The operator welcomes participants to the MarketAxess second quarter 2024 earnings conference call and introduces the speakers. The call may include forward-looking statements and the company's actual results may differ from these statements. CEO Chris Concannon discusses the company's 10% revenue growth and $1.72 diluted earnings per share in the second quarter.

MarketAxess continues to execute its strategy and sees solid growth in commission revenue in most credit products, particularly in international markets. The company remains disciplined in expense management and released positive trading metrics for July. While U.S. credit market share has been disappointing, the company is confident in its core business and plans to regain market share through its global rollout of X-Pro. The company has made key hires, including a new CFO, to strengthen its team. MarketAxess urges investors to focus on long-term trends rather than monthly fluctuations in market share. The company's strategic priorities include targeting the fastest-growing segments of the U.S. high-grade market and expanding its dealer trading solutions.

The company has a clear strategy to improve their client-to-dealer business by focusing on portfolio trading and larger trade sizes. This includes their modernized user interface, X-Pro, which is supported by their proprietary data and analytics. They are also enhancing their high-touch strategy with AI-powered data and launching new tools such as a global multiproduct portfolio trading solution and an AI dealer selection tool. They are also expanding their network to connect with external platforms and provide clients with more trading options.

The company's goal is to create an interoperable marketplace for clients to access liquidity through protocol agnostic solutions. They have seen multidimensional growth in emerging markets, with strong commission revenue and trading volume increases in LATAM and APAC. The company is also seeing growth in local markets trading, particularly in their RFM protocol. The company is excited about the potential for further electronification in emerging markets and has outlined strategic priorities to drive future success.

The company is focused on growing its fixed income trading revenue and enhancing the client experience through the use of AI technology. This includes AI-powered data solutions, an AI-driven portfolio trading tool, and a dealer selection tool. The company has also seen strong growth in international trade volume and trade count, driven by emerging markets and various client segments. Additionally, the company has achieved record market share in municipal bonds.

The company expects to see growth in market share with the additional liquidity from ICE TMC. They have the top 10 municipal dealers signed up for trading on their platform and have seen strong growth in their all-to-all liquidity pool, Open Trading. Hedge fund trade activity has also increased, and the adoption of their automation products is growing. The company's financial performance in the second quarter was strong, with a 10% increase in revenue.

In the second quarter, the company's results included $8 million from the acquisition of Pragma. Revenue from information services increased by 8%, driven by new contracts and strong adoption of data products. Post-trade services revenue also increased by 10%. Other income was boosted by a favorable interest rate environment, but offset by a net foreign currency transaction loss. The effective tax rate was 24.8% and diluted earnings per share were $1.72. Commission revenue increased by 8% to $172 million, with growth in emerging markets, U.S. high grade, and Eurobonds. However, there was a decline in credit fee capture due to product and protocol mix. Operating expenses for the quarter were $116 million, including $8 million from Pragma.

The company is successfully integrating Pragma technologists and using their expertise to drive strategic priorities. Expenses for the year are expected to be slightly below the previously stated range. The company's Board has approved a new share repurchase program of $200 million, in addition to the existing $50 million program. The company has repurchased 243,000 shares year-to-date and has a strong balance sheet with no outstanding borrowings. The company generated $298 million in free cash flow over the past 12 months and is balancing investments for future growth with disciplined capital management. The call is turned back to Chris for closing comments.

The speaker discusses the company's recent financial performance and growth strategy. They mention an increase in market volumes and trading velocity, potential rate cuts, and volatility as indicators of a positive macro backdrop. The company is expanding their client base and product offerings, and they are well-positioned for future growth. They also mention their recent partnership with ICE and the potential benefits of connecting with other liquidity pools.

The partnership between MarketAxess and ICE was created in response to client requests for increased liquidity, and it represents a shift in strategy for MarketAxess. By combining their institutional distribution with ICE's strong retail and private client distribution, the two companies are able to offer a more diverse and beneficial liquidity pool for their clients. This partnership will allow MarketAxess clients to access odd lot liquidity through Open Trading without having to change their current workflow.

The speaker mentions that the company's investment grade trading on price has attracted private banks and increased liquidity for institutional clients. They also mention the recent acquisition of Pragma, which allows for more algorithm solutions and access to different liquidity destinations. The speaker acknowledges that there has been an increase in volatility and client engagement in the last few days, but it is too early to predict a trend. They note that ETF market makers have been particularly active.

The fixed income ETF market has seen an increase in activity, with HYG and LQD experiencing higher trading volumes. This is due to improved macroeconomic conditions, although it is unclear if the volatility will be sustained. In a higher volatility environment, liquidity becomes more important and clients focus on getting the best pricing for their trades.

The speaker talks about the success of the rollout of X-Pro, a new technology aimed at improving trade activity for their largest clients. They have seen a high adoption rate and are now expanding the rollout to Europe and emerging markets. The speaker is optimistic about the potential of X-Pro.

The development cycle for the new technology is rapid, allowing for faster delivery of new features. This has led to successful implementation of the X-Pro platform globally. The company is focused on transitioning the block market from phone and chat to electronic solutions, with a goal of protecting against information leakage. Over 40% of the TRACE market is currently nonelectronic, and the company sees potential in this market for their new initiatives, Adaptive Auto-X and high-touch offering.

In the third quarter, X-Pro will introduce a high-touch solution for block trade sizes that includes pre-trade analytics and unique proprietary data such as an AI-based dealer selection tool and a new data product called CP Inquiry. This solution is designed to target the underserved 40% of the market that requires block size liquidity. Additionally, the company has also launched an algo solution called Adaptive Auto-X, which helps clients trade without crossing spread and seek liquidity in a more quiet and less market impact method. Both of these strategies are important for the company to pursue.

The speaker discusses the factors that influence clients' preferences for trading solutions. They mention that in calm markets, high-touch solutions are popular, while in choppier markets, algo solutions are preferred. The company is positioning itself to be successful in both scenarios. The speaker also addresses the ICE partnership and the potential benefits and economic structure of the collaboration. They mention that there is a push from clients to break down silos with other liquidity pools in the corporate bond market.

The speaker discusses the motivation behind partnering with ICE TMC and the benefits it brings to MarketAxess clients. They explain the economics of the partnership and their willingness to connect with other venues if it adds unique liquidity to their platform. A question is then posed to Ilene, who has recently joined the call.

The speaker explains that the company is focused on balancing growth and margins. They have been investing in growth initiatives and have seen some success, such as increased efficiency from recent acquisitions. They also mention upcoming hires that will drive growth in the second half of the year, but may also add some expenses. Overall, the company is striving for a balance between growth and cost management.

The speaker discusses the growth potential in emerging markets, particularly in local currency volumes. They mention the addition of India to the index and the increasing use of portfolio trading in these markets. They believe that their platform is well-positioned to take advantage of this growth.

The speaker discusses the increase in demand for portfolio liquidity in emerging markets and the benefits seen in their portfolio trading tool. They also mention record block trading in emerging markets, driven by local markets. They believe this is a positive trend and that emerging markets are still highly in demand among global investors. The speaker also addresses a question about the recent ICE agreement and clarifies that market share will be reported based on where the trade reports flow from, and that both MarketAxess and ICE are leading liquidity pools in the muni market.

The company believes that connecting two leading liquidity pools will provide clients with access to liquidity in the bond market. This structure has been successful in other markets and addresses the need for resources dedicated to collecting assets rather than technology for trading. The company will be transparent about where transactions take place and who benefits from the revenue. When it comes to pricing, the mix between high yield and investment grade may affect it, but the company's high-touch strategy within X-Pro can counter any potential pressure from portfolio trading. Overall, the company's fee capture and pricing have remained stable.

The speaker discusses the company's recent success in portfolio trading and municipal bonds. They also mention the impact of different fee plans and how the current macroeconomic environment, specifically the steepening of the curve and expected rate cuts, could potentially benefit the company's duration and pricing for high grade bonds. However, they note that it is still early days and they need to see how things play out.

The speaker discusses the sensitivity of the platform's fee captures to factors such as weighted average years to maturity and yields. They also mention the new high-touch solution which targets larger trade sizes and has higher margins due to lower variable costs. Another analyst asks a question about this and the speaker provides additional information.

Chris Concannon discusses the recent market volatility and its impact on portfolio trading. He notes that it is still early to draw any conclusions, but there has been a decrease in portfolio trading activity due to wider spreads. However, portfolio trading remains a useful tool for clients in times of high volatility. In the long term, portfolio trading may be more challenging to execute in volatile markets compared to periods of low volatility.

The speaker explains that the company's capital allocation strategy is focused on driving value for shareholders through cash generation and flexibility. They plan to continue reinvesting in the business and making acquisitions to enhance their capabilities and efficiency. The new buyback authorization reflects the Board's confidence in the company's future performance.

The speaker discusses the importance of utilizing cash and balance sheet rigorously and with discipline, and mentions plans to return capital to shareholders through dividends and buybacks. They also mention the growth potential of their information services business and their excitement about upcoming products and initiatives.

The company has successful data products in high-grade, high-yield Eurobonds and emerging markets, but sees great opportunities in the international sector, particularly in local markets. Real-time data feeds and products like tradability and AI Dealer Selection are designed for both traders and portfolio managers. The company also has a partnership with MSCI for fixed income indexes and is excited about the launch of CP+ for munis, which will help power their automation suite and provide much-needed real-time data in the muni market.

The speaker discusses the potential for growth in their current product mix, as well as opportunities for future growth through their pipeline. They mention their partnership with ICE and the possibility of connecting to ICE's other execution assets, such as BondPoint and NYSE Bonds. They also mention the growing SMA market and their platform's ability to attract SMA activity.

Chris Concannon explains the benefits of the partnership between their company and another in the retail market, and how it will contribute to overall growth. He also addresses any potential regulatory concerns and concludes by expressing excitement for the future.

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