MarketAxess Holdings Inc. (MKTX) Earnings Call Transcript & Summary

Welcome back, everyone, to Piper Sandler's Global Exchange and Fintech Conference. We're moving to our Electronic Fixed Income segment where we got a nice lineup of MarketAxess' CEO, Tradeweb CEO and then the Presidents of Electronic Fixed Income Panel, but this session is with MarketAxess. We're very happy to have Chairman and CEO, Rick McVey. Rick took over -- founded MarketAxess in April of 2000. So Rick, I think you and I are the only guy -- the old guys -- along with Lee are the old guys around. So he has been a, what do you call, resilient and has always believed in the electronification of the fixed income, the credit markets.

So I guess first question, Rick, is we see different conditions for trading between this year and last year, dramatically different. So I guess could you walk through, from your perspective -- closer to it than I, about the credit market trading conditions and how they change year-over-year? And is that suitable for you? Or how do you fit in this changing environment?

Yes. Happy to do so. And always good to see you, Rich, and thanks to your colleagues at Piper Sandler and to you for putting together what is another great conference. So always glad to be here. But you're absolutely right, a pretty significant change in credit market trading conditions. It's more a recent than the full year-to-date because as you know, we had a record first quarter, and volumes and revenue and earnings growth looked pretty healthy again during the first quarter this year. This quarter has certainly been quieter. And as you know, our business benefits from credit spread volatility. And of course, in the second quarter of last year, we had a significant increase in volatility, and that's when the differentiation of our liquidity pool through Open Trading came through loud and clear, and the gap widened as our volumes grew, and you saw other market participants going the other way. This particular quarter, we're exactly the opposite end where credit spread volatility is at historical lows. So it's an interesting year-over-year comp. And as a public company, kind of getting used to having to worked our way through those, but we had a 10-year high in credit spread volatility in Q2 last year and led to record numbers at that time. And we're at a 3-, 4-year low in credit spread volatility right now. So we're in this short-term period where yields are low, credit spreads are very low and volatility is low. And in fact, if you look at corporate bond indices for the full week last week, the trading range was inside 1 basis point. So the good news, Rich, is we know these kind of market conditions change. And so we're working a way on our long-term growth and investment strategy and building as we go. We know we'll get a better credit trading environment to work with probably not too long from now, but it is a soft quarter with low volatility right now.

You -- and we talked about founding in 2000, you've been through these cycles. So I guess the lesson here is that they don't last forever. Is that the case?

No. When we actually look back just a week ago or so because you see very clearly we had one in the middle of 2014, we had another one in the middle of 2017. And some of the short-term analysts and investors say, "Oh my God, the growth is over forever." And we do our thing and keep building and keep investing, and we know if we do that we come out of those troughs even stronger and set new highs, and that's probably what we expect this time around. We feel very good about the underlying trends. There is more clients trading on our platform. We're seeing really good growth in new initiatives. Emerging market, market share is setting brand-new highs even though market conditions there are pretty quiet, too. So the long-term health of our business has never looked better, and we're pretty excited about what's to come.

So again, I've observed it as well. You -- firms need to ride through periods of low volatility. I guess, maybe if we get a little bit more specific, and we will touch on this in the Presidents panel as well, but sort of the protocols that you think work better, work worse in this type of an environment -- in both environments, both last year and this year to differentiate.

Sure. No, I'm happy to talk about that. We've been working a way at creating what we think is the largest all-to-all trading network for global fixed income through Open Trading for about 8 years now. And it allows anybody to be both a liquidity taker and a liquidity provider in a wide open marketplace. And what we learned during the pandemic trading conditions last spring is that that diversity and depth of the liquidity pool makes a huge difference when volatility picks up. And asset managers have said that was the best thing ever because they were oftentimes finding great prices on great bonds that they're looking to add to their portfolio. So you've got over 1,200 firms providing liquidity on MarketAxess now. And when the market is tested with high volatility, that really makes a difference in terms of providing alternative sources of liquidity to work your way through those markets. Markets like this, you see session-based trading, portfolio trading and basket trading. It's easier to complete those kind of trades when volatility is low. And there is clearly some growth in that kind of activity, too. And another area of active investment for us, our Mid-X sessions protocol is growing quite nicely in euros, and we'll bring that over to U.S. credit in the second half of the year. We're really excited about our recent portfolio trading release and the client reaction that we've seen there. So we're working on lots of new protocols and new product areas and just continue to stay the course with our investment budget because this opportunity is so huge.

So is it better to say -- maybe if you could just give us, for any investor that's sort of asked the question. But your view of the competitive landscape, has anything changed? Or is this bit of impacted by the cycle or so -- what? What you would say about the competitive landscape?

The incumbents continue to be the large players in global electronic trading. If you look at global credit specifically, probably the net result is Tradeweb has done a bit better than people would have expected, maybe ICE a bit worse because they continue to do their thing with the retail platforms that they have acquired, but you haven't seen much difference on the institutional side there. And I think when you look at our success in gaining share in euros in emerging markets, it makes us feel pretty good about how we're competing with Bloomberg who has a very big presence in those markets. So it is the incumbents that occupy the space. It's a really hard business to build and get all the client and dealer connections that you need to have critical mass and a liquidity pool that actually works for clients. So everybody kind of has their own strategy, and they move in different directions at different times. But the 3 or 4 large incumbents are the ones where most of the electronic trading and fixed income still takes place.

I think -- I don't want to steal all the thunder -- my thunder from our panel, but I think that's one of the things we're talking about is, everybody views you the 2 or 3 firms as competitors. But who is the real -- like where is the real opportunity? And that's with the incumbents and even we'll discuss more whether it's even complementary thing between the firms. But just still...

Yes. Look, at the end of the day, you look at 1-, 3-, 5-year growth rates. We're really proud of where we've been, and we're creating a much bigger foundation for growth in the future with all the new products and the international expansion and the protocols that we have invested in are all rolling out simultaneously. So we feel equally good about the growth prospects going forward. But I think it's fair to say, we've had really attractive revenue and earnings growth rates for a long period of time, and we think we're doing all the right things to maintain that.

Zoning on portfolio trading, just for one last question on it. But is this -- it has uptick. I think, it's fair to say, it's like benefited from the lower volatility or what would you say -- you're building out your offering. So is there any differentiation between offering in portfolio trading? How would you say MarketAxess is different than some of the peers?

Sure. Let's step back and talk about portfolio trading in general first and then specifically, electronically. But listen, it's another efficient way to transfer risk in global fixed income and specifically, global credit. But it tends to be situational where an asset manager has buys and sells perhaps because it's a tax strategy or they're moving out of one sector or into another. You have some involvement from the ETF market participants given the rebalancing that needs to take place regularly within the ETF industry. But portfolio trading is evolutionary, not revolutionary. When we look at it today, the monthly volume, which we can pick up from the TRACE tape as they're reported as baskets, has been running at about $25 billion to $30 billion combined high-grade and high-yield for about 16 months straight now, and it's around 3.5% of TRACE. So it's an important new tool, but let's keep it in context. There are now 4 electronic trading portfolio trade solutions in the market in live. Tradeweb, of course, has one; we have ours; Bloomberg is out; and ICE is out as well. So there are 4 different solutions. It is a workflow solution. What we see -- as we see more and more portfolios coming across our platform is it's usually 1 client going out to 2 or 3 dealers. So what the technology does is makes it really efficient to negotiate the items in the basket and a pricing benchmark to just process those trades efficiently, but it's not a unique liquidity pool. And so as a result, it's not what we think we've built through Open Trading in the broader market, but it is an important new tool. And we're really pleased that we're now participating actively in it.

So you mentioned the Open Trading. I mean that is a liquidity pool that you've built with a network over the years, actually. So could you sort of update us without the volatility, it's probably not -- you don't have the same tailwind. And who would have thought -- I didn't even know that all that volatility would provide such a tailwind than it did last year. But maybe just talk a little bit about -- could you -- because that is the strength, I think, of MarketAxess with the Open Trading and any other protocols that you would highlight are important that you guys are putting some effort and focus on?

Sure. No, happy to. And we think you're exactly right, it is unique. Almost all of our orders are available in the -- to the entire network all day long. And that for global credit now totals about 35,000 orders a day and $19 billion in notional value. So we no longer run a segmented platform where you have D2D over here and C2D at retail over here. It's -- everything is in the open marketplace. And it has done a lot of great things, right? One, it's increased market participation. So you have a lot of alternative market makers that are participating in global credit that were not really involved 4 or 5 years ago. We're delivering a tremendous amount of transaction cost savings that last year alone and of course, it was a volatile year, but our estimated transaction cost savings for Open Trading were $1.1 billion well above company revenues. We're delivering a lot of value back to our clients, and we're expanding into all kinds of new products, including the new municipal bond offering that we have. So we do think it's unique, and it's especially so during times when markets are volatile. But it's only -- one of the things that we're doing, and I mentioned Mid-X sessions that we're really pleased about portfolio trading, we now have 2 products available essentially in a CLOB. One is corporate bonds, where we have live markets out and running. Early days, it's going to be a long-term behavioral change, but we think there is a place for a CLOB and corporates. And secondly, U.S. Treasuries with the acquisition that we made there and the ability for everyone to participate in Treasuries in a CLOB. So there is a full menu of protocols here, and some will work better in different market conditions than others, but we're really pleased to have the breadth of offering that we do.

And the one that certainly all-to-all and the RFQ model is a staple of your offering. But the Live Markets, you're adding market makers. It's sort of a specialty focus, right? Soon after issuance or more liquid. [indiscernible] stand a chance where a CLOB type structure like that over time does better in credit or...

I absolutely think so. And it's because of the advancements in trading automation, in my opinion, Rich, because you look back 5 years ago, if we were at this conference, we would not have been talking much about algos in credit, but there are approximately 20 algos at work now on the MarketAxess trading system. So the market makers have gotten much better at continuous streaming liquidity out to their clients, and we're taking advantage of that with some of the early adopters on the dealer side that have moved into Live Markets. So I actually -- I'm very optimistic that there is a benefit to everyone because, again, it's another place where people can be on either side of the market, and they can leave levels in the system that makes sense to them. So we're optimistic there. And listen, with our Open Trading model, the other really interesting growth story is how dealers are using MarketAxess Open Trading for their own liquidity now, where dealer RFQ has become a big thing. And they're taking advantage of not only dealer liquidity in our platform, but essentially, reverse inquiry out to over 1,500 unique clients that they can connect with through Open Trading. So dealer RFQ, that was not our business, right? It is that D2D business, but now we're very actively involved in dealer liquidity offering through dealer RFQ.

Yes. I think, Rick, throughout this, especially tomorrow with the exchange, we're going to talk about networks. And you truly do have a network in the all-to-all and the dealer RFQ, and trying to establish more so in Live Markets. But I guess, the other part that we'll talk about is virtual -- virtuous cycles. And it seems like you have that the added customer, but I guess the flywheel of virtuous cycle also includes providing market data. So I guess, can you give an update on your pricing data and any momentum you're seeing? Or isn't that important to this flywheel? Or as I'm sort of proposing, I guess?

Yes. No, thanks for bringing that up because it's essential, it's what drives trading automation. So if you look at what we've done successfully with Auto-Execution, which is mostly used by asset managers and our new tools around different ways to respond to open orders, you will see that it's heavily driven by our data. And we just have more executable bond price points on our platform than we've ever had before with the significant increase in order flow from investors and automated price responses from lots of market participants, both traditional and new. So with that data, we have a really good sense of real-time mid-market price on hundreds of thousands of credit securities. That's what gives investors confidence to do Auto-X is they know automatically when they're getting a good price back on the system. So we're using the data currently primarily to support our clients' algos and Auto-Execution. We do believe there is a much bigger data opportunity in front of the client -- in front of us for the company when you look at all the activity going and the growth of ETFs and indexation, we think our data has a significant role to play going forward in that space.

Understood. So there is certainly growth of protocols that you see continuing the electronification. I guess maybe other strategies, I know, international, could you speak to muni bonds? Or what else sort of excite you besides the core moving the market electronic opportunity all by itself.

Well, as usual, you picked 2 really good ones there because our international growth continues even in spite of relatively soft credit trading conditions around the world. So we're setting new highs in terms of the volume and revenue as a percentage of our total coming from non-U.S. clients. Very clear that we're gaining share actively in CEEMEA. The new part this year is how quickly we're gaining share in APAC, and the adoption rates are clearly heating up. It's great that we have the position that we do in global EM, and the international growth is very encouraging in terms of increasing the footprint of the company for long-term growth. On munis, we couldn't be more excited. We're combining what has been solid organic growth, building out our institutional muni platform in both taxable and tax-exempt muni products, now with inorganic with the acquisition of MuniBrokers. And it's -- what you'll see us doing, of course, is integrating these 2 different client networks were traditionally C2D network on our side and D2D from MuniBrokers into one and consolidating order flow so there is more content available for everyone. So we couldn't be more excited about munis, and we think there is a long runway there because it's the most fragmented bond market in the world, and everyone is looking for new and more efficient ways to trade municipal bonds, and we think we're delivering that.

Yes. And this is -- Chris gets excited over the munis, and he talks a lot about the opportunity. Anyway, I think to switch subjects just a little bit back to the environment. As we see more, what do you call, back to work -- is that the acronym we'll use having worked from home. How do you see that impacting, not necessarily MarketAxess, but just trade volumes in general? Do you think that will be a benefit as people...

I think dealers and investors both found ways to be efficient with trading from the home environment. So I'm not sure that as people start to return to offices it will have any significant difference in terms of trading velocity or activity. But what we've learned over 21 years of doing this is, once traders get into the habit of trading electronically, they normally don't go back. And of course, the reasons are clear, right, is that they're trading in a much more efficient environment. In our case, they're taking advantage of a huge pool of trading opportunity available in Open Trading all day long and then transaction costs are lower. So you don't -- we haven't really had any period where behavior has gone backwards after people have started to trade electronically. I don't think it will as people return to the offices either. What we're seeing right now is that some of the dealers are returning more quickly, the asset managers not so quickly. So I think we're going to be well into the fourth quarter before you see the trading floor is filling up more broadly.

Got it. We've got a few minutes left, but I guess, this would be sort of the outlook going forward. You believed in electronification for 20 years. And when you look back, and Chris and I will disagree a little bit because at least what I learned is that in volatile times people sometimes go back to the old way of doing things. Here, they really didn't. They seemed like they went to the new where the liquidity was and things like your Open Trading. So I guess the question is, how do you see the progress -- like you saw sort of an uptick last year, do you think that pull forward? Or is it going to be a little bit more lumpier, the electronification process?

Look, I think certainly, our experience is that you're going to have ebbs and flows in market share gains all the time, right? And it's because there is a part of it that is directly connected to market conditions. So you saw a massive year for share gains here last year. It's a little bit slower overall, but still heading in the right direction this year. But the long-term direction of travel, I think, is very clear. And we're excited that we're in credit where the current market penetration of electronic trading is low, right? If we look at our composite market share for our -- just our 4 core products, not alone the other new products that we're investing in, it's probably around 17% of the total market. And I think you're going to see it go to 60%, 70% over time. But when you combine that with what I think is likely to happen that you've got these all-to-all networks in place, you're getting more market participation, both market making and systemic -- systematic investing strategies that work in the market. I get pretty excited about market velocity, too. And so there is no end in sight to debt issuance, right? We've got deficits as far as the eye can see, and corporate bond issuance continues to be very strong. You're going to get a bigger stock of debt out there. You're going to get more electronic trading share. I'm convinced you're going to get higher velocity, too. That creates a great growth profile long-term for electronic trading and fixed income.

That extra philosophy, at least what we have seen in other asset classes, a lot comes from we got the new liquidity providers where they provide automated trade. And I guess, are you seeing that sort of lift in your trading where it does rather than just getting a bigger share of the pie, the pie expands as well because that's...

Absolutely. It's a combination of the new market participants, but look at the profitability of the large banks, right? It's never been better in global fixed income, and they're using algos to get in the middle of more trades themselves and serve their clients better. So trading automation is working really well for the large banks as well as the new market participants. And then you get these new systematic trading strategies with hedge funds and other asset managers. There is a powerful mix that I think all points to increases in velocity over time.

Rick, that wraps up our time, but I think you -- what do you call, introduced the segment because it is all about electronification and just seeing how it has moved in the 20 years that you and I have both looked at it and seeing the move last year has been certainly fun to watch for your platform, for sure.

Great. Thanks, Rich.

I want to thank you again, and hopefully, you'll tune in to see your President in his panel because that will be a fun panel. But that's it, folks. So we're going to wrap. Again, thank you, Rick. Next up will be a peer, Tradeweb and Lee Olesky at 2:00 p.m., and hope you all tune in. Thanks.

Thanks very much, Rich.

Welcome back, everyone, to our Presidents of Electronic Fixed Income Trading Panel. This is our segment where we focus on electronic fixed income trading. We have 3 notable presidents from the fixed income electronic trading industry: Chris Concannon, President and COO of MarketAxess; Billy Hult, President of Tradeweb; and finally, Mike Sobel, President of Trumid. So I guess to start, guys, I think everybody knows you're competitors. But as we talked to Rick McVey, we talked to Lee Olesky, the overall goal still seems to be -- how much -- can we get this market to move electronically, more electronically.

So I guess my question is, to you guys is, what's complementary about -- do you actually see benefits of some of the protocols and the advancements that some of your peers are doing to overall move -- the incumbents, move business away from them and more in the electronic sort of sphere. Or have I got this completely wrong or not?

[indiscernible] go to your next question, Rich.

Because I look at other industries -- but at least, you have to at least point me out where I'm right or wrong about.

No, look, and I know Billy has some thoughts here, too. But there is an overall benefit as the global investors adopt electronic trading. I do think the #1 competitor in the space for all of us is the phone and chat, right? This is a highly manual asset class. There's a lot of interactions with humans on phones and chat and that, you find that across all the different components of the market, whether it's credit or government securities or emerging markets. Emerging markets in particular heavily use the phone. So there is a benefit to all of us preaching the benefits of electronic trading and there is a benefit to network effect overall. But I do think when you're talking about shareholder value, having a network effect of clients and dealers is important. Just having a network of dealers is -- it doesn't -- it's easier to do, it's that true long-term shareholder value, where you're creating a network effect of client activity, client usage and broad distribution.

I can kind of say it a little bit this way for a second, Rich. Like when you flashed that screen and you had gotten Chris listed first, did I personally wince like a tiny bit. So we're all a little bit competitive. We can admit that to ourselves. And then there's, of course, and I can kind of say this a little bit, maybe we can close our eyes and remember pre-pandemic, there were moments where we would run into each other kind of seeing the same customer, run into each other in the elevator or the lobby. So there's that sort of unquestionable kind of competitive dynamic when you're after the same clients and after the same types of trades and all that, but 100% agreeing with Chris, that at the end of the day we all kind of understand who our real competitor is. And I think there is a value to just obviously just raising the consciousness of what we're doing. And then I think you guys remember this, there was that old commercial from way back when. I think it was Lending Tree. It was when banks compete, we win. I think that there's a general idea out there that as we all become ultimately more innovative in the space the clients win. And so I do feel like we've all gotten better as we've learned to compete against each other and solve needs for the clients. So in that general way, I think it really all works pretty well.

I think that's right. And a change in behavior is hard. There's a lot of people in the community that -- who have traded bonds a certain way for a long time and to have multiple organizations taking slightly different approaches, iterating towards some set of desirable solutions for the marketplace. I think it helps us all get there quicker, all being market participants as well as ourselves. So I'm sure there's segments of the client base that Chris and Billy and their teams have brought into the big tent and gotten comfortable with electronic trading, and I'd like to think we've done that as well. And we're just -- that's the broad net -- community network of institutions comfortable trading electronically, that does benefit the marketplace overall. At the end of the day, I mean, we believe firmly that electronification of the asset class is increasing. This is -- we're a long ways off from this being a zero-sum game. So to the extent that we're all doing things to create more liquidity, I think there's a lot of winners here.

First, Billy and Mike, I just want to make it clear, Chris being listed first was purely alphabetical. No other ranking system other than that. But back to the...

By first name or by last name?

By last name. By both. This network effect, and this is going to be a theme that we talk about with exchanges, with some of the fintech companies as well. But I guess I want to -- I'm not sure if people are as familiar with Trumid as well as sort of where your focus has been, on what types of trading. Because we have seen -- and you can disagree and point -- tell me I'm wrong, but we've seen MarketAxess get -- your all-to-all trading network is a great liquidity pool, a commanding liquidity pool as well as the RFQ process. Building the portfolio, trading at Tradeweb has really helped distinguish itself, deal of swaps and the dealer prep directed trades. Mike, if you could just tell people, just to get them up to speed a little bit more, Trumid's focus. And I'll just let you run with it rather than me trying to explain it.

Sure. Yes, thanks. I mean I think we've taken a little bit of a different approach over the 5, 6 years we've been at this. In many ways, we had to. We've got the -- both of the folks on the phone whose organizations were doing a lot of things really well and continue to. So we've had to address slightly different segments of the market. We've done that from the beginning because we thought there were areas of the market that really could be very well served by electronic trading and technology that were kind of not yet being addressed, that the protocols that we've built are consistent with the segments of the market that we're looking to address that are slightly different. Our average trade sizes from early on have been -- have been larger. To oversimplify, you could say focus on block trades, it's not exactly right, but kind of close enough. We started out exclusively sort of all-to-all/anonymous. At the time that was a radical concept. It certainly was not the easiest sell in the early days. It's become more widely accepted as a part of the market ecosystem, maybe now it's, I call it kind of progressive, if not radical. So the other thing that we've done more recently over the past several years that's been very well received is what we call attributed trading, which is, for all intents and purposes, direct streams. But the aggregation of liquidity from a diversity of liquidity providers for the benefit of the buy-side had -- and that this is a bilateral name give-up protocol that we think is really, in many ways, a workflow solution. It helps -- we're focused on, particularly in the last 12, 15 months, I think the client base for all of us is thinking about what the next chapters of their own operating models look like. And we're really focused on being an important part of that. I mean this is not rocket science that any of us are doing here. Really, it's about, I think, listening to clients working with them, and we have the benefit as a newer company who's been so far singularly focused on the U.S. credit market of being able to be pretty nimble and responsive and have just tried to move toward what clients need, buy-side and sell-side, and where the market is going. And we think that that's really -- will continue to be how we differentiate ourselves.

Great.

Rich, I'm going to let Chris go in a second on this. But the only thing I would just add that I think is just interesting, is there's the network of it all, and we all understand that when we were doing the Tradeweb IPO way back when, it was like network was like written in ink around everything that we were doing and talking and saying to the investors. There's also what I would describe as the way that you collaborate or interact with the network, which I think is as important as anything. Are you actually like really sitting down and talking and engaging with the clients and solving problems? And I think in an interesting way to your first question around kind of how we compete and the way that we sort of interact with each other, I think there's a common -- generally, there's a really important common ethos that we all approach the space around collaboration. And I think that's just an important concept for us to keep in mind.

See, Chris, that was Billy's way of letting you go next.

So he did recognize me at the beginning of his answer. I did nod off in Mike's answer and I fell asleep.

That's a great point, Billy. The whole network thing, again, is going to be a theme. But I want to give you guys fair time as well to explain. So to Chris, how did you get the all-to-all strong liquidity pool that you did in the RFQ? And Billy, is it the environment or whatever -- what portfolio trading is -- seems like it's hitting the sweet spot at Tradeweb, if I got my sources right, but I'll let either of you go.

Well, I'm happy to talk about all-to-all because there's a missing piece in the growth of electronic trading that is worth talking about, and that's just the overall indexation of the fixed income market and allowing multiple parties to engage in interactions on the network. And we've seen that all-to-all has really allowed alternative liquidity providers, ETF market generally, to join the market and provide price improvement. And as the indexation of fixed income markets continues, and ETF assets and AUM grow, and we're seeing that record growth continue, the correlation between the ETF market and the underlying corporate bond market will continue to grow. And that's good for all of us. It's particularly good if you have a real all-to-all solution that allows alternative liquidity providers to show alternative liquidity to investors around the globe. And I think those types of protocols, I always look at -- there's lots of protocols that are really cool. But having that all-to-all and unique liquidity is critical to any protocol. If you don't have the right dealers on the platform, then that network has challenges over time.

We were impressed with what MarketAxess had done with all-to-all. And you've heard me say that before, Rich, like I say it very bluntly, we were really impressed. We didn't think it was going to be easy to just compete with them on that. So we had to figure out in a very straightforward way, like, hey, look, we have to make sure our network works in all-to-all because that's a fundamental piece of the market, period. And then second of all, in an obvious way, and Mike knows this also, like we had to figure out something to do differently that would add value to the -- for the clients. And for us, the first part of that was around kind of adding treasuries into the credit process around net spotting and net hedging. And then the second and very important kind of piece for something innovative just around credit flow. And I think we built something interesting around portfolio trading that has clearly resonated with a segment of the client base and is going to continue to resonate. And part of that has been around, I think, the work-from-home environment. But part of that is just a lightbulb that's gone off around how it's kind of saved clients' time and money, which we all know, generally speaking, is one of the most important things you can do. So for us, it was always about, is there room for competition in credit, and we felt very strongly that there was. And then it was like, okay, but we have to figure out really something to do differently and something to be able to really make an impact into clients. And so that really became the sort of thought process for us around portfolio trading.

And certainly, it appears the lower volatility is helping. So in fact, I'm going to -- this is Billy's question that you brought up, and I wasn't aware there was this sort of push/pull. But how do you -- I guess, how do you balance the different agendas of demand between the buy-side and the sell-side, where the buy-side is more aggressive, or I believe, about moving towards electronics, when the sell-side may be still a little bit more complacent about it. So how do you manage that?

It's like the joke around, like you do it carefully, right? So it's a little bit of an art, I think, on some level. And I think you guys -- listen, there's been historically some resistance all the way through, and we all kind of know those stories pretty well. I remember for me back in the early days, it was always a little bit like sort of, especially with some of the banks way back when, it was a little bit of like hey, great job, don't ever do that again kind of thing, right? So you had to figure out the right way to plow through that. Having the buy-side on board is always extremely helpful. So we would try to kind of solve the problem from that perspective first and then figure out the right way back to what we were all talking about, which is collaborate, figure out the right way to kind of innovate and bring the market along, knowing that you're going to face resistance along the way. I mean the biggest market for us where there was massive resistance for a really long time was obviously global interest rate swaps. It was sort of like, hey, we saw the government bond market go electronic, we saw the mortgage market go electronic, like this is not going to happen. And so we had to pick and choose our spots, kind of be careful along the way. And then as we all know, regulation really changed the game there, and we were really, really well suited. But it is as much as anything an art just around creating that right balance and not tipping it too far one way where you lose the support.

And Rich, I do think, and I know Mike and Billy will agree with this, that both our sell-side clients and our buy-side clients are reaching points of technical challenges, right? Their resources get deployed in many different directions, ton of technical resources on compliance and regulatory obligations. And so when they see vendors like the 3 of us, we become an outsourced resource to their technology needs. And so those demands, and the demands come from both sell-side and buy-side, we are solving issues for them. And if you look at the sell-side business model, they want to scale. They want to push more price to more clients around the planet with less people, and that's technology solutions that you see here on the panel. The buy-side wants more functionality, more workflow, fix all of their inefficiencies around how they form price for every ticket item they have, and they have many more ticket items than ever before. So we are really this important part of the ecosystem where we're solving technical problems for both parties.

Yes, I think that's right. The resistance and frankly, the -- it's not resistance, just kind of discomfort with change in things being new and the risks introduced by kind of changes to workflow. I think that has come down quite a bit over the course of the last several years for, I think, a lot of the reasons that Chris is talking about. People are, from all sides, thinking pretty actively about what the next years of their business models look like. Technology has to be a more important part of that. And I think a lot of the -- certainly, the workflows we're delivering, I don't think we're alone on this. These are not -- it's not a zero-sum game. These are -- they're not necessarily disintermediating. They are -- they facilitate and, I think, optimize the very important dealer-client relationships. And we've been -- a lot of the new things that we're doing, thinking about, talking about, have been collaborative and pretty well embraced. In fact, I think that there's a lot of instances where the sell-side -- the traditional sell-side and certainly the kind of alternative sell-side is leading the charge on some of the next things coming down the pike in electronification.

Having the banks make as much money, for example, in fixed income as they did in 2020, at the exact same time that the markets were going clearly to a next level around electronification, was a great turn of events, because it dispelled the myth, right? The myth was always, like as the markets go electronic, I can't make money anymore. Well, that proved to absolutely not be the case. And I think that that is now -- has now changed the conversation in a pretty significant way.

Yes. It certainly makes it an easier transition if you're making -- having record quarters on the desk. So what -- was the virtual desk, so to speak. So a wise man told me I was wrong about this. But generally, I thought that with higher volatility that people don't necessarily go to the more innovative, they go back to some of their older ways of trading. But I've been pointed that I could be wrong about this, and I'm willing to hear the opposite side. Now Lee Olesky just sent me, he thought that in extreme volatility they go back, maybe not -- elevated, but extreme volatility, I think he was talking about the Treasury markets. In either case, people went more electronic last year. And I -- my question was going to be, why is fixed income or Treasuries and credit, why is it different that people didn't revert back? And I guess, in some ways, they did in extreme volatility in Treasuries. But Chris would point out that, that's really not the case. They go to -- with certainty of execution. I guess my question is, where do I get it right, where do I get it wrong on what happened last year? Because we know it did go more electronic, and I thought that was unusual and -- is it not or is it?

Well, I'll start with this, Rich. You're always right.

And by the way, I'll second -- I'm not -- I can't disagree with Lee on the call. So now I'm boxed.

You're boxed in, Billy.

Yes, you can both -- or you both [indiscernible].

But here's -- I think -- and look, last year was a unique year for all of us, and there was unique things happening in the market around balance sheet deployment. We can't forget where liquidity was being provided into the market. But in a more mature electronic market you typically -- for example, global equities and futures, you'll typically see a race to the -- an electronic solution because you just have to get price certainty and get stuff done. And in a more mature electronic market, the OTC market, which is pricing off of the main market is typically not the place to go. And people exactly -- won't provide liquidity as robust as on screen or on market. I think, particularly in 2020, we had people in dire need of liquidity and dire need of liquidity at reasonable prices as prices gapped. And what you saw was not only demand for electronic workflow, it's just easier to get stuff done quickly, but you also saw the benefit of price on the platforms, particularly in all-to-all where there is alternative liquidity providers providing price on the platform. Remember that during that pandemic, the ETF market was just in historical turnover rates. And even though there was some gapping in price, they passed the test of liquidity, and that liquidity was derived from the underlying corporate bond market, whether it's Treasuries or corporate credit. And so I do think the adoption of electronic trading, as we mature, will be the dominant force when the markets gap. And if you look at, in the last month, markets have been very stable. Volatility has been quite low and electronic trading isn't exploding right now. But if you're betting that there's no calamity ahead, I'd like to take the other side of that bet.

I'm not betting that.

I think the tools, I mean, last year was, obviously, any definition of extreme volatility last year qualifies. And you also had not just disruptions in the market, but you had operating disruptions, which was a double whammy. The market was historically volatile and everyone was trying to do it from home on a laptop. And I think it's -- we were super proud, and I'm sure Billy and Chris feel the same way. The tools worked. Under very difficult conditions, users were able to -- buyers and sellers were able to find each other. Price formation was taking place in a very challenging environment, and liquidity was found and trades were going through. And I think we -- and a lot -- I think a lot of people on all sides were probably forced to use electronic trading more than they had otherwise because that was where the liquidity was, and it worked for them. And we found, I think market wide, that the results have been that that behavior has been sticky. That kind of electronification of legacy workflows, which is a kind of a global theme across the industries, a lot of new tools, new toys were kind of tried during those crazy few months and a lot of them, not just trading wise, with what we're doing right now, they worked, and people have kind of continued to use those things. We've seen -- I think it's a real testament to the strength of the secular trend that under extreme volatility electronic trading kind of took a few marches forward and now conditions have changed 180 degrees, and nothing is gapping higher, but electronic trading continues to march forward. I mean we're seeing almost twice as many people trading on the platform every day as a year ago. So it's not just volume and activity, it's participation which is that kind of very important network community effect that we're talking about. That is -- that's trending in the right direction. So we think all of that continues regardless of the market conditions, and I tend to agree with Chris that the next move is going to be more volatile, not less, probably.

And if you were a customer that undervalued or underappreciated the sophistication around technology at that moment in time, you paid the price, right. Because that was the most unforgiving, relentless market that I think any of us had ever seen. And if you were not sort of able to keep up with it and not able to take advantage of all the benefits of technology in the right way, like ouch, like serious ouch. And so the one thing we can all be sure of is you're never going to make that mistake again because you paid a pretty steep price around all that. So I agree across the board that that was a moment in time where the opportunity to learn and to grow and get better was never more obvious. And I think all of those benefits are fully carrying on, now and going forward. It's a moment in time that I don't think anyone will forget.

Yes, from a number of aspects.

Yes.

The next question, I want to get this one right. I want to -- I've got it written, because I don't want to mess this one up. As Presidents of your respective companies, you're highly aligned with your CEOs, we know that, and the strategies of your firms, but I'd like to know what your main priorities are, what you focus on, what you think are important to the success -- your success and the success of your firm? And it could be exact -- they could be the exact same things. But as Billy said, trying to give investors a little bit of insight of what you guys do and what you're focused on as more or less the Presidents and COOs of the company. We know you're...

I'll take it for a quick second, Rich. I mean, I'll -- and very curious from both Mike and Chris from their perspectives. But I try to, as much as I can, and it's been a weird year is, first of all, try to be external and try to connect with clients. And I try to think about things a little bit from just a perspective of find the worms, right? Like we're in a great business and it's a great moment in time to be in this business. And there are a lot of things working across the board. And we all kind of know that, but not everything is working and not everything is working all the time, right? So the question has become, what's not working and where do we focus to make sure that we're investing in it the right way and getting it to work? So from my perspective that kind of becomes as much of a priority as anything, right? We all know the good news, like what's the bad news and how do I help impact something that's not going as well as I'd like it to go or as we'd all like it to go?

Any particular areas that you -- don't have to be specific, but type of issues or something like that.

To your question about, a little bit around what happened in March, I continue to think AIX and the customers getting more sophisticated around how they engage with the marketplace and how they find the other side of trades is really one of the most important kind of trends that's out there. And it's still -- we used the expression around early innings. It's still, quite honestly, very early innings there. So I think that can get pushed more, and so that's an example of something where I personally am like, let's make sure that we keep adding clients into this across the board because to me it feels like such an obvious and an important kind of trend that's out there.

And Rich, I'll -- very similar areas, but one particular area is Asia, obviously, very focused on our growth in Asia. Client onboarding there has been phenomenal for us more recently. We're seeing heightened levels of volume growth there as well. And obviously, the China Bond Connect opportunity is something that we also want to join our competitors, Tradeweb and Bloomberg there. Growth of all-to-all. So we have this wonderful all-to-all solution in all of our products. How do we leverage that in all protocols and in all ways. And things like our Diversity Dealer solution is really leveraging that all-to-all solution. So you get really rich liquidity and a Diversity Dealer as a result of that solution. I'm still focused on munis. I love the muni market. It is a data analytics challenge, and our acquisition of muni brokers helps us solve that data analytics challenge, but it's an enormous market, wonderful spreads. But like Billy, automation, I think if we can automate order flow and workflow, we have within our power the chance to change behavior actually. So it's the automation that's going to change the trading behavior. We've seen that happen in other asset classes. So automating, and one of the areas that I'm particularly focused on is we've automated RFQ, like that's great. But we need to automate how clients respond to other clients' RFQ. The savings associated with not crossing the spread is enormous to our investor clients. And if we can deliver those savings, even on a small portion of their orders, that's a sizable return that they can add to very competitive fund management returns right now.

We're in a different, I would say, stage of our life cycle. So I think compared to what Billy's talking about, looking for the gaps and the worms, which I think makes a ton of sense and we certainly all think -- spend time on that. Our business has grown tremendously in the last 12, 18 months in terms of volumes, client base, number of people using the platform every day, including headcount. Our headcount's almost doubled since everyone went home 15 months ago, and people have barely been back to our offices since. So our company is in a -- Trumid's in a real scaling exercise. And in my role, I spend a lot of time thinking about how are we going to do the next set of things? We are expanding asset class-wise. So we've begun to make some moves into emerging markets. We also have some things going on in Asia. I agree, it's a tremendous opportunity. We're excited about it. We're thinking about protocol expansion. We're doing some -- we've got some good ideas in portfolio trading that we're excited about and some other things where I think that the ecosystem approach that we've taken and focus on UX and workflows has allowed us, we think, to deliver multiple protocols well. So we're certainly thinking about what else we can be doing. So in the sort of division of labor, CEO versus the President, we've got a unique working relationship. Ronnie and myself, where Ronnie is really laser-focused and phenomenal at what's happening on the platform, driving client experiences today and tomorrow. And I'm left with the fun task of worrying about how are we going to keep that up next week, next month, next year, but it's a good division of labor.

Rich, could I make a request maybe for the next time we're able to kind of do a panel together. Could we be like -- could we bring a villain onto the panel?

Well, I thought Chris would play the villain but he really didn't.

No. I think we need like a real good villain to come in and we can maybe -- I mean, by the way, maybe give us some time, maybe we can turn Mike into the villain. Anything is possible.

Political debate style, someone sits here and everyone else fires grenades at them.

If you start beating him up a little bit, then you would get a little bit more or less agreeable.

Well, hopefully, next time, Rich, we'll be in person, so...

That will be real fun. That will be real fun. We are getting close to the end, but I do have one last question. So very smart person in this panel said -- and we're getting to your sort of sentiment, Billy. But if we get to 40% to 50% market share of, say, U.S. high-grade or credit going electronic, we're competitors, and we are fighting it out. If we get to 80% or 90%, we're all complementary because the market is just a beautiful world then. So I guess the question is, what do you see -- and back to the President's perspective, what do you see that will really make a difference, say, in the next 18 months in taking the next step to that, whether -- do you think it's 40% to 50% or 80% to 90% or what should investors take away from your insights about that pace -- that electronic pace -- the electronification pace over the next 18 months? And this would be sort of the conclusion of all this.

Well, I mean, number one, I do think when you start to -- I believe in a tipping point in electronic trading because I've seen it before. But as you go over 50% of the market being electronic, clients start to be challenged who haven't gone. So it's really the problem of the clients who are left behind in the electronic adoption. Liquidity starts to migrate into the electronic platforms because they're seeing better flow there and then it's kind of all over for nonelectronic. It moves very quickly because of the competitive challenge for the client who is no longer acting -- who just refused to modernize, and we've seen this and there's examples of clients that were challenged. So I do think there's a tipping point.

Do you think the tipping point is around 50% then? Is that what you think?

I think it's over 50%, but it's not 60% or 70%. That's where -- when you're over 50%, clients are missing out who haven't adopted and clients who aren't fully penetrated -- I mean they're still just putting small trades in -- are going to just see different liquidity directly. So electronic trading will rip through the credit markets at some point when you hit that tipping point. And that's good for all of us, but it will be hotly competitive. When you look at the competitive nature of the parties, we're all trying to -- every time someone has a good idea, we want to each innovate just past that good idea. So it's healthy competition for the clients right now. But I do think electronic trading has a long runway, where we're at today. And over the next 18 months, I think like Billy, if we do automate a lot more workflow, whether it's a portfolio trade, a list trade, long list trades or if it's working orders, larger block orders over the day and over weeks, things like good to cancel don't exist in the credit market. All that automation is going to be delivered over the next 18 months, and it will dramatically change behaviors because of the price outcome from adopting those electronic behaviors.

It's rarely like perfect silver bullet stuff, right? It tends to be a combination on some level. If you think about what we talked about today, we were talking about, we started with the network, then we talked about how do you collaborate with the network and how do you get the balance thing right. And then we talked about a bunch of really important kind of innovations that have happened in just 1 market credit, right? And so it tends to be getting kind of all of these things right on some level, and then that kind of winds up moving the ball forward. And we have to keep doing all of that stuff. And the truth of the matter is it's gotten more competitive, the stakes are higher, the quality of conversations are stronger and you have to make sure you keep getting all of those aspects of it on the screws right.

Chris, you said something the other day that I think is spot on, the demand for new electronic solutions is so high that the -- I think we probably could all rattle off all of the cool things that we are looking forward to delivering over the course of the next 12, 18, 24 months. And it is -- and it's -- for us, we know exactly who's going to use them and how. It's just about getting them kind of out the door and absolutely iterating quickly because they're not going to be perfect the first time, they don't have to be. There is -- that's the collaborative environment. But it's not the case that we are coming up with these great ideas and then have to go convince the market that these things make sense. The demand -- these are -- everything we've mentioned is being kind of pulled to the market by demand from traditional participants, new participants. I think the market is really ready to embrace these tools, protocols, et cetera.

This has been very informative. I want to wrap, but I didn't prepare you for this, but I'm still going to ask you. One last -- one prediction for the next 12 to 18 months. Can be about something being successful, some could be quantitative. We hit some market shares, some innovation, like something where investors can at least think about, this is what the Presidents of these companies, that he thinks this could happen or that could happen. I know we're going to get Chris to dig deep here, but...

I've got the Nicks going into the -- at least the second round next year if we're making surprise predictions.

It's got to be related to fixed income trading somehow.

Oh, come on.

One prediction. Billy?

I have a joke about predicting sort of us all being on a panel again about a year from now, there's a version of a Groundhog Day.

We already locked it in for that.

For a second, just maybe a little bit talking to my book, I do predict that the NASDAQ acquisition will be seen as a good one for Tradeweb. I do believe that's going to be the -- we're going to be a good home for that asset. And I do think that that's a story that will wind up working out. And I think just from our perspective, I think it's important to show the marketplace that we can do a proper deal. And I think there's some -- in a good way, some pressure on us to show some results there, and I think that, that will work out. That's just a comment that I would have.

That's great.

So my prediction is that we are under-appreciating the demand for ESG/green bonds. That's the mandate that we see today, and we can look at a, call it $30 trillion mandate right now. We are unable to deliver enough product to the mandate. The product is generally being delivered by bonds and not stocks. So the only instrument that can satisfy that demand is the bond market, whether it's special government securities building infrastructure or it's corporate bonds building green-related infrastructure. The bond market is going to deliver the ESG mandate. But how we position ourself into that wave of demand, it's unending and we're just seeing the beginnings of a massive mandate from every pension around the globe, and we have to be in the right position for it. That's my prediction. And I'll predict some upcoming calamity in the next 6 months. Before we get out of 2021, we're going to see markets really disrupted for -- maybe not like last year, but there's going to be some serious market disruption given where inflation is right now.

We've talked about this, but I think the pace of kind of systematic liquidity, algorithmic liquidity in the market is -- its importance in the market is going to maybe not surprise the folks on this panel, but market participants who see that as a fringe thing. I think it's going to move a whole lot more quickly than people would imagine it to be. And I think it's a -- there's a real symbiosis between a lot of the stuff we're talking about and a segment of the market that's going to be way more involved in corporates than they've traditionally been and way more kind of impactful to the landscape in a positive way, but that will be part of what pulls us into the next chapters of this story.

I think this was the best question of all [indiscernible] on the agenda. But I just want to say, I think all 3, you guys are all highly respected in your position in dynamic companies. And so I think investors -- even if this is last prediction when you say something like green bonds or NASDAQ, they do -- that carries some weight. So now we'll see whether it comes true or not, that will be the question next year. And we'll have you back. That's a draw to get you back. So anyway, I want to thank you 3 talented guys. And it's really a dynamic space. Watch it every year. Some years faster than others, but it's still, the chug up to that inflection point keeps advancing every year. So thank you. Our next speaker for the audience is BGCP at 3:30. And again, I want to thank Chris and Billy and Mike, and that was just purely, again, out of the way you've shown up, not any priority. Thanks. Thank you very much.

Thank you, guys. Good to see everyone.

Thank you, Rich.

Thank you, folks. Be well.