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

Welcome back everyone, to Piper Sandler's Global Exchange and Fintech Conference. So we're continuing on with our fixed income electronics segment. We're very pleased to have MarketAxess and Chairman and CEO, Rick McVey, joining us for the next half hour. Like our previous speaker and Chairman and CEO, [ Lee ], has been at it. He has been resilient as well. He founded MarketAxess in 2000, public in 2004, and we probably talked probably right from -- even before you went public as well. So it's been great to watch MarketAxess grow well.

Well, thank you, Rich. And let me take just a quick minute to say thank you to you and Piper Sandler for putting on this great conference, and it's a great opportunity for investors to see so many market structure companies in a couple of days, and it's been really a privilege to be part of it for so long.

Thank you for participating. So a question we've been leading off with every speaker is that, we've had some unique market conditions, not only the interest rate uncertainty, inflation, Russian geopolitical, but let's focus more on credit. The credit spreads starting to widen or widening, volatility has picked up. So I guess could you -- I know you've talked a lot about in your calls, but sort of reiterate how friendly -- is this a friendly environment where it's been sort of headwinds for a lot of the other companies that we've had today for fixed income electronics, can you lay out what the current environment, how it impacts MarketAxess.

Sure. For our business model, volatility is a positive, as you know, having followed us for a long time. And as a result, 2020 for MarketAxess was our best growth year ever with all the volatility through the pandemic. '21 was just the opposite, as you know, where bond market volatility was really low by historical standards. And in the last 6 months, we've seen volatility pick up both in rates and credit. So you've had this combination in our core space of credit of rising interest rates and increasing credit spreads. So high-grade corporate bond yields have literally doubled since last fall. We were in the low 2% yield level for high-grade corporates. We're mid-4s now. So it's been quite a move and unusually large price moves in the market with the high-grade indices down about 14% year-to-date, high yield, 10% or 11%. Those are very big moves in a very short period of time. But the reason that, that's good for us is we have a more diversified liquidity model on MarketAxess than is available elsewhere in our space, and that's because for the last 10 years, we've been investing very actively in all-to-all trading, which we call Open Trading. And when liquidity is at a premium as it is today, more diverse sources really matter. -- the price improvement opportunity goes up, and that drives more market share our way. And that's exactly what we're seeing right now, Rich. If you look at all of our product areas, we're hitting new all-time highs in share. Our U.S. credit business, if you look at combined high-grade and high-yield share this quarter is currently at a record high. Our international business with EM and euros is at an all-time high. And even our newer products in U.S. treasuries and munis for us are at all-time highs as well. So these are good things in terms of the share trends in the way they accrue to our benefit.

And you said you have created this unique Open Trading platform, and you tried to -- I'm getting to your growth initiatives because I think that is core to each of -- even the growth initiatives as well. So as you've taken open high market share in credit and this open trading improvement in liquidity, especially in volatile times, can you talk about the new areas outside of credit, we're expanding where open trading, I think, plays one of the key protocols?

Yes. Well -- and one of the ones that we're most excited about is our U.S. treasury platform and some of you will know that about 2.5 years ago, we bought an order book active in U.S. treasuries called LiquidityEdge. And it was primarily a dealer-to-dealer platform at that time. But we had a view that there is a spot in the U.S. treasury market for a true all-to-all offering -- and as a result, what we've done with the technology enhancements is take that live order book and connect it to the order management systems that our investor clients use. So now the 2,000 end client firms that are on MarketAxess have access to a live, very liquid U.S. treasury order book. And you may know that I started my career in the futures market, but we've been trading U.S. treasury futures in an all-to-all order book since the '70s, but we still don't even trade on the run treasuries in an all-to-all order book. So I think with all the advancements in trading automation, especially in treasuries, the time is now, and we're really happy to be promoting it. The client onboarding is underway the volumes are way up year-over-year. Share is growing, and it's a unique offering because where you see order books today and the order in the U.S. treasury market is primarily in the D2D space and those order books are generally not available for end clients at MarketAxess, we're pursuing the open trading vision that we have, that it's a better market structure longer term for all parts of fixed income. And as a result, we're investing very heavily in that U.S. treasury offering. At the very opposite end of the world, we have municipal bonds. So the least liquid market on the planet, at least the ones I've been able to find. And they are, again, for a different reason, we think all-to-all or open trading is the right answer because you just need a network of clients and dealers to help find trade matches in municipal bonds. And there, again, that's really starting to gain momentum in the institutional space, and our share is at an all-time high in munis as we continue to see more active activity in both tax-exempt munis as well as taxables.

Besides munis and the treasury market, but could you talk more about internet and you are diversified international, and then the EM local opportunities...

Yes, yes. No, I'd love to. And EM is a massive market, and you can't really think of it as just one market because there are very big regional differences in local markets, very large local differences, too. But we have now assembled an EM marketplace with 30 EM local markets available on MarketAxess for trading today. We started really building up our EM business in hard currency EM bonds. So EM issuers issuing bonds in dollars, euros or yen. But from that foundation, we've now expanded to the EM local markets. Our volume today is about 65% hard currency EM bonds, 35% local. I think with what we're seeing in the growth in local, our expectation would be that 3 or 4 years from now, that will flip because the local market opportunity is even larger. So it's an important asset class for global fixed income investors. The EM local markets are at very early stages of electronification 2%, 3%, 4% in most of these markets. And you don't really see a lot of alternatives out there in terms of where to go to find electronic liquidity. So we're super excited about that market. There is more work involved to offer Open Trading because oftentimes, we run into bespoke settlement systems within these local markets. So we're knocking some of those out, starting with the larger local EM opportunities. But for those of you that have been following us, our EM share is gaining momentum, and there again has reached a new all-time high in the first few quarters this year.

With our last speaker, we talked about how long he's been at it with founding Tradeweb. I got -- at least I got to give you your do as well. Rick, my favorite story is when we talk about how long I've covered the company, but around -- was it 2008 during the financial crisis. Rick has stayed with and led MarketAxess through the ups and the downs again, an asset class that just didn't convert overnight, but you traded as Rick will remember, if I have it correctly, below cash 2008 during the financial crisis and was below $4.

I remember it well, Rich. So we've been through difficult times before, but the important thing about our team is that we keep our heads down whether times are good or times are challenging because we've got such long-term belief in what we're doing to really open up fixed income markets. It's really gratifying that we can bring so many new market participants into fixed income through all-to-all trading. And people take large firms like Jane Street for granted today, but just 6 or 7 years ago, they really couldn't compete for investor order flow and credit products because it was entirely a client to dealer market and through open trading firms like Jane Street, you are now able to commit capital, commit liquidity in the market. So we've really broadened out the pool of available market makers in key products. So we feel really strongly that not only are we driving transaction costs down, but we're building a much more resilient market when times are tough. And that came through so clearly in the spring of 2020 during the pandemic when everyone really needed all-to-all liquidity and the bank liquidity was really challenging because of their balance sheet constraints. So we really feel strongly about the long-term mission and journey we are on to open up these markets.

And some of the newer protocols, again, the all-to-all, I think people understand, but I know you have excitement and enthusiasm on live markets, some in Mid-X. Could you talk about -- are these the markets -- these are protocols and the next stages of fixed income electronic trade that will help the adoption and further penetration of electronic...

Well, I think they are. And certainly, one of the clear signals over the last 2 or 3 years of electronic share development in fixed income is the expansion of new protocols in the market. So prior to the last 3 years, it had been mostly conducted through electronic RFQ, but you now see sessions working broadly across fixed income, probably more heavily in the D2D space than in the client space currently, you're seeing electronic portfolio trading in the market. And we are excited about the order books. I've already talked a little bit about why we think the time is right for U.S. treasury all-to-all order book. We've done exactly the same in investment-grade corporate bonds with the launch of Live Markets for corporates. And the interesting thing is it's being led by the large banks who believe that an anonymous live order book in the most liquid end of the corporate market will provide benefits throughout the rest of the market. So you've got kind of an on-the-run corporate bond market emerging supported now by the MarketAxess 400 Index, which is the most -- the 400 most liquid corporate bonds. So we're really trying to create this continuous 2-way market, seeing really good signs as more market makers have been onboarding a few more coming in now. Client enthusiasm is high. It just gives them another tool for risk transfer in the most liquid end. It allows people to operate anonymously and allows people to leave resting orders. So we are excited about the further developments in order books, and we do think they'll be an important part of the market going forward.

So you mentioned dealer-to-dealer session. So I've tried to stay like Switzerland on this issue. But can you speak to credit market share and your emphasis on institutional credit market share? And we did an analysis and compared to what we think is a close approximation of just institutional market share, which was, I think, all in all, favorable to -- at least favorable from the standpoint of how you lead staying pretty double digit when you look at institutions?

Yes. So this is an important distinction that everyone should understand. And unfortunately, I think the way things get reported, it gets blurry when it really shouldn't. And having worked on a very large bank fixed income trading floor for a number of years, I could tell you 100% of the focus is on the institutional investor orders. That is where the banks and other dealers earn their revenue. The D2D market plays an important role, but it's the exhaust for inventory when a bank or a dealer has not been able to find a client to buy that bond. So it's a totally different value proposition, and our focus has always been on the institutional customer business. And that's why we're perfectly happy to provide transparency monthly and quarterly on where our underlying volume is coming from and 91% or 92% of our volume on MarketAxess involves an institutional investor client. That is the highest quality order flow that the banks and market makers are interested in. It's also about 75% to 80% of market volume. So there's -- to me, there's no comparison about the value proposition on the institutional investor side. The dealer-to-dealer market is going more electronic, and it's doing so oftentimes through sessions, the sessions that you're talking about are the dealer sweeps at Tradeweb. And I think it's a little bit unfortunate that they comingle their D2D volume with their institutional customer volume in a category that they call institutional because that makes it harder for analysts and investors to really understand the distinction. And they are 2 very different markets, and there are different competitors in the market, firms like BGC and TP ICAP and others are in the interdealer space but, we have been primarily focused on serving institutional customers and large dealer market makers. And I do think it's -- there's an important difference there. Your work was very important, and I appreciate the time that you put in to understand that because the sweeps are -- you can find them on the trace tape in the ATS category if you do your homework, so you can track that progress. But that's only one piece of the D2D business. There's dealer RFQ. There's voice brokerage. And I think that right now, we're very confident that our lead in the institutional credit space remains very strong. And in fact, if you look at high-grade and high-yield combined this quarter, the spread to the #2 provider even if you count all the volume that's in institutional has widened out from where it was a year ago. So volatility is bringing order flow back to MarketAxess, and we think we have a competitive advantage there.

This is why I love this business and love doing it because I communicate with competitors. Everyone who sits in the chair...

We don't have any bias. No bias at all, but...

Exactly. So you've created -- as we get closer and closer to markets that resemble equities like the central limit order book, Live Markets, what is -- yes, I think it's an absolute must is the data opportunity. So can you talk -- I know Chris has worked a lot on that. But can you talk about the data opportunity and how that leads to potential more trading in what might be a central limit order book environment?

Yes. I think Chris is in the room today, and he's going to join you in a little bit, and I'm sure we'll want to talk about it, too. But as I always insist on speaking first so I can take away anything he plans to say, but I'm glad you brought it up. We think there's an enormous data opportunity in front of MarketAxess in the years ahead. And you've seen a lot of announcements recently that reflect the growing investment that we are making led by Chris and other colleagues at MarketAxess. But we -- one, we've announced the MarketAxess 400, that's our entry into the index space. We announced a joint venture with MSCI to jointly develop new indices. We've worked with our partners at State Street to develop an ETF on the back of MarketAxess 400. That now puts us in the end-of-day valuation business, which is a very large long-term data opportunity for the company. And the part that is being utilized the most by our dealer and investor clients is our real-time trade data product called CP+, critically important for the massive growth that we are seeing in trading automation and credit. The dealers are all using CP+ as one of the inputs into developing algos and being confident in utilizing algos across the broader cross-section of fixed income trading and investors are using our data to move to low and even no-touch trading in a fairly significant way. So data is a big part of not only supporting the electronic trading business on MarketAxess, we think it's going to be a very large and new business unit for us as we expand our activities.

So there's been innovations and hopefully Live Markets and a central limit order book is a future -- more liquidity goes to that. And I know you're adding -- have added market makers to the platform as well. Portfolio trading has been in innovation. And I know you beefed up your product. It's fair to say that Tradeweb has been the acknowledged leader portfolio trading. But you had the goal of being a credit share leader in portfolio trading by year-end. Is that still feasible? I know we had more volatility, so it's probably the percentages are probably flatten a bit as far as the growth of overall portfolio trading. But do you still think that MarketAxess can make significant gains in portfolio.

Yes. So 2 different parts of that question. You're absolutely right, as volatility has picked up in the market, the share gains of portfolio trading as a percentage of TRACE have slowed down. In fact, the last few months at 5.5%-or-so of TRACE volume in portfolio trading is basically flat to where we were a year ago. So we had a rapid rise from 0 to 5, but it's been pretty flat for a year as volatility has picked up because it's just harder to manage the risk for market makers when volatility in both rates and credit is high. And as a result, the pricing isn't as strong. When volatility was very low, it was easier to make very competitive prices. All the banks wanted to compete for those large portfolios, bid offer came in, but now there's more sensible bid offer coming back to that market because it is complicated to manage the risk that comes from these large portfolios. With respect to MarketAxess, you have seen in our, again, transparency, we believe, is our friend with analysts and investors. We've been announcing portfolio trading volumes monthly and quarterly, as we always do. And we're on track with our plan. I am confident we are the fastest-growing portfolio trading venue over the last 2 quarters. And if we continue to gain share electronically on MarketAxess of portfolio trading for the next 6 months as fast as we have for the last 6, we will accomplish our goal by the end of this year. So we're on a very fast track there. We've had all the market makers trading portfolios with us. So we're not missing any key market makers. We've made a very heavy investment in technology enhancements, and we have the broadest client network for credit trading in the world. So those assets are serving us well now as we really gain share in portfolio trading. And just like the other protocols, we want to be there for our clients, and we want to be the leader for our clients, and we're really happy with the progress that we've made year-to-date.

Two last questions, Rick. One, I think you know Chair Gensler is going to speak here at lunch time. I don't think he's going to speak about fixed income specifically. He has some axe to grind so to speak. But he has put out changes to fixed income regulations. So the Reg ATS or so. I guess could you summarize what the changes are? Is there an impact to MarketAxess that -- or what should investors know about regulatory?

Sure. A really important question. And there is a big piece of rule proposals out from the SEC on fixed income ATS. And I've been very involved in it from early days because I was part of FIMSAC when Chair Clayton put the industry together with a group that was there to communicate and advise the SEC on regulatory improvements for fixed income. And the subcommittee that I chaired actually did make a recommendation to create one common regulatory structure for all fixed income electronic trading participants. So taking order books plus RFQ plus any other protocol and making sure that there was a level playing field that all participants in the market had the same regulatory requirements was something that we recommended 2 or 3 years ago, and that's very much part of this proposal. RFQ would be embraced within a fixed income ATS category. So we're fully supportive of that. We think it should be a level playing field. We think this regulatory structure will add resiliency to fixed income e-trading, which investors and dealers deserve. So we're very much in favor of it. I think for our company and the other large e-trading companies, it will represent less of a change than it might for some of the smaller companies because we've been a public company since '04. We are regulated as an ATS for our order books, and we've been regulated as a broker-dealer from day one in 2000. So we have a regulatory infrastructure. We think we can adapt to whatever the final rule set looks like. We did, in our comment letter, express our view that we think they drew the circle too wide in terms of what would qualify as an ATS in fixed income because it would certainly seem to include OMS systems, if they're aggregating pricing within the OMS as well as EMS systems and even communication systems. And so that is a wider definition of electronic trading than most of us would think of. And we also -- they drew a threshold for government bond trading for rural SCI very low at 5%. So we did comment on those 2 areas that we think could be improved. But we're happy to see a common structure where the industry will probably ultimately be all operating from the same set of regulatory rules. Just say one more thing is that the other thing Chair Gensler has said a number of times recently is that he would like to see the TRACE reporting window for dealers to FINRA reduce from the current 15 minutes to 1 minute. And I think that would be a real challenge for the dealers for the bilateral trading that they are doing, but Chair Gensler wants that trade data and transparency out to all participants, including retail earlier so that the market doesn't have to wait 15 minutes for those reports. Interestingly enough, electronic trading comes with electronic STP. So post-trade APIs deliver our trade messages back to the dealer, hits their trade capture system goes to FINRA's back out in the -- on the TRACE tape, 97% of the time within 1 minute. So electronically, it does happen that way, but that's another -- would be a meaningful change for the industry on TRACE reporting.

You would want 1 minute, yes, for a bilateral as you explained to me, a bilateral trade that would be...

It's a big change.

Difficult. So like your predecessor as a speaker, you've been at it a while and committed to converting the fixed income markets to electronics. So I guess you've been at over 20 years. What's the future liquidity model for fixed income? Is it -- what protocol do you think is going to be most prevalent? Is it the RFQ all-to-all or central limit order book on combination? And I guess, why do you think so. What excite you about? What's left to go in the electronics.

Well, 3 of the protocols that you just mentioned and we've talked about Sessions portfolio trading and order books are all pretty new, right? That's the new development. So I love the innovation that's going on in this space and the fact that different bonds, different trade sizes, different times of day require different solutions. And I think that will be part of the future is that you'll see lots of different protocols interacting in the electronic trading space. I am really happy with how far we've come on all-to-all trading. As you know, it wasn't all that popular with the large banks when we started 9 or 10 years ago. They are now all actively involved not only making markets to a broader community of counterparties because of all-to-all trading, but using Open Trading on MarketAxess for their own liquidity. So you really -- we really changed the mindset on why this is important, why everyone should be in the same pool, and we've created hundreds of thousands of new counterparty relationships through all-to-all trading on MarketAxess around the world. So that, to me, I think we're still at the earlier stages of all-to-all trading really taking hold across all products globally. But I think it's going to be a big part of the future fabric, and I think the market will be better for it.

Rick, I want to thank -- Rick has a series of Board meetings today, but he's -- we've woven its schedule to be present. And just like I said, you've been at it, and we've watched this market convert, what do you call, deliberately over a longer period of time would still runway to go, which is exciting, I think, for you. So hopefully, we get to see these markets go to this liquidity model that you've built and help convert over the past 20-some years. So thank you.

Thank you, Rich. Great to be with you.

Welcome back to Piper Sandler's Global Exchange and Fintech Conference. Our next panel is on -- we're calling it the changing fixed income electronics trading environment, that's a multiple right there.

It's long-winded.

It's also what I'm calling the honorary CEO panel. Because each person here is either a CEO to be, CEO now or was a CEO. I see the people at...

Some of us got demoted.

Which is the best one to be?

Yeah, I think the future's looking pretty good. So, anyway this is going to be a fun panel. These 3 here are very knowledgeable of the fixed income electronics space as well as electronics in general and the leaders in their firms as well. So I guess to start off with investors know about MarketAxess and Tradeweb. So, I'm going to just quickly, well, we have Chris Concannon of MarketAxess, Billy Hult of Tradeweb.

Which is on the screen by the way. You can go through the intros if you want.

Are you running the clock...

Sorry, just watching the clock.

Thank you for doing that. I'm going to let Mike Sobel, the CEO of Trumid to talk a little bit just quickly about Trumid so we'll get people up to speed on Trumid. And these guys, they both objected to it, but we're still going to let Mike talk.

They're counting next to me here. I'm on the clock. I think a lot of people here are at least a little bit familiar with Trumid, but I will take the opportunity -- we did take a slightly different approach than these guys mostly -- because we had to. I mean we started the company, the RFQ segment of the market was very well served by both of these firms so for clients or investors, employees, nobody had very much interest in yet another RFQ platform, circa 2015. We were insiders in the bond market, corporate bond traders salespeople. So we did feel like that was a differentiator. We took -- we addressed it a slightly different segment of the market. We took a little bit of a different approach. We felt we were uniquely capable of assembling a client network. We thought we could build a differently kind of aimed mousetrap than what existed at the time. And we were -- we had the luxury of being a brand new tech stack. So we were able to bring some best practices to bear and be kind of agile and collaborative, which were really powerful early on and are still, we think, a big deal for us. So a lot of mistakes and bumps in the road later. I think we've gotten certainly some things right and evidenced by the fact that these guys are willing to let me sit up here with them.

We're having fun because I think we all enjoyed talking about the business and are excited about the business. and want to have fun while we're doing it as well. So that's the common theme. So -- but I do want to talk about, I guess, this current environment, spreads have widened, more volatility, you're all interested in getting more electronics into the fixed income markets, one way -- one protocol or another. So first, how you're adapting what's the current environment like? And how do you work together as -- is it a network effect that just one gaining market share might help the overall movement of the market further for electronics. So we talked about with Lee and Rick about how it's been a deliberate process, unlike equities and some of the other asset classes that immediately sort of get a quick [ too ]. So the question is, how are you coping with the current environment? Is it good? Is it bad? And do you work -- is there a network effect in bringing people to [ one ].

Yes, the current environment -- I have 16 minutes. The current environment is actually very favorable to electronic platforms. Anything that is aggregating liquidity sources of liquidity for clients. If you look at the client challenge, right, they have increasing challenges around portfolio and portfolio turnover in this environment, and they need to move that portfolio in and out and adjust. And so any type of electronic trading makes that a more efficient process. But when you think about network effects, there are big differences in the fixed income market dealer-to-client fixed income market as opposed to equities, futures and options where it's really the exchanges go to intermediaries. And so -- and it's resting liquidity versus on-demand liquidity. And so that network effect has a different impact because in the fixed income market, clients are requesting liquidity at a moment in time of the dealer community and the dealer community is responding. It's all electronic. But the true network is how many clients and how many liquidity providers, whether it's a client, a dealer or an alternative liquidity provider are on your network. The network effect is very different in our asset class than from others. So us connecting one another doesn't solve that liquidity on-demand feature. It doesn't add more liquidity to the overall bucket. Us winning electronic conversions across the market and having new adoption of electronic trading, that's favorable for all of us up here. Hopefully, us more than others.

And maybe just for a second, Rich, to your sort of question about like where do we collaborate versus where do we kind of compete -- we compete, obviously, and there are moments where I'm going to one bank or going to one asset manager and Chris or Mike have either coming or have just been there, and you know there's a moment in time where you're trying to make a really important point and you're trying to kind of win business in a very straightforward way. But there is -- and everyone can kind of sense this obviously like a friendliness to how we compete, I think I've said this before, I think there's kind of like an ethos that we all kind of share. We all have kind of similar clients. I think we go about solving problems in the same kind of way. And I think that matters a lot. I think the world wants to see us compete to compete in a friendly way. And I think the investor base kind of wins through all of that. When these guys do something well, they kind of hear it from me first. And I've kind of learned all the way, like you can learn a lot from your competitors. I think that's like an important thing for kind of everyone to kind of hear there. And then we'll kind of -- and this one will go about the kind of the job of competing again. What I think about the sort of network effective at all from Tradeweb so many different businesses when we wanted to get into interest rate swaps, we said, what's our advantage to get into interest rate swaps. We have this huge big kind of mortgage community at Tradeweb. So we knew they were big consumers of swaps. When we wanted to get into ETFs, we knew that we had a lot of those ETF consumers because of our treasury business. When we wanted to get into credit, we knew we would have some ability to compete with the all-to-all network because of our retail business that we have. So we're always kind of looking about like how do we put these kind of pieces of this puzzle together. When I think about what Tradeweb has done well traditionally, it's been about kind of establishing this big broad network all the way through. That was some of the best work the company did way back when.

Okay. And then I debated whether to keep this in, but I'm going to keep it in. And it's just a quick discussion on market share. And I thought about so why talk about market share because it tells us markets can go up and down in activity, but it says who has momentum. And again, we don't want to look at it month by month or even quarter-to-quarter, but it does give some indication of who's doing well over a longer period of time. So any comments on market share in regards to how your companies look at it from an institutional or D2D or any comments on...

So I mean, you saw Rick McVey rattle off market share by product by minute, probably. So we are focused on market share. The first statement is electronic market share is going up, right? That's -- everyone supports that definition of share. It continues to rise, how you count electronic market share is always questionable, but it's clearly going up and the trend lines and the feedback from clients are, they want to do more electronic and less -- in less efficient ways. Across product, electronic market share goes up and down. Each of our market shares go up and down depending on what's happening in the environment. But generally, I look at the overall electronic market share and it is going up. The one market share I spend the most time focused on is all-to-all market share. When I think about disclosed RFQ where we're providing a network service for dealers to disclose to clients a price, that's a helpful service to the client, but our true liquidity, what we're housing in that undisclosed all-to-all environment, that's true liquidity that we built, and that's a moat around that. It's hard to build. It takes years to build. It's a network effect to get all the dealers and the clients actually show price. So that, to me, I spend the most time looking at, and that's what we report as a broker-dealer. So it's hard to actually question what those numbers are. They're all on trace, and we publish those regularly. But the one thing I'll say about market share that I grew up in an equity exchange world where market share was thrown around numbers were thrown around, we're in a client environment. We actually have clients trading securities on our platform. So we need to be very careful how we tell them about market share because we're selling a client a service. It's a different environment than talking to a broker dealer about what your market share on your exchange is. And so we just need to be mindful and not misleading around market share when we talk to clients. Slight difference.

We've gone to great lengths to frankly, we operate some platforms within -- some protocols within an ATS and some outside of it, mainly in order to report clearly and not make market share too confusing. That's probably kind of a tail wagging the dog. So how trades get reported in some of this stuff. I think these aren't hard problems. There's room for improvement that stuff will get solved. I think what is market share gets confusing because there is a broadening range of protocols and true electronic trading, I agree, is absolutely of the form that Chris described and is going up. And overall, what I might call kind of e-commerce is going up. There's plenty of things that are workflows that are not that different than they were over the phone that are being conducted electronically and pure electronic trading definitely going higher. The percentage of trades were done -- is being said over the phone or a chat and then the trade is being booked manually elsewhere. At some point, maybe we'll talk about the ceiling for electronic trading. If you define that as the only thing that's not electronic trading. I mean, I think that's going to something pretty near 0 over the course of the next few years because that doesn't help anyone. -- streamlining that process is genuinely beneficial for everyone involved.

A little bit, Rich, when I kind of hear -- sort of when you ask the question, what kind of goes to the back of my mind a little bit is kind of like how are you Billy like competing? How is Tradeweb competing like apples-to-apples with like Chris' great credit business? And I'll kind of describe it to you guys this way for a second. Obviously, we've made a tremendous progress. And I think the room and the community knows really well in our institutional business and our big network business in a way that you were describing it, Chris, we've done like really well through some pretty significant kind of innovations around net Spotting and net hedging. And then portfolio trading obviously had this tremendous run and actually performed really, really well during sort of difficult environments in February and March, and you've kind of heard me say that. We've also, at the same time, so we've made like really strong progress there. And at the same time, let me see if I can say this kind of clearly we've never like shied away from the fact that we are also in the electronic wholesale business. And we think that's important for us as a company to be in that business. We do really well. You were sort of like on the verge of asking me that in the last earnings call. Maybe either I hung-up on you or we just ran out of time. But we've always felt that we could kind of compete in that business back to competition like really well. And we thought that the IUDs were vulnerable in terms of that movement from voice to electronic, and we were going to build businesses that way, whether or not that was mortgage backs or government bonds or interest rate swaps. That was like a strategy for us kind of all the way through. And so as we become very successful and well-known on the credit side through our suite business, we've also worked hard on trying to figure out kind of how to connect both of those markets the right way. And I know we've all kind of talked about this concept of market structure and market structure shifting and changing what looks like one market structure one day is not the next going forward. So we never want to be short those kind of market structure pieces, if that makes sense.

The protocols, you've mentioned different protocols, whether it be all to all what you call considered portfolio trading protocol per se. But I guess, as just briefly what has worked recently and what do you think in this environment has the opportunity to work well over the next year, 18 months, given the uncertain macro environment, the widest...

I mean, RFQ is clearly working across all assets, right? It's even working in equities if you look at the ETF market and RFQ in the ETF market is growing, happens to be growing on Tradeweb, which is a little frustrating, but it is growing. So RFQ is clearly working throughout these volatile times. All-to-all is now in a more favorable position as spreads widen out. To get that alternative liquidity, it's obviously even in RFQ, it's creating favorable outcomes for the investor clients. I do think, obviously, in the treasury market, there's both RFQ for dealer to client and order books for the dealer-to-dealer market. Our offering is really trying to bring the order book to the client market. So on the run, you have -- you actually have protocol optionality. The portfolio trading is clearly an area where Tradeweb has excelled. We're chasing them on that one and making some headway. It's a complicated trade when you look at it. It's a very expensive way to trade a large list, and I think clients are trying to figure out and dealers are trying to figure out how to actually support the portfolio trading that's going on. I do think we owe the clients more analytics around how to trade a portfolio, really how to size it, what should be in, what shouldn't be out, how they price relative to trading a line of items that they can trade in the long list. So I think most of the protocols are working right now. And obviously, you have swarms and mid-xs and sessions all starting to work across the board.

It's not working is kind of like old ways of doing business. Like that's not working, like the concept of kind of a client doing a voice trade and writing a trade on a bladder and then maybe having a sort of significant out trade. That world is kind of ending, and I definitely agree with you, Chris, that like all of these different types of protocols are kind of gathering momentum and are working. And you just want to make sure that you have the kind of the right ones under your tent at the right period of time and kind of press that button and move things forward. But the old way of doing things, I mean, that's just like one way to think about it, like that's just like not working. And I'm not sure any environment displayed that more than the sort of the challenging period of time that we all went through during the pandemic. If that was the perfect illustration of why the old behaviors weren't going to work as well, like that, I don't -- I can't think of anything else.

Do you think the pandemic was like a demarcation where it really -- that's the inflection again, share may not stay at that same level, but it was pointed...

There's a demarcation for a lot of things actually.

It was a point in which -- I think it was a point at which if you didn't -- if you weren't using technology in your business every single day to do everything you were doing, you were exposed and came up short. So the notion that some large institutions buy side or sell side sort of don't trade electronically. That doesn't exist anymore, and you asked about network effects earlier. And I think a lot of these protocols are working because this is where competition helps as well because it keeps us all sharp. The tools are better than they were a few years ago, and most of the market is now here and using them. So -- and they're getting better pretty fast. So I think most of these protocols are working. And even for the traditional way of, as I said, saying down on the phone, those are legacy workflows that have room to be electronified that doesn't disrupt the fundamental dealer-client relationship. It saves time, it saves money. Operational risk is totally unacceptable. And the period of time where credit was just kind of carved out, you have your risk procedures and all trades need to be STP, and you need to eventually demonstrate BestX and TCA and all of that and credit is sort of grandfathered well because all those trades happen over the phone. We're moving into a period of time where that's not true anymore. And I think the burden of proof to -- well, here's why I just picked up the phone and did a trade and booked it manually, it's just getting higher and higher, and that is pulling more trades towards platforms.

There was an obvious sort of period of time for a long time when I was at Tradeweb kind of early on, where there was like genuine resistance towards this kind of like march of electronification, right? I think everybody here kind of knows that. It was sort of like as the markets went more electronic, as the markets become more transparent, it's going to be harder for me as a market maker to make money. Good job doing that, please don't overdo it again sort of thing, right? And so we were always kind of up against sort of that resistance and trying to figure out the right balance as we were kind of getting into a marketplace. I think one of the most important things that's happened over the last couple of years, as the markets have gone more electronic in a significant way, in part because of what we've all gone through is the profitability of the businesses to our largest clients has stayed at such a high level. And the community is figuring out how to embrace this change and make money while they're doing it. That's a big difference between now and a bunch of years ago.

And then there was munis. And the munis are still a few, call it, a decade behind all of what we just described where that opportunity in munis is a big one, but they're still picking up the phone. It's like when your parents got their first iPhone and they're trying to figure out how to use it. That's the muni market.

There's new school and then there's kind of like old school. That's like the sort of the Cheeseburger at 9:00 a.m. old school.

I think we're going to hear about munis for the next 5 years from Mr. Convert Muni...

I do have a little passion for munis.

The next question is -- and with all joking aside, the 3, you CEOs and leaders of the firm. With all joking aside, Chris is one of the most knowledgeable guys of market structure, equity or fixed income, and you sold your firm very successfully. So you deserve the honorary CEO role with all respect. So the question is, you guys are the leaders. So what -- and we try to get you to depart from if there is, but what is priorities of yours? What would you highlight to investors that's happened in that -- you place a high commitment to getting done or place emphasis on.

I'll just go very quickly. I'll sort of describe it quickly. We're going to stay on the business side, obviously, sort of laser-focused on credit. We think there's obviously a lot more room to go there, and we are kind of proud of what we've been able to achieve as a company. over the last couple of years. So that level of focus, I think, in a good way, isn't going to change away from the business, and you guys know this really well. There's a saying, I think it's culture trumps strategy. And it's a little bit simplistic. We all know how important strategy is, but you guys know this well like how important sort of the culture of the company is and being able to stay in tune with your clients during this change is at the highest level. So for me, just making sure, as a company, we stay absolutely prioritized around collaborating and listening to our clients is kind of first and foremost, one of the more important things.

Yes. I mean I think from our perspective, the operating environment has obviously changed. Risk appetites are different than they were a year ago. Growth at all cost is not as exciting as it was previously. So at the same time, the -- we've got a lot of ideas that we're very excited about kind of lined up around the corner, and we are pursuing those. The labor market is still really tight. It's hard to find talent and start to keep talent. And so we spend a lot of time focused on that. Fortunately, we've been able to hire a lot of great people throughout this period. But we -- I spend most of my time, I think, on sort of resource allocation and that's not dollars that's people's time because -- I think to Billy's point, it is more important than ever to stay focused. And we think we can deliver better results trying to do a smaller number of things really well than just do all things to all people. And I think clients appreciate that.

So there's some crypto exchanges that you can hire some tech guys from out there that might be laying off a few people. So look, I don't know. I can't add to that. It is -- right now, our clients are going through challenges, and they're looking -- they don't have the budgets to build sophisticated trading systems in the fixed income market. And so they are technically outsourcing trading technology to the vendors that sit around them and to the banks and brokers that sit around them. And that has happened across many different markets. globally. And so we're sitting in that same unique position where there's a high demand for trading technology and trading solutions because the workflow change has to take place. And we're sitting at the forefront of that demand, and it's a 5- to 10-year run of providing that technology. So to Billy's point, in this environment where we have some people in the office, some people not in the office, we have to be in the face of the client and really distilling down what are the critical technology solutions that they need to do.

I'd tell you what has struck me in looking at other asset classes convert, fixed income still just seems more client focused. The electronics aren't -- equities, electronics, where we pulled everybody like is sort of still a sales aspect and a client relationship.

I mean, I'm curious what you guys think, I know we don't have that much time. I get asked the question once in a while, like is it still a relationship business here? We live in this electronic world. Is it still a relationship business. And my brain kind of goes to this concept that it's an experienced business for the clients, right? It's delivering the clients an experience, which is a bunch of things. Part of that experience is obviously around the electronification of it all, but the relationship component of it is for sure one of the key dimensions of the overall experience and being able to have, as Chris was describing, that real sort of back and forth with the client around idea generation, I think, is at the highest level of importance right now than ever.

It's great insight to the industry. We do have a little extra time, so disregard the clock because you got me started late. So -- but it is the last question, though, too. The -- when you look at -- it has been a more deliberate asset class to go electronic. And I think we're getting the feel for why. It's still a customer-based, client-based, relationship-driven, experience-driven. But as we look at -- and every year, we come back and say that, and we're tracking this pretty closely. So in the next 3 years, where do you expect the gains to be made in furthering electronics? What is the fixed income electronic trading landscape look like in 3 years, let's say?

It's clearly more electronic. I'm more of a next 5 years than the next 3 years. just gives me a little more window to be wrong.

We have to wait 5 years...

Exactly. And I still won't be a CEO, by the way. No, clearly, if you look at the workflow of clients and how they are adopting electronic trading, it's clear that they started with small order size where they had lots of tickets in the fixed income market, and they're slowly ramping that, call it, low touch activity into bigger-sized tickets. And we've seen that movie before where larger-size tickets become smaller-sized tickets and are fully automated. So that trend line -- I'm shocked at how many large investment complexes have been adopted a lot of automation, a lot of automated workflow and they're just now starting. So I think there's still big penetration across the smaller ticket sizes, but I do see automation driving share and those larger blocks coming into an electronic form, either in the form of a portfolio trade, which is electronic or in a larger block trade that's managed differently in an electronic form.

I think you're seeing new players, we are seeing new players come into the space, new participants, and they're very familiar to other asset classes, systematics, broadly speaking, quantitative -- and liquidity takers. It's both sides. And they are only going to trade electronically. And there's a real -- therefore, if they're only on the platforms and the liquidity is better on the platforms than not. So there's a real symbiosis, I think, and that is once again gets the network effects, and I think gets to increase velocity in the asset class because you have more participants and better, faster, more scalable decision-making. So -- and then that generates more data that allows for some of the stuff we spoke about earlier, TCA and the things that both push and pull maturation of an asset class. And those things are absolutely underway. That's not a prophecy we're feeling it every day. And the more kind of traditional institutions in our industry, they care about that stuff. They're embracing it. They're not resistant. It just is it takes time. Their internal systems aren't ready to engage in that way. So we're all dependent on OMSs and the EMSs and internal systems and everyone's tech resources are the scarcest thing around. So it takes time, but it's all happening.

That's a good point. The story around sort of what Citadel securities in fixed income, particularly on the rate side, has been able to accomplish over the last 3 or 4 years in terms of becoming like a top rate interest rate swap dealer in an incredibly challenging and competitive environment and a top rate government bond -- global government bond dealer, is a pretty remarkable story. And so you can just keep following that story and know that it's going to replicate itself. It's going to replicate itself with sort of sophisticated entities that will pick different markets, credit being one of them, where they're going to look to compete. And I think stepping back from that, make an obvious point, all of that kind of trend is just very good for the business that we're in. And at the same time, what's kind of interesting, I kind of thought about this, Chris, when you mentioned kind of munis, there still is today -- and by the way, I think we all know this in 3 years. There still is that kind of like that guy out there who's going to pick up the phone, he's picking up the phone right now. He's doing a large trade on the phone. He's doing it like he's always done and he's going to say, "I know this whole market is kind of gone electronic, but not me. I'm going to do business the way I've always done business." That's what kind of makes, I think, our business like super exciting, is converting that kind of that person. And that person might be a metaphor for a sort of asset class of munis or whatever, but that's what makes this business like super exciting right now.

And then he's going out on a smoking break. So there's hope.

There's still opportunity. And it's been a deliberate process. Two things...

I thought we were done. [indiscernible] just walked in and he always critiques my panel routines.

That goes back like 20 years.

20, yes.

Number one, I just want to point out, did you see my fire still burning after 3 years from 2019. We bring that along with all the years at the conference. 2019 was the last time we did it physically. We appreciate these guys coming back. We appreciate all you. Next is I know this was very entertaining. This panel is very informative. The next will be the lunch with SEC Chair Gensler, virtual, and it's right across the room -- directly across. So not to -- this was informative, and I was captivated myself. So I want to thank these guys. These guys are the leaders. They take their time out of their days to participate in the conference every year. And despite the joking, we respect and listen to what you have to say. We try to peel through some stuff you say. But anyway, thank you.

Thanks for having us.

Thank you.