The operator introduces the MarketAxess First Quarter 2024 Earnings Conference Call and turns it over to the Head of Investor Relations, Stephen Davidson. He introduces the Chief Executive Officer, Chris Concannon, who will provide a strategic update on the company. The Global Head of Trading Solutions, Rich Schiffman, will discuss the market performance for the quarter and then the financial results will be reviewed. Davidson reminds listeners that the call may include forward-looking statements and directs them to the risk factors in the company's annual report and quarterly earnings release. Concannon highlights a 4% total revenue growth and $1.92 earnings per share for the first quarter.

The company recognizes the importance of being strong in the faster growing areas of the market and has a strategy to increase their market share. They are focusing on expanding their global client franchise, delivering record commission revenues, and managing expenses. The low levels of credit spread volatility have impacted their US high yield business, but they expect their estimated share to recover with more normal levels of volatility. There was an improvement in their estimated high yield share in the back half of April.

The strong new issuance calendar and increase in trading velocity are positive signs for the market. Portfolio trading and dealer initiated trading have seen significant growth, driven by the need for clients to do more with less. Investments in portfolio trading solutions have resulted in share gains, and automation tools have improved dealers' trading efficiency. The electronification of portfolio trades has also led to an increase in ticket count, and X-Pro, a new trading platform, is now handling a majority of credit trade count for the company's largest clients.

The growth of portfolio trading is a significant development in the market, representing 10% of the high-grade and high-yield TRACE market in April. This trend highlights the demand for immediacy and efficiency from clients, and the potential for increased e-trading in the future. However, low credit spread volatility has played a role in this growth. The company is also investing in higher margin areas of the market, such as credit algorithms and block trading solutions. The client-initiated segment of the market is a $620 million revenue opportunity and is expected to increase in the future, making it a key focus for the company. Overall, the market is moving towards the company's strengths, rather than away from them.

The company is focusing on higher growth areas like portfolio trading and dealer initiated execution while also building solutions for the largest parts of the credit markets. They are expanding their client network and experiencing record adoption of their automation products. There has been a strong increase in trading volume from hedge fund and private bank clients, and the company is seeing growth in their trading business globally.

In the first quarter, our international businesses showed strong performance with record trade volume and count, particularly in emerging markets. This trend has continued into April and we see emerging markets as a significant growth opportunity. We have also made a key hire to lead our global emerging markets division. Our private banking front end, Axess IQ, saw a 22% increase in ADV and a 54% increase in trade count. Our municipal bonds market share also reached a record high. Our all-to-all liquidity pool, Open Trading, saw a 34% share of total credit volume and a 30% increase in hedge fund trade activity. However, lower market volatility and price dispersion have reduced the price improvement opportunity in Open Trading.

The decline in ETF market maker activity has affected the high-yield product area, as shown in the chart on the lower right. However, Open Trading remains the largest source of secondary liquidity in the US credit markets. Stephen Davidson then reviews the company's financial performance, reporting a 4% increase in revenue and a $1.92 EPS. Commission revenue increased by $3 million, but total credit fee capture decreased due to lower high yield activity. Operating expenses are summarized on slide 16.

The first quarter operating expenses included expenses from Pragma and a negative impact from foreign currency fluctuations. The company's balance sheet remains strong with cash and investments totaling $513 million and no outstanding borrowings. The company also repurchased shares and paid out dividends to shareholders. The company's growth strategy is on track, with an increase in new issuance, higher rates, and a growing fixed income market. However, the company is working on improving its market share in US credit and is focused on leveraging X-Pro to retool its trading offering and maintain its leadership position in the investor client e-trading space. The company's goal is to attract the largest and most attractive order flow in the credit markets and provide clients with a comprehensive toolkit to enhance their trading capabilities.

The speaker discusses the company's progress in portfolio trading, including the launch of a new platform and the use of pre-trade analytics. They also mention that portfolio trading is dominated by a small group of traders and that the recent rollout of their platform has led to increased market share in April. They are also focused on adding new clients in this space.

In April, X-Pro made up about 60% of the volume on the platform for portfolio trading. The end of the month is a busy time for portfolio trading, with many portfolios being repositioned. The platform is targeting a small number of substantial PTs, estimated to be around 20-40 per day. The company is confident in their ability to continue this success throughout the month. X-Pro is being rolled out to the overall client base and they are also working on signing up dealers for access to the platform. X-Pro offers new features and allows clients to trade bonds of any size or complexity. It also serves as a cockpit for traders to start their day.

The company has seen positive results from the rollout of X-Pro, a trading platform for their largest clients. They have only reached 16% of their total US credit volume and plan to accelerate the rollout. They are also adding new features and functionality, including pre-trade analytics and unique proprietary data, to the platform. This summer, they will launch a new phase of X-Pro for high touch or block trading, which has received positive feedback from dealers. This solution is dealer-friendly and includes AI Dealer Select to help clients choose the preferred dealer for a given bond.

The speaker, Rich, expresses confidence in their dealer business and mentions their flagship protocol, RFQ, which has been adopted by many dealers. They also discuss their efforts to increase adoption of single price auctions and their plans to offer new tools for dealers, similar to X-Pro for buy-side traders. They believe they will be competitive in this space and are working on both front-end tools and APIs for more efficient trading.

The company is focused on investing in interfaces and protocols to make trading easier for sell-side traders. They have recently rolled out an automation suite for dealers, which has been well received. In April, fee per million was down due to higher PT, but Eurobond pricing was better year-over-year.

Christopher Concannon, CEO of Cboe, discusses the stability of pricing in the past year and the outsized increase in April. He also mentions that portfolio trading has been a focus for the company and has seen a significant market share, particularly in the last day of April. This is due to the demand for fixed income products and the efficiency of portfolio trading for large clients. The month of April saw a number of unusually large portfolio trades, which were record-breaking in size.

The company expects portfolio trading to continue to be an important part of the credit market and is focused on delivering an enhanced solution through X-Pro. They have added tools for pre-trade analytics and increased line item capacity to meet the demand from large clients. The company will continue to report on their portfolio trading volume and has recently repurchased $10.1 million worth of shares. Their approach to capital remains focused on dividends and offsetting dilution through buybacks.

The speaker discusses the company's approach to repurchasing and capital, stating that they will be opportunistic but overall maintain their philosophy. The next question is about the volatility of the high yield market and the increase in share in April, to which the speaker responds that it is a combination of activity from both real money and ETFs. The speaker also mentions added functionality to their PT offering and potential changes to the fee structure to make it more competitive.

The speaker discusses the current state of PT fee capture, which is lower than income business and consistent with competitors in the market. They also mention a shift to levying fees on dealers, which will be implemented in the next major release. They expect PT to continue to be a significant part of their business, especially in the current low credit spread environment.

The company is seeing a high level of portfolio trading (PT) despite slight decreases in April due to spikes in credit spread volatility. They expect PT to remain an important tool for clients, but do not anticipate massive growth in the market. The company's expenses are tracking towards the low end of their guidance for the year, and they attribute this to factors such as volumes. They do not anticipate significant changes in expenses for the rest of the year.

Stephen Davidson and Christopher Concannon discuss the factors that have contributed to the company's recent efficiency and cost-cutting efforts. They mention the completion of investments in X-Pro data ADX and a more disciplined approach to expenses. They also mention the potential for incremental new hires throughout the year and the seasonality of hiring. Davidson and Concannon remind the audience that 18% of expenses are variable and can fluctuate with volumes. They state that the company is currently tracking towards the lower end of their guidance and it is too early to update their projections for the year.

The speaker explains that X-Pro, a new trading tool, has a modern interface and is designed to handle large lists more easily. It is built on cloud-based technology and is expected to improve productivity and attract more business. The focus will be on developing the front end for traders to use, and it has already been well received for managing large lists.

The company has implemented new technology that allows for rapid development and introduction of new features and functionality, based on trader feedback. This has made them more competitive in the market. There has been a decline in high-grade market share, attributed to an increase in portfolio trading and challenges in dealer-initiated business. However, overall market volumes and automation in the high-grade market have increased.

The speaker discusses the success of Q1 automation, which saw a 40% increase and has shown to be a sticky trend. They also mention the growth and penetration of their automation solution in the high grade market. In regards to X-Pro, it currently accounts for 16% of their volume and 60% of their portfolio trades, and they plan to roll it out globally to replace their legacy user interface. They see potential for further growth with the use of X-Pro for portfolio trading and are excited to continue its rollout.

The biggest opportunity for X-Pro is the block trading solution, which addresses concerns about information leakage and allows clients to engage with dealers directly. X-Pro is being rolled out and targets the $3-10 million size bucket, which is a large part of the TRACE market. X-Pro will eventually be used by all traders and clients. The use of X-Pro will increase the electronification of the market, particularly for large block sizes.

The company wants to provide traders with a central point to access various trading tools and protocols, making it easier for them to manage their orders. This is a more efficient approach compared to their current system, which is more siloed and requires more effort from traders. The goal is to replicate the experience of trading through phone and chat, while minimizing information leakage to specific dealers. This is in line with the trend of firms wanting to do more with less and not hiring as many traders.

The speaker discusses the progress of Pragma, a recent acquisition, within MarketAxess. They mention integrating Pragma into the company's technology framework and highlight the launch of a credit algo. They also note the potential for Pragma technology to be used in other areas of the company.

The goal of the current integration is to have both algos and automation as part of one suite of offerings, with opportunities for further integration of Pragma technology. MarketAxess plans to use Pragma in their dealer-to-dealer business and sees potential for new protocols in that market. The company is excited about the growth in emerging markets, particularly in local markets, and plans to continue focusing on innovation in this area.

In the first quarter, the company saw record volumes, ADV, and commission revenue. Block trading ADV and local markets showed significant growth, particularly in the APAC region. The company believes that bridging the gap in IG market share will come from PT and dealer-initiated RFQ, and the fees for these are comparable to the $150-160 fee per million currently seen in credit.

During a conference call, an analyst asked about the impact of the company's initiative on the pricing of the dealer initiated segment. The speaker, Rich, mentioned that the fee capture in this segment is relatively lower compared to the dealer business, which operates as an all-to-all marketplace. He also noted that about 30% of liquidity delivered to dealers comes from buy-side firms, allowing for a higher fee to be charged. The company sees potential for growth in the traditional client to dealer business and the fee capture remains attractive in this area. The most challenging segment for fee capture is in the PTs, which is more of a workflow solution rather than a marketplace. The speaker did not disclose the current or past percentage of the dealer initiated segment in the company's business.

The speaker says that they are excited about Adaptive Auto-X, an algorithm that is used in the credit space. There are currently 25 clients using it, with 30 more approved and waiting to be onboarded. A new algo will be launched this summer, and the feedback from clients has been positive. There are also some large clients waiting in the pipeline.

The company has received positive feedback from clients about their new product, and they are seeing success in block trading, particularly in emerging markets. The success is due to a protocol launched a while ago and the company plans to roll out a new solution for high-touch trading in the future.

Christopher Concannon thanks the audience for attending the conference and expresses excitement for the upcoming summer projects. He looks forward to updating everyone on the progress at the next quarter call. The operator then concludes the call.

This summary was generated with AI and may contain some inaccuracies.