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

All right. Hi, everybody. Welcome to our next session this afternoon. I'm Ben Budish, I'm Barclays analyst covering the U.S. brokers, asset managers and exchanges. And with us this chat is Chris Gerosa, CFO of MarketAxess. Chris, thanks so much for being with us.

Hi, Ben, thank you for having me today.

Before we dive into any specific topics, I want to get your view on the current macro environment. 2023 started with pretty strong volumes, but it looks like the banking prices created some distress in the market. As we've seen volatility has really been quite low since the last few years. So how do you view the state of the macro environment right now for fixed income trading? How was September kind of looking to date?

Yes, it's been a very challenging operating environment so far what we've seen in Q3. And if you asked me 6 months ago, I never thought we'd be sitting here today with the VIX trading at 13%, low fall, low spreads. And it's -- I don't know what it's going to take, but it's not good for our business in terms of the U.S. credit business. You can directly correlate strong performance in our high-yield franchise that we've built through the VIX. When the VIX is trading at 13%, there's not a lot of ETF market-making activity. And so we've seen challenges around our high-yield share gains and for high-grade new issuance has been very healthy so far in September. We tend to face challenges in the first week or two, but it does add secondary volume that's longer term a tailwind for us. But in terms of the interest rate environment, it's been very challenging for where you're seeing the duration rate. With the Fed uncertain on when they're going to stop their messaging and raising rates, it's putting pressure on duration and duration isn't going along like we need to see for extending our high-grade fee capture. So those two dynamics around low volatility and the VIX and where the interest rate curve is and the interest rate cycle, it's been challenging for our U.S. credit business for sure.

And maybe for investors who may be less familiar with the dynamic between duration and fee per million, can you walk us through how this works? And maybe remind us of the relative sort of fee rates you get on the different types of products. And based on the current rate curve I guess who knows what happens with volatility, how could that kind of evolve over the next 12 months?

Yes. So only one of our products is subject to the risks around duration. It's U.S. high-grade. It's a spread protocol and the market convention for how you trade high-grade, it's DV01 of a basis point, and the DV01 of a bond is directly impacted by duration. And duration is defined as years to maturity and bond yields. And what you saw in the last few years, was a very aggressive rate hike by the Fed, which put negative pressure on our high-grade fee capture. And just to size it up, every 100 basis point move in yields is contributed to a $5 or $6 impact on fee capture. So when you have 500 basis points going up, you're going to see our fee capture go down by $30 or $35 per million. The other side of the duration is years to maturity. And as I alluded to earlier, there's a tendency to trade in the front end of the curve, which is lower years to maturity. And we're seeing that as we speak through so far in September, and what we've seen in Q3. But when a -- when the Fed approaches the end of that cycle, and there's more certainty on where the Fed is stopping the rate hikes the extension of duration, people are a lot more confident in expanding years to maturity of bonds that you're trading because you're not subject to the mark-to-market risks of a rising yield curve. And that's very impactful, that's more impactful than bond yields because every 1 year maturity is a $15 impact. So when we had the peaks of 200 per million in the middle of 2020 when yields were low, years to maturity are over 10 years, fast forward to where we are today, bond yields being up 400 or 500 basis points years-to-maturity around 8 or 9 years that's what's brought our fee capture down to that 140 barrier. But we're confident that the cycle is going to turn. We've seen this over the last 10 years that when we approach the end of the cycle and the messaging is that the Fed is done that's some tailwind that we're confident we'll see in contributing to our high-grade revenue growth.

Got it. So it sounds like the current rate environment, we're really kind of waiting to see traders start going longer duration. Do you think -- if we kind of look at the futures curve and it's sort of fair to think that markets are pricing at a near peak, do you think sort of just over time, as rates start to come down, is that enough tailwinds to kind of get credit fee per million? Or do we just see the curve sort of revert to its kind of normal upward looking shape. What sort of factors is...

I think a lot of it has been priced in already. The front end, you're looking at short-end treasuries with a 5 handle years of maturity of bonds trading on our platform is around 8 to 10 years, and a lot of that's been priced and you see the 10-year get close to 5. So I think it's more the messaging out to the Fed where the actual rate actions have been priced into the curve. But I think we've taken the brunt of what impact bond yields are going to have on fee capture, it's that tailwind behind people being confident that they can extend duration, which is going longer years to maturity. And that's why we're confident that we'll see the high-grade recapture rebound from the levels we're at today.

Got it. And are there any other kind of key macro maybe regulatory factors that can kind of influence bond trading activity while around the kind of higher-level macro topic, either from an electronic trading share perspective or in terms of kind of velocity? Any other things which you think...

Yes, Ben, before we get into the regulatory climate, I just want to round out the discussion on fee capture because you did ask about the other products. So product mix is a big factor on how we look at our total credit fee capture for so far in Q2 as we reported in our August volume release, mix of lower high yield has a negative impact on our credit fee capture. High yield is our highest fee capture product at 300 per million. And a year ago, we saw elevated trading volume in high yield, which was a very positive influence on our total credit fee capture. But as I mentioned earlier, with VIX being where the levels they are today, lower high-yield activity on the platform, it's going to naturally depress our fee capture into that 150 range. But it is a price-based product, so it's insulated from the movements of duration and movement in bond yields. And Eurobonds and emerging markets, which round out the composite products, they're both also price-based where Eurobonds trades in a range of 120 per million and emerging markets trades at 150. So recognizing that high yield is at that 300 handle. The lower level of high yield is going to cause that 164 to go below 160 when you see less levels of contribution. And as we succeed in growing our geographical footprint across emerging markets and local markets, the success in local markets commands a lower fee capture rate because of the government nature style bonds are trade, they naturally trade below 100 per million. So the volatility in our total credit fee capture isn't necessarily driven by any sort of fee reduction or fee actions. In the recent years, it's more or less been driven by the product mix.

Got it. And then I think the other part of the question was any other kind of broad macro factors, anything in the regulatory landscape that we should be paying attention to, other than sort of the rate activity and what's going on at the Fed?

Yes, I think the regulatory environment in focus with what's going on with the banks, the additional capital charges that the regulators are looking to potentially impose on the banks is maybe going to limit the amount of trading volume of credit bonds that trade on their platforms, which is a good thing for MarketAxess because we've developed this liquidity pool in Open Trading, which was meant to be there to provide our institutional clients with liquidity to the extent that the dealers aren't as active within that community. So I think that, that's a potential tailwind in terms of regulatory developments. So they're still working their way through the regulation and how it's going to play out. But there's nothing in terms of the fee cards that would impact -- or regulatory environment would impact, it's more or less bringing more volume onto the platform.

Got it. Maybe dovetailing into kind of overall market share growth, your newer protocols. So maybe to start out, when we think about market expansion and volumes, market share, I think both you and your biggest competitor would agree that the biggest competition remains the phone. So what do you think is the biggest hurdle at this point that you're not a new company anymore, even though there's still kind of a lot of growth in front of you. But at this point, what's the biggest hurdle to kind of penetrating more of that phone-based share? Are you bringing more volume to electronic platforms, driving more trading velocity or both?

You've heard me talk about this a lot in the last couple of quarters, but it's all about blocks. Block is our number one issue in high grade today. If you look at the time series going about 3 years, high-grade blocks as a percentage of TRACE has been hovering around 37%. That's the total market in terms of high-grade block share. Our percentage of high-grade fare has been hovering between 10% and 12%. You look at our high-grade share, it's been trading in a 20% range for the last 3 years. So we realized that we had this issue with block and the issue is, it's information leakage. If you're looking to sell a $10 million IBM bond, when you bring it to our competitive moat with the liquidity pool around Open Trading that we built, when you bring it at Open Trading, that $10 million is going to get exposed to potentially the 2,000 institutional clients that are trading within Open Trading. It may potentially impact the price. You have a lot more comfort minimizing the information leakage risk and going to the dealers that you have a relationship with. Our solution for that in the near term is, we're rolling out our new trading platform X Pro, which has a lot of functionality built into it, leveraging the valuable data set that we've built and we want to take your 10 million IBM bond and look at dealers that have been actively trading that bond over the last 2 or 3 months and direct you to the dealers where we think you can get a better price of execution, which is moving away from Open Trading but albeit Open Trading is still very valuable to us because the longer-term solution for us addressing box is the Adaptive Auto-X, which is the automation suite that, again, is embedded within this new UI X Pro that we're rolling out as we speak. And the constant with the algo is the algo will break up the $10 million IBM block. It will feed it through the various protocols that we've invested in over the years that are now available in that 1 cockpit view through X Pro and get to the best level of execution and we'll have the transaction cost savings reporting available to the clients to prove that they were getting BestX by feeding it through the algo. That's a longer-term horizon until it materializes because it's a completely different way of trading fixed income then. I think that may be a 1- or 2-year event. But in the near term, we've got X Pro, we've got a very aggressive sales outreach program to do what we need to do to bring on the blocks that we can control on to the platform.

Well, you sort of answered my next question, which is about Adaptive Auto-X, maybe to level set, though, you've been sort of facilitating automated trading for your clients several years now and you report a lot of stats, the number of trades that have been automated and the like when we kind of get our regular updates from you. Maybe just to level set, how is Adaptive Auto-X different from what you've been doing in terms of the automated trading prior, yes, what is the sort of advancement with the product in particular?

Yes. So Adaptive Auto-X is AI algo-driven solution. And we were proud to announce that we completed the first institutional client credit algo back in '22 and we partnered with a company called Pragma, which we just recently announced, we made a decision to acquire Pragma and partner with them for the longer term. But it's an algo-driven methodology, which the algo feeds the trade through the different protocols that are within the network and identifies the timing during the day of when you should trade, who you should trade with, which protocols you should trade with. So it's a very complicated, sophisticated way of trading fixed income that doesn't exist today. And it's really driven by the complexity around the algo which we want to make sure we get it right in terms of particularly around the transaction cost savings, but also in terms of the robust control framework because we want to make sure that it's operating effectively, and it's delivering a good experience to our clients.

Got it. And so the pilot phase for Adaptive Auto-X, I think you've talked about 8 clients participating. Is there any update there? Any kind of feedback from those clients that you've talked about, cost savings reports. Is that something -- can you start to tangibly point to like material cost savings? Or any details you could share around like what that could be as you start to reach out to other clients?

Yes, we're going to have reporting available in the Q3 earnings call in October. What I will say is that it is embedded within X Pro, so the ability for us to succeed on delivering increased usage of X Pro and naturally having an algo solution embedded within X Pro, I think will feed to increased adoption across the algo solution and the overall usage of our new trading platform, the X Pro system.

Got it. And then what about the sort of broader rollout? Like what is -- is there a pipeline of clients who are wanting to get on the platform? I think, in the last call you talked about some kind of like pent-up demand? Or is this more of a sales-driven approach from market access?

Yes. We had more sophisticated clients in the early pilot phase, and we've got a lot of demand from the larger clients that are on the platform and the team's working through adding them on to the platform, working with them in terms of how we're testing and utilizing all the best case scenarios that they wanted to test in the algo solution. But this is going to take time. This isn't a 1Q event where in 1 quarter, we're seeing this S-curve of increased adoption. And we got to make sure that we're giving that good experience to the clients. So we're going to be careful about how we're rolling this out and there is increased level of demand from our larger clients, but we want to make sure that we get it right with the smaller pilot group, ultimately we want them to have a good experience, so they're sticking on to the platform.

So I don't know if you can share, but at this point, are there more than the original 8? Or is it sort of pipeline? Or are you...

Handful more.

Well, you mentioned earlier, you talked about Pragma, which was a recent acquisition. Talk a little bit about more -- a little more about your plans here? Is the intention sort of just to integrate Pragma's capability into Adaptive Auto-X. Does it kind of -- as I understood it, they do some facilitation trading and things other than fixed income. How does it kind of fit in? What's the plan there?

So our initial approach with building the automation suite on the algo, we did not have the in-house expertise that had the algo SME experience. And what we did is we did an RFP. We elected Pragma to be the commercial partner to help us build that solution. And as we were working with them, we recognize the value, and we ultimately decided to acquire Pragma. So Pragma was that third party that was helping us build Adaptive Auto-X. And as we've talked about M&A opportunities over time, we've always said that there could be bolt-on acquisitions that would be tech accretive, and this has been a tech accretive play that brings a unique skill set in our tech resources that can help us build the algo suite and also looking at derivatives and FX that we don't have those expertise in-house, and they have a long history of succeeding on that front as we think about other products and areas where we need to develop FX hedging or interest rate hedging solutions, the Pragma team can help us think through that. So it was a really nice way to add a lot of good tech resources in-house and partner with them for the longer term. As we talked about a year ago, we had a lot of challenges about finding good developers, and this was a nice way to and one-stop shop, bring a lot of good developers onto the team.

Got it. Makes sense. Now what about the data side? So can you talk a little bit about how the data feeds your algo and your trading capabilities, you developed -- you generate a lot of proprietary data from trading activity on the platform. How do you monetize? Is there sort of another revenue opportunity there? It's feeding the algos as you're thriving more trading through that? How do you think about that?

The data opportunity is massive and there's two ways that we're going to monetize data. When you carve out the proprietary data that is the important, it's the engine behind our automation speed. Like you can build an algo and you can put a new X Pro, new trading system out there. If you don't have the underlying data to help you make the right decisions or help the algo make the right decisions, it's not as valuable as it is with the data set that we have driving that engine. And so we're very selective on what we treat as proprietary that's being monetized through additional trading volume and fee commission. There's the other data opportunity, which is more of your bread and butter around end-of-day pricing, evaluated pricing, which I think is a tremendous opportunity for us because as we add more and more share into our products, we have access to that much more data that makes that end of the product valuable. And it's not an end of day price that's marking a book at the end of the day. This is introducing a completely new client base to us where there's a massive opportunity in the secondary end of day market that corporate treasurers or corporate controllers are going to be looking at opportunities to identify resources where they can perform what's called an independent price verification. On the bond portfolios that they are managing in their books and records because the auditors love to see what's called an IPV process that's in place. That's where I think we can bring a valuable data set to bring those new clients value that they're looking for as they close their books and records.

Got it. The next question I had here was kind of on your new trading platform. You touched about it a little bit, but kind of similar to the question I asked you earlier on Adaptive Auto X, can you talk about what sort of was updated or improved here versus your prior trading experience? Do you expect this to drive incremental activity, more market share growth? What is the upgraded experience for your customers?

Yes. We had the same trading GUI over 18 to 20 years, not to bring competition, but if you look at some of the other service providers, they look the same as they did 20 years ago. And one of the issues that we had with our old trading platform is to the extent a client wanted to change functionality, it took a long time for us to run that requested change through a PI planning event. . And it could take anywhere from 2 to 3 months to get that functionality delivered to the client. Under the new trading platform, this -- next gen and X Pro, we can deliver requested functionality changes much quicker to the client. And that's a home run for us, particularly as we work through the value proposition we've built in X Pro with portfolio trading, what we want our clients is bring their entire list of market access and allow them to introduce the views and angles of how they want to slice and dice that list of bonds and maybe select their 5 less liquid bonds by leveraging off of the CP+ data we have introduced in the trading GUI and carving that out and taking it out of the basket of PT because it's that much more expensive due to trade and leave your highly more liquid bonds in the PT trade. You just couldn't have that same level of experience on the old trading platform where X Pro introduces that level of flexibility to the clients today.

Maybe one last question on sort of the credit trading side and a very high-level question. I get this a lot, me and my peers ask you this a lot, but let's ask it again. Right now, as we understand it, high grade is around 40% electronified, high yield is around 30%. The question that's always asked is where can you use those? What's your kind of view there? How should investors think about the 5-, 10-plus year opportunity in terms of like the longer-term potential of like electronic trading share?

Yes. I'll focus on 3 areas. You mentioned high grade is around 40%, high yield is 30%. Emerging markets, our best guess is around 5% or 7%. It's very difficult to get an exact pinpoint on that because you don't have the same level of reporting overseas as we do here with U.S. phase. But there's a lot of runway for us. There's a lot of runway for the other 2 competitors that are in the marketplace. And I think that the institutional clients are never going to want concentration risk. So there's plenty of runway for us to capitalize on the opportunity ahead with U.S. credit being high-grade and high-yield and we're expanding our geographical footprint to make sure we capitalize on the EM opportunity. I think if you go to 80% or 90%, some of my peers think it could go to 95% or 100% as you've seen in other asset classes. Albeit whether it's the 80% to 95%, there's just tremendous opportunity. And that's why we're continuing to invest to make sure that we can capitalize on that.

That very helpful. So maybe pivoting to some of your kind of different client types. So can you talk a bit about client growth? What's the profile of kind of the new customers joining the platform? I think you kind of called out hedge funds, private banks, seeing more dealer-initiated flow. What are the kind of trends there? What does the new customer cohorts look like?

Yes, you hit the nail on the head. You reported on this in the second quarter earnings call that it's the hedge funds. A lot of smaller clients. The reality is we've got the largest players on the platform, same as the competition. And the challenge for us that each that we need to overcome is blocks. We need to get those larger clients to trade more blocks on the platform. But in terms of the newer clients that are coming on, they're more focused in particular EM local markets or more recently, we've seen added client base into the muni bond offering, which is an early not as mature product offering that we have on the platform. Are muni bond share is between 5% and 6%. So getting back, it's a lot of opportunity to grow our muni bond franchise. And we're adding institutional clients into that space to help us accomplish that.

Got it. Talk a little bit about your treasury business. Treasury trading environment is already a little bit more electronified, perhaps a little more competitive credit. Talk a little bit about your positioning, the value prop here. And what are your ambitions? And what are you kind of doing to try to grow share currently?

Yes. Our entranced into the rates or U.S. treasuries was consummated through the acquisition of LiquidityEdge. We recognize that we had a gap with the spotting functionality for high grade and we needed to acquire a treasury asset, which we purchased LiquidityEdge at the end of 2019. And as we partnered with LiquidityEdge, recognizing the value of all-to-all within credit, our long-term focus was help build an all-to-all solution like we've done in credit with Open Trading that to the extent that the liquidity or a credit event like we had experienced in March 2020 and March of 2023, ironically, where you saw the credit Open Trading pool succeed where it delivered liquidity that wasn't available in the market. And I think of ourselves in that space of a journey where we were back in 2012, 2013, when our largest clients wanted an all-to-all solution because in a way for the financial crisis in '08, there was nowhere to trade corporate credit, and we work with our largest clients to develop Open Trading, and you've seen its success. It was battle-tested in March of '20 with the pandemic and the liquidity event and more recently, the credit event market 2023, and we're working towards that end to have that stated liquidity pool available for U.S. treasuries, but it's going to take time.

We talked a lot about the macro environment earlier as it pertains to corporate credit. Any other particular factors to think about other than what we discussed previously as the rates in particular?

The end of the cycle. Yes. I think it's correlated to what we're dealing with in the U.S. credit market.

Makes sense. Let's move over to maybe munis for a minute. So you acquired MuniBrokers a little over 2 years ago and the integration is set to be completed this year. It looks like you've had some success growing electronic shading here, although I think volumes have kind of pulled back versus earlier in the year. So walk us through the dynamics a little bit here that are currently going on? And how do you see that market evolving?

MuniBrokers was an acquisition that expanded our presence in the muni bond space. We had a taxable offering, but we needed to do something to address our penetration to the tax exempt. And tax exempt is a much bigger piece of the overall muni market. It's roughly 70% to 80% of the muni market. But I will point out, it comes with a lower fee capture rate. But any extent -- we made that acquisition in '21, and it's worked out well for us. We're integrating MuniBrokers into the Open Trading network where we're becoming broker of record. It did reach some headwinds, and it fell behind a little bit because of the issues that we faced in March and April around the regional banking crisis where that wasn't a primary focus for our clients to connect and do what we needed to do. But I think we caught up on that front. And what we're doing is we're flipping trades from the old model, which is a subscription-based model into our Open Trading fee model, which economically is a win-win for us because we're adding more volume onto the platform, of which they'll see the benefits of having access to the Open Trading liquidity pool and getting the best price of execution. But just by comparison, when you stack the fee cards up side by side, the subscription fee model is around a $60 per million fee rate when it gets flipped over to Open Trading, it could be anywhere from $150 to $200 per million. So just by making that switch for the clients, we'll have a nice pickup in our fee capture, which will be contributing to our total fee capture increases over time.

And is achieving that simply a matter of completing the integration, which is ongoing? Or is there sort of another -- and I guess, can that unlock any other opportunities? Or is it sort of a matter of...

It's really the integration and getting those dealers connected into our network. And so it's more about the integration play and change in trading behavior as well. We see a type by phone for munis that is a very common way to trade munis and they've been doing that for a number of years. And they recognize the cost savings that are being delivered by accessing Open Trading. Over time, I think you'll see a change in behavior where there's a gravitational pull towards the electronic channels because you're getting that better price of execution.

I was going to ask if you could maybe talk about that, too, like the structural differences between the muni market. For example, there are many, many more bonds that's kind of coupon bonds. People tend to trade like local bonds based on where they live to get for the tax advantages, those things make it more challenging to achieve a much higher level of...

It's much more fragmented and there's many more over 1 million. And when I think about the muni space, currently, there's not going to be as much velocity in munis because you're right, it tends to be more of a buy and hold and it's a retail-oriented platform. But there's still a lot of horizons that can trade. And when they see the value of Open Trading, I think that you'll see that as I alluded to earlier, the gravitational pool coming into the electronic channels.

Great. Maybe one last question on munis. I think you mentioned earlier this year that Auto-X, pretty rapid growth when it was launched into the muni market. How has that progressed? And is there a place for Adaptive Auto-X to be applied to munis as well?

Yes. This are early days. We still have to work out the success of rolling out Adaptive Auto-X into U.S. credit. But I think that would be a longer runway until we see the success and the increased adoption levels within the new market.

Helpful. Opening over to portfolio trading. So can you talk a bit about your progress here? What are you seeing in terms of client participation? And I think a few months ago, you said participation was generally down a bit versus a couple of years ago. So maybe from a macro perspective, what's the right environment. And I think any color you can share on things that enhance the platform more recently?

Portfolio trading going back to '21, the competition had a portfolio trading offering that we did not in the early part of '21. We were very quick to react and introduced that to our institutional clients and continue to add to our share gains since Q2 of '21. And if you go back and you look at the market environment or the conditions in '21, it was a very extended period of tight bid offer spreads, low volatility, very similar to what we're seeing today in August and September. Except it was a very long period. It was over a 12-month period that you've seen that. And the number of participants in portfolio trading that found that protocol very efficient means of transferring risk or rebalancing portfolios, it could have been upwards of 15 dealers and anywhere from 70 to 80 institutional clients using the protocol because the way PT works is it's a very efficient means to do the trade. And if you have 1,000 usage, you're putting one price on that entire basket. When we offer spreads are tight and there's low credit volatility, it doesn't cost you a lot to get that trade done. Fast forward, and by the way, percentage of TRACE, it was around 6% to 7% of TRACE volume going back to '21. When you fast forward to the end of '22, when the markets were getting choppier, bid offer spreads were widening. You saw the number of participants come down quite a bit. The overall percentage of TRACE went from 7% down to 4%. The number of dealers went from 15 to 5, the number of institutional clients went from -- anywhere from 70 down to 15. And that's what we've seen at the end of '22 and the beginning of '23, as markets were much more volatile, and you come forward to today, and we're back to where we were in a '21 like environment where TRACE or PT as a percentage of TRACE is 7%. You've got 12 to 15 dealers that are active again. You've got over 50 clients. So the protocol is very efficient means for certain clients to get big trades done. We have the offering on our platform, and we had a very important release during the month of August, this is past August, which introduces a lot of functionality that I think, closed the gap with the competition. And so we feel that the additional functionality, coupled with the portfolio analytical tools that we've embedded in X Pro has caught us up to the competition, if not put us ahead. And time will tell as we continue to add our share. But we proved before in 2021 and going into the first half of '22 that we can quickly catch up to the competition and continue to increase our share entity.

Let's move over to emerging markets. So you mentioned before that it's probably one of the lowest levels of penetration of electronic versus as a percentage of the whole. Maybe to kind of level set, talk a little bit about what that business looks like today, what countries are you in? How much of it is U.S. investors buying local bonds or local investment buying local bonds or local investors buying U.S. government or corporate volumes. What's the sort of makeup has advanced?

Yes. So for EM, we're in 26 or 27 different currencies. And for the value proposition with our platform with emerging markets, it's Open Trading. But if you think about Open Trading, we're a counterparty to the middle of that trade. So by opening up Open Trading in certain jurisdictions or close to the globe, it can be very expensive to deal with the regulatory investments and the oversight of certain regulators across these jurisdictions that we're thinking of introducing Open Trading. And so we're performing the business analysis of what's the revenue opportunity and the demand of our clients relative to the investment to establish an Open Trading presence in some of these markets. I'm happy to announce that this quarter, there's 4 local markets that we are opening up Open Trading, where we found a way to open up the channels to the local clients that we don't have to invest in that regulatory oversight because the requirements there are quite low. And what Open Trading does for the clients is it allows them access beyond the local dealers. So by opening up the liquidity pool to the global dealer community, those local clients will have better execution levels as compared to the local dealers that they're dealing with. And so it's an area of focus. It's an area of investment that we're making and certain jurisdictions that we're not in today are Japan and India, where we're looking at whether or not it makes sense to pursue those further and have boots on the ground to where you can accelerate the delivery of your services there. But we're mindful of what the costs are associated with that.

Got it. And then in terms of thinking about that kind of share growth here. You talked about opening up the Open Trading platform. Are the dealers on your platform something they already engage in where they sort of maintain inventory in those local bonds? Or is that something that you need, we need to build out as well? Like getting to 5% to 10% to go from like 10% to 20%, 20% to 30%, what are the sort of steps that need to happen? Is it more adoption about the trading? Is it more dealers need to make changes? How do we kind of...

It's getting in the markets that we're not in today with our protocol. It's introducing Open Trading into those markets. And there's no reporting. It's complicated because you don't have the same standards of reporting requirements over there. But as we think about -- what we try to do is the best effort is gather all the intelligence that we can from our banking relationship to size up what that EM opportunity looks like. And we just recognize there's a lot of work and there's a lot of opportunity across the globe.

Got it. That makes sense. Switching topics again. Maybe can you talk a little bit about retail trading. So your platform is mostly institutions, but maybe the kind of higher-level topic of, the rates are higher, we're seeing things like annuities being sold at sort of record levels versus the year before COVID. So what are you seeing in terms of the retail participation in the bond market, are you seeing more kind of platform flow, and what is sort of your go-to-market there?

Yes, retail overall is -- to put it in context, it's a very small slice to the overall high-grade market. Institutional depth is 70% of high-grade, dealer to dealer is probably 27%, 28%, and you've got a couple of percentage booked to retail. So when we think about the investments on how we're thinking about the retail opportunity, we recognize that there is a limitation of how much you can grow that. Indirectly, we do have access through retail, through the SMAs, the J.P. Morgan Asset Management, the Goldman Sachs Asset Management, they're representing a high net worth individuals that are going to begin to redeploy cash if they haven't done so already, like you saw in the beginning of this year when fixed income became an attractive asset for everyone, because you could have clip more than a 5% coupon. We have access indirectly through the SMAs and they're very active on the Open Trading accounts.

Got it. That's helpful. Maybe just talk about infra services a little bit. You've been showing some really healthy growth there over the past couple of quarters. What are the key drivers? How sustainable do you think that growth is?

Yes, that's sustainable. Yes. Data as I mentioned earlier, a big opportunity for us. We brought in new leadership with Kat Sweeney and Pierce Lord, not to name drop, but they've been an integral part of getting the data franchise to a much better place and helping us think through the longer-term business plan on how we can further monetize that asset. But it's really been about the CP+ as we've expanded our share, we've been expanding the CP+ offering across all the products that we traffic in, but expanding our desktop access as well as expanding where CP+ touches upon in the product asset classes is we're in today.

And are there any signs of that sort of progress in infra services could translate into a pickup in bond trading activity. Are customers taking this data because it's newly available or they taking because they're preparing to deploy more strategies? Any clue there?

I think the proprietary data that we select, that we don't want to monetize the data offering, which feeds through information services that's the element that's going to drive increased adoption in electronification and that's going to be coming in contribution to the income statement, building out the data business, as I mentioned, the evaluated at the end of day opportunity. As we think about that, it's going to require an investment. And we're very mindful of the operating margins that we want to achieve longer term in the business. And so we're thinking through the right channels and which angles we got to go through in terms of building out the data business because you can build it organically and have your customer-facing element, which is a pretty heavy investment upfront where you won't see that revenue opportunity immediately as compared to looking at some other alternatives which may require a partner from who's already in the space.

Got it. Maybe we got 30 seconds left. One last question sort of on trading behaviors and velocity. We talked about like electronic share growth and what it takes to get there. But what about seeing just more turnover? Is it a matter of getting cost down, bringing more liquidity onto the platform, more adoption of algorithm trading for the calls? How could we see velocity at the...

In my opinion, it's increased adoption through the automation suite.

We'll look out for that. Unfortunately, we're just about out of time. But Chris, thank you so much for taking the time. Pleasure to have you.

Thanks a lot, Ben.