Q1 2025 MarketAxess Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the market access first portrayed 2025 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a Q&A session if you'd like to ask a question during that time. Please press.
Speaker Change: Star followed by one on your telephone keypad as a reminder, this conference call is being recorded on May seven 2025, I would now like to turn the call over to Steve David Chang head of Investor Relations at market access.
Speaker Change: Go ahead Sir.
Speaker Change: Good morning, and welcome to the market access first quarter 2025 earnings conference call.
Speaker Change: For the call, Chris Concannon, Chief Executive Officer, who will provide you with an update on our strategy and our trading businesses and I Lean says L dealer Chief Financial Officer will review the financial results.
Speaker Change: Before I turn the call over to Chris Let me remind you that today's call may include forward looking statements.
Speaker Change: These statements represent the company's belief regarding future events that by their nature are uncertain.
Speaker Change: The company's actual results and financial condition may differ materially from what is indicated in those forward looking statements.
Speaker Change: 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 2024.
Speaker Change: 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.
Chris Concannon: Now, let me turn the call over to Chris Good morning, and thank you for joining us to review, our first quarter 2025 financial results.
Speaker Change: I am pleased to report that we are seeing the benefits of our technology investments in our first quarter results as shown on slide three of my strategic update.
Speaker Change: In terms of revenue generation, our product and geographic diversification continue to pay off with record Commission revenue in our international and new product areas like emerging markets Municipals and U S government bonds we.
Speaker Change: We are very pleased with the growth we generated in the U S government bonds in the quarter, including a signal day trading record of 102 billion on April nine.
Speaker Change: The strong growth in U S government bonds is being driven by increased velocity, but also by more institutional clients leveraging our rates alagoas, even during volatile periods. These clients are leveraging new al goes to work larger block orders with low market impact over a specific.
Speaker Change: Vic time range and the results have been impressive.
Speaker Change: That's our executing billions in treasuries with 97% passive execution rates that means institutional clients are not crossing the spread 97% of the time using our alagoas.
Speaker Change: During the week of April seven clients leveraged our U S. Treasury all of those to execute 36 billion or 11% of our trading volume that week, we expect to continue to expand our algo suite for rates and we anticipate launching an enhanced RF <unk> solution in the near future.
Speaker Change: Services revenue growth was also strong at 7%.
Speaker Change: In terms of expenses, we continued to show cost discipline with expenses up only 2%, which also benefited from lower variable costs during the quarter.
Speaker Change: Lastly on the capital front, we have been more opportunistic with our share repurchases as we move beyond just offsetting dilution from stock based compensation.
Speaker Change: Our challenge has been U S credit market share across key protocol, which partially offset the growth we generated in other areas in the quarter.
Speaker Change: However, the exit rate in March was very encouraging with U S high grade estimated market share increasing to 20% the highest level since December 2023, driven by strong market share gains across the portfolio trading and dealer initiated Chad.
Speaker Change: On slide four we highlight the key performance indicators for our trading businesses across channels in the first quarter.
Speaker Change: This slide clearly shows except for U S credit market share the key performance indicators across our platform are largely brand in the quarter, reflecting the underlying fundamental strength of our business.
Speaker Change: First across our client initiated channel, we generated record U S credit Adv up 2% to 9 billion we.
Speaker Change: We saw strong growth in international products with record Adv.
Speaker Change: 6 billion up 11%.
Speaker Change: Local markets are the largest opportunity in <unk> for.
Speaker Change: From a net addressable market perspective, we produced record local markets Adv of over $1 5 billion up 8%.
Speaker Change: Our performance in municipal bonds is also a positive example of our product diversification strategy with Adv up 42%.
Speaker Change: We are very pleased with the liquidity coming from our partnership with ice bonds, which started with municipal and has now extended to the U S high yield and U S investment grade.
Speaker Change: We experienced another quarter of strong growth and automation with record trade volumes of 110 billion up 17%. We had 249 active automation clients in the first quarter.
Speaker Change: We now have 80 clients enable for our algo suite up from 25 in the prior year open.
Speaker Change: Open trading Adv hit a record $5 billion in the quarter, an increase of 8% open trading share of total credit was 38% in April and open trading volume hit record levels. During the second week of the month across credit markets.
Speaker Change: Our share of blocks in U S. High grade was just over 11% up slightly from the prior year.
Speaker Change: In the portfolio trading channel, we generated record total PT Adv of one 3 billion and record U S credit PTC Adv of $1 1 billion with market share of 19%.
Speaker Change: Last in the dealer initiated channel deal, where our Q and mid ex Adv was a record $1 9 billion, representing a 45% increase over the prior year.
Speaker Change: As promised on the last earnings call on slides five and six we want to update you on how we are executing across the three critical channels, we're attacking to grow U S credit market share.
Speaker Change: First in the client initiated channel, we made progress with our block trading solution. We registered record total block trading Adv and U S high grade emerging market and euro bonds in the first quarter year to date through April block trading and U S High grade is running up 27%.
Speaker Change: U S high yield is up 19% emerging markets is up 22% in euro bonds is up 71%.
Speaker Change: Our cumulative block trading volume since the launch of our targeted block trading solution in emerging markets and eurobond was $4 billion through April 2025.
Speaker Change: We are rolling out our full high touch block trading solution in U S credit to our broader client base as we speak.
Speaker Change: This is really exciting because we are delivering a click to trade solution, where the trade is against a dealer acts are an indication of interest and the trade goes direct to the dealer without information leakage.
Speaker Change: This strong performance was driven by our client sales outreach, we have been doing for our targeted block solution.
Speaker Change: Next in the portfolio trading channel, which is a very important part of the market. We generated record levels of portfolio trading ADT with strong increases in both U S high grade and U S high yield estimated market share in Q1 U S high grade portfolio trading market share was 19% in the quarter.
Speaker Change: 520 basis points over the prior year U S high yield market share was 18% up 690 basis points versus the prior year year to date through April U S. High grade portfolio trading estimated market share is running up 310 basis points compared to full year.
Speaker Change: 2024 levels and U S high yield is running up 260 basis points. So again very strong progress with the portfolio trading channel.
Speaker Change: Lat in the dealer initiated channel we are beginning to see progress as we prepare to launch our new <unk> solution. Later this quarter in U S credit dealer RF QAD was a record $1 8 billion with record Adv across U S high grade emerging markets and municipal bonds in Q1.
Speaker Change: <unk>.
Speaker Change: U S high grade dealer initiated estimated market share increased almost 100 basis points year over year.
Speaker Change: We are very excited about the launch of our new <unk> solution in the second quarter. It is a very streamlined API delivered high performance matching solution for dealers.
Speaker Change: Slide seven highlights our strong growth in April continuing the trend of March on a significant increase in credit market volatility.
Speaker Change: With the recent increase in volatility we have seen spreads widen liquidity needs increase and the velocity of trading increase.
Speaker Change: We saw a trading ADB grow 68% year over year to a record 57 billion driven by strong growth across all products, including 32% growth in total credit ATB to a record $18 billion and 93% growth in total rates Adv to a record 30.
Speaker Change: Nine.
Speaker Change: Most importantly U S high grade market share of 19, 4% was 120 basis points higher than the prior year.
Speaker Change: We also saw a significant increase in the ETF market, making activity in U S high yield in April the highest level since November 2023.
Speaker Change: Before I turn the call over to Aileen, Let me make a couple of observations about the market. The recent volatility and how our platform has responded.
Speaker Change: The velocity of trading in U S high grade has risen to levels, we have not seen since 2011, which is great for our market and further electronic vacation.
Speaker Change: Portfolio trading a key protocol that has fostered increased velocity has continued to perform at high levels. Despite the increase in volatility.
Speaker Change: Portfolio trading was approximately 11% of the U S high grade market in April in line with prior periods, reflecting its resiliency as a risk transfer tool.
Speaker Change: Last one of the most exciting aspects of this increase in volatility has been how our clients are increasingly willing to execute greater size through automation during times of volatility our largest and most sophisticated clients continued to increase their automation risk tolerance in March and April.
Speaker Change: With over 2500 automation trades of $2 million or above over the two months the highest two month period ever.
Speaker Change: Also we generated record U S high grade block count leveraging auto ex during the March and April period.
Speaker Change: We believe that our strong results were driven by the progress we have made with our new initiatives as well as the significant increase in market volatility now let me turn the call over to Eileen to review our financial performance.
Speaker Change: Chris turning to our results on slide nine we provide a summary of our first quarter financial we delivered total revenue of $209 million compared to $210 million in the prior year.
Eileen: Looking at each of our revenue lines Insurance Commission.
Eileen: Commission revenue decreased 2%, largely driven by lower fee per million and market share in U S credit, partially offset by strong market volumes on an increase in volatility beginning in March services revenue increased 7% driven by a 9% increase in information services revenue to $13 million the increase was due.
Eileen: Given by new contracts and we continue to experience strong adoption across our data products suite, especially CP plus <unk>.
Eileen: Post trade services revenue of $11 million increased 3% versus the prior year technology services revenue of $3 million increased 14% driven by higher pragma related license and connectivity.
Eileen: Total other income increased a little over $3 $5 million due principally to higher interest income and approximately $1 million higher mark to market gains on our U S treasury portfolio of approximately $1 million and lower levels of FX losses, approximately $1 million.
Eileen: <unk> reported diluted earnings per share of <unk>, 40, or $1 87 per share. Excluding notable items in the quarter, which included a new reserve, which we established for uncertain tax positions.
Eileen: This reserve is being established for prior periods through the first quarter of <unk> 25 based on a recent ruling in the case that market access was not a party to that was not supportive of the company's historical tax filing position.
Eileen: Decision reversed a lower administrative court's ruling that had been supportive of the company's position.
Eileen: The go forward effective tax rate will move higher to accrue for the expected increase to the tax reserve in 2025, and I will provide updated guidance on the effective tax rate later in my presentation.
Eileen: On slide 10, we provide more detail on our commission revenue in our fee capture total commission revenue was $181 million compared to 185 million in the prior year, we experienced growth in credit commission revenue across emerging markets up 6% euro bonds at 5%.
Eileen: Municipal bonds at 6%, which helped partially offset the 7% decline in U S Credit Commission revenue driven by lower fee per million and lower market share.
Eileen: The reduction in total credit fee capture both year over year and quarter over quarter was driven principally due to product mix.
Eileen: On slide 11, we provide a summary of our operating expenses first quarter operating expenses of $120 million increased 2% compared to the prior year.
Eileen: Lower level of expense growth was principally driven by continued cost discipline and lower variable costs due to the slower start to the quarter in January and February while the pace of the operating expenses was lower in the quarter. We have continued to invest to drive future growth.
Eileen: Head count was flat year over year, but down from 891 at the end of 2024.
Eileen: On slide 12, we provide an update on our capital management and cash flow our balance sheet continues to be strong with cash cash equivalents and corporate bonds and U S. Treasury investments totaling 642 million as of March 31 down.
Down from $699 million at the end of 2020 for the.
Eileen: The decline in cash was due principally to the annual payout of full year 2024 cash incentive compensation in the quarter. In addition to the share repurchase activity during the quarter, we generated $344 million in free cash flow over the trailing 12 months, an increase of 5% over last quarter, we repurchased 200.
Eileen: 51000 shares year to date through April 2025 for a total of $52 million, including 188000 shares repurchased during the first quarter at a cost of $38 million.
Eileen: As of April 32020, $573 million remains on the board authorization. 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: Before I turn the call back to Chris There is no change to our previously stated full year 2025 guidance for services revenue and capital expenditures based on the progression of our operating expenses in the first quarter. We are refining our full year 2025 expense guidance and now expect to be at the low end of the previously disclosed guidance range of 500.
Speaker Change: 5 million to $525 million, including the impact of <unk>, which I will discuss in a moment.
Speaker Change: And I would remind you that <unk> expenses can change depending on operating condition.
Speaker Change: We are refining our expense guidance, we are continuing to strike the right balance of investing to drive our future growth. Additionally, given the notable item discussed earlier, we are updating our full year 2020 effective tax rate guidance range on a GAAP basis. The effective tax rate is expected to be in the range of 41% to 42%.
Speaker Change: Due to the reserve I mentioned previously.
Speaker Change: <unk> tax rate excluding the notable item in the first quarter is expected to be in the range of 26% to 27%.
Chris Concannon: Before I turn the call back to Chris for closing remarks, we expect to close the <unk> transaction later in May.
Speaker Change: This will bring our ownership to approximately 90%.
Speaker Change: And we will begin consolidating <unk> in our financials for full year 2024, RQ have revenue was a total of $13 million and we expect revenue to grow between 15% and 20% in 2025, as we integrate the offering into our product suite.
Speaker Change: We expect to include most of <unk> revenue in other variable transaction fees within total commission, but we also expect approximately 750000 connectivity fees to flow through our technology services line.
Speaker Change: The incremental expenses related to the consolidation of <unk> are expected to be in the range of $7 million to $9 million for 2025. After the close and are included in the new full year 2025 expense guidance I just noted.
Speaker Change: For modeling purposes, we expect approximately $2 million in incremental depreciation to flow through the depreciation and amortization line in 2025.
Chris Concannon: Now, let me turn the call back to Chris for his closing comments. Thanks Aileen in summary on slide 13, we made solid progress with the key new initiatives that will drive improved market share in U S credit in the remaining quarters of 2025, we generated record levels of block trading across U S High grade.
Chris Concannon: Emerging markets and eurobonds, which have benefited from the launch of our targeted solutions our portfolio trading solution continued to hit record Adv trading level and our market share and newest credit continues to expand.
Chris Concannon: Record dealer, our QA Adv reflects our increasing focus on this important channel with record Adv in U S high grade emerging markets and municipals are strong progress across the client initiated portfolio trading and dealer initiated channel combined with the increase in credit Mark.
Chris Concannon: That volatility should help drive higher levels of market share in U S credit in the coming quarters now we would be happy to open the line for your questions.
Chris Concannon: We are now opening the floor for question and answer session. If you'd like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: Thank you limit your questions to one question only if you wish to go back to the queue. Please press star one again. Thank you. Your first question comes from the line of Chris Allen of Citi. Your line is now open.
Good morning, everyone. Thanks for taking the question.
Chris Allen: I wanted to unpack well, hoping you could unpack the outlook for increased share gains moving forward can you help us frame out what are realistic expectations here, how dependent are share gains on the environment continuing.
Speaker Change: Some of the recent levels.
Speaker Change: How do you think about the impact of new capabilities on share gains from here.
Chris Concannon: Great. Thanks, Chris for your question.
Speaker Change: First.
Speaker Change: I'll address the market environment.
Speaker Change: Because as the current market environment that we've been experiencing certainly in March and leading into April is favorable to our business model.
Speaker Change: We are obviously seeing in this environment.
Speaker Change: A lot of uncertainty I would call it an environment of uncertainty, whether it's economic uncertainty geopolitical uncertainty and certainly questions around direction of rates obviously the.
Speaker Change: The market is now predicting rates will had lower which can be favorable for us certainly any rate moves is largely favorable to the turnover that we see in the bond markets.
Speaker Change: But most most experts right now are predicting higher levels of volatility not returning to those lows that we saw certainly in 2024.
Speaker Change: It's not just.
Our business model on.
Speaker Change: Tweets about tariffs.
Speaker Change: Going forward, but we do see higher levels of volatility in the market.
Speaker Change: Spreads will remain slightly widened relative to what we saw in January and February.
Speaker Change: Our clients' liquidity needs.
Speaker Change: Have risen.
Speaker Change: Since since last year, we are hearing more and more from clients about.
Speaker Change: Need a need for liquidity and need in particular for alternative liquidity, that's all favorable to our business model.
Speaker Change: And so from a market environment. The one piece, we haven't seen is a crew.
Speaker Change: Credit quality challenges if there are any macroeconomic impact we could expect to start hearing about credit quality, which would have an impact on spreads and obviously <unk>.
Speaker Change: Change investor outlook around.
Speaker Change: Portfolio holdings, which could increase turnover.
With regard to our growth of growth opportunity in this market. One I think the market opportunity that we have is expanding because we have changed our model to be what we call protocol agnostic by delivering clients multiple protocols to solve.
Speaker Change: Different execution needs for a different size orders are different shaped orders like portfolio trading block trading and then also addressing the dealer to dealer market.
Speaker Change: We think our opportunity for growth is increasing.
Speaker Change: Given the both the market environment and.
Speaker Change: The deliveries that we're making in this year.
Speaker Change: In terms of this quarter, we're excited about the.
Speaker Change: The number of product releases that we see in the coming quarter as well as the future quarters.
Speaker Change: We've made sizable investments last year and were feeling.
Speaker Change: The impact of those investments as we roll out additional items.
Speaker Change: First.
Speaker Change: As you heard in my prepared remarks, we're launching our high touch block solution on the back of our already launched targeted block trading solution that we launched an E M and euro bonds and that is literally launching next week. So we're super excited about <unk>.
Speaker Change: Aim to deliver a block solution to our clients, where they can trade directly with dealers.
Speaker Change: We also mentioned the launch of <unk> coming this summer.
Speaker Change: An exciting New addition to our protocol mix for dealers again this is a dealer targeted solution.
Speaker Change: To address dealers' needs to trade at mid market as they exit their inventory. We're also rolling out X pro into Europe. This summer and excited about.
Speaker Change: The benefits that X pro brings not only from portfolio trading perspective, but also just a workflow perspective, and the ability to deliver data and analytics to clients as we roll that tool out not just in Europe, but further rollouts into <unk> as well so when I when I look at this environment.
Speaker Change: Chris and I look at the number of product releases that we have coming in the current month in the coming months and quarters Im just very excited about.
Speaker Change: Our opportunity to grow.
Speaker Change: Particularly around what you've seen in portfolio trading the dealer to dealer, but also the block trading solutions that we've delivered to the market. So feeling very good about both market environment.
Speaker Change: Our delivery schedule for forward growth.
Speaker Change: Your next question comes from the line of Alex Kramm of UBS. Your line is now open.
Alex Kramm: Yes, hi, good morning, just staying on the environment that little bits, and sorry to slice and dice.
Speaker Change: The months or the environment, but.
Speaker Change: Some people talk about April almost in two halves and you yourself mentioned some of the record date in the early part of the month. So just wondering what you saw maybe in the first half and second half given that you know.
Speaker Change: It was clearly very very elevated and very good but curious what kind of things kind of stuck in terms of client behavior, and chair and where maybe things started normalizing a little bit just as we think about the second quarter from here. Thank you.
Speaker Change: Sure.
Speaker Change: Obviously, we saw accelerated more.
Market velocity in April seeing some records across a number of protocols, but overall market volumes were up substantially in April.
Speaker Change: And high yield in particular, we saw record market volumes up 42% year over year, So just sizable velocity in the market.
Speaker Change: What's very encouraging is that the market is able to sustain that level of velocity.
Speaker Change: Without electronic trading and the broad electronic trading penetration.
Speaker Change: It wouldn't be able to see that level of market turnover, we continue to see that velocity.
Alex Kramm: Throughout the month of April and into May. So we are encouraged that overall turnover remains heightened as you mentioned Alex.
Alex Kramm: Volatility spiked and did come down, but it never rested back at a low point. So we are seeing.
Alex Kramm: Even at lower levels of volatility relative to the beginning of April we're still seeing all stay at a somewhat heightened level and more encouraging spreads remain at a heightened level relative to January and February so the market environment, while we've come off our peak <unk>.
Alex Kramm: Volatility and those were quite some peaks spikes during the tariff wars back and forth.
Alex Kramm: We're still out.
Alex Kramm: Very attractive market environment for our business model, we continue to hear from clients both in high yield and EM.
Alex Kramm: Asking for liquidity needs, and saying, suggesting that the liquidity in the market is not not robust so thats always encouraging because they tend to lean on our open trading alternative liquidity.
Alex Kramm: In that type of market environment. So <unk>.
Alex Kramm: Encouraged by.
Alex Kramm: The current market environment, while it's not at the peaks that we saw in early April it is still a relatively sustained.
Alex Kramm: Volatility that we're seeing in the market and Thats before we're seeing any rate adjustments or any challenges macroeconomic challenges that could come.
Alex Kramm: Fair enough. Thanks.
Speaker Change: Your next question comes from the line of Kyle Voigt of K B W. Your line is now open.
Kyle Voigt: Hi, good morning, maybe.
Kyle Voigt: Maybe if I could just ask a question on on fee capture and.
Kyle Voigt: Particularly wondering if you could update us on what you saw for high grade fee capture in <unk> and the high grade capture number that's embedded in the April metrics. You released earlier. This week I'm. Just wondering if you can help us understand really what's causing the year on year in the quarter on quarter declines that we saw.
Kyle Voigt: I think at first glance higher open trading share I thought would've been incrementally helpful. But I know there's another a number of other factors at play with PT growth in block growth for example, which.
Kyle Voigt: Which could continue as we're looking at launching in the U S block solution into the second quarter.
Kyle Voigt: Great.
Kyle Voigt: <unk>.
Kyle Voigt: Led eileen fill in some of the gaps.
Kyle Voigt: <unk>.
Kyle Voigt: What I'll do is take a step back and talk about fees Holistically I think it's a good topic.
Kyle Voigt: Just given what I talked about previously around the protocol agnostic, we are investing heavily in delivering multiple protocols to both clients and dealers.
Kyle Voigt: And with that level of focus you saw performance in the first quarter and that performance continued.
Kyle Voigt: Into April.
Kyle Voigt: These are two market.
Kyle Voigt: Protocols that have grown in the overall market.
Kyle Voigt: Portfolio trading in the dealer to dealer business has grown substantially year over year and over the past couple of years portfolio trading somewhere around 10% of the overall market in the dealer to dealer market is somewhere around 30% of the market, which is upside I believe from prior years. So we're investing heavily.
Kyle Voigt: And those those areas those obviously come at a lower capture rate and so with any success in portfolio trading.
Kyle Voigt: Or a dealer to dealer you tend to have pressure on your fee capture as well.
Kyle Voigt: We did what was interesting in April we did see heightened levels of portfolio trading in high yield.
Kyle Voigt: Literally record levels of portfolio trading as high as 15% for the full market, which we haven't seen before what we heard from clients was just.
Kyle Voigt: Large.
Kyle Voigt: A large sell offs.
Kyle Voigt: Required because of large redemptions coming into funds both in managed funds as well as Etfs those those heavy redemptions and high yield funds led to a lot of clients choosing to use <unk> as the liquidity solution.
Kyle Voigt: And that had us in turn have record levels of portfolio trading. So those those items are impacting our fee capture but they are growth items for us so while they come in at a lower fee capture we are encouraged by growing revenue by delivering new protocols and new solutions.
Kyle Voigt: <unk> to our clients.
The nice thing about where we're headed things like block trading.
Kyle Voigt: And growing further in the portfolio trading solution space.
Kyle Voigt: Those are areas that have low variable costs and in fact some.
Kyle Voigt: Come with no variable costs. So they are higher margin businesses, but they can be seen as a lower capture rate. So for example, our block block trading rolling out can be can be delivered at a slight discount to our traditional RF Q, but it comes with no variable.
Kyle Voigt: Costs for us and so we're headed into a place where we're delivering more protocol some of which comes at a lower capture rate.
Kyle Voigt: But some of which has lower variable costs associated with it.
Speaker Change: You want to add something here.
Speaker Change: Let me give you a little bit of the puts and takes that you mentioned in terms of the April versus March. So we saw that increase in fee per million for that which was about $4 and that was driven Lee really driven by more favorable product mix and if you think about we had increase in high yield activity that was worth about $2.
Speaker Change: And we had benefit from higher duration of about $1 tier IAG question right and we saw weighted average years to maturity out to about eight seven in April eight seven weighted average years to maturity and then in terms of the mix of business and Youre right open trading activity was up about $4, but we saw that partially.
Speaker Change: Ill start by the increase in portfolio trading and which ones.
Chris Concannon: It went the other way by about $3. So hopefully that gives you the puts and takes your premise is right and it kind of goes back to what Chris was saying, which is that as we're continuing to gain share and as we're continuing to do more volume and some of the other newer protocols for us. These are incremental revenues, but they do come in at a lower.
Speaker Change: <unk> per million.
Great. Thank you very much.
Speaker Change: Your next question comes from the line of Michael Cyprus.
Stanley: Stanley Your line is now open.
Michael Cyprus: Hey, good morning, Thanks for taking the question I just wanted to circle back to portfolio trading I was hoping you could elaborate a bit on what you see driving the strength across your PT solution. I believe you had brought some new innovation with I think it was a net hedging for Iga embedded in PT in the quarter more broadly.
Michael Cyprus: If you could talk to some of the feedback and traction you're seeing with PT and as you look out over the next 12 to 24 months, where is there scope for continued enhancements and innovation with your PT solution. Thank you.
Michael Cyprus: Sure.
Michael Cyprus: I appreciate the question, obviously, we've been talking about our investment in portfolio trading over the past year and we are seeing the returns as a result of those investments.
Michael Cyprus: There are a number of enhancements that we have delivered obviously, our Nu X pro platform just makes the workflow smoother allows our clients to have more line items see pre trade analytics.
Speaker Change: Evaluate the portfolio that theyre loading and.
Speaker Change: And pick and choose winners and losers that are in those portfolio trade portfolios that can improve price. So there is a way for clients now to evaluate what's costing them price.
Speaker Change: In the context of the portfolio. So all of those enhancements were.
Speaker Change: Delivered through X Pro we're now seeing.
Speaker Change: 92% of portfolio trades on Expro. So it's clearly the platform is winning the market share in the portfolio trade environment. The other places as you mentioned delivering and having clients sign up for all of the.
Speaker Change: Net net hedging auto spotting all has been delivered and the feedback has been quite positive.
Speaker Change: Portfolio trading will come down to analytics data and analytics and Thats, where the constant demand is understanding when's the right time to trade our portfolio versus when's, the right time to trade a lift via.
Speaker Change: <unk> Q those are important questions. We're hearing from our clients optimizing the portfolio. The more correlated you are too in Etfs, the better pricing mix you get from dealers and then optimizing your size within our portfolio. If you have block size line items, you can degrade your pricing.
Speaker Change: P. J so all of that requires pre trade analytics and the demand for pre trade analytics continues to grow.
Speaker Change: We are obviously planning on enhancements in the coming weeks in the coming months for PT solution. So we're excited about what we achieved in Q1.
Speaker Change: Which followed into April and what's ahead for our portfolio trading.
Speaker Change: Great. Thank you.
Speaker Change: Your next question comes from the line of Alex Blaustein of Goldman Sachs. Your line is now open.
Alex Blaustein: Hey, Thank you good morning.
Speaker Change: Another one around beauty for you guys.
Speaker Change: Hoping you could break down the composition of the Adv in the quarter between the single dealer in the in comp Adv that you've cited and I heard the discussion around fee per million.
Speaker Change: Makes sense.
Speaker Change: But can you help us just frame what the fee per million currently stands today at portfolio trading and I guess <unk> as well since these are two of the larger particles that are growing right now for you guys. Thanks.
Speaker Change: So Alex in terms of sort of how we're thinking about portfolio trading.
Speaker Change: Obviously.
Speaker Change: April.
Speaker Change: We're all market share there was in investment grade was was pretty positive.
Speaker Change: We saw that.
Speaker Change: <unk> com.
Speaker Change: Was 19.3 and it.
Speaker Change: It was 19 four I believe.
Speaker Change: So I just wanted to double check that for you.
Speaker Change: And so that's kind of again positive and then if you think about the market share in high yield that was income $13 five and 14, one in terms of all in right. So.
Speaker Change: Some real positive moves there in terms of how we were doing with high yield and investment grade and so we know though that if you think about it.
Speaker Change: Portfolio trading in general that those come in at a lower fee per million. We know that the single dealer is really not something that we have fee per million on and that's not really included in that because it does come in without it.
Speaker Change: So I guess this is all to say as we continue to see investment grade and high yield chairs pick up and more of that becomes portfolio trading.
Speaker Change: We're going to expect to see continued pressure there on the overall fee per million, but again, it's really good for sure. It's good for what we're looking to do overall, Chris has talked about how we really looked at block trading.
Speaker Change: Something thats, a real opportunity for us incrementally and the portfolio trading and the block trading folks are really often the same depth and so this is something we're really pleased about replacement our progress, but we know that this is going to come in at some some fee per million pressure.
Speaker Change: And I would just add Alex because it's a great question, because that's an area, where obviously, we have been investing and continuing to invest.
Speaker Change: In the past, we have said that.
Speaker Change: <unk> month over month volatility in market share because of PT.
Speaker Change: Single dealer PT.
Speaker Change: Obviously can swing share those are what we call the mega Pts over a $1 billion in a single PT.
Speaker Change: And they do.
Speaker Change: <unk> sure if you look at our.
Speaker Change: High yield.
Speaker Change: Market share it was.
Speaker Change: It increased sizable in comp so total income, but it had a material pick up because of a single dealer PT during the months so.
Speaker Change: That point is it will have an impact on our capture.
Speaker Change: Over a month and a single.
Speaker Change: Dealer to dealer business as we invest in that we will also continue to have further pressure on our fee capture again, our goal is to grow revenue and grow it through all the different protocols, we price our protocols based on the market of the protocol.
Speaker Change: Not our overall fee capture and so.
Speaker Change: We are being very mindful of what that market looks like and when more pricing into it. The good news on fee capture is our client to dealer or a <unk> business and fees have been quite stable and remain stable.
Speaker Change: As we speak today in May so we feel very good about the stability of pricing across our core business, which is traditional RF Q in high grade high yield and now.
Speaker Change: And then Alexandra followed back because I think you also asked just about PT share. In addition to high grade and high yield. If you look at April chaetae share that was in comp at about 25%.
Speaker Change: And the single dealer piece of that was about one 3%. So the overall market share there in April for US was about 21, 8%. So that was also a really good positive indication.
Speaker Change: Great Awesome really helpful. Stats. Thank you guys.
Speaker Change: Next question comes from the line of Jeff Schmidt of.
Speaker Change: Blair. Your line is now open hi.
Good morning.
Speaker Change: So what have you learned from the rollout of enhanced block trading in EM and Euro bonds. As you look to launch that in the U S and do you see any potential hurdles to adoption here or anything that may be different in this market.
Speaker Change: Sure Great question and again, we launched.
Speaker Change: <unk>.
Speaker Change: In Euro bonds, we launched targeted RF Q.
Speaker Change: Slightly different model from the way folks trade here, and particularly in IGN and high <unk>.
Speaker Change: Yield.
Speaker Change: Targeted <unk> had a positive response, obviously our block trading market share has increased we saw a block trading record volume in.
Speaker Change: And again, that's partly driven by targeted but also largely driven by <unk>.
Speaker Change: Clients coming in and trading larger block size on the platform and getting liquidity in our all to all solution.
Speaker Change: Yes.
Speaker Change: The feedback from clients is very positive they want to be able to trade larger sized electronically.
Speaker Change: Without information leakage in the concern on information leakage is if you go out to an all to all our <unk> request, you're leaking obviously your larger block size to the broader market. So using a targeted solution protects your information, but allows you to maximize.
Speaker Change: Price improvement by marketing it to a few dealers rather than all dealers as we have been certainly going out to clients in <unk>.
Speaker Change: <unk> here.
Speaker Change: Here in the U S with our high touch block trading solution, which rolls out next week feedback has been quite positive again.
Speaker Change: We're competing with the phone and with chat.
Speaker Change: So when it comes to competition.
Speaker Change: Being able to click to trade your workflow for blocks is quite powerful and that feedback has been consistent as we demo the product to clients and they give us the feedback on the seamlessness of the workflow the ability to go to a single dealer and engaged at dealer.
Speaker Change: Fully electronically without going on chat.
Speaker Change: So both the targeted solution that we launched in EM and Euro bonds is yielding results with our block trading.
Speaker Change: Stats, but we're excited about the client feedback we've heard in our high touch solution Rolling out next week.
Speaker Change: Okay. Thank you.
Speaker Change: Question comes from the line of Patrick Morley Piper Sandler Your line is now open.
Patrick Morley: Yes. Good morning, Thanks for taking the question. So we're hearing more and more about these alternative liquidity providers market makers.
Patrick Morley: Wanting to expand their presence in the credit market. So I was hoping you could just update us on what your conversations with these alternative liquidity providers has been like and.
Patrick Morley: What protocols do you find that they are looking to utilize most your competitor has indicated that they have been very interested in in portfolio trading I'm just curious if thats the case.
Patrick Morley: And market access as well thanks.
Speaker Change: Okay. Thanks for the question and certainly we have seen an influx in demand coming from.
Patrick Morley: What I'll call alternative market makers.
Speaker Change: Systematic hedge funds.
Speaker Change: That influx has been over the last couple of years actually our hedge fund community continues to grow we continue to see record volume.
Speaker Change: That community as well as from your traditional ETF market makers, so that that we saw sizable growth.
Speaker Change: Record levels of volume from the ETF market makers and the alternative liquidity providers.
Speaker Change: We have a strong pipeline of alternative liquidity providers. The number one protocol that theyre requesting from US is our all to all our <unk> solution, they want to be able to price a large client.
Speaker Change: Requests for price they want to respond to inquiries and they can do that anonymously without facing those large clients. The challenge for these alternative liquidity providers and you find it in portfolio trading as well as <unk>.
Speaker Change: Many of them are not prepared in many of the clients are not prepared to face them directly for settlement.
Speaker Change: The all to all traditional RF Q protocol is in higher demand from alternative they also typically trade.
Speaker Change: Large baskets across.
Speaker Change: A large number of bonds, because theyre trading against the Etfs, So they tend to trade a small.
Speaker Change: All her size across the <unk> landscape so.
Speaker Change: The good news is we continue to see more come.
Speaker Change: Some of them have come from both the FX and treasury markets and moved into credit.
Speaker Change: But they continue to grow and they continue to demand.
Speaker Change: Our proprietary data. So there are data demands coming from that group because they are largely API driven consume a lot of data and trade a lot of product in a higher velocity level of trading, but the key ingredients for them.
Speaker Change: Is the anonymous all to all solution, where they don't have to disclose their name or face any clients from a settlement perspective.
Speaker Change: Okay, great color Thanks, Chris.
Speaker Change: Your next question comes from the line of Ben British of Barclays. Your line is now open.
Speaker Change: Hi, Thanks for taking the question. This is Chris O'brien on for Ben I had a broader question on the capture rate and just kind of thinking more broadly across I know you said that you priced by protocol and kind of what youre seeing in the market. There. So I was curious how you are kind of positioning your pricing competitively.
Speaker Change: And if theres any way or to the extent, there's capacity that you could use that as a lever to drive more share growth moving forward.
Speaker Change: Yes.
Speaker Change: Great question.
Speaker Change: And again.
Speaker Change: We do price by protocol, we think about what the market is.
Speaker Change: As requiring from each protocol.
Speaker Change: I think in the dealer to dealer space, that's an area where clients are quite price sensitive and so we have certainly adjusted price.
Speaker Change: With our <unk> launch this summer.
Speaker Change: We will be pricing that in the market.
Speaker Change: That requires a lower level of fee capture.
Speaker Change: We will be targeting that market with what we think is an appropriate price given the demand by by dealers.
Speaker Change: Again were not really touching our client to dealer.
Speaker Change: Pricing that has been quite stable and we intended to remain quite stable.
Speaker Change: I think it's important to point out that there are other players in the market.
Speaker Change: Smaller players in U S credit that have been free for quite some time and we haven't seen any impact.
Speaker Change: In our core business as a result, I think Bloomberg has been three for years actually.
Speaker Change: We don't see any competitive pressures in that area.
Speaker Change: So we feel good about the current pricing levels that we have in the client to dealer space.
Speaker Change: I think where youre seeing appropriately priced product is really in the dealer and portfolio trading space the more exciting piece of the market.
Speaker Change: Where is really the next what I call. The next 50% of the market, which is the opportunity to grow electronic trading.
Speaker Change: Against the phone and chat market that market is sizable.
Speaker Change: It's a quite vulnerable market because it is not ideal workflow for our clients, we hear continuously from them.
Speaker Change: They'd much rather connect with a dealer and price of bond electronically than type it out on chat to get in execution. So that market is.
Speaker Change: Is obviously an attractive market for us we think it's we will attack that market with appropriate pricing, but again, it's a different protocol will require a different pricing levels as well.
Speaker Change: I'll say I don't we don't sit here and feel a lot of <unk>.
Speaker Change: Rising pressure in this market.
Speaker Change: I think where we're all the competition is in the client to dealer spaces, all around workflow data analytics and so the the biggest pressure that we feel is delivering new product with new execution solutions with new data new analytics to help our clients.
Speaker Change: Trade better in the environment, we sit in right now where it's more difficult to trade clients are only talking about.
Speaker Change: Data and analytics and their demand for data analytics is growing we do not talk to our clients about pricing and pricing pressures hopefully that helps yes, and let me just add a little bit to what Chris said, which is if you think about sort of the bifurcation of that in terms of the macro level and on the product mix and trading activity is sort of another.
Speaker Change: Their level of how you think about our capture rate so on a macro level the combination of lower rate environment upward sloping yield curve for high grade and a higher mix of high yield by Ian can make a positive difference we know that the pace of fed cuts. However is constantly moving and thats something youre going to have to factor in we know the most recent CME.
Speaker Change: <unk> watched out of for instance is predicting three to four cuts this year, but we're going to have to wait and see now back to what Chris was talking about in terms of product mix and trading activity. The growth in PT. We know has downward pressure on capture that as we've been talking about that for a while now however, if we get back the impact of lower level.
Chris Concannon: In high yield activity that we have seen and we've seen more of that on the platform as we've seen volatility return as we see ETF market makers clients get more active that is going to be a part of that right and then Chris had said this but I really want to reemphasize that our core fee capture protocols for core RF Q have remained.
Speaker Change: Steady pretty steady.
Speaker Change: And it's really the newer protocols that come in at a lower rate, but I really wanted to keep in mind that we all have to take a look at what does that mean for incremental revenue because that's really what we're driving for and so I just wanted to sort of close out with thinking about that in those terms.
Speaker Change: Great. Thank you so much.
Speaker Change: Your next question comes from the line of Brian Bedell of Deutsche Bank. Your line is now open.
Brian Bedell: Thanks. Thanks, Good morning, Thanks for taking my question.
Speaker Change: I just wanted to ask Chris about the rollout of X pro into Europe.
Brian Bedell: And.
Brian Bedell: To what extent do you think that will accelerate portfolio trading sure I mean, I think you mentioned, 92% of the European <unk> has done an extra now I guess, that's mostly U S.
Brian Bedell: But how do you think that could influence the rollout of X pro could influence the usage of PT on your platform in Europe.
Brian Bedell: Again I ask this every once in a while but if you had to guess sort of where you think that 11% market share of pte goes to in the next year.
Speaker Change: Couple of years, what would you what.
Brian Bedell: Or would you guess.
Brian Bedell: Great question, Brian Thanks for that question first of all.
Brian Bedell: Taking a step back X pro is part of our technology migration, it's an important part of that migration as we move to modern tech in the cloud with high levels of capacity and more importantly, the ability to.
Enhance and add data to our platform for our clients.
Speaker Change: That's a critical ingredient as I mentioned earlier.
Speaker Change: It's where all the demand is coming from from our clients is not just workflow but.
Speaker Change: Data and analytics that help them improve their execution outcome.
Speaker Change: The other nice feature about X pro is.
Speaker Change: The delivery schedule of Expro as much faster our ability to roll out new functionality new.
Speaker Change: New data and analytics comes faster in that new Tech and that's why it's such an important ingredient to our tech migration globally.
Speaker Change: In in X pro.
Speaker Change: And particularly the rollout in Europe, which will be exciting because while we've been making gains in both Europe euro bonds as well as emerging markets, which is largely traded from the European region.
Speaker Change: Having X pro add to those gains we think is fairly exciting.
Speaker Change: As you note our X pro users are growing their PT volumes and so with the delivery of X pro to Europe and onwards, the EAM we're.
Speaker Change: <unk> that that portfolio trading.
Speaker Change: Market share that we're garnering here in <unk> and high yield will continue to grow into those markets as well, but just because of the workflows easier.
Speaker Change: The integration of data and analytics to help portfolio trading is much easier and there is lots of enhancements that we can do in.
Speaker Change: In the coming months and quarters ahead. So we're excited about that rollout.
Speaker Change: Excited about how fast we can deliver.
Speaker Change: Once that rollout is in place that's really the key ingredient as clients ask us to make changes to functionality, it's much easier and much much faster to deliver in that new tech with regard to my predictions on portfolio trading.
Speaker Change: It's going to be a key ingredient to clients' ability to leverage liquidity in the market.
Speaker Change: We are seeing.
Speaker Change: More dealers entering the portfolio trading Counterparties space.
I think if you look at high yield and the performance portfolio trading had in the volatility.
Speaker Change: April.
Speaker Change: Yes.
Speaker Change: Our market share that I, probably wouldn't have predicted which is 15% of the overall market.
Speaker Change: But it is encouraging that.
Speaker Change: Clients are able to leverage that tool.
Speaker Change: And achieved liquidity levels that we haven't seen in this market in the past.
Speaker Change: And it's really all about putting a basket together and having a dealer offset that with the liquidity in the ETF market.
Speaker Change: Other piece, that's important to the growth with portfolio trading is we're seeing the growth of credit futures were partnered with MSCI on a credit future listed on ice ice futures. So we're excited about that that will lead to higher levels of turnover in the fixed income market to successful.
Speaker Change: Launch of credit futures as well as the growth of Etfs. These are all levers that market makers use to hedge a large portfolios.
Speaker Change: And large.
Speaker Change: <unk> list as well so these are all <unk>.
Speaker Change: Trends are all in the right direction for growing portfolio trading in the U S market as well as in the European <unk> market hopefully that answers. Your question, yes, that's great color. Thank you.
Speaker Change: Thank you so much I would now like to hand, the call back over to Chris Concannon for final remarks.
Chris Concannon: Thanks, everyone for joining us today, and we're looking forward to the quarter ahead, and we will talk to you again on the next quarterly call. Thanks again.
Chris Concannon: Thank you for attending today's call you may now disconnect Goodbye.
Chris Concannon: Okay.
Chris Concannon: Yes.
Chris Concannon: Okay.
Chris Concannon: Okay.