07.20.2022

MarketAxess Trading Average Daily Volume up 43%

07.20.2022
MarketAxess Trading Average Daily Volume up 43%

MarketAxess Holdings, the operator of a leading electronic trading platform for fixed-income securities, and the provider of market data and post-trade services for the global fixed- income markets, announced financial results for the second quarter of 2022.

2Q22 Financial and operational highlights

Record levels of estimated market share driving strong growth in trading volume

  • Record composite corporate bond1 estimated market share of 20.2%, up from 17.8%, reflecting broad-based estimated market share gains across global credit.
  • Record estimated combined U.S. high-grade and U.S. high-yield market share of 20.9%, up from 19.1% in the prior year.
  • Record estimated market share across U.S. high-yield, emerging markets.

Eurobonds and U.S. Treasuries

  • Revenues of $182.2 million, up 3%.
  • Total expenses of $97.4 million, up 9% on continued investment in the business.
  • $105.2 million in EBITDA and EBITDA margin of 57.7%, up from 56.3%.
  • Diluted EPS of $1.78, includes an $0.11 per share benefit from foreign currency transaction gains.
  • Declared $0.70 per share dividend; repurchased 178,801 shares for a total cost of $48.7 million.
  • Record 1,935 total active clients, up 5%, reflecting the continued expansion of our global liquidity pool.
  • Total trading average daily volume (“ADV”) of $35.4 billion, up 43%, driven principally by a 64% increase in U.S. Treasury ADV to $22.7 billion and a 15% increase in total credit ADV to $12.3 billion.
  • $238 million in estimated transaction cost savings2 for clients via Open Trading®, our differentiated liquidity pool; $439 million in estimated transaction cost savings2 year-to-date.
  • Record $23 billion in portfolio trading volume, up from $4 billion in 2Q21 and $14 billion in 1Q22.

Table 1: 2Q22 select financial results

Overview of results

Revenues

Credit

U.S. high-grade

  • Commission revenue of $75.1 million (including $23.5 million in fixed-distribution fees) decreased $2.7 million, or 3%, compared to $77.8 million (including $21.4 million in fixed-distribution fees) in the prior year. Higher trading volumes and an increase in estimated market share were more than offset by lower average fees per million (“FPM”). The decline in average FPM for high-grade to $143.35, compared to $174.11 in the second quarter of 2021, was mainly due to the shorter duration of bonds traded (driven by higher bond yields and shorter years-to-maturity). There have been no changes to the U.S. high-grade fee plan.
  • Increase of approximately +120 basis points in estimated U.S. high-grade market share, from 21.1% in the prior year period.

Other credit

  • Commission revenue of $82.3 million (including $8.1 million in fixed-distribution fees) increased $7.4 million, or 10%, compared to $75.0 million (including $7.9 million in fixed-distribution fees) in the prior year. The increase was driven principally by strong estimated market share gains across all other credit products, slightly offset by lower average FPM. The FPM for other credit products was $185.93, compared to $194.49 in the second quarter of 2021. The decline in other credit FPM was due to a larger percentage of trading volume in local market emerging market bonds which have lower fees per million and dealer migration to fixed-distribution fee plans that command lower transaction fees.
  • Record U.S. high-yield estimated market share of 17.3%, up from 14.3% in the prior year on ADV of $1.8 billion, representing an increase 22%.
  • Record Eurobonds estimated market share of 15.1% on ADV of $1.5billion, up 2%. Excluding the impact of foreign currency fluctuations, Eurobonds ADV would have increased approximately 13%.
  • Record emerging markets estimated market share on ADV of $2.8billion, up 13%, with estimated market ADV down 10%. Excluding the impact of foreign currency fluctuations, emerging markets ADV would have increased approximately 14%.
  • Record municipal bond trading volume and ADV of $23.0 billion and $371million, respectively, driven in part by an approximate 170-basis point increase in estimated market share.

Total credit

  • Commission revenue of $157.4 million increased $4.6 million, or 3%. A 15% increase in credit ADV to $12.3 billion, driven by strong estimated market share gains across credit products, was partially offset by lower average FPM. The average FPM for total credit products was $165.75, compared to $184.62 in the second quarter of 2021, reflecting the impact of lower U.S. high-grade average FPM discussed above.
  • Record total credit trading volume.
  • Record estimated combined U.S. high-grade and U.S. high-yield market share of 20.9%, up from 19.1% in
  • the prior year.
  • Record composite corporate bond estimated market share of 20.2%,up from 17.8%.
  • 35%of total credit trading volume was executed via OpenTrading.
  • $238 million ($439 million year-to-date) in estimated transaction cost savings for clients delivered via Open Trading, representing $1,030 in average cost savings per million.
  • Record 1.6 million total credit trades executed, up from 1.3 million executed in the prior year.
  • 92% of credit volume on the platform was executed by institutional clients.

Rates

  • Total rates commission revenue of $6.1 million increased $2.4 million, or 65%, compared to the prior year, driven by a 64% increase in U.S. Treasury ADV to $22.7 billion on strong estimated market share gains. The average FPM for total rates products was $4.21, compared to $4.07 in the second quarter of 2021.
    • Record U.S. Treasury estimated market share of 3.7%, up from 2.3%.

Information services & post-trade services

  • Combined information and post-trade services revenue of $18.5 million decreased $1.2 million, or 6%, compared to the prior year. The decrease in revenue was principally driven by the impact of currency fluctuations and planned customer attrition in connection with the Regulatory Reporting Hub integration. Adjusting for foreign currency fluctuations, combined information and post-trade services revenue would have increased approximately 3%.

Expenses

  • Total expenses of $97.4 million increased $8.3 million, or 9%. The increase in expenses was driven principally by higher employee compensation and benefits as a result of the increase in headcount, increased investments to enhance the trading system and data products, as well as higher technology and communication expenses due to higher subscription costs, market data expense and platform licensing fees

Non-operating

  • Other income: Other income was $4.8 million, representing a $5.9 million increase from the prior year. The current quarter included a $5.5 million foreign currency transaction gain that benefited earnings per share by $0.11.
  • Tax rate: The effective tax rate was 25.3%, compared to 21.8% in the prior year. The higher effective tax rate was driven by a $5.7 million decrease in estimated excess tax benefits related to share based compensation awards.

Capital

  • The Company has $324.8 million in cash, cash equivalents and investments; there are no outstanding borrowings under the Company’s credit facility.
  • A total of 178,801 shares were repurchased in the quarter at a cost of $48.7 million. A total of $100.0 million remains under the current authorization by the Company’s Board of Directors (the “Board”).
  • The Board declared a quarterly cash dividend of $0.70 per share, payable on August 17, 2022 to stockholders of record as of the close of business on August 3, 2022.

Other

  • The Company had a record 1,935 total active client firms and a record 982 active international client firms, representing year-over-year increases of 5% and 6%, respectively.
  • Employee headcount was 684 as of June 30, 2022, compared to 637 as of June 30, 2021, and 676 as of December 31, 2021. The increase in headcount was due to the continued investment in the Company’s growth initiatives, including geographic expansion, trading automation and new trading protocols.

Guidance for 2022

  • Based on the progression of operating expenses year-to-date, the Company is re-confirming its full year 2022 expense guidance range of $385.0 million to $415.0 million and capital expenditure guidance range of $58.0 million to $62.0 million. The Company expects the full year effective tax rate to be at the upper-end of the previously stated range of 24.0% to 26.0%.

Other highlights

  • MarketAxess, Virtu Financial and several leading liquidity providers in the fixed income ETF space, including Citadel Securities, Flow Traders, Jane Street Capital and asset manager BlackRock, announced the formation of a consortium to support the growth of RFQ-hub, a bilateral multi-asset and multi-dealer request for quote platform. RFQ-hub brings asset managers and liquidity providers together to help electronically deliver aggregated and competitive liquidity, streamline workflow and improve pricing with a focus on equity and fixed- income listed and OTC derivatives, structured products and exchange-traded funds.
  • State Street Global Advisors launched the SPDR MarketAxess Investment Grade 400 Corporate Bond ETF (LQIG). The MKTX 400 Index tracks the performance of 400 U.S. dollar denominated investment grade corporate bonds with higher-than-average liquidity relative to the broader U.S. corporate bond market. Powered by MarketAxess’ proprietary liquidity and pricing data – our Relative Liquidity Score and Composite+TM pricing engine – the Index combines actionable liquidity with broad market exposure.
  • MarketAxess and MSCI agreed to enter into a strategic collaboration to create innovative portfolio analytics solutions and co-branded fixed-income indexes incorporating MarketAxess’ liquidity data, including Relative Liquidity Score and Tradability. In addition, MarketAxess plans to leverage MSCI’s ESG ratings to identify and create more liquid and sustainable fixed-income portfolios for its global institutional clients.

Source: MarketAxess

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