MarketAxess Holdings, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the market access four quarter and full year 2024 earnings conference call. At this time, all participants are in the listen only mode. Later, we will conduct a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, you may press the star one again. And as a reminder, this conference call is being recorded on February 6, 2025. I would now like to turn the conference over to Steve Davidson, Head of Investor Relations at Market Access. Please go ahead, sir.

Good morning, and welcome to the Market Access fourth quarter and full year 2024 earnings conference call. For the call, Chris Concanon, Chief Executive Officer, will provide you with a strategic update. Rich Schiffman, Global Head of Trading Solutions, will update you on our trading businesses. And then Eileen Fizell-Beeler, Chief Financial Officer, will review the financial results. Before I turn the call over to Chris, let me remind you that today's call may include forward-looking statements. These statements represent the company's belief regarding future events that by their nature are uncertain. the company's actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the company's future results, please see the description of risk factors in our annual report on Form 10-K for the year ended December 31st, 2023. I would also direct you to read the forward-looking statements disclaimer in our quarterly earnings release, which was issued earlier this morning

is now available on our website now let me turn the call over to chris good morning and thank you for joining us to review our fourth quarter and full year 2024 financial results before i provide my strategic update i would like to welcome roberto hornweg to our board of directors effective march 1st 2025. roberto's Wealth of experience in fixed income and international markets will be integral to our continued global expansion. Now, turning to slide three of my strategic update. We've reported solid financial results for the year with 9% growth in revenue, our strongest annual revenue growth rate since 2020, with record commission revenue and record services revenue. In 2024, we also made solid progress with our high-touch strategy focused on meeting both the portfolio trading and block trading needs of our clients. We generated record levels of portfolio trading ADD in 2024 with record levels of U.S. high-grade portfolio trading estimated market share. Building on our focus on blocks during the year, we launched our block trading solution late in Q4 in emerging markets and euro bonds. and we will be rolling out our full high-touch block solution and use credit at the end of Q1 this year. To be clear, 2024 was a build year, and now 2025 will be a year of delivery and execution. We will be highly focused on growing our market share across our leading client-initiated channel, the portfolio trading channel, and the dealer-initiated channel. and we plan to regularly report back on our progress in each of these channels. Slide 4 illustrates the record levels of credit and rates ADD we delivered in 2024. In credit, we generated a record $712 million in commission revenue and record commission revenue across most product areas on record total credit ADD. We have maintained our leadership position in client-initiated RFQ in U.S. credit while growing across our other product areas in emerging markets, euro bonds, munis, and rates. Our challenge was U.S. credit market share across key protocols. I will walk you through how our enhanced functionality, differentiated data, and innovative client solutions are expected to drive increased revenue and market share in 2025. Turning to our rates business, we have been very pleased with our growth in 2024. Trading ADD in our client-focused rates pool increased significantly from 2.9 billion per day in first Q24 to 11.4 billion ADD in Q4. A lot of this growth was driven by more clients leveraging our rates algos, which they use to work larger block orders, with low market impact over a specific time range. In 2025, we expect to see more usage of our client algos as we migrate clients to Pragma technology launching in Q1. Slide five illustrates the strong progress we have made with our high touch block strategy. First, in terms of portfolio trading, we gained over 200 basis points in share in U.S. high-grade portfolio trading in 2024. While we rolled out our new expo platform and delivered portfolio trading tools in emerging markets, euro bonds and munis. In the fourth quarter, with the launch of our global PT offering, portfolio trading in euro bonds doubled to approximately 11 billion in volume compared to 3Q24. In emerging markets, our portfolio trading ADD was up 175% for the full year 2024 versus 2023. And I'm pleased to report that we did over 400 million in portfolio trading volume in munis in 2024. Turning to our high-touch block solution. During 2024, we continued our investment in our block trading solution, and now we are seeing early signs of progress. Since our launch in emerging markets in late November, we've done over half a billion in block trades with over 75% of trades won by dealers recommended by our proprietary pre-trade selection tool. That win rate substantially reduces information leakage on our platform. The feedback from clients and dealers is very positive as we expand our pre-trade analytics and block solutions into euro bonds and U.S. credit in Q1 2025. Before I discuss the expected drivers of our growth in 2025, we released our January trading metrics yesterday, which reflect continued elevated market volumes and disappointing U.S. high-grade market share. We have always guided investors to look at longer-term trends and not read too much into the month-over-month fluctuations in our market share as we experienced in January. During the month of January, we saw continued spread tightening and low spread volatility. We also saw a sizable jump in block volumes in the market and a drop in non-block volumes. Both factors have an impact on our high-grade market share, but they make us even more focused on solving the block trading solution for our clients. We have a clear strategy to return to market share growth in U.S. credit across our three channels, and we believe that we will begin to see the benefits of our investments and acquisitions in 2025, which I will now walk you through on the next slide. Slide six highlights the enhanced functionality, differentiated data, and innovative client solutions that we expect to drive growth in 2025. As I mentioned earlier, our key initiatives are focused on these three channels. The client-initiated channel, where we have a clear leadership position in smaller-sized trades and are focused on increasing our block share. The portfolio trading channel, we are very excited that we just launched our global benchmark portfolio trading solution. We also saw a pickup in high-yield portfolio trading market share in January. And the dealer-initiated channel, where we have been in the process of enhancing our dealer solutions. Slide seven lays out the key deliverables for 2025 as we realize the benefits of our investments, tech modernization, and acquisitions. First, in the client-initiated channel, with our high-touch solution, we are focused on the global rollout of our block trading solution, which began in EM in December. Euro bonds have launched in this quarter, and we are on target to launch our high-touch block trading in the first half of this year. With our low-touch solutions, we're expanding our automation suite with products like Adaptive AutoX to support our global product set and integrate our client algo solutions with key markets like ICE bonds. In terms of Expro, our goal is to roll out traditional RFQ on Expro in Europe in the first half of 2025, while expanding our high-touch and portfolio trading tools in the US. Next, in the portfolio trading channel, we're expecting a full rollout of global benchmark pricing for portfolio trading, and we will continue to enhance our offerings. And last in the dealer initiated channel, dealer RFQ is expected to benefit from the migration to expo for dealers, and we are looking to relaunch mid-ex on pragma technology, both in the first half of 2025. Our expectation is that the client initiative and portfolio trading channels will be feature complete in the first half of 2025, and the enhancements for our dealer initiative channel will be launched and available to dealers in Q2. Slide eight frames the US high-grade market opportunity and the market channels that we are attacking to grow our share. First, the client initiative channel is an estimated 690 million revenue opportunity, representing approximately 63% of the total estimated E-trading opportunity in U.S. high-grade. This is where we have a clear leadership position and have very high share in small-size trades. Blocks made up 39% of the market at the end of 2024, and electronic penetration is very low. This is the most exciting opportunity in the market for us, and we are already seeing positive trends. Next is the portfolio trading channel. which is important from a market share perspective, but smaller from a revenue perspective. X-Pro and the pre-trade analytics that fuel X-Pro have been integral to our share gains in portfolio trading. Last is the dealer-initiated channel, which is also attractive, representing approximately $310 million, or 28% of the TAM. We are attacking this channel with our dealer RFQ, our automation for dealers, Mid-X, and live markets protocols supported by our data and our new expo for dealers. Now, let me turn the call over to Rich to provide you with an update on our trading businesses.

Thanks, Chris. On slide 10, we highlight the key performance indicators for our trading businesses across channels for full year 2024. As this slide clearly shows, with the exception of U.S. credit market share, The key performance indicators across our platform are largely green in 2024, reflecting the underlying fundamental strength of our business. And as Chris highlighted, we have a comprehensive plan and our laser focus to address our U.S. credit market challenges. First, across our client-initiated channel, we generated record U.S. credit ADV up 10% to $8 billion. We saw strong growth in international product ADV to a record $5 billion, up 17%. The EM local markets are the largest opportunity in EM from an addressable market perspective. We produced record local markets ADV of over $1.4 billion, up 18%. Our performance in municipal bonds is a positive example of our product diversification strategy. with record ADV up 22% and record estimated market share of 7% up from 6% in the prior year. We are very pleased with the liquidity coming from our partnership with ICE bonds. This started with municipals and is now expanded to US high yield and price based US investment grade. ICE is becoming a valuable micro lot liquidity provider in US corporate open trading. We experienced another quarter of strong growth in automation with record trade volume of $378 billion, up 25%. We had 245 active automation clients in 2024. 75 clients are now enabled for our algos, up from 13 in the prior year. Open trading ADV was a record $4 billion in 2024, an increase of 8%. Open trading continues to be the largest single source of secondary liquidity in the U.S. credit markets, driven by our diverse liquidity pool. Our share of blocks in U.S. high grade was just over 11%, up slightly from 2023. In the portfolio trading channel, we generated record total PTA DV of over 900 million and record U.S. credit PTA DV of 800 million with record market share of 16%. Last, in the dealer-initiated channel, dealer RFQ and MID-X ADV was a record $1.3 billion, representing a 17% increase over the prior year. While we are in the early innings of our expanded dealer services strategy, we are encouraged by the improvement we are seeing in MID-X activity in Europe. Now let me turn the call over to Eileen to review our financial performance.

Thank you, Rich. Turning to our results, on slide 12, we provide a summary of our fourth quarter financials. We delivered total revenue of $202 million compared to $197 million in the prior year. Looking at each of our revenue lines in turn, commission revenue increased 2%, largely driven by increased market volumes partially offset by lower market share. Information services revenue of $13 million was up 10% and included a $300,000 benefit from FX. The increase was driven by new contracts as we continue to experience strong adoption across our data product suite, especially CP+. Post-trade services revenue of $11 million was flat versus the prior year and included a $200,000 benefit from FX. The prior year period included over $1 million in one-time resubmission revenue. Technology services revenue of $4 million increased 41%, driven by higher pragma-related license fees. Total other income decreased approximately $2 million due principally to mark-to-market losses on our U.S. Treasury portfolio in the current quarter of approximately $2 million versus a gain of $1 million in the prior year period. The effective tax rate was 23%, and we reported diluted earnings per share of $1.73. On slide 13, we provide more detail on our commission revenue and our fee capture. Total commission revenue was $175 million compared to $172 million in the prior year. Strong growth in credit commission revenue across emerging markets of 18%, Euro bonds of 10%, and municipals of 6%, was partially offset by 19% decline in US high yield and lower levels of credit spread volatility. The reduction in total credit fee capture from the prior year was driven principally by product mix, specifically lower high yield activity. Total credit fee capture was in line with 3Q24 levels. The decline in fixed distribution fees was principally driven by dealer migrations to variable fee plans. On slide 14, we provide a summary of our operating expenses Fourth quarter operating expenses of $122 million increased 2% compared to the prior year, as we anniversary the Pregma acquisition. Higher employee comp and benefits, tech and communications, and marketing costs were partially offset by lower depreciation and amortization, professional and consulting, and general and administrative costs. Headcount was up 1%. On slide 15, we provide an update on our capital management and cash flow. Our balance sheet continues to be strong with cash, cash equivalents, and corporate bonds and U.S. treasure investments totaling $699 million as of December 31st, up from $602 million at the end of last year. We generated $328 million in free cash flow over the trailing 12 months, an increase of 6% over last quarter. For the full year 2024, we repurchased 341,000 shares for a total of $75 million, including 64,000 shares repurchased during the fourth quarter at a cost of $16 million. As of January 31st, 2025, $220 million remains on the current authorization. We believe we are striking the right balance of investing to drive future growth while at the same time being disciplined stewards of capital. On slide 16, we provide you with our full year 2025 guidance. Total services revenue, which includes information, post-trade, and technology services, is expected to grow in the mid single digits in 2025. We expect total expenses to be in the range of $505 million to $525 million, also based at $476 million in 2024. This would imply a growth rate of approximately 8% to the midpoint of the 2025 range. This includes the full year effect of 2024 hires inflationary increases, as well as tech investments and higher variable costs. We expect that the effective tax rate will be in the range of 23.5% to 24.5%. Capital expenditures are expected in the range of $65 million to $70 million, of which roughly 80% relates to capitalized software development costs for the investments we're making in new protocols and trading platform enhancements. Now, let me turn the call back to Chris for his closing comments.

Thanks, Eileen. In summary, on slide 17, we delivered solid financial results in 2024. In 2024, we made solid progress building our portfolio trading tools, our high-touch block trading solution, and our dealer solutions. Our focus in 2025 is now on realizing the benefit of our investments and the acquisitions and delivering those solutions across all three of our channels. 2025 is a year of delivery, and we look forward to reporting on the progress through the coming quarters. Now, we would be happy to open the line for your questions.

Thank you, and we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press the star followed by the number one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press the star one again. And just a reminder to please limit yourself from asking one question. And if you have any further questions, please rejoin the queue. With that, your first question comes from the line of Chris Allen with Citi. Please go ahead.

Yeah, morning, everyone. Thanks for taking the question. I wanted to talk about the block trading launch in the U.S. I'm kind of curious why you led with emerging markets, your bonds first. When we think about the block trading launch, which we even anticipate in the U.S., just how integral is having the deals on board for success on block penetration moving forward and what steps you're taking to ensure that success?

Sure. Thanks, Chris. And yes, I'm pretty excited about both where we are from a block trading perspective and obviously very excited about the launch, the pending launch in the U.S. I've been talking about our high-touch solution for quite some time, so it was great to see it launched in December of last year. What we did is targeted EM and then Eurobonds first, largely because of the pre-trade analytics that we have in both those markets from a great inventory of dealer axes We also have pre-trade analytics that we call Smart Dealer Select. And then here in the US, we have AI Dealer Select tools. So it was really, when we looked at and added up all the pre-trade analytics, we were very excited about what we were seeing in EM in particular. And obviously the clients in EM have been asking for a block solution for some time. So it was really the right market to launch in And we have seen, you know, in the fourth quarter, we did see our EM block market share increase. Blocks in EM increased by about 22%, as I mentioned in our opening remarks. The key ingredient to trading blocks, just taking a step back, and look, we spent a lot of time looking at the electronic market and what the clients want solved. The big challenge for block trading is information leakage. In our bond market, you have to present your interest in an RFQ to get a price back. And so when you're trading a block, you do not want to share that information broadly because of the impact it can have on the market. So that makes all-to-all less attractive for a block, and we've seen that over the years around our block market share for all-to-all. In a liquid market, clients choose all-to-all quite regularly, and we see that in our block trading stats in our all-to-all market. But what a client wants to do is target a specific dealer with a block, and they want a short list of dealers that they want to target. So they reduce that information leakage. The most important point, and this is what we're seeing the success in our tool is, they want to know that that dealer has a high likelihood to respond and execute at a fair price. And so more information than just whether a dealer is axed or showing a price or an indicative price is a key ingredient. So data matters when it comes to block trading. And so on an electronic platform, there's more data that we can present as we present the pre-trade analytics. And we're seeing in our block trading tool, you know, very high hit rates relative to the traditional RFQ. We're seeing about a 90% hit rate in our Eurobond targeted block trading tool based on our axes and our smart dealer selection. So that's an exceptionally high hit rate, where in traditional RFQ, it's closer to 60% to 70% hit rate. We are, you know, it's still early days. We have about 65 active clients using our block trading tool. And more importantly, just in, we launched it in December. We've just done, as of yesterday, over $1.2 billion in volume in our targeted block trade solution. So still early days, but very excited about, one, the volumes that are going through. But more importantly, the experience that the clients are having in that tool. What our clients are asking for is what we call one-click trading. They want to see a price. They want to share their information with a small list of dealers. And they want to know that they'll get a response, high likelihood of a response. And that's really the feedback that we're getting with that block trading tool. We will be launching here in the U.S. in U.S. high-grade and U.S. high-yield the block solution. We'll call it enhanced block solution at the beginning of Q2, and we will have that very direct-to-dealer solution where you can one-click with a dealer. Getting to a second part of your question, sorry, this is a long-winded answer because it's an exciting topic for us. But the second part of your question is about how the dealers perceive this and what's the reception from dealers. The dealers have been very supportive of us putting them in comp with a shorter list for clients. That's an important ingredient because dealers pay a price of broad dissemination of an inquiry, like in all to all. It's called the winner's curse. The whole market knows that you've just taken a position. So when it comes to being a counterparty for a block, they like to know that there's a shorter list or even one, their own, on that targeted inquiry. And they tend to price aggressively based on the number of people that are seeing that inquiry. And so that's an important component. It's actually dealer friendly, this block trading solution. And so the feedback from dealers has been positive. And the feedback from clients have been very positive.

And your next question comes from the line of Dan Fannin with Jeffrey's Peace. Go ahead.

Thanks. I wanted to just follow up on a lot of your prepared remarks around kind of goals this year and improving market share. And I assume your first answer fits some of this. But what gives you confidence in terms of the ability to grow share in high grade and you are rolling out products, but curious if you think the protocols you have today are what is going to drive that, or what is still on the come, do you think that is going to be the driver of that increased market share?

Thanks, Dan. First, I'll start from a macro market perspective. The market itself is quite favorable to the fixed income market broadly. Where yields currently stand, inflows into fixed income funds are generally positive and they continue to be positive here in just in January. So from a macro perspective, the market is still fairly attractive. New issue market is quite robust. We saw a heavy new issue market in January, and most forecasts predict a strong new issue market throughout the year of 2025. The other pieces of the puzzle turnover in the market continues to be at high rates of turnover, similar to what we saw in 2024. So the velocity of the market, and I think in IG in particular, it's largely driven by electronic trading, portfolio trading solutions, the growth of electronic RFQ continues to drive that velocity of trading. The other piece is a very robust entry from systematic funds into the market, both as takers of liquidity, but also as alternative liquidity providers. That's a key ingredient to our growth and overall growth of the velocity of trading in the bond market. The factors that are a struggle for our model, our RFQ model with an all-to-all solution, have been very low volatility and very tight spreads. All to all is a great provider of alternative liquidity in high vol. And so the key for our growth rates in 2025 is offering multiple protocols that are appropriate in multiple types of market environments. So as you think about it, we are the largest liquidity solution, alternative liquidity solution electronic alternative liquidity solution in the U.S. credit market. Our platform provides an electronic RFQ for small sizes. We have an exceptionally strong automation solution for what I'd call no touch trading. So our all to all market solves both no touch and low touch trading. And we're now near the edges of completing our PT solution. I think I used in my prepared remarks feature complete in Q1 for portfolio trading. That doesn't mean there won't be an endless supply of new analytics and new functionality that clients will ask for in PT, but we have sizable feature rollout in Q1. We just had a release in Q in January. We have another release in February just next week, and we just see ourselves as having a highly competitive offering in portfolio trading in Q1. The other area of growth that we're very excited about, and I just talked about it with Chris Allen's question, our block trading solution is finally launching in US high-grade where it's quite appropriate. What's exciting about that is we're targeting what I call the next 50% of the market. If you really think about it, that tool targets a bigger portion of the market than all of electronic trading in the high-grade market today. That's just a huge opportunity for us to solve. And while it's still early days, the evidence that we're seeing on our block trading tool in both EM and EU is quite exciting around our launch in high grade. So look, January was not, that was a disappointing market share for us in January. And when we look at the rest of the year, we're quite excited about the schedule. And as you can see in our prepared remarks, we're quite regimented about dates and being committed to those dates of execution and delivery in 2025. So we're quite confident about our rollout strategy across the U.S. corporate market. And the last piece that we are introducing a new product in continuously in 2025 is the dealer business. The dealer to dealer business in U.S. high grade is About 30% of the market, 29% to be exact in January. That's a sizable portion of the business. We expect that portion of the business to continue to grow as dealers turn over inventory at a much higher rate in the market to come. As we mentioned in the remarks, we already have a robust dealer RFQ platform. That, in fact, saw market share gains both in high-grade and high-yield in January. But we're rolling out a mid-X or a mid-market matching solution in Q2. And we're rolling out a new front-end expo for dealers starting in Q2 and rolling out throughout Q3. So we have a number of product deliveries rolling out through the first half of 2025. Each of those product deliveries, we intend to have market share impact as a result.

Thank you. And your next question comes from the line of Benjamin Bodish with Barclays. Please go ahead.

Hey, good morning, and thanks for taking the question. Chris, you kind of touched on what I wanted to ask you about, which was sort of a higher level look at the market in terms of where there's room left to electronify. But I'll kind of ask it anyway. You know, you've always said historically that the key competitor is the phone. I guess as you think about the block market, I think that is largely unelectronified. But I'm curious, where else do you think there is low-hanging fruit parts of the market that are electronified but maybe not all the way? And how important or how would you describe sort of what's necessary in terms of either – Is it a matter of increasing electronification? How do you think about which of those two is sort of more important as you think about growing your share over the next few years? Thank you.

Yeah, great question, one that we spent a lot of time on. If you think about our investment in 2024, we made a strategic decision to continue to invest in our high-touch block solution while we knew we were facing competition in portfolio trading. But as we laid out in the TAM presentation, obviously the block part of the market is by far the largest part that is not electronic. And it's really phone and ID that we see the blocks flowing through. And when you look at the workflow over ID or phone, it's very inefficient. And our clients continuously are looking for better ways to trade blocks, but in what I call in a replicated fashion to phone and chat. They don't want information leakage over the electronic platform. And that's really what we perfected in our targeted block trading solution. The other areas of opportunity is really around the retail space. And it's across U.S. corporates and across really the whole fixed income market. You know, we have a platform that is targeting the private bank market called Access IQ. It continues to deliver volumes and growth month over month and obviously year over year. So we're encouraged that we have now tapped into the private bank space in the US. That was largely targeting European private banks and APAC private banks. So we're seeing healthy growth. from the retail market. I think with the rates being so attractive more broadly, you're going to continue to see higher levels of activity in the retail space. And then other areas, really, I think the biggest area of electronic opportunity and electronic evolution is really in emerging markets. You know, it's hard to get the true denominator in emerging markets. the full total market size, but it's equivalent to the total size of U.S. investment grade and U.S. high yield. So it's a sizable market, and by our estimates, we're only looking at under 5% is electronically penetrated. So there's a huge opportunity within the EM market. And the most important ingredient to all these electronic solutions is really around data. You can't really electronify a market absent the data. And as we grow our footprint across the market, our data footprint and our data intelligence becomes that much more valuable. And that's the most important ingredient. The more you touch, the better your data becomes. And we're rolling out data products in the same pace in which we're rolling out these new protocols. So when you really see the complete offering, you know, by, you know, mid this year, we are going to be touching the largest trade sizes, portfolio trades, and those are complicated with lots of line items. The next largest, which is block trades, we'll have protocol for that. We'll have our current highly liquid, low touch, all to all protocol. And then full automation suite, both auto RFQ, but more importantly, algos that replicate, you know, multiple trades through RFQ and other ways to trade. So it will be a complete offering in 2025, and we spent the full year of 2024 investing and building out the ability to deliver all these products in 2025.

Hey, Ben, it's Rich. Just one thing I wanted to add to Chris's remarks on this, and he highlighted all of the areas where electronic trading is, let's say, not as well penetrated, like the block area, for example. But one thing we definitely believe in is that even in the odd lot space, let's say the smaller size trades, this is going to continue to grow, this segment. And just like what has happened in equities with all of the electronic trading adoption and the systematic liquidity providers that are out there are enabling new strategies for people to get in and out of bonds a lot more easily. It's going to lead to more turnover in that size range is our view. And we believe we've got the right solutions to capture that flow. So, you know, we expect it to keep growing. I mean, we were just commenting before the call, we've seen a couple of trace days of 44 billion in high grade, which is well above the running averages, there's a likelihood of increasing activity that's going on in the sweet spot, which means more volume for us to capture.

Thank you. And your next question comes from the line of Kyle Voigt with KBW. Please go ahead.

Hi. Good morning, everyone. Maybe if I could just ask a bigger picture question on the high yield business. January market share near 12%. I think two years ago, you were in the kind of 17 to 18% range. I know there's been a number of changes with the market. There's been cyclical headwinds, maybe some structural headwinds as well. But if you look at market share by client type and high yield, just trying to understand where you're seeing good progress over the past two years. which client segments are still seeing some good growth? And where have you seen the most pullback or share migrate away or clients just pull back from the marketplace as we're trying to think about the growth trajectory and share from here?

Yeah, great question. And, you know, high yield in 2024, the market itself from a macro perspective, certainly saw challenges for end investors, very attractive market spreads were tight, volatility was low. For ETF market makers, anyone trading ETF arbitrage, that's a very difficult market to trade in, particularly as the borrow rate went up sizably in 2024. So being able to put on an arbitrage across the high yield market became quite difficult. So so really what we saw in 2024 and still in January is the ETF players, those that were trading high yield on an ETF are really exit the market. We saw some some trading pods at some of the hedge funds closed down. We still see we continue to see systematics coming into high yield because they want to make the investment to be there. Most systematics that we talk to that are investing in the high yield product and high yield trading continue to bet that volatility will return to the high yield market. Certainly, if you have any credit challenges through high yield, we see individual issuer volatility snap back. But they're really predicting that there will be vol eventually back in high yield, and that spread will widen out. And so they'll have opportunity for the arbitrage. They'll have opportunity for just straight dealer solutions. When it comes to high yield and the traditional buy side, from a macro perspective, high yield is still very attractive. That rate environment is very attractive. So we continue to see inflows into the high yield funds. And really, portfolio trading is picking up in high yield. We've seen it come up to about 8% of the high yield market. And we recently launched our benchmark portfolio trading tool, which we tend to see more benchmark trades in high yield. So we did pick up portfolio trading market share. It did increase in January, which was encouraging. Not to talk about high touch block trading again, but we do hear from our clients that they're very sensitive to information leakage in high yield in particular. The block trade sizes are smaller. They're probably around 3 million is considered a block trade in a more liquid high yield bond. So the block trading solution will be welcomed by most high yield traders just because it's targeting either a single dealer or a small list of dealers. And if the hit rates continue at those high levels, that's one of the biggest challenges in high yield is just maintaining a high hit rate based on your inquiries.

Thank you. And your next question comes from the line of Alex Bostein with Goldman Sachs. Please go ahead.

Hey, good morning, everybody. Thank you for taking the questions. Well, lots of great color. I really appreciate the TAM analysis as well. I know it's going to be a hard question to answer, but I guess we'll try anyway. So, 24, big build-out year, 25, you expect to see the benefits of that. How would you define success in terms of market share accomplishments in 2025 when it comes to high-grade and high-yield within the U.S.? ? And I guess, what are the kind of top one or two protocols that you're pushing forward? You named a lot of things that you think will help you recoup some of that market share and then ultimately the implications and fee per million, all else constant. And I know that the mix and macro could impact that. We'll just kind of try to get a sense what the revenue implication from these efforts could ultimately be, given that things like portfolio trading, et cetera, come with a much lower fee per million. Thanks.

Okay, let me simplify your question. You want us to predict our market share and our overall revenue for 2025. What I think, what I will do is let me go through the protocols individually because each one certainly could have sizable impacts on share and obviously sizable impacts on revenue. Obviously, I'll start with portfolio trading because it's obviously been a very focused area of ours and certainly continues to focus in Q1. It has sizable market share impacts. And we've seen this and we've predicted this in the last quarter call. You can see swings of market share for platforms that offer portfolio trading. We see it in our own market. There are sizable portfolio trades that come to market. In January, we saw actually very low level of what we call mega portfolio trades, anything of a billion plus in size. There was just a smaller number of those mega PTs in the market, whereas in December, there was a lot more of those mega trades. So from a share perspective, not a revenue perspective, because we showed you the TAM around PT, You can really move and swing market share around based on portfolio trading tools. And we're very excited where we think we'll be just in Q1 with the next few releases on our portfolio trading tool. Moving to the block side, I spent a lot of time talking about high touch and blocks, but that has a sizable impact on share and obviously revenue. It has very attractive fee schedule. It's not like a PT. It has certainly more consistent with traditional RFQ fee schedule, but it does have larger trade sizes, so fee capture is quite attractive. But again, it doesn't involve all to all, so it has a slightly different fee capture to an all to all. To the extent there's higher levels of volatility and And certainly we've seen momentary spikes of volatility with the announcements coming fast and furious out of the new administration. To the extent there is volatility, we would expect our all-to-all platform to pick up rapidly, similar to what we saw just this week with the spike in activity around tariff news that came out over the weekend. All to all is really a great protocol for smaller sizes, for automation, for traditional RFQ. And we obviously have the largest RFQ network in U.S. high grade and U.S. high yield for that all to all platform. But again, with volatility spiking, we can see a share movement around that all to all platform. The last piece is obviously automation. We continue to see clients ask for more sophisticated levels of automation. Just in 24, our automation volume grew by 29% year over year. And in the fourth quarter, it was up 21%. So we continue to see that demand In January, we continued to grow our automation volume. They grew 23% year over year in January. So that automation suite is in high demand. And one of the areas that is a sweet spot is in the clients that are offering large SMA solutions. They're getting smaller trade sizes through that SMA channel of their business. And so they're adopting automation quite rapidly. Our automation suite is just touching 245 active clients recently. That's out of our over 2,000 clients around the globe. So the penetration across our client base is still low relative to the global client base, but the demand for automation continues to grow. And if you follow the projections for SMA growth alone, It's projected to grow up to $5 trillion from the current $2 trillion. That's obviously a great area of growth for us in the fixed income markets. As those grow, the demand for automation will grow. So I covered all of our protocols. The nice thing is we feel like we're going to be in a great spot in terms of offering multiple protocols to our clients all designed for different elements of the market and all designed for different environments to trade through in the market.

So Alex, let me take the fees per million part of your question. And if you think about sort of the four key protocols that Chris talked about, there are puts and takes in terms of fee per million there, right? But again, this is about sort of driving share, driving revenue and thinking about the future. And Chris talked about portfolio trading. He talked about blocks. We know that those come in at a bit lower fees per million. And then he talked about open trading and automation, which we know come in at a bit higher fees per million, right? So there's puts and takes there. But let's take a step back and think about, for instance, what the largest driver in the change of fees per million was just in January. And we know that in high grades, that's duration. And it was duration. And if you think about it, right, we saw in January that weighted average years to maturity was at 8.3%. Call it to eight years versus nine a little over nine last year, and that was also down from call it 8.9 almost nine in December, so that was a pretty big driver of what happened. We also saw yields go up in this past January to over 5%, and if you think about that that's another you know headwind that we saw in the duration calculation. So now let's think about how quickly trading behavior can change and what that could mean for duration. We know that that can happen and we've actually even seen it already in just the first few days of February. Now the first few days of February does not make a year needless to say, but I think we have to really keep in mind how much duration does impact these types of things. And so when you think about these per million, you think about duration and high grade, this is obviously a key component. But if I take a step back and I know it's, you know, really people are trying to model this and I get it and I know how important it is, you know, the average fee per million across most of our credit products really has been quite stable in terms of our fee card over the past few years, right? And I just want to remind us of that. And there are all these puts and takes that we've talked about. And so if you think about the puts and takes, and I just mentioned a few of them, I'll go through them again just because I know there's a lot here, but You know, you've got the growth of PT, even if you look just what happened year over year, that 200 basis points that Rich talked about, we know that has a negative impact on fees per million, right? But we also know that, you know, if you think about, and I've talked about this on, I think it was our last call when I looked back over, call it a five-year time period, and I said, okay, what was sort of the average of fees per million over that time period? And it was about $173 per million. And we know that, for instance, Chris just talked about high yield and we were asked, well, you know, what's going on in the high yield space? And we know that that also has a significant benefit and tailwind fees per million. So if we see our ETF market maker clients get more active, you know, that could be a real benefit as well. So if you think about that as a benefit possibility, if you think about, you know, if we see changes in duration in high grade as another benefit possibility, If you see more vol pick up, and again, you know, we've got to see how this all works out, but that could create additional open trading, which is more of a premium product in terms of how you think about fees per million. So you sort of have to think about all these different factors that go into fees per million. Now we do know that you also have to look at the macro environment. You know, I would also say we've got to see that, you know, the Fed is, and what's happening there in terms of the rate environment, that's changing day by day. And so obviously that also impacts trading activity. And so if you have sort of a more longer or call it elongated, if you think about how the curve is moving, you know, that will take, if you think about how people look at their trading activity in the rate environment, whether or not they'll go out longer on the curve, really they're going to look at what's happening in the rate environment. And so all of these types of things we have to take into effect. That's kind of the puts and takes that I would say to keep in mind. I hope that is helpful when you think about freeze per million in general.

Thank you. And your next question comes from the line of Jeff Schmidt with William Blair. Please go ahead.

Hi, good morning. Portfolio trading as a percent of industry high-grade and high-yield activity, it's been around 10% for the last probably six months at least. What do you think is driving that pause and can you continue to drive share gains there even if it stays at these levels?

First, from a macro perspective, if you look at volatility, if you look at spread and spread volatility in the fixed income market, it's been quite attractive. to get a portfolio trade done at an attractive price. We have seen in the past, again, we haven't seen a lot of volatility, but it becomes more difficult to trade a large portfolio in higher levels of vol. And so at these levels of vol, I think the 10% range is quite an attractive range for portfolio trades. There also has been a number of portfolio trading counterparties that have moved in and out of the market. So profitability for the dealer around portfolio trading has been up and down. And in low vol, it's probably a little bit more attractive. In higher vol, it becomes more difficult to manage that large inventory that you're taking down in a portfolio trade. It is capital intensive trade for a dealer. So they obviously we obviously see large banks that have the capital are highly engaged in portfolio trading. It is a tool that the buy side finds attractive to move flows and it will be around. It's not going anywhere. I think the market environment and capital a willingness will really dictate where portfolio trading moves in the market from quarter to quarter, from year to year, because it is a trading tool that will be around for a long time. With regard to our share in portfolio trading, we continue to grow our portfolio trading. Just in investment grade last year, we obviously grew overall notional portfolio trading by 80%. So we are encouraged with our performance, but not where we need to be. So we're excited about what's happening with new features rolling out this quarter. We do think it will have an impact on our competitiveness in the portfolio trading space. Portfolio trades are getting bigger, not smaller. So the number of line items that we're seeing Over 1,000 lineums is becoming a common place for portfolio trades. And so we expect that market to continue to move in and around that 10%. At these levels of volatility, you could see it move up certainly into the teens. But we expect it to be around that part of the market for some time to come. It is a very valuable tool for the buy side. to move in and out of flow quite quickly and aggressively. And the prices that we're seeing in the market are relatively attractive for the end investor and where the buy side is getting executed in that market. That could change if volatility comes into the market, obviously. And that's why we're so focused on having multiple protocols across our platform. So if you're sitting at our trade desk, you can trade a PT, trade a block, trade the low touch list, or trade fully automated. That's the key ingredient that we're targeting in 2025.

Jeff, it's Rich. I'll just add to that. I mean, there's no question about the convenience of the PT trade and easy way to move a lot of line items. But one thing about it, it's a pretty concentrated market in terms of the liquidity. So you're talking about it's fairly dominated by six, eight, maybe kind of 10 firms. And that makes it not being really unique liquidity. So we're really confident in our ability in terms of share, whatever the percentage of the market is going to be. And maybe I'll take the under on it a little bit there. But in terms of grabbing market share, it's the same liquidity on the different venues. As we continue to increase our capabilities and build in the analytics and build all the features that our clients are looking for, you know, we feel that that's pretty, you know, easy volume to move. It's quite different than the in-comp business where, you know, open trading in that area, that represents, you know, let's say 35% was the Q4 number. And that comes from over 1,000 unique liquidity providers. That's not easily replicated in other places, which makes the volume stickier, keeping it with us. But we feel really confident about our ability to get increased share of the existing whatever percent of the market PT is going to be.

Thank you. And your next question comes from the line of Ellie Abood with Bank of America. Please go ahead.

Good morning. Thanks for taking the question. Can you speak to your motivation behind acquiring the rest of RFQ Hub and walk us through the materiality of the financial impact there? And then bigger picture, to what extent is it a priority for you to become more cross asset? Is that something you feel like clients are demanding?

Thanks for the question, Eli. Yeah, we're exceptionally excited about RFQ Hub and the prospects for RFQ Hub. It is a multi-asset platform. So there's obviously ETFs. We're very focused on the ETF market and the opportunity for block trading in ETFs through RFQ. That is a sizable market both here in the U.S. as well as in Europe and throughout Asia. It is also a derivative platform. So it offers futures, equity derivatives, complex swaps, and other derivatives. And that's really where the platform started out first, particularly in the European OTC market. So it's an exciting platform to have cross assets traded on the platform. It's a very flexible market, so we can add product quite easily. We think the important ingredient about having and where we see synergies is really being able to offer our large client base, fixed income client base, access to fixed income ETFs side by side. That is an important component. If you look at the growth of the portfolio trading market, every PT is really correlated to an ETF. And so clients have a choice of trading directly the underlying bond in a PT or trading an ETF. And it's really dependent on where that ETF NAV is trading in real time relative to the underlying portfolio. So there are choices that we can offer clients just through data and analytics around trading the PT itself or trading the ETF, which is correlated. Fixed income ETFs are a great way for a portfolio manager to get instant exposure to the bond market. They're highly liquid and can be traded in block form. So it's just another tool. in our fixed income protocol solutions that we want to offer our clients. So we're excited about that transaction. Again, we already own 42% of RFQ Hub through our partnership with Virtu. We have a number of the dealers invested in that platform as well. So there's still continuous dealer support in the platform. And it's bringing all those alternative products into the market access suite. And really the key synergy is our ability to redistribute what is a very successful small platform to our huge client network and our international presence across the institutional marketplace.

And you guys probably know this, but you can see the equity and earnings of unconsolidated affiliate right on our consolidated statement of operations. And that's really the RFQ has current that Chris just talked about in terms of the ownership. And that will obviously get consolidated into operating results once we bring that on. But that's another way that you can look at it and think about sort of opportunity there.

Thank you. And your next question comes from the line of Michael C. Press with Morgan Stanley. Please go ahead.

Hey, good morning. Thanks for taking the question. Just hoping to touch on the rates platform for a moment. The volumes are up very nicely there on a year-on-year basis, but still a smaller contributor to revenues today. So can you just talk about some of the initiatives across your rates platform that you have in mind to further scale this part of the business? Talk about some of your ambitions here, how you see this contributing over time, and maybe you could also update us on the net spotting tool? What's been sort of the uptake from customers? I know you've had this for a bit. Just how do you see that contributing as well to the broader platform?

Great. And thanks for asking about rates. It's certainly a product that we love and certainly we've seen growth in 2024 and a number of exciting things happening in that that rate space. First, I do think we have to recognize that in the rates market, It's really largely driven by electronic RFQ to the buy side. It's been that way, traditional RFQ, typically RFQ to five dealers for many years. And so when it comes to innovation to the client side, we haven't seen a lot of innovation in terms of interesting protocols or new tools. The rates RFQ platforms in the market have also enjoyed low levels of volatility. We've seen spikes of volatility, but, you know, the clients that we talk to in the rate space are quite concerned that they don't have direct electronic access to alternative liquidity, because when that market turns volatile, it becomes a much more challenging market to trade. yet the alternative liquidity providers tend to provide more liquidity in those moments of volatility. And we've seen that on our platform and just traditional all-to-all in corporates. So a key ingredient we think to the rates market is making sure there's a healthy interaction between clients, large dealers, and ultimately all-to-all liquidity in times of need. Where we've been mostly innovative in our rate space is offering clients algo solutions that provide the client the ability to trade large size orders but in smaller size without market impact. So really being both passive liquidity providers or using smaller size orders to take liquidity through a systematic algorithm. I'm excited that we're launching our algos just this month on Pragma. So we're migrating our algo solution onto our Pragma platform in the rates market, which just gives us great tooling for clients and very interesting controls around the algo suite of products that we can offer. The other pieces are net hedging for rates has been in our corporate bond market for quite some time. We launched that a number of years ago. It continues to get bigger. We continue to see more and more clients adopt the net hedging solution. Again, it is client adopted. We don't just turn it on for all clients. It's a very powerful way for us to actually provide large banks with liquidity and rates. So we offer net hedging and we offer hedging for dealers. So overall, the rates complex that you saw continues to grow and continues to grow here in January. So we're excited about rates. We do plan on launching in 2025 our RFQ solution, which the client community is much more familiar with. So we want to have a hybrid offering where we're offering both electronic algorithmic solutions as well as traditional RFQ solutions.

Thank you. And your last question comes from the line of Simon Clinch with Redburn Atlantic. Please go ahead.

Hi. Thanks for taking my question. I think most of my questions have been answered. And Chris, thanks so much for the detail and color. A lot of really useful stuff I heard today. I just wanted to refer to slide 19 in the bottom left and the relationship between fee per million and duration, which we know is obviously very sensitive. And I was just wondering if you could just talk about what kind of scenarios or what kind of macro conditions we would need to see for the fee per million to go, or at least the duration to go below the lows that we saw in September 23 and thus take fee per million below where we are today. Just kind of curious as to what, I guess, how you're thinking about, was the January number just like a bottom or is there still plenty of room for that to drop if conditions continue down this path?

Sure, thanks for the question, Simon. So I mean, it's always hard to call something a bottom of top, particularly when you're dealing with trading behavior and when you're talking about a rate environment and you're talking about central banks making changes to economic policy. So I don't think I want to go there. But I think what we need to look at and think about is where do we see the rate environment and how do we see trading behavior, right? Right now, we know that the most recent, I think if we look at CME watch, Fed watch, right, the most recent call for rate cuts is I want to say one to two. Just a little while ago, it wasn't so long ago that we saw three to four. And when you saw three to four as what people were calling for, you see folks wanting to trade out further on the curve. That's pretty normal behavior. if you see that type of a steepening. Now, we've seen a bit of a bear steepener, and it's been quite unusual what you saw most recently. Some would call it a bear steepener, and that's not what we would expect in a rate-cutting cycle. And so, having said that, as I said most recently, with sort of different outcomes in terms of economic policy decisions, things changing quite rapidly, You're also seeing, we saw just in the last few days, as I said before, change in behavior on duration. Just honestly, it went from, you know, quite quickly from call it eight years of weighted average years to maturity to nine. Now I can't tell you it's staying there, but I can tell you that we saw a quite quick change in behavior. So you have to look at things like all the normal things you would think of, you know, bond traders looking at. What's happening with inflation? What's happening in those numbers? How are we seeing what the Fed is saying there for in terms of where the rate environment is going to come out? And so all of these things matter. You know, what do we think is going to happen in terms of will there be a soft landing? Will it take longer for the Fed to come down in rates? I mean, all of these things matter. But again, we really have to see what's going to happen in the environment. We have to see where the yields are going to turn out as well. Because as you know, I mean, we've talked about this sensitivity before. When you see a one-year increase on the platform in weighted average years to maturity, that can be worth about $15 for us in high grade. And if you see yields come in 100 basis points, that can be worth $3 to $5, right? So all of this is, you know, we've got to see what happens in the macro environment.

And Simon, I would just add in our client to dealer space, obviously there's, as Eileen pointed out, there's lots of factors to go into figuring out what that fee per million will come out. But really the good news is from the client perspective, we spend more time focused on functionality, features, data and analytics, and really don't get concerns from clients around fee pressure. So from a broader market perspective, it's really about delivering functionality to clients that they need to help them trade. Our fees are ultimately small features of the overall spread and cost of trading. So that fee pressure dialogue is just not present. We don't see fees as a weapon or a tool in the competitive marketplace. We really see of rolling out functionality, new data and analytics is really the way to move share around.

Thank you. And that ends our question and answer session. I would like to turn it back to Chris Concanon for closing remarks.

Thanks, everyone, for joining us. As you heard in both our prepared remarks and our Q&A, we are laser focused on execution and delivery. We spent 2024 building product and now we're rolling out specific dates, specific timelines on delivering that product. So we're excited about 2025 and we're excited about the product rollout that we put out in the public on this call. Thank you and look forward to talking to you next quarter.

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.