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    Marketaxess Holdings Inc (MKTX)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$205.80Last close (May 6, 2024)
    Post-Earnings Price$208.67Open (May 7, 2024)
    Price Change
    $2.87(+1.39%)

    What went wrong

    • MarketAxess is experiencing declining market share in U.S. credit markets, particularly in U.S. high-yield trading, affected by low credit spread volatility and increased competition. Executives acknowledged they "are not happy with recent trends in our estimated market share in U.S. credit" , and admitted that high-yield share "has been a bit volatile" and "we've still got a way to come back". The decline is attributed to the growth of portfolio trading and dealer-initiated flow, areas where they face challenges.
    • MarketAxess is late to adopt key trading protocols and is facing strong competition in new growth areas like portfolio trading and dealer-initiated trading. Executives admitted they "have work to do" on single price auctions or matching protocols, which "have become pretty attractive over the past several years". They also recognized that "network effects really matter and you need critical mass," suggesting challenges in gaining adoption.
    • Despite investments, MarketAxess may struggle to capture significant share in portfolio trading due to the concentrated nature of the market and intense competition. Portfolio trading is "quite concentrated somewhere between 30 to 40 traders in the U.S." , making it challenging to make substantial inroads. While they reported a "great day" with 40% share on the last day of April, executives noted the "chunky nature" of portfolio trading and that significant share gains are dependent on capturing trades from this small group.

    Q&A Summary

    1. Portfolio Trading Progress
      Q: Update on progress in portfolio trading and April's 40% share spike?
      A: MarketAxess has focused on portfolio trading (PT) with the launch of X-Pro specifically for PT 9 months ago. In April, X-Pro accounted for 60% of PT volume on the platform. The 40% market share noted on the last day of April was due to a series of portfolios traded, not just one large trade. PT remains concentrated among 30 to 40 traders in the U.S..

    2. X-Pro Rollout and Impact
      Q: Where does X-Pro stand in client and dealer adoption?
      A: X-Pro currently processes 16% of total U.S. credit volume. It was initially rolled out to power users, showing a 20% increase in ticket handling efficiency at the trader level. The PT solution on X-Pro was launched 9 months ago and continues to add features, including pre-trade analytics. A significant phase, including high-touch/block trading, is expected this summer, with positive dealer feedback.

    3. Fee Structures in PT
      Q: Any changes to fee structures in portfolio trading?
      A: Portfolio trading fee capture is at a lower rate than in-comp business and substantially lower than all-to-all Open Trading business. MarketAxess is shifting to a model where fees are levied on the dealer, consistent with market practices, to remain competitive. This change will take effect with the next major release in the coming weeks.

    4. Dealer-Initiated Opportunities
      Q: Update on dealer-initiated business and competitiveness?
      A: MarketAxess feels strong about its dealer business, leading with its flagship RFQ protocol. Approximately 30% of RFQ activity comes from dealers initiating trades. Investments are being made in interfaces and protocols, including matching solutions, to enhance adoption. The dealer business presents promising fee capture opportunities.

    5. Expense Guidance
      Q: What has changed in expense guidance and outlook?
      A: Exiting a period of substantial investments, MarketAxess achieved significant efficiencies. The first quarter compensation run rate of $61 million to $62 million reflects incremental hires. They are tracking towards the low end of expense guidance, with 18% of expenses being variable, moving with volumes.

    6. High-Grade Market Share
      Q: How is institutional RFQ share trending in high-grade?
      A: A slight decline in share is attributed to increased portfolio trading and challenges in dealer-initiated business. Despite this, high-grade market volumes increased by 18% in Q1, with block trading ADV increasing. Automation in high-grade grew by 40% in Q1 and remains sticky.

    7. Block Trading Initiatives
      Q: Views on electronifying large block sizes over next few years?
      A: MarketAxess expects increased electronification across all trade sizes. X-Pro aims to provide traders with centralized access to various protocols and trading methods, enhancing efficiency. The focus is on minimizing information leakage and improving workflow for larger trades.

    8. Pragma Acquisition Integration
      Q: Update on progress and strategic benefits of Pragma acquisition?
      A: Pragma is being integrated into MarketAxess's technology framework. It's key to launching the first credit algo in the credit space. The integration aims to unify algos and automation into one offering, enhancing the dealer-to-dealer business with new protocols.

    9. Adaptive Auto-X Adoption
      Q: How is penetration of Adaptive Auto-X progressing?
      A: 25 clients are live on Adaptive Auto-X, with 30 approved and awaiting onboarding. Client feedback is positive, with benefits in execution quality and limiting market impact on larger block sizes.

    10. Emerging Markets Growth
      Q: What's driving renewed strength in emerging markets?
      A: Record volumes and commission revenue up 11% in Q1. Block trading ADV in EM increased by 34%, with local markets up 30%. Growth is driven by international expansion, particularly in APAC, where volumes grew 33% in Q1 and 40% in April.

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