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

Okay.

You would think after all these years, he would get this down. Can we start on time?

This is part of the program where I need to be at the -- on the best on my toes, so to speak.

Well, your toes aren't touching.

I know. Are you making -- 15 years and no respect here. No, this is the panel, I'll be blunt, I have the most fun here without question. But I also have to acknowledge this is -- these CEOs now, there -- it was the presidents' panel. They -- we don't do -- you don't see us doing the CEOs of the exchanges together, the CEOs of the e-brokers. These guys are willing to come up and sort of talk about the issues and have fun and be a little bit sarcastic.

You set up this format years ago, we saw that coming. We were lucky to get promoted actually. Rank each other up.

We're going to try to sit by rank, but we decided just to make -- who get promoted earlier. So anyway, that you're hitting on the first question. Just I think Billy was January 1. Chris, April 4, I believe.

Third.

Third. I'll give you the extra date. Mike has been a year.

A year, yes.

So first question is, and it's a highly technical question, but what's it like to be king now? What's it take to be leading the firm. We got into it a little bit, Billy, what are your impressions of leading the firm and what's different?

Billy?

King would be -- to say it's a massive stretch. I might not kind of get at the exact way to describe that.

How are people treating you differently now that you're, I don't want to say a king again, but CEO.

I did notice something different.

What did you notice?

To date, everyone laughs at your jokes. And even the bad ones, and you see, you test people and you see...

There's a lot of bad ones from me.

Sorry, I don't want to.

No. But I think you're right. I was -- what I was going to say is if people start really truthfully treating you differently then you have some kind of real issue. And what I would say is -- and I know you guys feel very similarly, chemistry is not a willingness to agree. Chemistry is really a willingness to like disagree, right? So I will have plenty of meetings, which is a version of what you're saying, Chris, around the kind of laughter of it. I'll have plenty of meetings where if I feel like there's too much agreement of what I'm saying or ideas that I have or opinions that I have, something is wrong. So I absolutely day 1, want to make sure that I am setting a culture of please express your opinion and please feel free to disagree with me because the mistake around it all is not hearing other views. And it's an easy -- no matter what office you wind up sitting in, when you've been doing it for a while, it's easy to be, if not arrogant, to be dismissive. And so you really, really have to go out of your way to make sure that you are setting up a structure that allows for a difference of opinions and people feeling really comfortable challenging you. And that's something, I think, like at a high level is like massively important just in terms of making sure you get stuff right.

I think we've got a relatively flat structure and we work hard to keep it that way. And I think that is consistent with what with what Billy is saying. And probably in the new role is king, which I agree doesn't -- sure doesn't feel like that every day. It's probably the newer folks in our organization, probably 25-ish percent headcount is probably joined since we shifted titles around a little bit since my big promotion and trying to make it clear to those folks that we are still -- this is still an environment that supports open disagreement. And if you've got something to say, just reach out kind of directly who thinks that there's some formal process for getting on my calendar or that my first cut at something is pretty disposed to be the right one. I think we actually have to make an effort to get through that in order to stay kind of agile, nimble and just recognize the reality that the good ideas don't necessarily come from the top. And in fact, most often probably come from someone who's got a different viewpoint or is newer to the subject or something like that. The other thing I would say is with respect to the king idea or being kind of anointed, I think, and I'm sure you guys enjoy this as well, I think beat the credibility as a market operator and this is institutionally as trustworthy market operator, provider of liquidity, technology partner is more important than ever, we'll get into the market condition thing. But we ask our client base to invest their time and energy in what we're doing to lift a finger to connect to the new thing or give something to try and that kind of demonstrated track record in this -- in the current kind of economic environment, I think, is really more important than ever. If you were trying to go from nothing to critical mass today, that's a lot -- whole lot harder than it was when we all respectively were doing in the past.

Go ahead. Improve upon that.

No. I can. I mean candor is definitely key. I just think we all have stakeholders that we have to -- you can't be king to, right? Whether it's your Board, whether it's your founders of the company, we have that. More importantly, we operate in an environment where you have massive dealers and massive investor clients that really tell you what they want and how the market structure should work. And so you're -- we're constantly catering to the needs of our clients and it just doesn't feel like you're ever king. You're really running around trying to build things for people globally. So there's -- the transition is not what most people would think.

I hope when you go home, you can still be king.

No way. That's the worst place you can be.

I joke about it, but the 3 have been open to communications. And I think that's a little bit of an indication of the open communications at your company that you're encouraging. And I think we totally get the founder and the other stakeholder aspect of it as well. So we got -- let's get beyond the king thing. I think the most questions we get are the primary question is what's the market outlook. Billy, we talked about a little bit. But I guess maybe a little bit different. Is there any other environments, your experienced guys, whether it be in this asset class or not, but give us the outlook on the environment. Is this similar to any other environments that you can draw some parallels or analogies and so forth because it seems like the investment community is search and trying to get their arm and a good understanding of what the outlook is for volumes and the healthier businesses.

I mean I'm shocked at when you look at the economic environment, and you hear from CEOs outside of financial services, talking about layoffs and challenges ahead and we still have a banking crisis. There's still $8 billion leaving regional banks a day. We're not headed into a great place. Yet you have the VIX is sitting at 14 today. And so I just think the market is trying to read the environment, and they're not sure, and we had that a little bit not a near death, but Washington wasn't helping with the debt ceiling crisis. And the Fed sending signals that are confusing right now. And so I just think, certainly, the clients that I've talked to, there's no investment conviction right now. And so there's a lot of people waiting to see what's the next shoe to drop.

I think the credit market environment, the environment for corporate bonds is maybe surprisingly so, is kind of decent in that -- and particularly, yields are hundreds of basis points higher than they were a few years ago. And I think we do see that in alternative investors, investor types including outside of the U.S., looking at U.S. fixed income and it's about as attractive as it's been in quite some time. So in the, call it, intermediate term, I think that is a positive for overall interest in and participation in the asset class. So that's good. It does -- it is difficult to reconcile with an uncertain economic outlook. And when we're thinking about building and running businesses and again, getting our clients sell side, buy side to invest with us and do the bits of work that it does take to evolve protocols and technology that is a real challenge. Budgets are constrained, headcount is constrained. So we are while the VIX and S&P really no asset class would suggest this. We're kind of living and operating in a quasi-recession or environment, and that is definitely tricky. I think it just means it's super important to kind of be credible and deliver for clients and get closer to your clients. And at some point, we kind of come out of this and we'll benefit from the hard work that was done when things don't feel so great.

That's right. I think if I thought to myself, what's like a bad environment? What's an environment that's like not good for kind of anyone here up on the stage. I would probably say an environment where there is kind of Fed policy in the mix that keeps rates at essentially 0. I would probably say, do it by -- do it in a way where the Fed is large and a little bit clogging the base paths of liquidity in the markets that we kind of exist in. And I would say, probably put some regulation in the mix that kind of reduces the ability for our clients to kind of warehouse risk. That's why I would think of like a bad environment. The good news is we're a long way from that, right, in significant ways. We're way past all of that. And so when you ask a question, which I think is really good around like what does this environment feel like? I'm not really sure. I can't really quite pinpoint it. There's a little bit of we've been around doing this for long enough. There's a little bit of like '94, '95, if you think about the way that the Fed hiked rates last year that feels very similar to some of the things that happened in '94, '95, lower base rate now, even more acceleration, but a little bit of that, and that was obviously the headline kind of like Kidder, Peabody news and then interesting things that happened around banking like way back then. The reality is, is we talked about this a little bit before, we're getting to this like new point around like where is the equilibrium going to kind of land in. And I use the expression kind of natural cadence we're getting back to this natural cadence again. This environment is a really good environment for our businesses now, kind of across the board. And so now that we're all kind of breathing again, and we feel like we're back into that a little bit more of an equilibrium that's good. This is an excellent environment for our business.

I think that's a good point to contrast Billy, that it may not be right at the moment as strong as right at the meeting because you had the debt sale in the bank, right, but compared to the 0 rate environment, the interventionist FED, you guys are coming in with the tailwinds behind you, so to speak.

Yes, I recently have spent the last 4 months going out to see clients. And the theme coming back from the clients was clearly short-term concern, long-term bullishness like when it comes to the bond market, bonds are definitely cool again. And people feel the big investors that held massive positions in bond funds are obviously quite excited what's to come. But very challenged by the current environment. And you can see that in the numbers.

Actually, to that point, it is likely, and I think we're seeing this. The tourists for lack of a better term, in the bond market, which is just in the credit market, which is just to say the investors that choose globally, which asset class to be in that right now are as they should be, compelled by interested in U.S. fixed income. Oftentimes, those will be the drivers of kind of evolution because they are aware of the cool things that one can do, the ways you leverage data, the ways that you engage and make trading decisions and other asset classes. So they will -- they are a tailwind, I think, to kind of the evolution that we're all driving. And I think that probably continues for the next couple of years.

Back to your first question around kind of the transition to becoming a CEO. It's -- one of the things has to be about what are the right messages that you deliver to your company. And I think part of that message has to be around control, which you can control and kind of leave other stuff in the rearview mirror a little bit. No one in this room can control market environment, but we can control how we react, how we build, how we innovate, how we make sure that we are on the right side of change. And that's a little bit about what you're describing. It's you have to be on the right side of these kind of changes that are occurring. No one is building a business today in the markets that we operate in around hiring tons of bodies. That's like the old way of transacting in the market. So at a minimum, what we have to talk about and think about is 100% being committed to being on the absolute right side of this one-way train with all of the opportunity, and I was mentioning this when Chris walked in before with all of the opportunity to get after the #1 competitor that still exists in our world, which is the phone and the old way of doing business and the types of trades that still get done phone-based. That's like tremendous, tremendous opportunity.

I don't have anything.

I agree.

This is just the tension you talked about the agreement of friction. But if I...

We're on the same side.

Yes, if I got this right, the outlook is more positive. You're finally at the cool kids table. After all these years.

Yes. All these years, scratching at the table. I would say -- sorry, we're still unlike your first question. We should just run this panel...

You've tried to do that...

No. If you look at the first quarter, it has very interesting attributes, particularly around velocity of trading. In the first quarter, absent the March calamity, felt like very bullish bond market, all the things that we just talked about, it was real in the first quarter. We're now in a short-term holding pattern given some of the challenges. But I do feel that coming back, that velocity in the market coming back. And that excites me with even cash moving into the bond market, as Mike mentioned, that's just going to continue.

So you've seen maybe in the last 6 to 12 months, the market really changed. You had a little high yield run. You had the beginning of the year was strong, we were at record levels and then you had the banking. So each have strengths in certain protocols. So I think that's the next question that I get asked most by investors after the outlook is what protocol -- what's working these days? What will work in sort of the short to medium-term future? You've got all-to-all strength. You've got portfolio trading strengths; you got block trading straight. So what's working and what might take a little more of the return to normal market environment to get back to scale?

Well, the phone clearly works. And it's annoying. And actually, the one thing we probably all saw even in the rate space was the phone was active during the banking cards.

So that was this default going back to the phone.

Yes. Definitely, there was a default back to the phone, particularly around trading Credit Suisse bonds, anything distressed tends to go to the phone. But I think we're still at the beginning, and Billy really talked about it during his fireside chat, like it's all evolving pretty rapidly. I don't think there's one protocol for these markets. Think about how diverse the products that we all trade and the liquidity curve is quite steep in those products from the most liquid to some that don't trade. And so each protocol is going to serve the different product liquidity and then end client demand. But what we're seeing is diversity of protocols is at an all-time high, meaning RFQ is going to continue to be the dominant electronic solution. But RFM, request for market streaming prices, it's different than RFM. All of this is coming -- a true order book, like that's all going to play out in the fixed income market, it's different for each product. Treasuries already has order book. It has streaming prices. It has RFQ. It's all kind of changing and evolving.

Yes, I agree with that. Honestly, I think all the protocols are working. RFQ is -- has been the kind of the law of the land for quite some time, so 2/3 of all electronic trades or so are a few probably isn't going to change materially. Other protocols are growing, will continue to grow. We -- look obviously, we just announced we are doing RFQ as well. So we're excited to think there are growth prospects. We think some really logical reasons and evidence that bigger sized trades are becoming increasingly comfortable to do via RFQ. I think the reason when asked that investors -- market participants continue to pick up the phone is large trades and a sense that information is somehow better handled and managed over the phone. I don't think either of those are kind of permanent state of affairs. Those are both, I would argue like untrue statements. So improvements in the protocols, better handling of information and data that certainly technology is well equipped to provide will, I think, continue to expand the use case of electronic trading generally and totally agree with Chris. It's that ecosystem of protocols and the ability to move between them and have them actually kind of cross-pollinate each other information coming in through one way enhances your ability to do kind of something else. That's kind of the key to the future from our perspective.

Very quickly picking up what Mike said, completely agree. Ecosystem or protocols like these are complicated products, complicated protocols, have to get them all right. Half a step back, from my perspective, it's an absolute combination of everything we just described around that diversity of protocols. But again, half a step back from my perspective, it is also about this sort of like ability to deliver to your client base like this massive diversity of product offerings, right? So jokingly, one of the reasons why this group can get along so well is because I'm going to have an elbow contest with our friend Howard later this afternoon because I compete directly with his business all the time. I love how Tradeweb is set up from a diversity of product offerings, right? To be as strong as we are in the rates business to be able to figure out a way to compete with my friends and credit to build the global swaps business to get into the ETF business. This massive diversity of products, I think, is really important. And at the same time, obviously, building out the scale that I mentioned before around wholesale and retail, I think, is interesting and important.

Got it. We are getting close on time, but there's actually 2 things I want to. So if we can keep your thoughtful well well-spoken questions to concise. But anyway, market share.

Just like that question.

It took a long meeting. It took longer to get out before...

We're out of time.

Just give me a yes or no. So quickly, market share, what's good about it, what's bad about it? What does it tell about the business in 30 seconds.

Market share is good, more market shares are good.

Okay. But reporting a market share. Good, bad, is it...

Reporting of it or...

Yes. Like should investors pay attention to market share changes, what does it really talk -- tell you about the platforms?

I think it's more important to look at trend lines, not short-term market share movement in all of our businesses because there are so many -- so much noise. Sorry, I was...

We're proud of market share. I agree. It's a barometer. It's not the be-all and all. We spend a lot of time thinking and talking about the kind of activation of the network, what type of liquidity is there, diversity of liquidity. I don't think...

This is much longer than my answer.

I don't know why you should or do care about, do you have X percent market share, Y percent? It's like can I get a trade done and who am I trading with.

More information generally better than less. I get all that. I do agree with both of you that sometimes it feels like there's just a little bit too much static and scrutiny on moments in time. There are times, and you know this better than anyone Rich where we'll be doing our version of an earnings call. And it seems like the first 4 questions are always about a 0.5% move in high yield, et cetera. I get it. I like it, and I understand why everyone is focusing on that. My instinct is if we could get to the bigger picture of it all and see these where these trends are going, it ultimately is a better conversation because, again, are you on the right side of all of this change or not. To me, that's like the most important thing.

Fair point. Last question. So where -- when do we hit, we have the capitulation, the move towards automation, the inflection point. Is it something that -- and we've got to be short and concise. But is this something we -- investors, the community, the investment community should be watching?

Well, we are cutting into my fireside chat. I thought I should point out.

I'm trying to fight for your time.

Let's just roll right into. I am staying out up here for your question.

No. I didn't invite you guys. Look, if you look at other asset classes that went through this, absent a regulatory market structure change you don't know the point of capitulation when you're in it. You only know it from looking back in history and go, that must have been the point of capitulation.

Good point.

When I hear the -- I've heard this and said a number of times, leaders of both buy-side and sell-side institutions on the trading side, that the credit trader of the future is to obviously, tech aware, data aware. I think it's happening. It's a -- this asset class will evolve differently than others. It's going to be a hybrid of humans and technology. Data is not -- it doesn't have to be intelligence, it doesn't need to be artificial intelligence. It's just intelligence through data with humans playing a very important role. So I don't know that there is a point of capitulation. It's a steady and pretty fast trend.

Why is there certain types of business that still gets done in 2023, like it's 1993, Why? And focus on the why focus on the types of trades that are still done in the old-fashioned way and ask us and get fine-tuned around how we are building protocols and getting after that kind of business. I think from all of our perspectives, that's a massive, massive opportunity.

The larger size trades.

Yes.

Okay. Unfortunately, we could do this panel for longer, but we'd cut into Chris' time. We don't want to do that.

Yes. we don't want to do that.

But I want to thank these 3 are open to debating and talking about the issues as a panel. And you don't see that in other industries or other asset classes. So and again, my regret is that won't see how this develops over the next year and the leadership skills of this -- anyway... Fixed income electronic segment, you're part of a segment.

By the way, what's left of my time.

We got -- we'll make sure you get your full time. It's my commitment to you. So the -- I think we've sort of beaten to death the current -- the overall current market environment. I think it's still a positive outlook. We've hit this little pause. But getting more focused on your company now, MarketAxess, we've seen the sensitivity to duration to the fee per million. So maybe can you sort of mesh this market outlook with how it might impact some of these key metrics at MarketAxess that now you're in charge of?

Yes. Well, first of all, thanks for having me one last time.

Come over my house and we can do the second time.

No one will watch it, actually.

True.

If I look at -- like duration is quite stable. It was particularly stable for us and certainly improving over the first quarter. And so we're seeing more stability around what people are trading, where they're trading on the curve, what maturities they're trading. And you see that in the TRACE numbers as well. I think what's interesting about this market is, there's institutional investors are less active. We've seen them pick up actually since the debt ceiling crisis. We obviously had a record trading day at month end in May. And that was -- we were leading up to that. We obviously saw a big pickup in activity just leading up to month end. And it was really just following the negotiations on the debt ceiling. So that was helpful. But what we do see is, we see retail as a sizable portion of the market. It's now reentered the market. I think that's reflective of the positive outlook that we all have for the bond market for the next couple of years given the current yields and the attractiveness of the -- and fairly stable ratings right now, particularly in high grade. So when I look at those macro factors, I feel good. The other area that we're seeing a sizable pickup is in the dealer-to-dealer activity in TRACE dealers trading with dealers, particularly when retail picks up, the dealers are unwinding those positions just as rapidly as they're trading them. So we just see a lot more activity and dealer to dealer as a larger part of the market.

So I skipped over sort of the broad one -- sort of bigger picture question and that Chris' multi-asset class. You've led CEO of equity exchange, [ equity, equity options. ] You certainly were important that NASDAQ is that the regulatory changes there. So as you go into fixed income in the marketplace, how is that leading a fixed income platform that's still in the industry in the conversion stage. How has leadership been? Is it -- how do you go about your job day to day to do?

Well, I mean, it's...

I'm really interested.

It's truly fun for me because there's so much that I've seen over the years and so many behaviors that I've seen, embedded behaviors and then behaviors that just dissipated and went away. And you see similar patterns in every asset class. I'm seeing activity -- behaviors that I saw in FX before it went electronic, I'm seeing behaviors particularly in fixed income. The most interesting thing that I don't think it gets treated or covered enough is when we say, electronic trading and fixed income, our definition is different because it's usually a manual trader entering a manual order on an electronic platform. And they're just not picking up the phone. So we've replicated, and this was to Billy's point last, we've replicated the protocol that they're accustomed to. RFQ, which they do over chat [indiscernible] and phone. We've implemented electronically. We've made it better with things like all-to-all and better distribution of alternative liquidity, but we haven't really altered the protocol of choice by the fixed income market. And so we can call electronic. But to me, electronic coming from other spaces is there's no trader or it's what I call One Touch trading, where the trader submits a long list of orders with all different types of behaviors and characteristics and hit send and just wait for executions to come back. That's true electronic trading. We've just entered the first phase of electronic trading, where a person still controls the order and the execution, the final execution of that order. So when I look at the true trend lines in electronic trading that I'm accustomed to, it's all around automation. The piece of the market that there's no trader, there's an API. And if you look at the more electronic ETF market makers, they entered the market with human traders, trading RFQ, electronically, they've now engaged the market with APIs, and they are able to shift into somewhat of a dealer mode and a client mode. That's an electronic conversion that I think about that gets velocity moving in the market quite dramatically.

I got to give Chris credit. I think he's probably the one that most impacted me that or convince me that when you go electronic, it isn't just 1 plus 1, it's 1 plus 1 equals the 3. It's an acceleration of the trading. And I think that's what investors are hoping that happened -- still happens in...

You can't guarantee it, but it's pretty simple math. You allow people to trade things with less friction, they trade at more and more often. And what you do is you create trades that didn't exist before. And we're seeing that now the entry of new participants, particularly systematic hedge funds, there and this is like directly communicated, we're entering because we can enter on certain sides of the market or the data is giving us signals that allow us to take advantage of market dislocations, momentary market dislocations. So we have the entry of people that live on velocity of trading. They tend to concentrate in the more liquid end but their signals come from all over. And so yes, it's easy to predict that the velocity of our fixed income markets are going to go up, not down. I do think the zero rate environment that we were operating in, does impact velocity, but that obviously has changed now.

Spoken from a man from a true electronic trading background. And we forgot to mention he was also at Virtu that helped electronified market making. So when you look at MarketAxess, and you are already engaged as the COO or President in some new initiatives that focused on electronics. Again, the theme of the whole conference is a celebration of electronic trading, celebration of view.

No, it's actually a celebration of you.

Thanks. We can go back and...

That's why we are all here.

I don't think. No. But like you've done a lot of work -- and this was -- you can hear your excitement I mean talking about the muni market, like a lot of us didn't know a whole lot about the muni market, but you educate us and sort of we're thinking this is that does sound like an inefficient marketplace. So when you look at the new growth initiatives, munis, can you talk about munis specifically, but the growth initiatives that you sort of catch...

Yes. The ones that -- first of all, I never went to MarketAxess, thinking I'd talk so much about the muni market. But when you look at and you see the small trade size, diversity of product and brokered -- like human brokered market, you think -- and giant spreads, like you just think right away. Well, this is a database could solve this quite quickly. So I'm still super excited about the muni market. I don't know that it can support lots of venues because it's data -- the data requirement for -- to do a trade in munis is the key ingredient to get better outcomes. And if you really think about how the muni market works, it's the only market that I'm aware of where someone enters the market with a characteristic, not an order. Where they're entering the market and they want a specific type of bond, not a CUSIP. They want a state, they want a maturity date and they want yield and they want ratings. And they might want sector, school district, water district, it depends. And they don't know what bond they're going to buy when they enter the market. And so I've always referred to it as a Google search market. It's literally someone going in going, this is what I'm looking for. And the data is going to be what drives the muni market going forward because that's very simple type of characteristics that you can put into a data engine and come out with a better bond, like that bond that you came into the market, if you come in with a CUSIP and it's not available, then what are you going to do? But the data will drive selection in the bond market. It's a unique market where today, the decision-making is broken from the Trade Desk, not just munis, but even in credit. But the other bigger and -- so munis is just cool and interesting. The emerging market is by far the biggest for us and the biggest opportunity. We are privileged with our transparent market here in the U.S. with TRACE. There's a level of transparency in Europe, but it's not done yet. They're still working on a CTP. We obviously have a last sale product in Europe that helps with transparency. But every other market that you go into in fixed income is a dark market. It's literally dark. No one knows where things are trading. There's some quotes that are out there. And so for us, the emerging market, one, it's not a market. It's just a set of regions that have very diverse products. Heavily weighted towards rates, sovereign bonds. And so it's highly liquid. But that market is also going to be solved by data.

So data totally -- and that's the point we want to -- the next question is, as you see -- you just said that the RFQ is really just sort of automating the phone part of it, the request. The true electronic trading is an algorithmic execution driven and that I suspect data is going to have to drive to really get there. Anyway, can you talk about the connection between data and true algorithmic electronic trading in fixed income? And how important -- and how is your data product different than, say Tradeweb or...

It's clearly better.

Have they left already?

Yes. I think [indiscernible]. First of all, you can't have automation without data. It doesn't work, right? You can't automate something unless you give it information to make decisions. And so the growth of our automation at MarketAxess, and it cuts across all our products, and it cuts across protocol, which people don't appreciate. So automation, which is automating the RFQ process is over 20% of our trades. It's reaching about 9% of our notional volume. The nice thing about automation is, once you build it and have a client adapt it, they're very sticky. It's a very complicated approval process to automate, you expand what they're -- how you penetrate the client more once they adopt it. They just do larger and larger trade sizes and you add more functionality and more data to help decision-making by the algorithm. It's just really sticky business for us and for most that have automation. The piece of the puzzle that we've just been working on, I guess, to your point about data, when we think about data in most markets, we're thinking about pricing data, what's the price of the bond I should buy? Or what's the price of the stock I should buy. And that's, to me, very good hard currency data for our data business, and certainly, you need that data to automate. You also need that data if you want to turn this market on its head and let clients price limit orders in the market. Today, the fixed income market, including the treasury market is dominated by market orders. And people don't really appreciate that. If you're RFQing to somebody, you're asking -- you're sending them a market order. You're asking for a market and you're crossing the spread. And so the majority of the fixed income market is spread crossing behavior. So it's very expensive. And the reason why we're seeing new entry is, in an all-to-all market, clients can actually price other markets, other participants with a limit order. So the entry of the limit order to the bond market, not a limit order that's placed with a dealer, a limit order that's live in the market for anyone to see and execute is a new thing in our market, and it will redefine what this market looks like.

But that doesn't -- does or doesn't occur today in the -- in the all-to-all RFQ. So there's no...

So in RFQ, what we learned is, there's some traders, again, remember this, RFQ is a trader manually entering in electronic platform. There are traders that have been able to adapt to pricing other clients' request for price. So they have enough client -- enough data information that they can -- they know what -- how to price a bond and they've been -- in fact, one of our largest liquidity providers in high yield last year was a very large insurance company. And it just happened to be traders who were willing to have discretion on the desk that they were pricing high yield and buying or selling at prices that other people can't achieve. The next new thing to electronic trading in the fixed income market is automating that. Allowing an algorithm to price the bond and be passive with a limit order before going aggressive. That's what a trader would do in the market if they could price in another client's RFQ. And what we're seeing, we just launched -- so happens, I have one, and we just launched what we call Adaptive Auto-X, which is a true client algorithm that takes a parent order, typically a larger block, cuts it into pieces and tries to be passive based on intelligence of our market and the data in our market, we'll tell it what to do. And then if the market moves against it, it will actually speed up its engagement of the market and cross spread. So it's just that, to me, is electronic trading, and that's just the beginning. It was just born a couple of months ago, we launched the first true credit algo for the buy side.

I find that extremely interesting because if you come from the equity markets. So I sit back and say, would a typical fixed income, even an electronic player understand about passive and again, RFQ is just a different animal. It's not the central limit order book with actual quotes. So you're proving that your background in equities, it could be valuable.

We'll see. Let's just say client demand is overwhelming. We're basically telling people they can't be in the pilot because we're still running it in a pilot.

We'll look forward to the results.

Yes, that's fine.

We did get into this on the panel a little bit, but this credit market share. I think, Billy had a good point, saying there is -- and I would agree and over -- reminding me, we have darts in the [indiscernible], overreaction to short-term metrics. But do you also think that it does, in some ways, give sort of the penetration of the marketplace relative to peers? Where do you come out on it?

You cannot look at it. So if you're an investor, an analyst or a CEO, you're looking at share all the time, all day long because it's an indicator. And so yes, we obsess about share just like the outside world obsess about share. We cut it into different pieces because we look at what we're penetrating. What's interesting is, people trade corporate credit in the U.S., and so that's high yield, high grade that none of our clients look at share. It's so funny. We all obsess about share and there's -- what's the penetration levels of electronic trading. The asset client, they have no idea what our market share is. So we're just using our platforms for what they need to use it for.

So it's not a gauge -- I know it's not, but I think maybe investors look at as a gauge of liquidity in some ways.

Definitely not. There's moments in time all to all explodes. If you look back in March of this past year, our all-to-all win as high as 60% market share in our market. So that's even higher than we saw back in the pandemic crisis March 2020. So there are things that accelerate the all-to-all within our overall market share pool. And so you just have to look under the hood on, is all-to-all continues to grow as a percent of the overall market. And to me, that's the health of our offering. And my expectation is all-to-all has a long way before it reaches a natural cap. And we're just now unlocking the key, and it kind of goes back to your point on data, we are telling people where to trade, what price to trade a bond at. We have the opportunity to tell our clients when to trade the bond, what size to trade in, how big can you be to engage this market right now given the levels of liquidity. We have the data that will tell the client who to trade with, who's your proper counterparty? Who's trading in the wrong direction that you might not want to trade against and who's going to provide you with the largest liquid price. And then we can also tell the new thing that I'm most focused on is we can actually tell a portfolio manager what bond to trade, because there's a big disconnect on bond selection at the largest fund complexes and what tools they use to select bonds. They use characteristics and they have some level of liquidity. But when that bond gets to the desk, many times the traders like, "I can't trade the size you want to trade". But inside our market is data that would say today, I can tell you 10 CUSIP that are better than the one you selected depending on which side of the market you're on. If you're a buyer, I can tell you which one to buy. So it's very interesting. We're just now unlocking the data that we have amassed. When you're at 20% of the U.S. corporate bond market, you have a ton of data around what behaviors are happening in the market.

Is it analogous to the direct feeds like the exchanges offered each NASDAQ and why they had 20% plus market share. So you have to get -- so we're going to see competitive -- we do see competitive data fee products being often. But will it be that clients have to take all? Or is it just going to be -- how does the data market developers...

So it's a good analogy looking at the exchanges and Adena -- NASDAQ was a master of taking the data inside NASDAQ and extracting value from it and selling it. But the challenge with an exchange, a futures exchange, registered equity exchange, they're required to take data and sell it to their members. They are not a broker in the middle, although we had this little bit of issue with -- in futures with crypto, but they sell everything. And what happens is the member of the exchange creates the tools for the client to trade on the exchange. So there's one step removed. What we've done is, we're selling hard data, what I call hard dollar data, pricing data, CP+ data, certain types of data that clients and dealers are paying for. But more importantly, we're extracting data inside our market that's not for sale. But it is available for us to create trading tools that the buy side can use to engage our market directly. And that data is exclusive to that engagement, meaning if you want the data, you're trading on my market, if you don't want the data, best of luck. And so it's a relationship between execution and data that we're extracting. We're putting it and betting this data in our trading protocols, and that's a unique instance. You don't see that in a futures exchange, and equity exchange. You just don't see that. We sit in this privileged position where we have a market and we're a trusted agent of the buy side, and it's global.

So I would say it's definitely more different than someone taking 3 different feeds and aggregating, it's tied to MarketAxess.

It's our data available for our trading tools, not for sale for someone else to incorporate. So if you think about our trading algorithm, which we just launched, we're feeding a data that no other algorithm will have in the bond market. So it's a proprietary algorithm and will be a proprietary algorithm for quite a long time.

Understood.

I haven't given much thought to this at all.

We think that's some of your best work, the initial reaction, answers. I guess we've covered now with both the panel and here many other topics. But I want to fall back on your -- the background. And I don't know how many people know, but Chris was a lawyer by education, and not by trade.

Education. I was...

At the SEC. At NASDAQ, I'm really a market structure guy. The CEO of Bats, at Cboe's COO. So you saw, as you mentioned, FX as well, as well as options. So when this all...

Don't forget Virtu. Doug Cifu and I used to yell about the SEC in our conference room. Now he yells about the SEC publically. So a slight difference in behavior.

He was well prepared for that. He in practice years prior.

Well, we were yelling a lot back there.

Your yelling going to stop today because he's going to be -- he is going to be presenting tomorrow. So anyway, the last question comes to the barrel. What do you find most interesting about -- we know the background help should we just talk about how -- I think you have a better understanding of a central limit order book, people making passive markets, bids -- and crossing the spread. But what other -- what have you found most interesting about the fixed income market, given this again, there's no one in the fixed income marketplace that has that background that I'm aware?

Well, everyone always asks is there a regulatory accelerant coming to the fixed income market. There's -- you see elements around best execution and redefining -- so there's definitely using regulation as a commercial means. The other thing, and it's funny that the crypto guys haven't figured this out, but sometimes being regulated is a benefit. And if you understand what regulation means and how to be regulated, there's a moat that gets built around certain regulated enterprises. And there's clients that are more comfortable trading in regulated markets over unregulated markets. So over the years, as much as I complained about regulation, there is actually commercial benefits to regulating areas of the market that are totally unregulated. And fixed income, we're still in the early phases, not just of electronic trading, but you see the movement in Europe and in the U.S. around regulation of fixed income marketplaces, particularly with the expansion of the ATS rules. And that's all fun for me, having practice a little bit -- I mean my General Counsel hates dealing with me for attending on the lawyer. But that's all -- I do see arbitrage, regulatory arbitrage on the horizon in the fixed income market. I'm not sure if I answered your question.

I think that's one of the things that you have had experience at and you could see being a bigger factor in the -- I think if I'd summarize , which I will summarize what you said because we are out of time here. But again, as I -- the one regret is I won't see the leadership you bring. I'll miss your sarcasm as well, but I can get that, I'll just pick up the phone and call you and get that, but I will miss seeing we take MarketAxess.

Well, and I'm going to miss, Rich, everyone knows, Rich, is the first caller on everyone's earnings call. He dials in the night before. We have to open up. But my favorite thing that I'm going to miss is, he starts with the question and you're allowed one question, Rich, starts with the question. This is a 5-part question. Let me start with part #1. So I'm going to miss that.

But you answered it well.

I make stuff up.

You [ feed the beast. ]

But I'm going to miss the fun we've had on all these earning calls, and I'm going to miss obviously, this event and all the fun we have. You've been a buddy and a friend. So thank you.

Thank you.