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

[Audio Gap] everybody for joining us. So for our next presentation, we are very excited to have 2 senior executives from MarketAxess with us today. For those of you who don't know MarketAxess, it is a leading institutional electronic trading firm for fixed income securities started over 20 years ago. It's a very simple explanation. There's a lot more to it than that. That's for sure.

Just a little elaborate.

So we're delighted once again to have Chris Concannon with us. He's the President and Chief Operating Officer joining the firm way back in 2019 from Cboe, after more than a 25-year history in electronic market trading structure -- equity markets trading structure. Previous leadership roles at Bats, Virtu, Nasdaq, Island ECN going way back and also the SEC. And we're going to talk more about Chris' experience in equities trading and how that is going to revolutionize the fixed income trading market. So stay tuned for that. We're also happy to have Chris Gerosa with us for the first time. And he became CFO in August last year, and he served as the Head of Accounting and Finance for MarketAxess since 2015. And prior to joining MarketAxess, Chris was the CFO of Primus Guaranty, joining that firm in 2003. Before that, worked for Arthur Andersen, Goldman Sachs and our very own, Deutsche Bank.

Nice to be back.

So welcome back. Different building.

A little nicer, right?

A little nicer. We definitely stepped it up. Anyway, so thanks for -- both of you being with us today. We'd totally keep this free flowing. So if anyone has a question at any time, just raise your hand and we'll have someone come around with a mic. But I have plenty of questions, so I'll just start rattling off a bunch.

Great.

So I'll start in, right? So I guess, I'm going to call you guys, Chris C and Chris G. Is that the -- unless you have other nicknames you want to...

We have other nicknames for each other that we use, but we shouldn't use them here.

For now. All right. All right. We'll start out with Chris C. All right. So Chris C, so let's start with the big picture. So I know we've discussed this in prior conferences with you, but it's such a major factor in the fixed income electronification story. It's worth refreshing, I think. So just to set the stage, what is your vision for the new liquidity paradigm in fixed income trading? And in which ways will fixed income trading follow the history of automation in equities trading?

Great question. First of all, thanks for having us here today. Obviously, we had lots of great meetings throughout the day. So it was a great program and just appreciate the audience that you bring to something like this. In terms of the liquidity paradigm in the fixed income market, I'd call it, I have to focus on the current market because it's an interesting market currently. It is a challenged liquidity market today. Whether you're trading treasuries or you're trading credit, we're entering a more challenging time around volatility of rates. We're entering this new rate rising market, and that brings with it a great deal of volatility. And tomorrow starts the Fed unwind of quite a sizable position that they've built up over the years, and that should be another introduction of potential complexity or volatility. It's hard to tell how it will play out. More importantly, when we look at the fixed income market and compare it to other markets that I've obviously navigated, the one market that I always view as the most analogous is the FX market ironically. The FX market has been a traditional dealer-driven, dealer-pricing market, fully OTC, lacking transparency. And it went through an electronic -- electronification itself, and now it's largely electronic. But an interesting outcome in that is clients learned how to -- they traditionally did RFQ in what I call spread-crossing behavior. And FX clients learned that they can actually participate in avoiding spread and providing liquidity. And if you look at the fixed income market, particularly the credit market, everyone says, well, there's too much product for clients to meet clients. And the answer is, as you see indexation take hold, and indexation is spreading across the fixed income market pretty dramatically and will continue, you start to get concentration of liquidity around certain product. And so the opportunity to avoid crossing spread is maximized. And so there is an opportunity. So when we look at just the U.S. corporate credit market, I'd say 99% of client activity is spread crossing. They request an RFQ and they get a response, which is -- includes a spread, and they cross that spread. And that today, if you get 3 prices back, you've achieved best execution. But in most markets, best execution is providing price in a market, in an open environment and not crossing spread. And so the introduction of technology and functionality that unlocks the client's ability to avoid crossing spread is the future of this credit market. And it has a fundamental change to the market and a fundamental change to adoption of automation and electronification of the overall market.

Is there any possible way to say like what portion of the market is traded that is not crossing spread right now? Is it virtually all...

If you look at the entry -- I always look at the entry -- the last entrant in. In the dealer community, it was obviously the ETF market makers. When they started in the credit market trading in ETF versus the underlying corporate credit, they crossed the spread 100% of the time. They were actually crossing and requesting price from dealers and then trading across that spread. They now have transitioned their business into market making of the underlying, which is, by definition, not crossing spread. So they were able to introduce themselves into this market and use MarketAxess to provide price into a price request market and avoid spread-crossing behavior. The next entrants that we now are experiencing is the systematic hedge fund. They're now entering the credit market because they see the opportunity to avoid crossing spread. And when you think about all-in costs in the bond market, the spread is the cost of trading. It's just massive. It's large. It's just gotten a lot larger in the most recent volatility that we've seen. So avoiding that cost is sizable. We would estimate somewhere around $1 billion could be saved annually from just basic spread-crossing avoidance. And that is not all bonds. It's across the more liquid end of the curve, we think there's an opportunity to price bonds on MarketAxess. You need an all-to-all market to do it, but the ability to do it on MarketAxess is a compelling savings to the underlying investor in most fund complexes.

This is in corporate bonds, the billion in bonds?

Corporate bonds, corporate -- U.S. corporate bonds.

U.S. corporate bonds. What's the denominator on that billion? Like what percentage are they saving? I know that...

Well, basically, the calculation is how often are there RFQs in the market that they could respond to across their portfolio? And then what's the savings? What's the average spread of that corporate bond? So it adds up. If you think about, in the first quarter, our savings for our clients, just trading on Open Trading, was about $200 million. And that savings is simply just a smaller spread that they crossed. If you can avoid the full spread, the savings is that much more dramatic. So it's really a calculus similar to that. We think it's a sizable -- any time you can avoid spread, most people try to do that. And it's really unlocking the ability of our clients to avoid that crossing of spread. And that's -- that will change the dynamic of the bond market in the years to come.

Because people will naturally gravitate towards that and they...

Well, what you'll see is competitive advantage formed around how often they can maximize their ability to not cross spread because it returns to the fund complex in form of alpha. And so anyone who does it well will have better returns than someone who crosses spread.

Right. It's an automatically competitive market.

Exactly. And you're in an asset class where spread is just so sizable that it does impact fund returns.

Yes. And I'm going to get into a little bit of that dynamic with portfolio trading a little bit. But maybe before we get to that, in the corporate bond market, so I think very interesting, everyone is always trying to measure the percentage of electronification and what the runway for that is. Obviously, a fantastic runway in corporate bonds more so than just about any other market. I think we're measuring about a 35% rough electronification in the market right now, combining both high yield and investment grade. If you had to put a number to that, so say in 5 years' time, if this is successful and evolving the way you think it might, what type of range do you think that share could migrate to, say, in 5 years? And then adding on to that, how significant could the benefits to overall market volumes be given that liquidity begets liquidity, and so the velocity of trading most likely increases? So fast forwarding again like 5 years.

So I will try and avoid putting a time down on my estimate. So the 5 years is an interesting target, but it might take longer. One thing we've learned from electronification of other asset classes is once you cross over a threshold of electronification where a client dealer, they're all electronified and using APIs and not human traders, there's no end in sight. You might as well keep going because what remains last is it's too inefficient to have 1 trader or 2 traders left just working those orders. So that typically, what you see in electronification is the large complicated block or portfolio trade is the last holdout of the human intervention. Everything else has been electronified. Because once you start -- once you cross that 50% mark, there's an accelerant.

I was going to ask...

It's like why should there be anything left is the accelerant. And if you look at electronification at the largest client side, once they start to electronify, a competitive element develops. And so say electronification is also -- has this avoidance of spread behavior in it, they're all going to race to chase that. And the other piece that's not present in the bond market is solving for market impact, right? Today, the way it's solved is do a large block with a dealer that you trust. Ironically, what we see in terms of holding times for dealers, it's not long. And so they're not really holding that risk, they're liquidating it into the market. And so what they're trying to do is liquidate it in smaller sizes, time slice it and send it out to the market, so they don't have a footprint that they show in the market. And that's something clients can do themselves ironically. So there's a lot of electronification in the market that's due to come to solve for some of the things that we've seen in other markets and other asset classes.

I was going to say it sounds a lot like the equities market in terms of cutting up that trade -- I mean, in terms of like slicing the trade and then managing at that...

Exactly. And soon, you'll will be talking about VWAP and TWAP type of trading in the bond market. I think it's soon to come.

Soon to come, okay. Maybe just let's talk about some of the hurdles to the further adoption. So let's say, getting to that 50% threshold, and not to say that we go from 50% to 90%...

90%?

Automatically. But maybe what do you see right now in the marketplace in terms of the major friction points that you're running up against? And what are the reasons for why some of the traders are not really -- why isn't the market share growing faster, I guess, like right now?

It's really competitive pressures around cost from the buy side. Those that have adopted a lot of the automation, which is low-touch and no-touch trading, have eliminated a lot of costs for their fund complex. I think there's a sensitivity among the traders on the desk around what size orders can go into automated tools. And so anything under $4 million seems like they can put through. 2 years ago, 3 years ago, when I joined, it was under $1 million. And so you're seeing clients adopt larger trade sizes that are acceptable in the no-touch, low-touch automation tools. That's not to mean they're not on MarketAxess. 5s and 10s are still trading on MarketAxess. Larger than that, they tend not to come to MarketAxess. They manage those via chat and phone. And so the irony is the electronic formation of price is identical to the chat formation of price. And so it's really trader behavior. And if the automated tools allow for an opportunity to not cross spread, that should accelerate the adoption to bigger trade sizes. And what we've seen is with our automation tools, a large complex will use it because you just have sheer velocity of tickets, and they need to get rid of those tickets. And so they adopt automation. They started $1 million or under $2 million. And then over time, they see the outcomes are no different on size, and they start testing out 3s and 4s. And they -- we've seen some clients go up to $5 million trade sizes. And the outcome is the same. And so it's really client penetration and then large clients adopting these tools as well.

Do you see it where some clients are slow to adopt it and they're largely manual? Other clients are highly electronic, and it's less about the penetration within the client because once they see it, it's automatic? It's more about actually getting those other clients that are manual based convincing them?

I'm actually shocked at when you look at peers of some of the largest fund complexes and there are differences in opinion around automation and adoption. And there are -- you can -- there are certain DNAs that firms have, and they want to automate and adopt technology wherever they can, and a same-size firm may be much slower to do it. And it's really just how the DNA in that firm was built in terms of leveraging technology and comfort around that technology.

Which is selling that idea to them more [ appealing ] than...

It's really when you see the success that others are having and then we have an aggregate pool. Right now, 20% of trades on MarketAxess are fully automated, no touch or low touch, and that's 7% of volume. So you can see it's much smaller trade sizes, but that's a sizable component of the market that is -- has no human intervention. And that's the future of this market is reducing the human interventions.

Yes. Okay. Flipping to Chris G. So I guess, how do you manage all of the investments that you need to make to overcome hurdles and working on the protocols? And I'll get into some of the protocols as well. I guess, how do you manage Chris' budget? He's like a kid in a candy store.

We keep a tight leash on him.

He couldn't -- he doesn't give me enough.

Some of it's solution planning. We've got a few things working in our favor. First of all, we've got a very healthy balance sheet. We're not levered, and we've been able to make the acquisitions and the investments we've made to date without putting on any leverage. Secondly, we've got very healthy and strong free cash flow. We're not holding back on our capital expenditures. We're continuing to invest in the platform. I'd say most importantly, we have a very collaborative management team. So we're meeting on a regular basis, taking inventory of all the client demands and making sure that we're prioritizing them so we can get the best return on our investment.

Yes. Makes sense. And I think the midpoint of the -- just focusing on expense guidance a little bit. The midpoint of the expense guidance implies 10% to 11% growth this year. I guess, what proportion of that do you view as investment spend for growth initiatives? And do you view this year as being fairly normal? Or do you prefer to actually accelerate that -- to accelerate the electronification trends that you have?

Yes, I'd say it's a normal year. We're looking at 60% to 70% of that year-over-year expense growth is focused on investing in the platform, investing in people, investing in our geographical expansion. And then you round it out with the remaining 30% to 35%, and that's covering our inflationary costs of paying people more. We've got a little bit of M&A amortization expense built in there. But the thesis hasn't changed for us. We need to continue to invest because the runway is massive, and we don't want to lose out on capitalizing on that opportunity.

Right. That makes sense. Maybe switching back to the corporate bond trading market. I did promise to connect it to portfolio trading. It seems to -- it probably gets more airtime than it deserves given it's still a relatively small part of the market. But people are focused on it, especially with market share battles with each competitor -- main competitor. So what's your view just in general on the merits of portfolio trading versus protocols like list trading, which you historically have operated with? And what portion of the market do you think portfolio trading will eventually reach in the U.S. corporate bond market?

So first, to level set, we see the portfolio trading market as anywhere from 5% to 6% of the overall TRACE market in the U.S. There's lots of different ways to -- it's hard to identify all PTs in the market, but it's a general estimate, and that's not just our estimate. Others have come up with that same number. What's interesting is it has flatlined a bit, and that's largely explained by the volatility increase in the market because it's very hard to put a portfolio trade together when the market is flipping around. Pricing gets -- you start to see inferior pricing of the portfolio as well. So we've seen a lot of portfolios that just didn't price and went away in the more recent volatile days in the past couple of months. The overall market, the way I view portfolio trading, there's portfolio trades that happened over the last year where people were trying out portfolio trading and doing it as just because everyone else is doing it, that kind of portfolio trade. And now the folks that are still portfolio trading are doing it with a lot more thesis behind it and a strategy behind it, not just it was cool to do a portfolio trade. The assessment of quality of price has gotten much more stringent. I'd say the dealers that are pricing portfolios are -- there's a smaller list of dealers that are actively at the top end of the price and aggressive and others that are portfolio trading but not really winning any portfolio trades. And then the challenge with portfolio trading, we look on the tape and analyze portfolio trades. There's a sizable cost, and this is going to your question, line items, individual RFQ by line item or an all-or-one -- all-or-none RFQ of the full portfolio trades. Early on, PT had -- they would put the ugly duckling in the portfolio trade to get rid of it, but that's expensive. We're not seeing that as much. There's still a few ugly ducklings in some of the portfolio trades that the dealers have to eat, but they'll price it carefully. I think pricing analytics need to be upgraded, and we're working on how we price portfolios for our end client. If you really think about it, the way clients are evaluating their portfolio trade is they're getting prices from 3 dealers and picking the best price. They're not evaluating how could I have done this in line item form. And so because they don't know what the outcome of the full PT would have been if they broke it up into individual line items. And so our analytics are going to be focused on if you run it individually, this is your likely outcome. And here are the ones that may not have good results. And if you run it as a PT, here's where we think it will be priced -- so really give analytics around -- so they make better choices around, should I run this as a PT or should I break it up into smaller PTs? That's another piece that we've seen. What we're seeing is, as clients price portfolios -- package portfolios that are more correlated to ETFs, they're getting much better pricing. More dealers are coming in on it.

On PT?

On portfolio trades. But the logic is, well, yes, if it's correlated to the ETF, then you should get better pricing or you should just trade the ETF.

Right. Right. That's true. It's pretty straightforward.

So -- and then your final question was where do I think the PT market is? If you look at other asset classes where there's portfolio trading does exist, particularly in equities, and you see big transitional trades, there's a lot of reasons why there are portfolio trades in those markets. They don't achieve sizable market share. And when I look at the inefficiency of forming price around a portfolio and the cost of crossing an even wider spread, I just don't see those predictions of 20% of market being even close to realistic. So somewhere sub-10% makes more sense to me, and that's still an expensive way to trade.

Right. And your service that's coming out will show -- will be transparent, and you'll be able to see...

Yes.

And the only reason you would choose portfolio trading over a list trading and sacrifice spread would be if you really just want to get it done and...

Yes, there's times where large inflows come into the fund, and they need exposure. And one way to do that is actually RFQ and ETF and get instant exposure through a more liquid form or run a portfolio trade or just can I get the instruments, the line items, done quickly over the course of a day. And analyzing those 3 opportunities is the future of PT. And right now, they're each looked at as different forms of exposure.

BlackRock often talks about bond substitution with ETFs. A big part of their iShares, institutional fixed income franchises, is ETFs as bond substitutes. Maybe just what is your view of how that might influence because obviously, that's much more automated. And is that tied into the RFQ-hub partnership you have with Virtu?

Yes, exactly. So our investment in RFQ-hub that we recently announced is all driven around that same theme of institutional use of ETFs -- of fixed income ETFs is higher demand than equity ETFs. Obviously, equities are more liquid, and so they're easier to get exposed to. But in the corporate bond market in particular, there's times where you have massive inflows. You need exposure, and a large block ETF might be one angle to get that exposure quickly, and then you slowly unwind that position into the underlying asset class. And whatever your benchmark is, you direct it towards that benchmark. But there are a number of ETF products that give you very quick exposure. And so we agree with BlackRock's view of the world that there are institutional needs for fixed income ETFs. They serve a lot of purposes, and that really was our theme going into our investment in RFQ-hub and our partnership with obviously BlackRock as well, who also are partnered in that RFQ-hub solution.

Okay. Yes. That makes sense. Maybe switching out of just corporate bonds. I know that's the biggest part of the story. So -- but you're in many other asset classes or...

A couple more.

Yes, a couple more, exactly. So maybe just -- I'm going to throw out a few here. We could just talk about which ones you think are what's interesting, which you might say all of the above, but Eurobonds, emerging markets, treasuries, the municipal bond market, of course. Maybe just to -- if you want to talk about them in terms of what are the more near-term opportunities in terms of growth and contribution to MarketAxess? And what are the more longer term? I think of like muni as potentially longer term.

So the way I think about all of our new products -- and unfortunately, I'm excited about each and every one of them, which I think I have to say, but I'm truly like excited about it. EM is by far the best opportunity for us. We have a huge presence among the clients who trade EM. Obviously, we've made huge inroads in EM hard currency. We have a great presence in local market as well. And our adoption of clients and onboarding clients is telling the story of EM as well. We're seeing our EM is one of our faster-growing products, obviously. So it has lots of attributes that we love, uses the all-to-all trading as a lever, like just over 48% or 49% of our EM volume is on Open Trading. So that's all-to-all, pretty exciting numbers. So it's clearly a key component of the EM story. The -- leaving EM, there is another -- the other opportunity is, obviously, treasuries and our entry into the treasury market. We are -- we believe we're the first dealer-to-client all-to-all platform in the treasury market, where clients can actually leave a resting order and not cross the spread or engage electronic liquidity on an order book form or do an off-the-run RFQ if they need to use RFQ. So our solution just rolled out in the first quarter, end of the first quarter. We now are fully integrated to all the OMS platforms, and we have Open Trading Click-To-Trade order book or Open Trading all-to-all RFQ, both offerings. So it's pretty exciting. It's also something that the Fed called for recently in a report they put out, where they think the treasury market needs an all-to-all market for clients. So we're delivering that just in the last quarter.

And that helps flow in the corporate bond market as well? Or is it...

No, completely separate. The only place treasury -- our treasury solution and corporate bonds help us in the netting solutions that we've created.

[indiscernible]

Net spot and all the different liquidity that you can achieve in just spotting treasuries. Now the other one that I'm actually super excited about is munis because munis is a market structure that shouldn't actually exist. It's the corporate bond market but in the '90s, maybe even the '80s.

In the '90s, the '80s, yes.

Some of the survivors from the '80s are still there, but it's truly a diverse product set, a complicated market, limited liquidity provision. And it's a CUSIP search market, meaning like people go into that market and use brokers to find certain bonds that satisfy their investment thesis. I need a state bond from California. I need a sector that's a water district sector, and I need it rated AAA. And lo and behold, there's bonds out there that happen to be liquid that day. So it's truly -- it's a Google search market. And no one is providing that search engine right now other than human intervention. It's really on the phone calling up finding bonds. And so I think there's a huge technical solution that we can achieve. We've kind of -- we have now muni brokers. We're hitting records in the muni market on both our businesses. So we're a sizable footprint in that muni market, and we think there's lots of data and lots of technical solutions that we can offer in the muni market. And whoever solves the muni market conundrum kind of owns that market for a long time.

Interesting. Right. So and that market is like even less -- like under 10% penetrated electronically?

Yes, we're just over 4%.

4%. Gosh. Wow.

So it's a long way to go, but it's a diverse market across product.

Right. Okay. Maybe let's talk about how this -- maybe putting this all together and talking about the financial algorithm, Chris G. So just -- you do have a history -- a long history of strong EPS growth. It's been volatile year-to-year naturally, given market volumes. But just checking the numbers, I get about a 30% annual EPS growth CAGR over 15 years and nearly 20% over 10 years. And then just over the past 5 years, it's like 17%. Obviously, impossible to predict EPS growth in any given year. But when you say look at a 5-year period, that might represent, let's say, a theoretical normal cycle or through cycle. How do you think about the forward EPS growth algorithm, say, even versus the past 5 years thinking about the market share build and the investments down there?

Yes. I think we're still thinking of a mid-teen CAGR growth, which is representative the last 5 years. When you get into the details, the one benefit that we're not going to repeat that we saw in the last 4 or 5 years is the windfall benefit. So we had a lot of stock that was vesting at a much higher price, which specifically caused our effective tax rate to be lower. And this was $10 million to $20 million of gains that we were recognizing, which flowed right through to EPS. So the higher 20% to 30% growth rates, it included a lot of that benefit, which the reality is we're just not going to see that in the near term. Hopefully, in the next 5 years, when we're trading at $280 today...

[indiscernible]

[indiscernible] in the next 2 to 3 years.

Those windfalls are coming back soon.

Yes. That's right.

So maybe think about -- thinking about sort of decomposing the EPS factors. What do several factors play in your favorite like, let's say, an improved volume backdrop, which volumes have been sort of great in 2021, but [ just so ] recently in '21? Let's say we have an improved volume backdrop, faster pace of electronification like we do get that inflection. And then advanced once we get past the 50%, say, in the U.S. corporate bond market, do you think you can scale that growth? Or said another way, should the relative pace of investment slow down relative to where we've been if you do inflect to a much higher share volume?

Yes, we're investing today, and we do believe there's operating leverage in the platform. You saw it come through in 2020, where the operating margins were in the mid-50% range. And recognizing we've made a lot of investments through M&A, so you have that effect of the depreciation and amortization expense increasing. I just want to get the investment communities to think about our EBITDA margins because those have continued to be very healthy. And we're going to see the operating leverage come through in the longer term.

After you scale the different markets?

Well, I think operating leverage comes through as you start to see these macro effects on the overall market. We have one of the largest asset classes, fixed income. It's grown the fastest in the last 5 years with new issue exploding. And it's going through a rate change and suddenly going to be a more attractive investment, particularly if we see a potential bear market in the equity market. In the same time, rates are rising. So you could have a great shift of capital into fixed income, which creates more wind at our back as we look to electronify the fixed income market. The other aspect that you have to think about that adds to scale is the indexation of the fixed income market. Clearly, I think BlackRock put out a recent report that they think it will hit $5 trillion in ETF assets. That has an impact on our overall market position because we benefit from indexation. Clearly, we are at the center of where ETF arbs and the corporate bond market meet. And so we benefit from that continued growth rate of ETF assets in fixed income. And so that's another kind of wind at our back, backdrop to the overall macro sea.

Right. And I'm happy to go back to the velocity thought. Maybe it's impossible to predict, but how much could that magnify volumes? If -- let's say, in the corporate bond market, if we go from 35% to 70% electronic, what type of improvement in volumes just from that electronic -- not just the market share gain, but the actual velocity that comes with? Like in the equities market, we saw a compounding effect of trading volume overall as the market electronified. Do you have any sense of how much that could help us?

I mean clearly, velocity, we -- this market has seen higher velocity ironically and had higher turnover prior to the financial crisis, where banks had a little bit more on their balance sheet. We could return to those historical norms, and that would be a dramatic increase in volume. I do think indexation by itself helps with velocity because it tends to get people concentrated around the more liquid end of the bond market. So you have just higher velocity as people trade those indexed products or a benchmark to an index that is more liquid. And so indexation can help velocity electronification. No market has electronified without higher velocity. And it's just -- it goes to -- you're just able to trade more and trade faster and you don't have manual people doing manual things, and so...

You get more quant coming in the market as well.

Well, that's the other piece that we're seeing firsthand because we are seeing the systematic hedge fund enter the credit market for the first time. And so they're entering -- they need an anonymous liquidity pool like our all-to-all solution because the last thing they want to do is share their kind of firepower with dealers on a disclosed basis. So they obviously use signals in the market to enter positions and exit. And so they want to do that anonymously as much as they can. And their strategies don't work if they're crossing spread. So they are coming into our marketplace looking to leverage Open Trading and providing liquidity, which could, in fact, help trading velocity because they'll be willing to price bonds at a more aggressive level than a dealer who is just trading a portfolio trading on spread. They're trading a strategy where they have to get into the market quickly because that signal is a short-term signal. And so if they can avoid spread, they're going to be aggressive trading at mid or somewhere less than mid to get into that trade quickly.

Interesting. Okay. Now that would be fun to watch. How about pricing pressure? I mean there's always -- usually, the pricing changes that we see in your P&L, it's usually a mix shift or how in the corporate bond market duration plays into that. But what is your long-term view on whether there will be more pricing competition given the attractiveness of the market?

Yes, we're not hearing anything today about our prices being too high. It gets back to Chris' point. It's the best all-in price. So I don't think they're too concerned about -- our clients aren't concerned about the absolute commission that we're charging. I think what you will see is you see our continued success in portfolio trading, live markets, just by the nature of how those trades get consummated, it commands a lower fee capture. So I'm not saying that it's going to rise longer term, but you may see a little bit of compression as we succeed in those newer protocols. And when you look at the other credit category, our success in local markets is driving our other credit fee capture lower, but that's an area that we didn't participate in before. So it's all additive to our revenue streams.

Right. Right. That makes sense. Yes.

One unique point to make around our position in the credit market is it's unlike the equity exchanges and the price compression they experienced. We are directly facing the client. In the equity markets, there are major intermediaries facing the client that brought orders to the exchanges and then chose those exchanges based on fees. So it's much more elastic when someone controls the order that cares about your fees. In our market, we give an all-in price to the client, like Chris mentioned, but we directly face the client, and the dealers benefit on our platform from trading with the client. It's not even something that the futures exchanges or the equity exchanges around the globe have where they're client-facing. And so it's a unique position around how price will be achieved over time and what that competition looks like. As Chris mentioned, we don't hear price from our clients. We hear it from the dealers. And the dealers are much more price-sensitive, obviously. But dealers have a profitable experience when they trade with clients on our platform. And so they will continue to trade with us.

So it's a lot like the futures market which is -- has been positive for the futures exchanges in that the liquidity and the spread really was the -- is the highest cost by far. What the futures exchanges charge on an RPC basis is less than 10% of the overall cost. Much like in the fixed income market, the spread is the largest part of the cost. So the clients aren't really -- the price that you charge is not a major factor in their decision. Is that accurate?

Well, when you look at the spread environment we're in now, the savings that we deliver to our clients through Open Trading is larger than the fee we charge. So when you think about fee compression, that savings is still more larger than our overall fee, and you're just not going to be -- have client fee sensitivity in that environment.

Yes. Yes. That makes sense. A couple more things before we run out of time. Capital management. Just Chris G, what's your view on being more aggressive on share repurchase with the valuation down considerably? And to what extent could any future acquisitions play into the capital management for us?

Yes. So the capital management strategy continues to remain the same. You've got the 3 priorities: number one, investing in the platform, as I mentioned earlier, through people, system enhancements, geographical expansion. Number two is M&A, which we've been opportunistic in the past. And when we assess the landscape, there's nothing that's transformational out there at the moment, but we continue to keep our ears to the ground to see if there's any interesting plays on technology or any small deal that can accelerate our existing product expansion or geographical expansion. And then the final solution is to return capital to our shareholders through the value generation that we're creating through dividends, earnings growth. And we have been active in the market. The Board of Directors authorized a new $150 million share repurchase program that we embarked on at the end of the first quarter, can't get into the details, but we're in the market today.

Okay. Yes, I was going to say, maybe you want to get more aggressive on the stock given -- before it goes back up again and...

We're not a portfolio trader. We're a public company.

Yes. Well, Scott's got a question. Yes?

Just a quick one. I mean just thinking about some of the new things you've done in treasuries, some of the new things you're doing in treasuries. Obviously, you have a competitor that's pretty big. And you have a competitor in that -- in the treasury market that's pretty big. Are some of the things that you're doing, some of the new things that you spoke about earlier, going to put you in more of a driver's seat to gain share versus others?

Yes. No, it's a great question. And there are 2 large competitors in the treasury market in what I call the dealer-to-client market, client-facing offerings, it's Bloomberg and Tradeweb. And they've been there for a while, and they're very established players. What's interesting about their offering is it's fully disclosed dealer to client with a limitation on how many prices you can see from the dealers. And what's disconnected on their offering is anyone who's not an investment bank doesn't really price the client. And there's a big market in treasuries, as we all know, that is non-investment bank, dealer-to-dealer business. And in credit, we see those players as being complementary in terms of liquidity to the overall credit landscape. And MarketAxess has benefited from allowing both alternative liquidity and traditional bank liquidity side by side. And in fact, in markets that are in turmoil, we tend to see the alternative liquidity stepping up, and that's what we experienced in 2020 during that turmoil. So ironically, the clients came to us and said, "We want Open Trading in treasuries. We don't have it today. We'd like to have it." We need to start seeing alternative liquidity because balance sheet is compressed and liquidity was removed from the system, and they are starting to feel that again right now. As we see the treasury market, liquidity is much lighter than it's ever been, and there's real liquidity challenges. The ask and the demand from our client side for an all-to-all solution is the highest it's been. And that's going back to our offering. We know we're stepping into an established 2-player market, but with a very unique offering of alternative liquidity that they haven't interacted with before.

Sounds exciting. Yes. Great. And I know we're just about out of time here or just a little bit over, but I do want to finish on ESG. I know that's a big topic of yours. Maybe just talk a little bit about sustainable-linked bonds and how the Trading for Trees program is going. I don't know if you saw, we have actually a tree in this building around the corner. So they're evidently running out of room where to plant trees as they're planting in buildings.

Yes. Well, there's a lot of footprint now after the pandemic for us all to plant trees in our offices. So yes, we obviously had a foray early into the ESG market. We're one of the larger platforms for ESG bonds, particularly the green bonds. Obviously, the new issue market in ESG, and I define ESG quite broadly, but that new issue market is still thriving while other new issue markets are seeing a more challenging demand curve. We also look at the challenge of trading ESG bonds. They are different than a traditional corporate bond. It's, again, trying to find liquidity after the new issuance if you can find those bonds that fit your investment thesis. So our Trading for Trees not only made it attractive for dealers and other clients to trade, we would actually give you credits for planting trees. It also -- we also had a lot of data that we worked with that help clients find bonds. They could type in a like bond and find a more liquid bond. So there's a lot of data and analytics around our ESG offering that we're pretty excited about. We recently announced a partnership with MSCI, who are well known in the ESG space. And there's 3 parts to that partnership. One is index partners. So we're looking to launch a partner of indices around mutually branded indices in that space in the broader indexation landscape that we live in. We also are doing portfolio construction using our liquidity on our platform to help portfolio managers select better bonds for trading outcomes. And so that's an interesting part. But the last part of our partnership is around their ESG data and leveraging it on our platform to really highlight and score bonds based on using their ESG data. So we're pretty excited about that partnership with MSCI, and we think that better data in our bond market will help people find those bonds that are the most liquid and as it occurs.

That's interesting. And so it's imminently or...

So we announced the partnership, and we're already working on a number of different areas. So this 2022 is when we'll be fully in production.

Great. Great. All right. I think we are officially out of time. If everyone can join me in thanking Chris and Chris.

Thanks.