ICE Partnership

Q: What are the goals and benefits of the ICE partnership?

A: The ICE partnership allows MKTX to connect its institutional liquidity pool with ICE's strong retail and private client distribution, enhancing liquidity access for clients. This strategic shift opens MKTX's network to external destinations, leveraging relationships and technology from the Pragma acquisition to connect liquidity pools and benefit clients ( , ).

Market Volatility Impact

Q: How has recent volatility affected MKTX's business?

A: Over the past three days, increased market volatility has led to heightened client engagement and positive trends on our platform. ETF trading volumes surged, with HYG volume rising from an average of 30 million shares to over 100 million shares per day, and LQD increasing from 45 million shares to over 50 million shares per day. This volatility has spurred more active participation from ETF market makers and boosted Open Trading liquidity provision to around 50% in high-yield markets ( ).

X-Pro Rollout

Q: What impact has the X-Pro rollout had on client behavior?

A: The X-Pro platform rollout has been successful, with over 60% of trade activity from our largest clients now coming through X-Pro. In Q2, 56% of portfolio trades were executed via X-Pro, indicating increased adoption and efficiency. The cloud-based technology enables rapid development cycles and addresses client needs more effectively ( ).

Moving into Block Trading

Q: How is MKTX approaching larger trade sizes and block trading?

A: MKTX is targeting the significant block market, where over 40% of TRACE trades are above $5 million. We are rolling out a high-touch solution in X-Pro that replicates the current phone-based market, focusing on information leakage protection and enriched with proprietary data like AI-based dealer selection and CP inquiry. Additionally, our Adaptive Auto-X algo helps clients execute large trades by slicing them into smaller sizes. Both strategies are crucial to capture different market conditions ( ).

Growth and Margins

Q: How is MKTX balancing growth initiatives with margin expansion?

A: MKTX is striking the right balance between investing for growth and maintaining efficiency. We've seen efficiencies from past investments, such as the Pragma acquisition. Important hires and planned expenses like marketing and technology will add approximately $10 million in expenses in the back half of the year. We remain disciplined, focusing on growth while running an efficient organization ( ).

Pricing Dynamics

Q: Does increased portfolio trading pose a pricing headwind?

A: Overall, pricing remains stable with no significant changes to the fee structure. Protocol and product mix, including the growth of portfolio trading and increased muni business, impact fee capture. Macroeconomic factors like yield curve steepening and rate cuts can positively affect pricing. For example, a one-year increase in weighted average years to maturity can benefit high-grade fee capture by approximately $15 per million ( ).

Capital Allocation

Q: What are MKTX's capital allocation plans, including share buybacks?

A: MKTX's new $200 million buyback authorization provides flexibility to opportunistically repurchase shares when it benefits shareholders. Our capital allocation priorities include reinvesting in the business, pursuing bolt-on acquisitions like Pragma with rigor and discipline, and returning capital through dividends and buybacks. Our strong cash-generative model allows us to fund growth while optimizing capital for shareholder value ( ).

Emerging Markets Growth

Q: What is MKTX's growth outlook for Emerging Markets?

A: Emerging Markets represent one of the largest opportunities outside the U.S. credit market. MKTX continues to see growth in EM, with local market revenue up 22% in the quarter. Factors like index changes—such as India being added—and increasing demand for portfolio and block trading in EM contribute to positive growth prospects ( ).

Information Services Initiatives

Q: How is MKTX driving growth in Information Services?

A: MKTX is enhancing its Information Services by introducing products that aid traders and portfolio managers, like AI-based dealer selection and CP inquiry. There's significant opportunity in international markets with CP+ for EM, especially in dark markets lacking transparency. The partnership with MSCI on indexes positions us to capitalize on the shift towards passive fixed income strategies. Additionally, the launch of CP+ for muni offers new real-time data products ( ).

Expanding ICE Partnership

Q: Is there potential to expand the ICE partnership to other ICE assets?

A: While the initial focus is on connecting with ICE's TMC platform, there's openness to expanding connectivity to other ICE execution assets like BondPoint and ICE Bonds as they integrate. This expansion could further leverage the growth of the retail market and SMA activity, benefiting clients with broader liquidity access ( ).

Regulatory Risks

Q: Are there regulatory risks associated with the ICE partnership?

A: MKTX does not anticipate any regulatory concerns with the ICE arrangement, as it involves mutual representation of liquidity on both platforms without competitive overlap in muni execution. The structure is designed to benefit clients through technical connections and commercial relationships and is not expected to raise regulatory issues ( ).