Tradeweb Markets Inc.

Good morning, and welcome to TradeWeb's second quarter 2024 earnings conference call. As a reminder, today's call is being recorded and will be available for playback. To begin, I'll turn the call over to Head of Treasury, FP&A, and Investor Relations, Ashley Sorrell. Please go ahead.

Thank you, and good morning. Joining me today for the call are CEO Billy Hult, who will review our business results and key growth initiatives, and our CFO, Sarah Ferber, will review our financial results. We intend to use the website as a means of disclosing material, nonpublic information, and complying with our disclosure obligations under Regulation FD. I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements related to, among other things, our guidance and the ICD acquisition are forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our earnings release, earnings presentation, and periodic reports filed with the SEC. In addition, on today's call, we will reference certain non-GAAP measures, as well as certain market and industry data. Information regarding these non-GAAP measures, including reconciliations to GAAP measures, is in our earnings release and earnings presentation. Information regarding market and industry data, including sources, is in our earnings presentation. Now, let me turn the call over to Billy.

Thanks, Ashley. Good morning, everyone, and thank you for joining our second quarter earnings call. This was another outstanding quarter. As central banks step back, private sector intermediation continues to be in vogue. From evolving inflation prints to snap elections across Europe and the UK, the macro debate continues to flourish globally, and our one-stop solution is resonating with our clients. At our core, we are a technology company that caters to the financial service industry. We have a simple job. How can we continue to save our clients time and money and provide them with more efficient means of trading in the financial markets? Change is constant. and we are focused on being on the forefront of that change, be it technological, market structure, or behavioral. As the markets and our clients evolve, we continue to position TradeWeb for the future. After closing our acquisitions of YieldBroker and RateFin, we are pleased to have announced the signing of an agreement to acquire ICD in April. We are on track to close ICD shortly, which will add corporates as our fourth client channel. Diving into the second quarter, we achieved our best second quarter in our history. Specifically, strong client activity, share gains, and risk on environment drove 30.4% year-over-year revenue growth on a reported basis. We continue to balance investing for growth and profitability as adjusted EBITDA margins expanded by 98 basis points relative to the second quarter of 2023. Turning to slide five, rates and credit led the way, accounting for 61% and 29% of our revenue growth, respectively. Specifically, the rates business was driven by continued organic growth across global government bonds, swaps, and mortgages, and was also supplemented by the addition of RateFin and YieldBroker. Credit was led by strong U.S. and European corporate credit with record quarterly market share and electronic U.S. investment grade, and aided by strong growth across municipal bonds, China bonds, and credit derivatives. Money markets was led by continued growth in institutional repos. Equities posted low single-digit revenue growth, despite challenging industry volumes in our core ETF business. Finally, market data revenues were driven by growth in our LSEG market data contract and proprietary data products. Turning to slide six, I will provide a brief update on two of our focus areas, U.S. Treasuries and ETFs, and then I will dig deeper into U.S. credit and global interest rate swaps. Starting with U.S. Treasuries, record second quarter revenues increased by 28% year over year, led by records across all our client channels. Our institutional business saw record adoption of our streaming protocol and growing usage of our RFQ Plus offerings. The leading indicators of the institutional business remain strong. We gained share and achieved record quarterly market share of U.S. Treasuries versus Bloomberg, crossing the 50% threshold for the first time, which we have maintained. Client engagement was healthy with institutional average daily trades up 45% year over year. Automation continues to be an important theme with institutional U.S. Treasury AIX average daily trades increasing by nearly 100% year-over-year. Our wholesale business produced record volumes led by our streaming offering. Our other protocols also saw strong growth, particularly our CLOB, which has begun to trend higher. Our recent acquisition of RateFin is off to a strong start, contributing approximately 2.3% to our overall U.S. Treasury market share, complementing our CLOB and streaming protocols. The team remains focused on onboarding more club liquidity providers over the coming quarters as they deliver on a holistic strategy across our wholesale protocols. Within equities, our ETF revenues grew mid-single digits but faced a tougher industry backdrop given lower equity market volatility. Other initiatives to expand our equity brand beyond our flagship ETF franchise continue to bear fruit with second quarter convertible bond revenues increasing by 10% year over year. Looking ahead, the client pipeline remains strong as the benefits of our electronic solutions continue to resonate. We believe we are well positioned to capitalize on the long-term secular ETF growth story, not just in equities, but across our fixed income business. Turning to slide seven for a closer look at another strong quarter for credit, Strong double-digit revenue growth was driven by 33% and 29% year-over-year revenue growth across U.S. and European credit, respectively. We also achieved strong double-digit growth across munis, China bonds, and credit derivatives. Automation continued to surge with global credit AIX average daily trades increasing by about 45% year-over-year. We set another fully electronic quarterly market share record in US IG helped by a record IG block market share of 9%. We also achieved our second highest fully electronic market share in US high yield. Our institutional business continues to scale as clients adopt our diverse set of protocols to improve liquidity, price transparency, and efficiency. Our primary focus on growing institutional RFQ continues to pay off with average daily volume growing 30% year over year with strong double digit growth across both IG and high yield. Moreover, portfolio trading average daily volume rose 100% year over year with IG portfolio trading reaching record levels. We continue to focus on leading with innovation and this is resonating with our clients. We saw portfolio trading users grow by over 20% year over year, a record number of line items traded in the quarter, and our largest ever portfolio trade in excess of 3 billion. Retail credit revenues were up over 20% year over year as financial advisors continue to allocate investments towards credit to complement their buying of U.S. Treasuries and Retail Certificate of Deposits. All trade, produced a solid quarter with nearly $190 billion in volume, up over 45% year-over-year. Specifically, our all-to-all volumes grew over 20% year-over-year, and our dealer RFQ offering grew over 10% year-over-year. The team continues to be focused on broadening out our network and increasing the number of responders on the all-trade platform. In the second quarter, the average number of responses for all-to-all inquiry rose by 35% year-over-year. We also continue to increase our engagement and wallet share with ETF market makers. Finally, our sessions average daily volume grew over 60% year over year and produced the second highest quarterly average daily volume ever. Looking ahead, US credit remains our biggest focus area and we like the way we are positioned across our three client channels. We believe we have a long runway for growth with ample opportunity to innovate alongside our clients. Our strategy is focused on expanding our network, increasing our wallet share, enhancing our pre and post trade analytics, and continuously improving our protocols and client experience. In the second quarter, we enhanced our RFQ offering with our rollout of RFQ Edge, where we're already seeing over 25% of our RFQ users utilizing RFQ Edge. RFQ Edge takes the traditional RFQ list ticket and incorporates real-time trading data charting functionality and execution cost analysis we also remain very focused on chipping away at high yield and we believe we are well positioned to replicate the success we've had in ig specifically we're making progress in our aladdin integration with the goal of improving the client experience and increasing electronification in these markets we're still on phase two which is focused on all trade and rfq but our teams are already out on the road meeting with respective clients, and walking them through all the enhancements made to date. With our Aladdin integration closing a gap and providing a foundation for growth, we expect high yield growth from here to be driven by the expansion of our client network, led by strategic sales hires, functionality enhancements, and stronger penetration with ETF market makers. Beyond U.S. credit, our EM expansion efforts continue with growing adoption of our portfolio trading and RFQ offerings and early positive signs across wholesale EM. On the product side, we are focused on leveraging our diverse product expertise, enhancing our integration with FX All, and continuing to build out functionality for multi-asset package trading. Moving to slide eight, Global swaps produce record revenues driven by a combination of strong client engagement in response to the macro environment and continued market share gains. Strength here was partially offset by a 3% reduction in duration and elevated quarterly compression activity. All in, global swaps revenues grew 56% year over year and market share rose to 23.6% with record share across dollar, G11, and EM denominated currencies. Central to our ethos is our focus on helping clients by connecting the dots across fixed income products. Given the heightened market volatility across money markets, our repo clients have been increasingly referencing swap curves when evaluating fixed rate repo trades. Yet their process was cumbersome and our clients asked for a better solution. During the quarter, we became the first electronic trading platform to make overnight index swap curves available during the repo trade negotiation process, helping institutional clients assess the price competitiveness of different repo rates across different currencies and maturities. Finally, we continue to make progress across emerging market swaps and our rapidly growing RFM protocol. Our second quarter EM swaps revenues more than doubled year over year. and we believe there is still significant room to grow given the low levels of electronification. Our RFM protocol saw average daily volume rise over 115% year-over-year with adoption picking up. Looking ahead, we believe the long-term swaps revenue growth potential is meaningful. With the market still about 30% electronified, we believe there remains a lot we can do to help digitize our clients' manual workflows while the global fixed income markets and broader swaps market grow. And with that, let me turn it over to Sarah to discuss our financials in more detail.

Thanks, Billy, and good morning. As I go through the numbers, all comparisons will be to the prior year period unless otherwise noted. Slide 9 provides a summary of our quarterly earnings performance. As Billy recapped earlier, this quarter we saw record second quarter revenues of $405 million that were up 30.4% year over year on a reported basis and 30.8% on a constant currency basis. We derived approximately 38% of our second quarter revenues from international clients and recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros. Our variable revenues increased by 40% and total trading revenues increased by 31%. Total fixed revenues related to our four major asset classes were up 4.2% on a reported and 4.5% on a constant currency basis. Fixed revenue growth was primarily driven by previously disclosed dealer fee increases in credit that were instituted at the start of the third quarter of 2023. And other trading revenues were up 9%. As a reminder, This line fluctuates as it reflects revenues tied to periodic technology enhancements performed for our retail clients. Year to date adjusted EBITDA margin of 53.6% increased by 117 basis points on a reported basis when compared to the 2023 full year margins. Moving on to fees per million on slide 10 and a highlight of the key trends for the quarter. You can see on slide 16 of the earnings presentation for additional detail regarding our fee per million performance this quarter. For cash rates products, fees per million were up 4%, primarily due to an increase in European and Australian government bond fees per million. For long tenor swaps, fees per million were down 2%, primarily due to a slight increase in compression, as well as a 3% decline in duration. For cash credit, average fees per million decreased 12% due to a mixed shift away from munis and sessions trading. For cash equities, average fees per million were flat due to lower U.S. ETF fees per million given an increase in notional per share traded. Recall in the U.S., we charge per share and not for notional value traded. This was offset by a mixed shift towards higher fee per million EU ETFs. And finally, within money markets, average fees per million decreased 8% driven by a mixed shift away from higher fee per million US CDs and towards our growing institutional repo business. Slide 11 details our adjusted expenses. At a high level, the scalability and variable nature of our expense base allows us to continue to invest for growth and grow margins. We have maintained a consistent philosophy here. Adjusted expenses for the second quarter increased 25.8% on a reported basis and 27% on a constant currency basis. Adjusted compensation costs increased 32.2% due to increases primarily in performance-related compensation, headcount, and severance. Excluding $2.9 million related to severance, compensation costs increased 29.4%. Technology and communication costs increased 29.6%, primarily due to our previously communicated investments in data strategy and infrastructure. Adjusted professional fees increased 6%, mainly due to an increase in consulting costs. We expect professional fees to continue to grow over time as we spend more on technology consulting to support our organic growth. General and administrative costs increased due to a pickup in travel and entertainment which on a reported basis was partially offset by FX gains year on year. Favorable movements in FX resulted in a $1.7 million gain in the second quarter of 24 versus $150,000 loss in the second quarter of 23. Slide 12 details capital management and our guidance. On our cash position and capital return policy, We ended second quarter in a strong position with a $1.72 billion in cash and cash equivalents and free cash flow reached approximately $722 million for the trailing 12 months. Recall, we intend to pay $785 million in cash consideration for ICD once it closes. Our net interest income of $21 million increased due to a combination of higher cash balances and interest yields. This was primarily driven by the higher interest rate environment and more efficient management of our cash. With this quarter's earnings, the Board declared a quarterly dividend of 10 cents per Class A and Class B shares. Turning to updated guidance for 2024. In light of strong business momentum and the anticipated closing of ICD shortly, we are increasing our adjusted expense guidance from $805 million. We now expect to be in the $830 to $860 million range for 2024. Including the anticipated closing of ICD, we are currently trending towards the midpoint of this range, which would represent an approximate 22% increase versus our 2023 adjusted expenses. Focusing on organic growth, the midpoint of this range would represent an approximately 16% increase. Bridging the gap from $805 million to the midpoint of our new range, 63% of this increase is coming from the inclusion of ICD, with 30% and 7% coming from better business momentum and the recently announced management changes, respectively. Provided that ICD closes shortly, revenue from ICD is expected to be approximately $40 million over the next five months. Recall, we plan to invest in technology and marketing during the first 12 months post-closing, which we expect may temporarily push ICD's adjusted EBITDA margin down to 47% to 49%. All in, primarily factoring in the better business momentum, we now expect our 2024 adjusted EBITDA margin expansion to slightly exceed 2023 levels. At the same time, we expect to capitalize on the anticipated healthy revenue environment by accelerating investments to support our current and future organic growth. This includes infrastructure-related investments, such as further enhancements to our global credit tech stack, expanding our integration capabilities to allow for cloud-based Python integration, and retail platform enhancements to support the growth and trading activity we've seen in recent years. We are also selectively making small investments in emerging digital technology, such as blockchain and digital assets, in order to leverage and benefit from their technical expertise without having to make significant investment to experiment in-house. We now expect our CapEx and capitalized software development to be about $77 to $85 million for 2024. Acquisition and Refinitiv transaction-related DNA, which we adjust out due to the increase associated with pushdown accounting, is now expected to be $158 million. We continue to expect 2024 and 2025 revenues generated under the new master data agreement with LSEG to be approximately $80 million and $90 million, respectively. Now I'll turn it back to Billy for concluding remarks.

Thanks, Sarah. TradeWeb thrives on change, and we look forward to solving complex problems. Change can happen very fast or very slowly, but we want to be that trusted partner that our clients look towards to drive innovation in the market. It's a great time to be in the risk intermediation business. I feel good about our future growth outlook. With a couple of important month-end trading days left in July, which tend to be our strongest revenue days, average daily revenue growth is trending at a high team's growth rate relative to July 2023. The diversity of our growth remains a theme. We are seeing strong volume growth across global government bonds, mortgages, interest rate swaps, corporate credit, and repos. Our IG and high yield share are trending above 18% and 7% respectively in July. I would also like to welcome Amy Clack to the team, who will be joining TradeWeb in August as Chief Administrative Officer and as a member of the Executive Committee. Amy brings more than 25 years of experience and will oversee operations, business integration risk, and corporate services. Finally, I would like to conclude my remarks by thanking our clients for their business and partnership in the quarter, and I want to thank my colleagues for their efforts that contributed to the best second quarter revenues and volumes at TradeWeb. With that, I will turn it back to Ashley for your questions.

Thanks, Billy. As a reminder, please limit yourself to one question only. Feel free to hop back in the queue and ask additional questions at the end. Q&A will end at 10.30 a.m. Eastern Time. Operator, you can now take our first question.

Thank you. At this time, we'll conduct the question and answer session. To ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Greg Siegenthaler of Bank of America. Your line is now open.

Good morning, Billy. Hope everyone's doing well. How are you? I'm good. We had a question on a key competitive advantage, TradeWeb's ability to provide a one-stop shop platform across multiple asset classes. So how important is the wide asset class offering to your sales pitch and ability to penetrate traders on the buy side? And also, to what degree has multi-asset trading become more or less common over time?

Yeah. Craig, good to hear your voice. Cue you on the question. I've been saying this pretty clearly for a while, that technology is making the markets more connected than ever, and TradeWeb is really well positioned because of our product depth as being this kind of one-stop shop. I said it on CNBC, and Ashley was like, that sounds amazing. Maybe just don't say shop, say platform, because this isn't like the 90s. You're not going to go home and watch Seinfeld at night. But the thesis, I think you understand really well. And so when we think about this for a moment, I would say kind of part of the company's history forever. So let me just say this very clearly, like for sure, you know, being in government bonds way back when helped us get into, for example, TBA mortgages, being in European government bonds helped us get into European swaps. Then there's these sort of like more kind of seismic moments where, you know, we wanted to get into interest rate swaps, at a point in time where the Fed was cutting rates and mortgage originators became this massive consumer of interest rate swaps and kind of, quote unquote, kind of put us on the map. So you can kind of feel the history in terms of what I'm describing in terms of our commitment to multi-asset class trading. When we think about today for a moment, You know, from our perspective, the stats are, you know, basically 16% of global AUM is now sitting in multi-asset funds. That's up from about 10% in 2018. We think that's going to kind of trend continually higher. From our perspective, Craig, for a second, on a firm level, I think the stats are around 60% of our clients trade at least two products. and about one in five trade at least five products. So those are pretty kind of interesting numbers. On a trader level, it's even a little bit more interesting. 30% of our traders are now trading three products with us. We can understand that. If you think about the macro businesses, that makes a lot of sense. And over 10% of our traders trade over five products. I think it was Samir that gave me a stat that we actually have one trader who's now trading 11 different markets with us. I think that guy needs at least five police vests from TradeWeb. But those are the stats. And I would say just very straightforward from me, the stats matter, and then there's the ethos piece of this, which is part of how we build and grow businesses here. when we wanted to get into credit and we saw that there was a door opener for us to compete in credit, you know, if the question is, you know, when you walk into PIMCO, you know, and you're a partner to them in terms of building a mortgage business, does it help us make a sale into credit? Because I think that there is a reality that credibility, you know, leads to opportunity. You know, I think that's a straightforward comment. Credibility leads to opportunity. you know, and then the balance of the world, when we think about the firm's relationships with the sell side, and you think about, you know, the big banks, and we think about how the firm interfaces with the, you know, with the Jim DeMars of the world, or the, you know, the Troy at JP Morgan, or Ashok at Goldman, I can't leave out Andy Morton, you know, look, we interface really well. I think we're, partly that's because we have a very strategic you know, resonance with them when you think about the businesses that we are in and when you think about how those businesses kind of touch their P&L. And so that's been, you know, a big advantage for us in a certain way, you know, forever. And you kind of even heard, you know, what we're doing, for example, if you think about the money market business and how it sort of funnels through, you know, all of the markets that we are in, the ability for us to connect kind of our repo world into interest rate swaps, you're talking about, you know, two worlds that have been kind of historically, you know, pretty sleepy. And now we're showing like massive innovation in terms of how those markets are operating. So, you know, my instinct is it's big, it's been a big advantage for us. And the very strong instinct is given, you know, the trend of technology and the way these markets are sort of more connected than ever, it's a further advantage for us as we continue to grow our market share and build ourselves into new markets. So that's the view. Appreciate the question, Craig. Thank you. Thank you, Billy.

Thank you. One moment for our next question. Our next question comes from the line of Ben Budish of Barclays. Your line is now open.

Hi. Good morning, and thanks for taking the question. Billy, in your prepared remarks, you called out a number of stats on portfolio trading, the growth in ADV, increasing number of line items, the largest portfolio trade ever. on your platform. I was wondering if you could talk about kind of your medium to longer term outlook for the protocol. You know, how is usage changing? What are these new types of firms engaging with portfolio trades that are, you know, that weren't before? And how are some of the newer market makers, you know, the large trading firms that are joining the platform recently, how are they engaging with the protocol? Thank you.

Yeah, so it's a good question, Ben. How are you? So we're positive on portfolio trading, right? And because the thesis is, and you guys have kind of heard me say this very clearly we stand for balance, right? So we love the concept of ultimately the buy side acting like the buy side and the banks acting as market makers. We think that there's going to be significant volume that goes through in that basic direction. And so from our perspective, portfolio trading now represents a little bit less than 10% of trace. in the second quarter of 24. That's up from 5% in the second quarter of 23. We're getting a lot of sort of opinions that that can land in that sort of like 20 to 25% zone of total trace volume. You know, I have an instinct that it can be higher. Again, thinking about the concept of balance, the banks coming back into the equation, you know, from an electronic perspective. And then the concept of of risk trading really entering into that protocol is a big deal. When we think about the progression of it all, originally, if you remember, the protocol was built for asset managers for month or quarter end rebalancing period. It's shifted and changed a lot from there. Now you have hedge fund clients using the protocol for how we think about risk on trade, tactical trades. More recently, we've seen insurance firm using it for asset liability management. These are like pretty big kind of progressions in terms of behavior. Your second part of the question is quite interesting, right? Because now we're seeing and we're talking about the emergence of how we think about sort of the alternative market makers. I think that's still the right way to describe them, but the alternative market makers kind of entering the space with a lot of emphasis around technology. We think about sort of the citadels of the world, the Janes of the world that are doing an excellent job in terms of warehousing risk. Virtu has been very clear about their plans. I think Doug used the word Switzerland to describe himself in terms of his relationship between TradeWeb and market access. I always thought we were kind of Switzerland, but I'll have that conversation with him offline. But they're very, very important players in the space, right? You have these kind of firms filling a void. You do not have the sort of legacy kind of traditional way of doing business kind of issues. And then you have companies that have significant DNA and expertise and experience on the anonymous side of the trading world, getting into disclosed trading and the wall around disclosed trading. And that's a big deal. So my instinct is they're going to take the concept and the premise of portfolio trading very seriously. And that's a big deal for us in terms of how we partner with them going forward. So feeling quite good about directionally where we're going with portfolio trading. And thanks for the question.

Great, Billy. Thanks for the detailed response.

Thank you. One moment for our next question. Our next question comes from the line of Tyler Muller of William Blair. Your line is now open.

Good morning. This is Tyler Muller. I'm for Jeff Schmidt. We were curious, what has the client response been to the rollout of RQ Edge? Is the additional functionality and analytics helping penetration of larger block trades? Thank you.

Sure. Hey, Tyler. Good question. Well, by the way, love the sort of name RFQ Edge. I think that's a great kind of marketing protocol for the company. It's early days, and it's a good question. You know, the initial feedback has been quite positive. From our perspective, the enhancements are all about kind of adding analytics, real-time charting into the RFQ ticket. We think that, like, you know, directionally investing in clients more upstream is important. That's a very kind of strong kind of strategic move for us. You know, RFQ edge enhancements, they basically reflect similar analytics to what we provide to our clients across portfolio trading. It allows you to trade with multiple dealers and the all-to-all market all at once. Again, it's all about sort of enhancing and investing into the client experience. We have a few clients who are utilizing it like a portfolio trade, where they're going to fewer dealers, sending larger size trades, fewer dealers, larger-sized trades, that concept of sort of information leakage, minimizing information leakage. These are like very, very important principles and something that we've invested in for a long time, really understanding client flow, I think, in a very straightforward way. That's the ultimate edge for us. So we're feeling good about that protocol, early days, more to come on it, and appreciate the questions.

Thank you. One moment for our next question. Our next question comes from the line of Chris Allen of Citi. Your line is now open.

Morning, everyone. Thanks for taking the question. Want to talk about the third-party market data business a little bit. I'm wondering what the kind of key growth drivers are here. Any new products you may be able to introduce now? How you may be able to expand the penetration of existing products? And also, can you kind of remind us of the mix today between different data offerings and how much they contribute?

Sure. Hey, Chris, it's Sarah. Thank you for the question. Market data has been a great business for us. And, you know, I think as we always talk about, first and foremost, our top priority with utilizing market data is to improve the execution for our clients. But obviously, we have direct monetization of market data as well. In the second quarter, we had about $29 million of revenue overall for market data. the bulk of that, about 20 coming from LSEC, and $9 million and a quarter from the third-party data line that you're asking about. That line, obviously a much smaller base, but it's grown really nicely for us, about 17% over the last five years on average. If you think about what's in that bucket, there are a few components. The biggest element driving that third-party line is really pricing products. So pricing would constitute about 60% of that $9 million. And it's really things like benchmark and reference products. So think about our ability to have a closing price on UK GILT or US Treasuries. Newer products like INAV, our intraday ETF type of pricing, new AI pricing. This concept of creating benchmarks and then ultimately, in terms of a growth strategy, As they get further adopted, it adds growth in two ways. One, directly from licensing fees as you create indices, as people consume closing and reference prices, but also increased trading flow, which obviously is great for our other lines. That's the biggest bucket. That's the biggest growth driver, the thing we're most excited about. Obviously, partnered with FTSE, which is owned by ELSEG, to do a lot of that. The other components in that line are really around analytics and some post-trade regulatory-type products, things like PCA. So I think overall, we're quite bullish in our ability to grow the opportunity here. There's new types of licensing reference data that we can create. In some ways, it's limitless. Any asset class that we're trading, we can help create a closing price or a benchmark for. It doesn't happen overnight, but you can see in terms of that model, can create more products, and then as it gets further and further entrenched in the network, more adoption, then there's inherent growth. And we're seeing the benefit of both of those things in that line today. Thanks for the question.

Thanks. Thank you. One more for our next question. Our next question comes from the line of Alex Bolstein of Goldman Sachs. Your line is now open.

Hey, good morning. Hello, Billy, and everybody else. So I wanted to talk a little bit more about the interest rate swap business. I know it's a topic that's come up a bunch in the past, and I've asked you guys this numerous times in the past as well, but it seems like this business just kind of continues to set new records, and second quarter was an exception to that. what drove the strength in the second quarter that's won? And maybe you can just kind of zoom out and talk broadly how you're thinking about the revenue growth algorithm in this business over the next couple of years because it seems like it continues to do much better than what the baseline should be.

Yeah, it's been a great kind of environment for us, obviously, Alex, and it's a very good question. It's almost kind of like the second quarter is almost like a perfect microcosm Like what our clients care about the most there's there's geopolitical geopolitical uncertainty Varying inflation prints changing election odds all of that stuff and our business has really been kind of clicking in It's primarily been a market market share story for us I would say as you know very well our swaps business we think about as a sort of almost like a compliment complementary to our global government bond business and our mortgage franchise and I made the point and I want us to kind of keep thinking about this. When the Fed gets into rate cut mood, our instinct is those sort of mortgage originators are really going to kind of step into the equation around swaps. But we've gained market share and grown revenue really kind of in three ways. It's first and foremost by adding new customers and migrating them from voice to E. That's like trade web kind of 101 stuff. And that's been a big driver of our market share. I would say second, it's always by kind of building, you know, new products and that from our perspective would be EM. And then I think very, very importantly, and I've used the expression before, you know, micro trading protocols. So the example of that would be like requests for market, you know, we call it RFM. There's so many like code words, a trade web, but requests for market, you know, where, you know, a buy side client can go to one dealer, ask for a two-sided market, and then trade on one side of the marketplace, it really ultimately replicates the exact behavior that large macro funds trade big size in the market on. And those kind of trades would happen on the phone or through Bloomberg messaging, and now they're happening through TradeWeb. As we plot the future a little bit, it's going to be about continued sort of success around EM swaps. We feel bullish on inflation swaps. I think swaptions is a very kind of interesting nut to crack for us. And then there's going to be, again, we talked about sort of technology and this kind of concept of multi-asset tax swaps. So a lot more for us to do in the area and feeling really, really good about how we've continued to perform, gain market share in swaps. You know, as you know, Alex, very well, and I sometimes feel like a little bit like the trade web, I've made the joke, the trade web historian. This was the sort of back alley of all the rates markets, of all the macro markets for a long time. And to see this business flourish, you know, in volatile and interesting environments has been, you know, quite rewarding for the company and feeling really good about where it's going from here. So thanks for the question.

Thank you, Alex.

Thank you. One moment for our next question. Our next question comes from the line of Patrick Moley of Piper Sandler. Your line is now open.

Yes. Good morning. Uh, thanks for taking the question. So I had a question FMX is launching in September. I understand that a lot of the conversation with FMX has been around the futures business, but they do have a club treasury business that you compete with currently. So I understand that it's not a huge part of your business, but we're just curious to get your thoughts on FMX broadly and what this new consortium of dealers in the race space means for competition in the industry. And then if I could add a follow on to that, you mentioned in your prepared remarks that the club was starting to trend higher for you. I know that's been a business that you haven't been completely satisfied with since you bought it from NASDAQ a few years ago. So maybe if you could just expand on the strength you're seeing there and your expectations for that business going forward.

Thanks. Yeah. Hey, Patrick. Good to hear your voice. Hope you're doing really well. I made the comment about sort of Switzerland before. I was watching CNBC yesterday with Mr. Duffy kind of talking about this business and thinking to myself, there's no Switzerland kind of in this moment. you know, Howard's a big personality, kind of everyone knows that. I think, you know, we've known him well and we have a, you know, very respectful relationship both with him, you know, and with the CME. My instinct is the kind of clear goal is to, you know, from FMX's perspective is to, you know, take on the incumbent in the futures market. And, you know, that's their business model. And we'll see how all of that will play out. I think it's going to play out a bit on, you know, on TV, and it'll be an interesting kind of story to watch. We feel, to make an obvious point, and it's a good question, we feel really, really good about the strength of our treasury business, both on the client side and on the wholesale side. I have a very strong message that I deliver to the company, which is be super conscious and super aware of the competitive landscape. And so, to make an obvious point, very well aware of everything that Howard has done in this space and continues to try to do in this space. Be super aware of the competitive landscape, but live and breathe with your clients. And always make that the most straightforward focus. So our wholesale business on the treasury side continues to do extremely well. From your question about the club versus the streaming business, You know, we continue to do exceptionally well in terms of growing our streaming business. The rate fin acquisition has been helpful to us, not surprisingly, in all of that. I think we do still have work to do on the club. I think that is an important piece of the market. There have been market share shifts in the club world. And this company sort of executes. And from our perspective, we want the company to continue to kind of click on all cylinders. And that's an area where we tend to roll up our sleeves a little bit and make sure that we're pressing the right buttons in the club and investing there correctly and hiring the right people and moving that business forward. As you know very well, this is a company that stays quite focused and there's enough news out there is the good piece of it. We're going to stay very, very focused. We're going to kind of sit back and see what happens around the kind of futures market in terms of all of that. and then stick to our knitting, stay close with our clients, and continue to do really well in our wholesale business.

Thanks for the question. Good to hear your voice.

Thank you. One moment for our next question. Our next question comes from the line of Brian Bedell of Deutsche Bank. Your line is now open.

Great. Thanks. Good morning, folks. Let me just, not to focus too much on the short term here, but just your comments for July, Billy, on investment grade and high yields. Market share looks like a little lower than June. Maybe just if you can comment on what you think may be driving that. Is it more of a shift in the business mix, either environmental or due to portfolio trading or within the client base dealer to institutional?

Yeah, good question and fully get you. Don't read too much into those numbers yet. I mean, generally speaking, we tend to kind of wind up outperforming from a market share perspective in that arena around some of those portfolio trading protocols towards the end of the month. I think we're going to wind up in a very good place when you see our all in July numbers. I think you're going to see continued sort of growth of portfolio trading, which is, from our perspective, our kind of go-to protocol and something that we kind of thrive in. So I don't think you're going to see a big kind of disconnect when all is said and done, you know, feeling really good about where we are, you know, in credit. And I think that's important to say that the, you know, the Aladdin integration remains a high priority for us as a company onboarding the right market makers you know, in high yield when we get into the open trading environment. That's an important concept for us. We've talked about that a lot. And we're going to continue to thrive in that portfolio trading world where, you know, we talk about the balance of it all, you know, the big buy side clients, you know, acting like the buy side and the, you know, the dealers investing in market makers, the alternative market makers arriving on the scene. From our perspective, these are you know, quite good forward trends for our credit business, and that's where our focus is going to stay. Good question, and thank you. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Ken Worthington from JP Morgan. Your line is now open.

Hi. Good morning. Thanks for taking the question. Wanted to focus on business environment, maybe part one. As you mentioned to Alex's question, it's been election season globally. How has the election season impacted activity levels given some changes in Europe already? And are there any clear takeaways from a Harris or Trump presidency for TradeWeb in US markets? And then maybe part two is we've seen bond issuance in net sales into fixed income funds increase substantially in 24 versus 23 levels. How should we expect higher issuance in sales to translate into investment grade or high yield trading volume from TradeWeb from a timing and magnitude perspective?

Yeah, sure. You've got to spend just like 10, like an incredible kind of, you know, six weeks. And I feel like the, you know, the story is changing constantly. You know, as we said before, I think healthy debate in the market, you know, you know, is good for our business. And so obviously we saw, you know, some record revenue days, you know, in June, um, we talked about the concept of geopolitical uncertainty, the, the different bearing inflation prints. Um, I think, and look, you always get the straight answer for me to start with. Um, I'm not an economist. I think the Fed's going to, you know, the Fed's going to cut no matter who the president is. I'll say that. I think that's going to wind up being quite good for our business. Um, I think you're going to get, you know, sort of, you know, different policy, obviously. But my instinct is, you know, global, you know, global debt is rising. And I talk about the concept of, I think, very importantly, the Fed playing a lesser role in the markets that TradeWeb lives and breathes in. And so that leaves us with this feeling, you know, sort of no matter the election results, that private sector risk intermediation is is back in vogue um i do think you're going to see you know continued strong levels of of issuance of debt issuance you know going forward and my instinct is you know markets like high yield are going to have a pickup in volume a pickup of activity as we get into you know 25. um you know not to make you laugh that those are my thoughts um I feel like I've had 10 different thoughts about what was going to happen over the last month, and I'm sure kind of everyone on this call has too. So it's been a little bit of, you know, in a human way I can say this, it's been a little bit of a challenging time with all the things happening in the world. And so we remind ourselves how lucky we are sometimes. But it's been a tough, you know, couple of months just in terms of all the events in the world. Great. As always, that's a great question. Thank you.

appreciate your perspective yeah thank you one moment for next question our next question comes from the line of daniel fannin of jeffries your line is now open good morning uh thanks for taking my question uh within high yield you mentioned in your prepared remarks expanding your client network is kind of key to growth Can you unpack where your current strengths are today and what client segments you're targeting to actually get that future growth? And maybe how does the Aladdin partnership accelerate that?

Yeah, so that's a good question, Dan. You know, straightforward strengths, probably not surprising to you at all, we would say are like the long-only asset managers. I'm going to push the team with Sarah around continuing to form deeper relationships with the ETF market makers. They're obviously extremely important in the high-yield business. I think we've done very well with them. They're critical, so we're going to keep extremely focused there. Hedge funds and private banks in terms of liquidity taking, very important institutions in the space. We're focused on know aladdin because we think it's going to help kind of round out that responder network in a way that's going to work for us you know and the perception around making sure that we have best-in-class liquidity in high yield and i say this to you you know because it's always sort of a two-pronged approach as we do that there's going to be a continued message around the benefits of you know of portfolio trading um which we think you know, we're going to see continued growth, particularly in the high yield area, you know, around portfolio trading. So we want to make sure we're kind of thinking about, you know, that marketplace from two different protocols the right way. And then we're going to be very focused always on the client base, you know, so deeper relationships inside of that ETF money market, ETF market maker world, and make sure we have the right responders in, which is partly why, that Aladdin integration means so much to us.

Billy, maybe just one other area we've talked about in the past as well. When we think about the client base, you know, we've spent a lot of time and energy and continue to focus on building out our EM platform. That's another area I think we see some benefit in terms of high yield expansion. There's a big overlap there in some of those traders. Yes.

Thank you, sir. Thanks for the question.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Kyle Voigt of KBW. Your line is now open.

Hi. Good morning, everyone. So with ICD likely to close within the next week or so, just wondering if you can update us on your appetite for incremental M&A from here, especially given that you'll still have a significant amount of balance sheet flexibility post-close. And with respect to ICD, can you just remind us of the integration timeline there? It sounds like there may be some incremental investment up front. So, how do you think about the margin trajectory after that?

Yeah, that's great. So, I was laughing thinking of Billy's answer to this M&A question last quarter. Look, M&A, let me start with the first part of your question. We think M&A is a tool, just like organic growth is a tool, partnerships, investments are tools to implement our strategic objectives. We've done three acquisitions, if you include ICD, in the last 18 months, and we're focused on doing those well, which means executing and integrating. So that's obviously like top of mind, and I'll talk a little bit more specifically around the plans of ICD. That said... While we do that, we constantly are focused on achieving our strategic objectives. So we're going to be disciplined about looking at other opportunities, but we're going to continue to look at that tool and balance executing well with continuing to be opportunistic and grow our company. We think we're on our foot. We have a great balance sheet. We have a great stock. But we're going to be very disciplined about it, and hopefully you've seen that in the few ones that we've pursued so far. ICD specifically, we expect to close shortly. In terms of where we are, I think we've talked a little bit about the margin expectation for ICD out of the gate is probably a little bit lower than where ours is right now, 47 to 49%, I think is the range that we've talked about. That's really reflecting our increased investment in that platform. Strategically, the business is performing very well. And in the client dialogues that we've had, we've been really pleased that our thesis around their for our types of products, really that receptivity and that strength of the client relationship the ICD client managers have has been really strong. So in terms of where we're headed, I think the opportunity for us in the near term and medium term is really around driving those revenue synergies, really taking our international footprint, introducing ICD into that client base, and then obviously what's going to take a little bit longer, but certainly on our 12- to 18-month technology roadmap, and some of it will happen sooner, it's not a big bang, is introducing connectivity to our platform so those corporate treasurers can buy our products. They've had interest. We will likely start with U.S. treasuries, which we think we're very well-placed to do. But you can see how once you're in a mode on that portal of actually transacting, and these corporate treasurers are transacting today in our products, U.S. Treasuries can go to CDs, can go to CP, can go to corporate bonds. You know, there's a whole range of outcomes that we see over the medium term, and we're quite excited about that opportunity.

And Sarah, we talk a lot about sort of the importance of sort of the management team, the cultural fit. Maybe just a minute from you just on how impressed we've been with that management team, starting with Tori.

Yes. I mean, the management team, starting with Tori, who's CEO of ICD, we have been able, as a broader team, to spend a great deal of time with, not only in the diligence process, but one of the benefits, I joke because it's obviously time-consuming, but one of the benefits of having done these three acquisitions in a short time period is we've really honed our playbook and been able to connect with the management teams, ICD and TradeWeb, at every level. So Philly mentioned Tori, but it goes from the heads of product, the CTOs, CMOs, and obviously through the finance and broader parts of the organization. So the talent that we are bringing on board as partners to grow our platform, we are really excited about. And I think having been on and part of a number of acquisitions, that cultural fit, the mindset, that focus on clients – That's one of the things that makes acquisitions even more successful. So I think Billy's right to point out the talent is high, but the cultural fit and the way that we approach serving our clients is actually a tremendous fit that makes us even more enthusiastic than we were when we announced the deal.

That's great. Thank you very much.

You're welcome.

Thank you. One moment for our next question. Our next question comes from the line of Michael Cypress of Morgan Stanley. Your line is now open.

Great. Thanks so much for squeezing me in here. Just wanted to circle back to your earlier comments on the investments you're making in emerging technology. I was hoping you could elaborate a little bit on that. What are your aspirations there? And if successful, what does that look like? I think one of the things you were articulating was blockchain. So I just related to that. How do you see the potential for blockchain in your markets and your business over the long term?

Sure, thanks for the question. You know, I think digital assets and emerging technologies are a really interesting point in the cycle. We've spent years really looking at the space and being very disciplined about how we spend our capital. But increasingly, part of our strategy is to partner and invest. Those technologies don't have to be born and, you know, created in-house for us to really avail ourselves of it. And blockchain is a perfect example From our seat, leveraging distributed ledger technology like blockchain obviously has a lot of impact in trading businesses in terms of eliminating manual reconciliations, reducing cost of transactions, and we want to be on our front foot about figuring out how that gets leveraged and how we learn. Those things also have ecosystems, just like our markets today in the more traditional space have ecosystems. Two investments that we've done recently, one with Canton Network, which is a blockchain network, the other around Alpha Ledger, which is actually blockchain infrastructure, both are giving us different seats at the table in seeing how that technology can be utilized for either issuance or trading of securities. In Alpha Ledger's case, it's around brokered CDs. And in Canton, which is like a much more well-understood network, really around how that ecosystem can you know, scales and creates interoperability for digital assets. So I think it's still early days around these emerging technologies, but certainly we're positioning ourselves to be an important player as that market involves, whether it's a digital asset trading on the blockchain or some more traditional.

And Michael, Sarah described that, you know, perfectly. I would say like, you know, when you build markets, you learn sort of an aspect of pragmatism and know pretty quickly and so we're always sort of thinking about like how some of these things pragmatically can live and fit in our marketplace sarah and i talk about this all the time we're going to describe for you sort of two markets that feel like they have sort of you know the the type of market or the type of settlement process that could really kind of benefit from some of these technologies that are clearly so important and you specifically mentioned blockchain, we would sort of point out, obviously, first to start with the repo market. And then the second market that we would probably point out, and we think this market's going to become more and more important over the next couple of years, is if you think about how the TBA market kind of traditionally settles, I think the feeling is there are going to be sort of blockchain technologies that could create more efficiencies in that market over time. The key and most important kind of you know, words around that would be over time because I do think it will take time for that kind of technology to get applied pragmatically into our world, but the opportunity in a really interesting way is there. An excellent question, Michael. Thanks.

Great. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Alex Graham of UBS. Your line is now open.

Yes. Hello, everyone. I just want to come back to portfolio trading and credit one more time. When I talk to some of your largest BISAC clients, they totally agree that this sort of protocol is going to get bigger. So that sounds great. But at the same time, obviously, you have very dominant market share in that business. And when I talk to those clients, they definitely say, like, look, over time, you know, we do like competition. We're going to have to spread our love a little bit more. So considering that that's a very concentrated market right now, and I don't think it has as much network effect than maybe RFQ or all-to-all has, is that something that worries you? And how do you think you can defend that as, again, maybe it's a little bit more of a workflow than a real network liquidity?

That's a really good question. I mean, I think, like, really in a certain way kind of agree with a lot of your thesis first of all with like the way that the buy side clients are embracing that protocol i think that's like spot on um i think you hear me loud and clear around the importance of the sort of balance around the ecosystem you know we're going to do sort of exactly what you would expect us to do which is to sort of continue to enhance and innovate um and do things around technology to enhance the clients experience with portfolio trading. We're also going to remind our bank partners that it's not that we created this portfolio for you guys, but absolutely we went out of our way in a very straightforward concept to bring the big banks back into the equation. And we do think we've gotten a lot of support as we've done that. So I think the forward trend is going to be continued sort of market share growth around portfolio trading. I think we have our ways to sort of defend that fort It's a big focus for the company to make sure we stay, and we will stay as the leading venue for portfolio trading. So we're focused on it, and my general feeling is we're going to show continued market share strength in portfolio trading.

Fair enough.

Thanks, guys.

Thank you. This concludes the question and answer session. I would now like to turn it back to CAO Billy Holt for closing remarks.

Thank you all very much for joining us this morning. Great questions, as always. Any follow-up, please obviously feel free to reach out to Ashley, Samir, and our great team. Thank you all. Have a great day. Bye-bye. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.