker Change: in terms of their ability to seek liquidity that way.
Speaker Change: We brought our automation
Speaker Change: solutions for the traders on the sell side.
Speaker Change: so that they can operate more efficiently, and importantly, the automation is tied into the ability to elevate the awareness of particular inquiries.
Speaker Change: so that if they have a target of let's say they want to trade at mid or they want to trade at side that will that will raise the awareness of those inquiries to the liquidity providers on the other side and serves to get them better responses.
Speaker Change: So that's another key thing. We recently announced a protocol called WORKUP.
Speaker Change: which has always been kind of prevalent in the inter-dealer broker space, you know, going by voice, and it allows us to bring in parties who want to trade at a level that's been established in the market from a trade that begins on an RFQ.
Speaker Change: So, for example, someone might go out for liquidity on a million bonds.
Speaker Change: They execute that trade.
Speaker Change: and they have more behind that they might have another 9 million let's say they didn't want to show the market.
Speaker Change: the full amount.
Speaker Change: and now they can work up that trade into a larger size.
Speaker Change: And we've been getting great initial reception. We just went out with this a few weeks ago, and we're really pleased with the attraction on it.
Speaker Change: Then lastly, we are investing also in the single-price auctions or the matching space.
Speaker Change: with our product that we call MIDEX.
Speaker Change: and we've been getting really nice responses to that in Europe, especially in the Eurobond market.
Speaker Change: where we're running daily sessions and getting good traction there. We're bringing that to the U.S. as well and expect to get good results going into 25. So, major areas of investment for us in the dealer business given how significant a portion of the market it is.
Speaker Change: Great. Thank you.
Speaker Change: Your next question comes from Dan Benin from Jeffries. Your line is now open.
Dan Benin: Thanks and good morning. I wanted to follow up on some comments around, I think you said deferred fixed investments here as you exit 24. So, curious if you could talk about what the priorities of spend are and then maybe how that informs, I know it's early, kind of the 2025 expense bill based upon the actions this year.
Speaker Change: otherwise anticipated due to the increase in volumes and activity on the platform that you heard Chris and Rich talk about. And so, what I was saying in my prepared remarks was...
Speaker Change: We still think that we're going to be within that envelope, let's call it, of the 10 million we talked about, but there's a little bit of shift, right? Some of those fixed costs that I just explained to you we expect are going to move out a little. So, for instance, maybe not all of the hires are coming in.
Speaker Change: within 2024. Having said that, we saw an increase in variable, so we still think we're going to be right there at the same guidance, right? Again, variable costs can have swings and roundabouts, but that's what I was talking about when I made that statement. In terms of 2025, to be honest, it's really a bit early for that. We're right in the middle of our planning and budgeting process for 2025.
Speaker Change: What I can tell you, and you probably know this having covered this space for a while, is that over the last two years, you've really seen us deploy significant resources into investments. Right? We've seen all the development of XPro.
Speaker Change: building out proprietary data sets to help our clients. You know, that's really been a big focus for the firm. But you've also seen us really instill a culture of expense discipline. And, you know, I was very pleased to see the positive operating leverage that you saw this quarter, right?
Speaker Change: And so, you know, you've seen in, we had on the slide in our presentation, I believe it was on slide six, Chris talked through a number of the very exciting initiatives that we have planned for next year.
Speaker Change: And so obviously there will be additional technology, you know, investments in the pipeline, different things that are expected. So if I was to wrap all this up, I would say we're super focused on ensuring the right balance between investing for growth as well as keeping us very laser focused on discipline expense management.
Speaker Change: Great that's helpful and then just a quick question for Chris just or maybe not so quick but curious change in White House
Speaker Change: You know, as we think about competition and maybe the dealers being less regulatory constrained, do you think this changes any of the behavior or the electronification process, you know, in the interim as, you know, there's, as I said, potentially less restrictions around some of the financial institutions as a result of the new precedent?
Speaker Change: Thanks for that very short, simple question. Look, I really, the way I look at our business and just more broadly regulation across the market, we are in a very favorable position where both clients
Speaker Change: and most dealers are adopting electronic trading at an increasing rate.
Speaker Change: not because of regulation, but because of commercial reasons. And so if you look at the large institutional asset manager...
Speaker Change: While they are growing AUM in the fixed income market given the rates levels that we're seeing They are doing it at a lower you know per million
Speaker Change: And as I think about our business, we provide...
Speaker Change: the large institutional investors around the world with technology solutions that simplify their life and reduce their overall fixed costs and so
Speaker Change: We're in a good position globally. The good news is we had a hedge on the election. Both parties like debt and like to spend government money, and so sitting in the fixed income market we felt well positioned going into the election last night.
Speaker Change: Appreciate it. Thank you.
Speaker Change: This question comes from Alex Boston from Goldman Sachs. Your wine is now open.
Alex Boston: Hey, good morning. Thanks for the question. I was hoping you guys could expand a little more on your partnership with ICE. I think you mentioned it in prepared remarks. I know that the offering was originally announced maybe last quarter. But how's it going so far? How are you thinking about the benefits to both of you guys? And are there other areas you could collaborate in as you kind of get deeper into that into that endeavor?
Alex Boston: Thank you very much.
Alex Boston: Yeah, hi Alex, it's Rich and thanks for that question. You know, we've had a long-standing relationship with with ICE and it goes back years on the data side.
Speaker Change: in terms of us consuming some of their data and then, you know, we sell them.
Speaker Change: some of ours. So we've worked with them for a while. And then through our acquisition of Pragma, they've been a technology provider to the NYSE for some time. So we have worked with them closely.
Speaker Change: You know, in terms of the initial aspects of our partnership on trading with them, it's been off to a great start. We're really happy with the liquidity that we are getting from them. It started with munis.
Speaker Change: in terms of responding to
Speaker Change: traders on our side who are looking for liquidity and having ICE respond through open trading.
Speaker Change: And it also expanded into credit in the high-yield space. They are focused more in small sizes, we often call it micro-lots.
Speaker Change: although we've been surprised to see them winning some larger trades as well and You know, they've in munis, especially they've kind of quickly become one of the top open trade liquidity providers
Speaker Change: So that's really positive for our investor participants, the buy side traders looking for
Speaker Change: Thank you. Thank you.
Speaker Change: bid there, connecting that with institutional investors looking for liquidity.
Speaker Change: can be quite promising. So it's just the start, I think, of our work with them. We have other things in the roadmap in terms of connecting our adaptive AutoX so that our traders using that tool can tap into the liquidity available in ICE, including even the ability to leave resting orders out there as well. And...
Speaker Change: You know, it's an example of something we're trying to do to serve our clients.
Speaker Change: and get them liquidity anywhere that we can find it. And I should say unique liquidity.
Speaker Change: where it is supplemental to what we already provide through our pretty vast network. So in this case with ICE, that was something they brought that we didn't have, and it's a win for our traders that are on the system looking for liquidity.
Speaker Change: And Alex, I'll just add, it's an important partnership for us.
Speaker Change: I was pleased and quite amazed at how quickly their tech team worked with our tech team to get this partnership up and running. So we went into production relatively quickly.
Speaker Change: right off the back of the announcement, so it was quite impressive from their side.
Speaker Change: We have long-standing partnerships, as Rich mentioned, from the data side. But there are, you know, ICE is doing fairly unique things around both data.
Speaker Change: which is another area that we will stay close to them on any opportunities.
Speaker Change: for Treasury clearing in the near future. But as Rich mentioned, the ICE bond partnership is off to a great start. There's connections that we are building into ICE bonds as well, so it is quite a cool reciprocal relationship across the board.
Speaker Change: That's great, Collar. Thank you guys.
Speaker Change: Your next question comes from Kyle Vogt from KBW. Your line is now open.
Kyle Vogt: Hi, good morning, everyone. Maybe just a question for me on the velocity of trade. You've noted in the prepared remarks that we've seen this increase in 2024. This has continued into October. I mean, high-grade industry volumes are up 30% year on year.
Kyle Vogt: Is there any way to frame how much of this increase in velocity in 2024 has been driven by the stronger new issuance environment and the flow-through impact of that to the secondary market?
Kyle Vogt: versus more secular factors. And if you had to identify kind of the main secular drivers that have helped Velocity this year and could continue to help Velocity in 2025, what would those be?
Speaker Change: Sure. And look, we're thrilled with the increase in velocity.
Speaker Change: We're still not at historic levels of turnover, but we've certainly...
Speaker Change: started to achieve record levels relative to recent history. So it's exciting to see that level of velocity.
Speaker Change: I think there are a number of factors that are leading to this higher velocity.
Speaker Change: Some of the basic factors are just where yields are in our fixed income market. They're at attractive levels relative to recent history. And you see that in the data with just inflows into ETF and mutual funds. So we continue to see in 2024 high levels of inflows.
Speaker Change: which are clearly attracted by the higher levels of yield.
Speaker Change: So portfolio trading at 10% of the overall market.
Speaker Change: is part of that velocity. It allows faster exposure to the fixed income market. It also allows changes in portfolio faster. So that electronic solution is impacting velocity.
Speaker Change: The overall macro market is also of interest. You know, we're pretty excited about not only where rates are, but that new issue market that you've mentioned. While new issue can have impacts to our market share, it does lead to higher levels of turnover, higher levels of velocity, and so we've seen a record new issue volume in 2024, and certainly when we look out further into 2025.
Speaker Change: and look at where some of the large corporations.
Speaker Change: have dates that are due and maturity levels coming due. We expect new issue to continue into 2025 to help overall market volume. So, I would say it's one part.
Speaker Change: macro market driven by higher rate environment.
Speaker Change: The last remaining piece in the macro market that we think we are still waiting for is volatility. We're starting to see...
Speaker Change: some level of credit issues show itself and reveal itself in the market, talking about downgrades from high grade to high yield.
Speaker Change: We've seen some of that as we face
Speaker Change: more difficult economic times, you can actually predict higher levels of downgrades in the market. And that leads to two things, higher spreads, wider spreads in the market, and higher levels of spread volatility, two things that are quite helpful to our overall economics.
Speaker Change: So, the macro backdrop right now is actually quite exciting for us. We see that as...
Speaker Change: a wind at our back, and we're really not...
Speaker Change: through the full cycle where you start to see those higher levels of volatility. Right now we're seeing quite high levels of volatility in the rates market. That's why we're seeing record rates volume, particularly in the month of October. But we're still not seeing that bleed into the credit market, but still early days for that.
Speaker Change: Thank you.
Speaker Change: Great, thank you.
Speaker Change: Your next question comes from Simon Lynch from Redburn, Atlantic. Your line is now open.
Simon Lynch: Hi, thanks for taking my question. I was wondering if we could just go back to fee per million and go back to the question actually about the changes in the White House right now. But just in terms of the environment that we might now see with potentially, you know, high bond yields from here, the mix that we're now seeing with portfolio trading and some of the other protocols, could you talk about the, I guess, the longer-term
Speaker Change: The way we should think about the longer term normalized level of total credit fee per million and sort of where that can go. I know we've got the sensitivities for movements and yields and so on right now, but it feels to me like the potential upside might be limited by some of these other factors like higher bond yields.
Speaker Change: the mix.
Speaker Change: Yeah, sure, Simon. Good question. Yeah, I mean, obviously we know there are so many different things that go into fees per million and that impact our fee capture, right? And so some of that, I think you just mentioned when you talk about if we see a greater, and Chris just talked about this a little bit too when he was talking about the environment, but when you see a greater percentage of high yield, obviously, which is our highest average fee product area, that's helpful for capture, right? And so that's part of what he was just mentioning. On the other hand, as you see growth of PT, that has a negative impact on capture, right?
Speaker Change: another thing that you balance.
Speaker Change: I looked back over, let's say, called the last five years, right, and you had an average of about $173 per million when you talk about, like, sort of what's a good level. And if you recognize that that included capture of about $204 per million during COVID, which we would not expect to see again, given all of the unique factors that happened during that time period, there's still likely room, right, for better capture than what we've been seeing if a number of things happen, right? And so we saw, for example, the improvement to $154 in October, which was up from $150 in September. So when you see an increase in duration, which we talked a little bit about in high grades, that helps, right? Another thing to keep in mind is what Rich mentioned.
Speaker Change: a moment ago about open trading, right? That's our premium price liquidity venue. So an increase in vol, we believe, would also enhance fees per million because of the increase in activity that could be expected through open trading, right?
Speaker Change: Now, what we most likely would not get back in that sort of average fees-per-million price range that I just talked about was the impact of portfolio trading, and that's been running, let's call it, you know, a negative headwind of, call it $5 to $6 of fees per million.
Speaker Change: All of those things can help these chameleon levels, and that should make us in a place that is likely higher than what you're seeing right now. But again, there's lots of moving pieces to that, and we'll have to see where it all turns out.
Speaker Change: Great. Thank you very much. That's all for me.
Speaker Change: Your next question comes from Brian Biddle from Deutsche Bank. Your line is now open.
Brian Biddle: Great. Thanks for taking my question. Most have been asked and answered. Maybe just one big picture one for you, Chris. You've said before, I think, you know, the high-grade market, you think will eventually become some 90% electronified. And I think that's up from like...
Speaker Change: 50% today. Just looking back, obviously, over the last 25 years, it's been a long journey, call it 2% of share gains per annum.
Speaker Change: and that pace has kind of slowed in the last few years. Do you see that turning around given everything you've been saying about tackling into the block trade?
Speaker Change: and, you know, behavior on the dealer's side. Do you see that pace inflecting upward in the near term, or do you still think this will be kind of, you know, this last 40% is still going to be kind of a grind?
Speaker Change: If you could just compare versus that first 25 years, to what extent would that be a faster electronification than the prior 25?
Speaker Change: Sure, I'd like to say it will be quicker than the last 25.
Speaker Change: of the first 25. I'm hopeful that we'll accelerate the pace, given all the work he's done. Really, when I look at the market and the electronic...
Speaker Change: conversion and the pace of that change.
Speaker Change: I think that the first part of that change was more of a network effect, getting everyone on the network, getting people used to it, trader by trader. I see a higher level of what I call electronic capitulation, both dealer and client.
Speaker Change: are embracing electronic trading. They have made necessary investments to adopt it at a faster rate. And the reason why I'm encouraged by the current adoption is if you look at.
Speaker Change: portfolio trading just three years ago. Portfolio trading, by definition, is an electronic solution.
Speaker Change: It has now reached 10 and sometimes 13 percent of the market.
Speaker Change: It has accelerated the velocity of trading.
Speaker Change: clients have benefited from that solution.
Speaker Change: and they're embracing electronification.
Speaker Change: At the trader level
Speaker Change: the more manual traders tend to lead.
Speaker Change: the portfolio trading tools. They are the block traders, the high-touch traders.
Speaker Change: at our various clients. So they have made the conversion, and so that's why we think it's a very ripe time to start delivering.
Speaker Change: similar efficiencies in the block trading area where they will not change how they price bonds. They will just convert from chat to an electronic click-to-trade solution with dealers.
Speaker Change: Their information will be protected.
Speaker Change: and more importantly, they will have access to data that they haven't seen before.
Speaker Change: quite quickly because of the ease of use.
Speaker Change: And more importantly, the overall pressure that we're seeing from our clients to reduce costs.
Speaker Change: and reduce and bring in more and more efficiencies.
Speaker Change: If you just look at
Speaker Change: of our automation solution growing at 30 to 40% a year.
Speaker Change: 27% of our trades on the platform, that is the same pressure that we think will lead to success.
Speaker Change: in electronic adoption of block trades. So we're quite excited about the commercial pressures to move to electronic trading and we're more excited about the offering that we're putting in front of the clients right now.
Speaker Change: That's great perspective. Thank you.
Speaker Change: Your next question comes from Michael Cypress from Morgan Stanley. Your line is now open.
Michael Cypress: Hey, good morning. Thanks for squeezing me in here. Just a question on the automation suite. Exciting to see representing 11% of volumes today. Just curious how you see that progressing over the next couple of years. What hurdles do you see that limit that from moving higher? Maybe talk about some of the steps you're taking to overcome that. And in particular, if you can elaborate on the next generation of the adaptive AutoX suite, what might that look like? How you see that offering evolving and how do you see that progressing as you look out over the next 12 months?
Speaker Change: some encouraging data. Not only are we growing automation, it grew in the third quarter to a record level at 32% year-over-year, so exciting growth rates in that
Speaker Change: But what I am encouraged by is the differentiation or the different penetrations of our clients.
Speaker Change: In the automation area, not all clients look the same. We have very high penetration users of automation, both in terms of the breadth of product that they put on automation, but also the size. We are seeing clients.
Speaker Change: using larger and larger trade sizes in their automation suite. And in fact, in the quarter, we had some record-sized trades flowing through automation. Block-sized trades in automation is quite an encouraging set of facts.
Speaker Change: The automation suite is across all products.
Speaker Change: the request model, and its seamless no-touch solution. So we're excited about the new enhancements that we're putting in our Adaptive AutoX tool, but we're wildly excited about the success that the whole automation suite is having.
Speaker Change: And if you look at Muni's, which was the last...
Speaker Change: a launch of auto automation. We're continuing to see growth in our Muni's automation tool, an area where it's really prime given the very small trade sizes in our Muni market. Things like automation are perfectly positioned to reduce workflow for the buy side.
Speaker Change: Great. Thanks so much.
Speaker Change: Your next question comes from Eli Abood from Bank of America. Your line is now open.
Eli Abood: Good morning, everyone. Thanks for taking the question. Quick one on EM. How much of your emerging markets business is coming from US domiciled asset managers? And if we get higher tariffs next year and US managers reduce allocations to emerging markets, how material should we expect that to be for your credit business?
Speaker Change: First, great question because our EM business is quite diversified across clients.
Speaker Change: In the U.S. it's probably about a third, closer to 30%.
Speaker Change: of clients engaged in EM. The next and largest size is about 40% comes from our EMEA-based clients.
Speaker Change: So, most large institutions will trade their EM business.
Speaker Change: from Europe and the UK. And then the remainder is split between our new clients in APAC, which has been growing. So APAC is a big investor across the EEM landscape, and our clients in LATAM, another area. So it's really diversified across region. And if you think about LATAM and APAC, that's where we continue to add clients. It's where we're growing in onboarding clients.
Speaker Change: And they have interest in not only trading EM, but also it's very helpful because they're trading U.S. high-grade and high-yield as well. But really a diversified look across.
Speaker Change: When you look at that diversified look of client, where it comes to U.S. tariffs, less of an impact from their investment perspective. They are looking at the globe from their unique lens.
Speaker Change: and making investments more around the rate of return, the attractiveness of the sovereign debt, which is a big key part of the local market.
Speaker Change: So, we feel quite comfortable with the EM market. Where rates end up and really where the EM economies end up, those macro issues will probably drive investor appetite in the EM markets and the EM regions across the board.
Speaker Change: But the good news is our clients are quite diversified across region.
Speaker Change: And more importantly, the product of EM is quite diversified across regions. So there's lots of.
Speaker Change: different investment strategies deployed across all the different regional bonds.
Speaker Change: that we offer in our EM products.
Speaker Change: Thank you.
Speaker Change: I'd now like to hand back over to Chris Concannon for further remarks.
Chris Concannon: Great, thanks. Thanks for joining us this quarter. Obviously I want to thank Rick.
Chris Concannon: for his 25 years and his confidence in me.
Chris Concannon: in taking on the company going forward. I certainly want to thank Carlos Hernandez for agreeing to be our new chair.
Chris Concannon: and I especially want to thank Nancy Altobello.
Chris Concannon: our lead director. She has worked tirelessly to make us a better company.
Chris Concannon: I joke with Nancy that we might be violating some of the New York State minimum wage rules given the number of hours that she has worked. And lastly, Rick is a very important investor of ours, so you should expect to see him somewhere in the queue next quarter asking some of the hardest questions. So with that, we look forward to talking to you next quarter. Thank you.
Speaker Change: Thank you for attending today's call. You may now disconnect. Have a wonderful day.