The paragraph introduces the MarketAxess Third Quarter 2024 Earnings Conference Call, which is being hosted in a listen-only mode with a question-and-answer session to follow. It mentions the call is being recorded on November 6, 2024, and is turned over to Steve Davidson, Head of Investor Relations. The call includes updates from Chris Concannon, CEO, Rich Schiffman, Global Head of Trading Solutions, and Ilene Cozelle Bieler, CFO. The discussion includes forward-looking statements, with risks detailed in the annual report. Chris Concannon announces that founder and Executive Chairman Rick McVey will retire from the Board at the end of the year to focus on family and philanthropy.

The paragraph discusses Rick's influence and contributions to MarketAxess and announces Carlos Hernandez as the new Chairman of the Board following his career at J.P. Morgan. It highlights the company's third-quarter results, noting a 20% revenue growth and a 30% increase in diluted earnings per share, thanks to strong market volumes and disciplined expense management. The paragraph also mentions a recent decline in U.S. high-grade market share due to changes in trading patterns, emphasizing the importance of looking at long-term trends rather than month-to-month fluctuations. The company has a strategy in place to regain market share growth in the U.S.

The paragraph discusses the company's progress and strategies in the global fixed income market, highlighting several key initiatives and achievements. They have launched a block trading capability targeting high-value client orders in the U.S. high-grade market and plan to introduce traditional RFQ on X-Pro to European clients by early 2025. There's momentum in their emerging markets offering with a new block trading solution. A strategic data partnership with S&P Global combines their market data with S&P's bond pricing solution. Notably, revenue from outside U.S. credit has increased significantly since 2019. The company is experiencing strong growth in emerging markets, especially in Latin America and Asia-Pacific, with a focus on local markets and protocols like RFM driving significant trading volumes. Overall, the company is optimistic about the emerging market electronification opportunity.

The paragraph discusses the company's strategic priorities for increasing market share. It highlights the successful rollout of the Global PT solution in Europe and an update to the X-Pro interface, which has received positive client feedback. The company achieved a 20% market share in U.S. credit portfolio trading in the third quarter, a significant increase from the previous quarter. Future plans include launching traditional RFQ on X-Pro in Europe and leveraging X-Pro's analytics for block trade sizes. The block strategy features an AI-driven dealer selection tool and a new data set, CP+ for blocks. Additionally, growth is noted in the dealer-to-dealer segment, particularly with Auto-X for dealer RFQ and in Eurobonds. The company anticipates a positive operating environment due to a robust new issue calendar in 2024, with significant increases in U.S. high-grade and high-yield trading.

In the third quarter, high-grade investments showed strong performance, with rates above 80% and a 91% exit rate in September. Despite lower yields due to recent rate cuts, investor interest in high-grade ETFs and mutual funds increased by 158% year-over-year, helping to keep credit spreads tight. Increased trading activity and a preference for longer-duration bonds boosted U.S. high-grade fees. The trading business saw international growth, with trade volume up 23% and trade count up 16% from the previous year. Key client segments like hedge funds and private banks significantly increased trading activity, contributing $254 billion, or 28% of total trading volume. Dealer-initiated trading showed a notable rise, especially in Eurobond's Mid-X trading. Access IQ also saw a 32% increase in average daily volume, highlighting strong results in wealth management and private banking solutions.

The paragraph discusses the company's efforts to expand its private banking business in the U.S. by onboarding a major U.S. bank to access IQ. The company has increased its market share in municipal bonds and launched connectivity with ICE bonds, which received positive client feedback. Portfolio trading for munis grew significantly, with over $500 million in trading volumes executed by October. The company plans to launch CP+ for munis in December with full integration expected by early 2025. Open Trading, the company's liquidity pool, achieved record trade counts and growth in hedge fund activity, with a notable increase in Average Daily Volume (ADV) and participation. The automation suite of products is seeing growing adoption, contributing to the company's position as a leading source of secondary liquidity in U.S. credit markets.

The company reported strong growth in its automation trade volume and record trade count, with three-year compound annual growth rates of 31% and 40%, respectively. Automation now accounts for 11% of total credit volume and 27% of total credit trade count. There was a 24% increase in algo responses from dealers, and the company is integrating technology from the Pragma acquisition to enhance its automation capabilities. Financially, the third quarter saw a 20% revenue increase to $207 million, marking the first quarter of positive operating leverage since 2020. Commission revenue rose 20% despite a decrease in U.S. high yield, and Information Services and Health Trade Services revenues also grew. Other income increased due to gains on the U.S. treasury portfolio.

The company reported an effective tax rate of 23% and a 30% increase in diluted earnings per share, reaching $1.90. Commission revenue rose by 20% to $180 million, primarily driven by strong growth in various markets. A decline in total credit fee capture was attributed to lower high-yield activity and portfolio trading. Operating expenses for the third quarter increased by 14% to $120 million, partially due to the impact of Pragma and unexpected variable costs. Despite anticipated shifts in fixed expenses, the company expects full-year 2024 expenses to align with previous guidance, slightly below the range of $480 million to $500 million.

The paragraph provides an update on the company's capital management and cash flow. As of September 30, they have a strong balance sheet with $602 million in cash, cash equivalents, and investments, up from $559 million last quarter. They generated $310 million in free cash flow over the past 12 months, a 4% increase from the previous quarter. Year-to-date, they repurchased 297,000 shares for $64 million, with $236 million remaining under current authorization. The company believes they are investing well for future growth while managing capital prudently. Chris Concannon then summarizes the company's growth strategy and recent successes, highlighting improvements in financial results, market volumes, client engagement, and product rollout. They remain optimistic about delivering continued growth and invite questions from the audience.

In this discussion, Chris Concannon responds to Chris Allen's questions about October's market performance and the company's block trading solution. Concannon highlights that October was a record-setting month, with over $1 trillion in trading volume and records in credit, rates, emerging markets, and Eurobonds. There was also an increase in U.S. high-yield market share and high-grade fee capture. He notes a market-wide decline in portfolio trading from September's spike but sees a natural level at 10% of the market. Additionally, block trading (trades over $5 million) increased significantly, reaching close to 40% of the market.

The paragraph discusses the recent launch of a high-touch strategy called X-Pro, aimed at targeting the block trading market, which accounts for 30% to 40% of the overall market. The strategy was introduced to counter a shift of large block trades to phone and chat channels. The key feature of this new offering is pre-trade analytics designed to prevent information leakage, crucial for traders handling large blocks. Additionally, the platform provides AI-driven dealer selection data, which helps clients choose responsive counterparties, and has received positive feedback. Despite being newly launched, there is optimism about the impact and effectiveness of this strategy.

The paragraph discusses a new trading platform that is currently being tested with pilot clients and has received positive feedback. The strategy is to replicate phone and chat trading with improved data and information, reducing information leakage and making trades more efficient. The full rollout is expected by 2025, with enhancements planned before the end of this year and into the first quarter. The focus is on high-touch strategies, including block and portfolio trading, targeting traders individually. The platform utilizes proprietary data to provide unique market insights, aiming to attract larger block and portfolio trading sizes. Additionally, it addresses the need for firms to adapt to changes in trader-to-trader behavior.

The paragraph discusses the company's progress and focus on high-touch large block trades, acknowledging that some traders are not heavily involved in electronic trading. The company is doing a significant amount of block business, around 23% of their volume. They aim to engage traders who are less active in electronic markets. The discussion shifts to portfolio trading, where the company is improving its offerings, despite starting from behind. Recent enhancements include a new feature for benchmark trading. The company is seeing gains and aligning its market share with competitors, with expectations of continued growth and improvement.

The paragraph discusses the company's efforts to enhance its portfolio trading tools and analytics, particularly in high yield and global markets. Although not yet on par with competitors, the company is seeing growth in market share and plans to enhance its product offerings by the end of the first quarter. The focus is on providing unique data and analytics to help clients manage their portfolios effectively. A new partnership with S&P is also highlighted, where both parties benefit from shared data, expected to improve pre-trade analytics and client support.

The paragraph discusses a partnership between the speaker's firm and S&P Global, emphasizing the significant role S&P Global plays in the equities and fixed income sectors through their indices, such as the iBox index, which supports major fixed income ETFs. The partnership involves the speaker's firm providing CP+ data to power S&P Global's end-of-day evaluated pricing tool, enhancing the pricing of these ETFs. This collaboration is particularly significant in the U.S. high-grade and high-yield markets, aligning well with the ETF arbitrage sector and expanding the firm's data footprint. The reference data resulting from this partnership is set to launch by the end of the quarter. The paragraph also transitions to mention a question from Benjamin Budish of Barclays about block trading and the potential financial impact of increased electronification in this area, emphasizing its potential revenue effects despite coming in at a lower-than-average fee per million (FPM).

The paragraph discusses the company's pricing structure for various trading scenarios. Large trades usually follow a regular pricing schedule, but discounts are available for certain trades, such as single dealer trades. The company offers free process trading, unlike competitors who charge for it. They aim to provide a seamless workflow for buy-side traders, allowing them to execute trades more efficiently and privately while maintaining market information confidentiality. Fee capture is related to the value the company adds; higher fees are captured when breaking blocks into smaller trades. Directly negotiated trades with dealers involve minimal value addition and fees, while trades involving greater competition, like Open Trading, offer higher fee capture opportunities.

In the paragraph, a discussion occurs between two individuals, Benjamin Budish and Patrick Moley, facilitated by an operator. Budish thanks the operator and passes the dialogue to Patrick Moley from Piper Sandler. Patrick inquires about the upward trend in total credit fee per million, comparing the Bloomberg duration index's current standing at a seven-year range to its previous position of 8.5 to 9 years in 2020 and 2021. He asks what is needed to restore the duration to the previous range and the timeframe for achieving it. He also references a previous statement indicating a $15 million increase in high-grade fee per million for every additional year in duration and a $3 million to $5 million increase for every 100 basis point decline in rates, confirming if this expectation still holds. Ilene Fiszel Bieler responds, thanking him for the question.

The paragraph discusses the weighted average years to maturity observed on a platform, which has increased from 8.6 years in the second quarter to about 9 years in the third quarter, and further to 9.1 years in October. This duration is consistently above Bloomberg's figures. The sensitivity of the platform's performance to these durations is considered beneficial, with a one-year increase in maturity benefitting high-grade trading by approximately $15 per million. Additionally, a 100 basis point reduction in yield can increase high-grade fee capture by $3 to $5 per million. The conversation then moves to Jeff Schmitt from William Blair, who asks about the growth and market share increase in emerging markets, particularly in Latin America and APAC, and the competitive landscape in these regions. Chris Concannon responds to the inquiry.

The paragraph discusses the company's growth in emerging markets, highlighting a 19% year-over-year increase in Q3 and a 24% rise in block trading volume. It mentions excitement around their portfolio trading solutions in emerging markets, particularly in dollar-denominated and local market bonds, which exhibit a 50-50 growth split. The competitive landscape is dominated by traditional brokered trading, with limited electronic trading penetration, but new electronic solutions are emerging. The request for market protocol is contributing to block trading success by limiting information shared with dealers. Rich Schiffman adds that their global network of participants, especially in emerging markets, strengthens their competitive position through Open Trading.

The paragraph discusses significant growth and activities in electronic trading for both clients and dealers in the LatAm and APAC regions. Open Trading now constitutes almost 45% of the liquidity provided, showing a 600 basis points increase year-on-year. This platform enhances liquidity and pricing for clients, drawing them towards electronic trading in both hard currency and select local markets. For dealer-to-dealer channels, there is a strong focus on extending automated services to improve liquidity management and risk movement. Investment is being made to enhance the RFQ protocol and automation solutions so both buy-side and sell-side traders can efficiently seek liquidity.

The paragraph discusses recent developments and future plans in automated trading and liquidity management. It highlights a new protocol called "Work up," which enables traders to expand the size of their trades without revealing the full amount initially, receiving positive feedback. Additionally, the paragraph mentions investment in single price auctions through a product named "Mid-X," which has seen success in the European Eurobond market and is expected to expand to the U.S. by 2025. These initiatives are part of significant investments in the dealer business segment. Jeff Schmitt acknowledges these points, and Dan Fannon from Jefferies prepares to ask a question related to deferred fixed investments as the company exits 2024.

Ilene Fiszel Bieler discusses the company's spending priorities, highlighting that a portion of the $10 million in expected fixed costs, including tech investments, marketing, travel, and new hires, has already been incurred. However, there has been an unexpected increase of around $1.5 million in variable costs due to higher volumes and activity on the platform. Despite these shifts, the company expects to remain within its financial guidance, although some fixed costs, like new hires, may be delayed into 2024. As for 2025 planning and budgeting, it's still in the early stages, with a focus on continuing significant investments made over the past two years.

The paragraph discusses the firm's focus on building proprietary data sets and maintaining a culture of expense discipline, contributing to positive operating leverage. It mentions upcoming technology investments and the need to balance growth with disciplined expense management. Dan Fannon asks Chris Concannon about potential changes in financial institutions' behavior due to a change in the White House. Concannon responds that the shift toward electronic trading is driven more by commercial reasons than regulation, and that asset managers are growing assets under management in fixed income markets at lower per million revenue capture due to the current expense ratios.

The paragraph discusses a company's strategic positioning and its partnership with ICE (Intercontinental Exchange). The company provides technology solutions to institutional investors, aiming to reduce costs and streamline processes, which positions them well globally regardless of regulatory or political changes. They felt confident about their position in the fixed income market around the election. Rich Schiffman highlights their longstanding relationship with ICE, involving data exchange and technology provision. The recent partnership has shown promising results, especially in terms of liquidity in municipal and high-yield credit trading via ICE's Open Trading platform.

The paragraph discusses a successful partnership focused on providing unique liquidity through micro slots, particularly in the municipal bond market, enhancing opportunities for investor participants. The partnership involves integrating ICE's offerings, like adaptive Auto-X, to improve liquidity access for traders, including leaving resting orders. The collaboration, which advanced quickly due to effective teamwork between the tech teams, complements existing services. Additionally, it mentions a positive trajectory for the ICE bond partnership and highlights potential future collaboration on treasury clearing.

The paragraph discusses an increase in trade velocity in 2024, with high-grade industry volumes rising by 30% year-on-year. Chris Concannon attributes this rise to several factors, including attractive fixed income yields leading to high inflows into ETFs and mutual funds, advancements in investment tools like portfolio trading, and broader macroeconomic conditions. These factors are contributing to faster exposure and changes in the fixed income market, though overall turnover hasn't yet reached historic levels despite the improvement relative to recent history.

The paragraph discusses the excitement around the current rate environment and the impact of new issue markets on market share and turnover velocity. The speaker notes that there has been record new issue volume in 2024, and they expect this trend to continue into 2025, thanks to maturing debts from large corporations. The macroeconomic environment is being influenced by a higher rate environment and expected rate adjustments, with details on these adjustments forthcoming. There's anticipation of increased market volatility, as credit issues lead to downgrades and wider spreads, which can be economically beneficial. While there's high volatility in the rates market, it's not yet affecting the credit market. Overall, the speaker sees the current macroeconomic conditions as favorable.

In the paragraph, Simon Clinch asks about the impact of potentially high bond yields and other market factors on the long-term normalized level of total credit fee per million. Ilene Fiszel Bieler responds, explaining that various elements affect fee capture, including the percentage of high-yield products, which generally increase fees, and portfolio trading, which tends to decrease them. She reflects on the past five years, noting an average fee capture level of $173 per million, with a peak of $204 during COVID-19 due to exceptional circumstances. She suggests that while the future may not reach the COVID-19 levels, there is still potential for improved fee capture if certain favorable conditions occur.

The paragraph discusses the impact of various factors on fees per million in a trading environment. It highlights recent improvements in fees from September to October and mentions the influence of increased duration and activity in Open Trading on fees. Despite a negative impact from portfolio trading, other factors such as a lower rate environment, an upward sloping yield curve, and increased trading activity could potentially improve fees per million. The paragraph concludes with a mention of the long-term trend toward a more electronified high-grade market, which has seen a slow increase in electronic trading share over the years. Brian Bedell from Deutsche Bank then asks a question about the future of electronification in the high-grade market, alluding to a previous statement suggesting it could reach 90% electronification from 50% currently.

Chris Concannon expresses optimism about the pace of electronic trading's adoption, suggesting it will accelerate faster than in the past 25 years due to foundational work already done and increased investments by both dealers and clients. He notes that the initial phase of electronic conversion required familiarizing participants with the network. Now, both clients and dealers are more readily embracing electronic solutions, such as portfolio trading, which has grown significantly in adoption. Concannon sees this as a promising time to introduce similar efficiencies in block trading, enabling a smooth transition to electronic systems while ensuring protection of information for both traders and dealers.

The paragraph discusses the adoption and growth of electronic block and portfolio trading by traders, driven by client demands for cost reduction and efficiency. The company's automation solutions have been growing rapidly, now accounting for 27% of trades on their platform, with automation volumes at a record level of 32% year-over-year growth. The company is optimistic about the commercial pressures driving the move towards electronic trading and is enthusiastic about their current offerings. Michael Cyprys from Morgan Stanley asks about the future of the automation suite, the challenges it faces, and the evolution of the adoptive Auto-X suite. Chris Concannon confirms the high client interest and highlights the significant growth in automation.

The paragraph discusses the growing adoption and success of an automation suite used by clients across various financial products globally, including EM, Eurobonds, and munis. The suite is noted for handling increasingly large trade sizes and integrating a new next-gen component leveraging Pragma technology, which provides smart order management and a seamless no-touch solution. There is particular excitement about the tool's adaptation for smaller trades in the muni market, enhancing workflow efficiency on the buy side. The company's advancements and enhancements in automation tools, including the adaptation of the Auto-X tool, are seeing positive results.

The paragraph discusses the diversification of the company's emerging markets (EM) business across different regions. About 30% of their EM clients are from the U.S., with a larger 40% from EMEA, and the rest split between growing clients in APAC and LatAm. The diversified nature of their client base and EM products means that potential U.S. tariffs would have a limited impact on their business, as clients focus more on global investment opportunities and the attractiveness of sovereign debt. Overall, the company is confident in the stability and growth of their EM market.

In this paragraph, Chris Concannon expresses gratitude to several individuals during a company call, highlighting Rick's 25 years of contribution, Carlos Hernandez's new role as Chair, and Nancy Altobello's dedication as Lead Director. He humorously mentions Nancy's extensive work hours and acknowledges Rick as a significant investor who will continue to engage in future discussions. The call concludes with anticipation for the next quarterly meeting.

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