Tradeweb Markets Inc. (TW) Earnings Call Transcript & Summary

All right. Good morning. We will go ahead and get started. For those of you who do not know me, I'm Patrick O'Shaughnessy, the Capital Markets technology analyst here at Raymond James. Thanks, everybody, for joining us this morning on day 2. Up next, we have Tradeweb Markets. And on their behalf, we have CEO, Billy Hult . Format of this is going to be just a Q&A fireside chat. And Billy, welcome.

Thanks very much for having me. As always. Appreciate it.

So obviously, as you could probably guess, the big topic of the past month and at this conference so far has been AI risk. And I almost feel embarrassed to ask you this question, but do you see any theoretical competitive disruption risk to Tradeweb from AI?

Yes. Great question. It's amazing like how fast kind of time goes because we've gone from kind of like Tradeweb, the origins of Tradeweb was really kind of almost like in like the Liar's Poker world. We're a technology company, but I say this all the time, we're a technology company that like lives and breathes like in the financial services. And we're a pretty big part of the -- really of the fabric of the financial markets and the roots are deep around, obviously, government bonds, mortgage-backed securities, interest rate swaps, credit, ETFs, how do you connect the biggest, most important asset managers, hedge funds in the world to their counterparties. That's the business model of Tradeweb. So we've gone from the Liar's Poker pizza at 9:00 a.m. to how do you get people to log on to a platform and start beginning to trade electronically. And now here we are in March of '26, kind of talking about AI, which is kind of amazing how quickly things change. If you want to think about really the concept of, if not like AI proof, but the real way to be on the right side of this evolution around AI, I would say proprietary data is probably, first and foremost, the most important thing to think about. And then secondly, I would say, like leading market share. And I feel like with what Tradeweb does day in and day out, the bread and butter of how we go about continuing to move markets forward into transparency, we're really kind of living and breathing on the right side of this movement around AI. We have amazing data in part because we live not just on the institutional side of the business where the PIMCOs of the world connect with the Goldmans of the world, but on the wholesale side of the world where banks offset risk with each other and also on the retail side of the world. So we are able to offer really, I think, best-in-class data, and we've been able to build up these kind of leading market shares all these years, which gives us some pretty good room around AI.

And then on the other side of the coin, how are you guys internally deploying AI to generate market share gains to extend your competitive advantages, et cetera?

Yes. So in like the whole kind of like the Liar's -- I'll keep going with the Liar's Poker analogy, like in the whole Liar's Poker analogy thing, it was all like about like telephone to terminal, telephone to terminal, maybe terminal mouse. And without question, this next leg of what's happening around technology and how technology is being applied into these markets is really about now how we think about algorithms, smart searching, finding liquidity in the markets that we are in with the least amount of footprint possible and almost way that we think about smart searches. And so we've been, I think, in a good way, front-footed around something that we call AiEX trading, which is really a kind of data-oriented algorithm, smart search in the market, where many of our bigger and more sophisticated clients are no longer on the phone. They're no longer on the mouse. They're no longer on the terminal, but they're aggregating liquidity. We're building models with them. And instead of guessing where the liquidity is in the market, they have a lot of data that reinforces where the liquidity is. And my instinct is, as the market continues to evolve, that's a really strong push around that. And I think if I was going to describe it to you this way, Patrick, I would say, as you know well, the origins around Tradeweb is we grew up as a company really competing against Bloomberg day 1, very formidable companies, everyone in this room knows well, big, big presence around desktops, et cetera. And we always had -- we always felt like we had to be ultimately living and breathing in the markets better, but ultimately, also, I would say, innovative around change. And I think as we think about and talk about where we're going around these smart searches and AiEX activity, I would say, as great of a company as Bloomberg is, and they're a great company, as everyone knows, they're a little bit more defensive around this next wave of technology. And my instinct is, obviously, that's because the first and foremost, inclination is towards the terminal. And that's given us an edge.

And then on the topic of competition more broadly, you guys often speak about how Tradeweb's strong relationships with dealers is really critical to your success. But as I kind of think more broadly, the history of the exchange and trading venue space is you see new launches, dealer support, new launches, they get warrants, they get ownership rights. So how do you ensure that Tradeweb maintains those strong dealer relationships given those dynamics?

Yes, it's true. It's not to say that like markets have short memories, but they sometimes have short memories. And so you're right. And I think the inclination on us is to always reinforce something that we've done essentially from day 1, which is understand that this is part of the living and the breathing in the marketplace. Understand that there's a balance. And there are moments in time, and I'll say this the right way, where we've walked out of BlackRock with an idea that BlackRock has had. And we've -- by the time the elevator has reached a lobby, we've realized that like there's a pretty decent chance that even though that's a great idea, most likely, it's not going to wind up working for the Goldmans or the JPMorgan or the Morgan Stanley in the world. So you have to have a very fine-tuned sense around market structure and the nuances of ultimately trading relationships that exist in the universe. We had some interesting benefit around this because as you guys know, I think, well around the stories of it all, kind of post crisis, our direct competitor in credit really ran, I think, intelligently ran how we think about an all-to-all strategy. They call it Open Trading, but it's a strategy that ultimately connected sort of the buy-side with other buy-side participants in terms of liquidity provision. And there were a lot of things, particularly around that moment in time that made sense. But the reality is that's a kind of evolutionary protocol. Actually, it's a revolutionary protocol that actually disrupts the normal engagement of trading, and it opened up a door for us as a company to really bring the banks back in and to restore the banks as primary market makers to their clients. Those kinds of stories, that kind of track record, I think, goes a long way for us to continue to build out marketplaces with the banks. And from our perspective, just the combination of having the banks gone through -- having gone through the sort of the teeth of regulation to have a little bit of like their swag back in the marketplaces that we live in. We view that as a good thing. Plus there's the reality of the nonbank liquidity providers, the Citadels of the world arriving full speed in our marketplace, that keeps everyone on their toes in a really good way, short memories and all.

So you guys had an interesting graphic in your quarterly slides where you said you're up to 10% market share in risk trades in the interest rate swaps market. And I think there's a lot of noise in the data, interest rate swaps, the compression trades, there's risk trades. But is it right or kind of appropriate to think of your strategy is kind of enter that space with compression trades? Yes, it's lower fee, but you get your foot in the door, you get those relationships and then you move up to the risk trades from there?

Yes, it is. I mean our -- you've talked a lot about credit. We talk a lot about government bonds. Those are the two markets that everyone kind of goes to quickly. Our global swaps business has been just an absolute killer market for us. We've done exceptionally well. That was the ultimate kind of back alley market that's gone to an electronic market, very transparent. Now the volumes are really strong. We've gone from, as you know very well, my first year as CEO, we were up kind of 12% growth. Swaps was a big engine on that with 29% growth in 2024, a very strong year in '25. I feel like this year's setup is great for our business. It's a crazy world, obviously. We had a very strong January, up over 15% -- excuse me, very strong February, up over 15% year-over-year growth. A lot of that was fueled by continued very, very strong activity in our global swaps business, particularly maybe not surprisingly, coming out of Europe. The way that we think about compression has always been let's get into the most sophisticated clients' workflows, show that we know what we're doing around solving for problems and then ultimately, the risk of it all follows. So sometimes not with you, sometimes I'll spend time with a smart analyst, not as smart as you, and they'll be like when is that kind of compression thing going to go away because it's harder to understand where the fee per million goes. And from our perspective, we kind of hope it never goes away because it's a gateway to ultimately getting after the real risk trades of the most sophisticated clients out there in the ecosystem. And that's kind of what we do, hopefully, best-in-class. That's what we try to do.

And then on the topic of cash U.S. treasuries, market structure there is changing, and we're going to have, at some point, centralized clearing of treasuries, even though it's been delayed. How do you see that playing out and impacting Tradeweb?

Yes, it is changing. And you're right. And so not that long ago, I made the kind of Liar's Poker story in the beginning. If you had told government bond dealers not that long ago, that nonbank liquidity providers would be the engine of market making in the wholesale side of the market, the most sophisticated machine learning technology-oriented side of the market, I think a lot of people would have been surprised, but it shows you how quickly evolution occurs, which is one of the reasons why from our perspective, from a strategic perspective, we have always wanted to make sure that we're on kind of both sides of market structure, like the wholesale side plus the client side. And I would say, as we think about clearing, one of the things that I think we would be pretty clear about is that, no pun intended, would be that there will be ultimately, with central clearing, the potential, which I think is the strong word, the potential for more clients to trade picks and spots anonymously on order books, which we think is a good thing for the business. It's one of the reasons why you want to have that kind of full cycle of market structure at your disposal.

And then on the U.S. credit side of things, your market share has been largely range bound since the second quarter of 2024, as has your larger competitors you mentioned earlier. But there's some good stuff happening under the hood as well, particularly with RFQ. Why are you confident that you still have strong momentum in the business?

And I've learned like all these years, and you know this well, Patrick, from the first time we met, like be directionally on the right side of where market share is going, do the right thing for your clients. There's always going to be kind of like fits and starts around market share. It doesn't just come in waves. It was not that long ago that Tradeweb was a rates company and had essentially no presence in credit. Now we're pound for pound kind of in there as the 1 or the 1A in credit. I think the recipe is going to be the company that can navigate for sure, keeping the banks on side. I think the banks are going to continue to play meaningful roles in credit market making, period. We say that very loudly. At the same time, embrace protocols to have the Jane Street and the Citadels in the world playing on your side. aggressively. I think multi-asset class matters in credit. We've been able to make a lot of inroads by being the leading treasury platform. I think that helps us in credit because obviously, credit trades on spread. And then I would say, in a lot of ways, the most important thing, and this will probably combine some things I just said is companies like Tradeweb, companies like MarketAxess, companies like Bloomberg, they make their living essentially with the buy-side being proactive in the market and the banks reacting to flow. And that makes a lot of sense to me, but I would say it sort of encapsulates part of the flows that exist on a trading day. And the other type of flow that exists, which I think this room knows really well, are kind of banks in moments being proactive in the market, either around inventory or around their trading access. Those tend to be the more profitable pieces of the business. They're sensitive pieces of the business. I think it goes back to making sure that you've navigated those relationships the right way and you build technology the right way. But the next leg of growth, I think, most likely will incorporate banks being the proactive participants in the market in terms of either inventory or trading access. Plus, and a big plus on this one, the ability to ultimately navigate for block trades and complexity. And I don't think you can navigate for block trades, i.e., risk trades without keeping the banks on side. I don't think that for better or for worse, Wellington connecting out there in the universe with Fidelity will occur around block.

Makes sense. So we've talked about interest rate swaps and U.S. treasuries and U.S. credit. What are some of the other products at Tradeweb that you think are underappreciated long-term growth drivers for the company?

First one that comes to mind, and it's -- again, it's a little bit -- it's an interesting story, like we -- the TBA mortgage market like way back when was the sort of like the second market that the company was in, but it was the first market that took off. And when I say it took off, it immediately had kind of the biggest players playing on -- playing electronically, which can be unusual. A lot of times, those markets kind of evolve electronically. It doesn't take place on the fringes, but it takes place with the types of companies that have the most to gain from transparency, which isn't always like the big guys. And the mortgage market for a bunch of different reasons, took on a very different kind of character around it all. That market goes from being sort of one of the leading marketplaces -- the current coupon mortgage market can be one of the two or three most important financial instruments in the world to sleepy, depending on where we are in the rates kind of cycle of it all. We have very strong market share at Tradeweb in mortgages, a combination of the institutional piece and the wholesale piece. I think we have a pretty strong instinct that quite a strong February in mortgages. I think we have a pretty strong instinct that if we go lower in rates from here, the potential of that market really picking up from a volume standpoint is there. And I obviously use the word potential, but I think it's there. And then I think what we've been very, very focused as a company, we're U.S.-based. We have a big New York presence, for better or worse, a born and raised Manhattan, we have a big global business. And we've done -- I mentioned European swaps. We've done exceptionally well in European swaps. So I think like what we've been able to do as a public company, really building out our presence in EM is a little bit of an underappreciated story. We started off in the kind of interest rate side of the EM marketplaces. We have our sights set on credit, which we think is a big market where there is room for competition there. We are a New York-based company that does not have any version of a satellite office in London. It's a leadership area of the company. I think our best and brightest kind of in and out of that office all of the time. And I think the lens that we approach to global businesses I think, is one of the more important -- not to say underappreciated, but I would say, I think one of the more important things that we've done over the years.

And remind me, I think it's 40% of your revenue comes from outside of the U.S. right now.

40% and then a combination of Sameer, Sara and Ashley, all much, much smarter than I do have the exact like percentage of growth. It's a very, very big percentage of growth that comes out of our world internationally. It's the kind of world there where the practitioners in that space can understand how clients engage in liquidity his or her direction on the trade, not giving up any information. And if the bid-ask on the market is within a certain parameter, the client will engage on one side or the other. And then all of a sudden, big versions of risk get traded. And that -- I tell that story with a lot of pride for the international business because they figured out how to do that. And that was phone-based business or kind of Bloomberg message-based business before someone figured out how to do that. And that's a good sign around innovation. It's a practical sign around innovation, I think.

Beyond AI, another big topic of late has been tokenization. What do you think is the role for tokenization to play within Tradeweb?

I think there are markets that we are in that will have, from our perspective, significant benefits on the kind of collateral management settlement side of the world. And so I had mentioned the TBA mortgage market kind of going from at one point in time, one of the biggest markets in the world or one of the most active markets in the world to sleepy. One of the things about that market that's unusual is much, much fewer participants in that market. You don't really have the nonbank liquidity providers living in the space like they live in government bonds or swaps or credit. You don't really have systematic trading in that world like you have in the mirror pools of liquidity in the macro world. One of the reasons why that is, is because for obvious reasons around origination, the settlement cycle is funky. You have 30-day settlement cycles. You have mortgage bankers selling out 90 days from now. And I think that market, in particular, will benefit massively from a shift around collateral management and efficiency around how pools are ultimately transferred back and forth, really interesting possibilities around that. That's just like one example. But I would say like the collateral management of it all more efficiency there is ultimately good for velocity and something that we are for.

What's your current thinking in terms of the timing of implementation of solutions like that where new settlement structures emerge and are real and tangible? And then maybe how does that play together with your investment in mortgage Canton Network?

It's a good question. It's tricky because I would say things tend to evolve at different rates than we think. And we're moving a big, big kind of ocean liner around all of this. We've had a very long-standing relationship with Don Wilson, who's the founder of DRW. We think he's like top of the list in terms of smart people, practitioners in the space. He's very passionate about it. He'll say very clearly from his perspective, ultimately, all financial transactions will wind up on chain within the next 5 years. And then I'll say like I've always been kind of like a little wrong on timing. He might be wrong on timing to some extent. But I think directionally speaking, he's on to something big. The challenge is not to say always around the kind of like the herding of the cats of it all. It's just getting everyone online and ultimately making the kinds of investments needed to move this forward. We've done -- I think one of the reasons why we've connected with him really well is because of the reach that we have to the network. So he likes us, and that's certainly part of it. But more importantly, it's because we're able to go into BlackRock in probably a different way than a Canton Network would on their own and really strike the right chords with firms like that and ultimately, hopefully make that light bulb go off around the efficiencies that the market would have through a better settlement cycles and things like that.

Your largest shareholder, LSE Group, has been on the news recently due to an activist shareholder. In addition to their governance role, they're also a partner in some trading solutions with Tradeweb and a key distribution avenue for your market data. Does LSE's ownership of Tradeweb make Tradeweb a better company?

Yes. I think, first of all, I would say this, like I think the relationship with LSEG is really good. And part of my job as CEO is to do a couple of things. One is to make sure from our perspective, we coordinate, collaborate and communicate, it's like three Cs. Coordinate, collaborate and communicate with them like really, really well. I think we do that. The other thing to make an obvious point is to make sure that every single day, we are a separately managed company. And I am not surprisingly like really, really strong about that. We are a trading business. We are a markets business. And from our perspective, having a partner like LSEG that can be a distributor of our data, we feel like is a great thing. I think we can kind of close our eyes and maybe wonder where the world goes and think about what our strategy could be like in a region like China and then ask ourselves the question, could we take a real advantage from kind of a London-based company in China as we look to move things forward there? I think that's like a pretty intuitive kind of place to go. My other instinct is with my Tradeweb CEO hat on all the time, I feel like we're a really good company, and we're going to be a really good company in low rates, high rates, volatile markets, less volatile markets and then ultimately, with whatever the partnership structure that we wind up in. So really excited about kind of where our business is headed. The progress that we've made as a company from my perspective, good stories. But it's like in the past. And the future just in terms of technology continuing to be applied to the markets that we are in is quite bright. So I'm feeling like directionally, pretty amped and excited about where we're going.

Got it. Maybe time left for one or two more questions. Prediction markets are obviously a hot topic right now. What's the opportunity to bring the prediction markets to the institutional world? Because right now, it's largely a retail partner.

Yes. It's interesting. I mean, I was -- I think I mentioned this to you last night. I was at a dinner in November with Jeff Sprecher right as they had done -- as ICE had done the Polymarket's deal. And I was not to say like picking his brain because I don't think you pick his brain like very easily. But I was intrigued by that. And I kept thinking to myself a little bit from Tradeweb's perspective, living and breathing in kind of macro outcomes, there feels like there's some natural inclination for us around these marketplaces. And so we were able to hook up with Kalshi and I think begin what I would say is the early steps around a partnership with them that I think will start to make an obvious point around data. I think the concept of our clients getting more sophisticated as they price risk is a one-way train. As they get more sophisticated pricing risk, are they going to look to incorporate the right kinds of predictive markets into their pricing algorithm? I would say so. To make an obvious point, from our perspective, at Tradeweb, like all predictive markets are not created equally. There are some predictive markets that we are not the least but interested in and then there are some that we would be exceptionally interested as they have a financial construct to them. And I think you can talk about the pricing of risk. I think you can talk about the -- ultimately, how data informs portfolio management. So I think there's a natural kind of connectivity around that. And then to your point, does it ultimately evolve to a place where there's actual institutional liquidity in a variety of these marketplaces. I would say hard to know. I think a lot of smart people think that we might get there. And from our perspective, being willing to always place forward bets, I think, in a smart way, we want to make sure we have that fort manned. So it's interesting. We got -- when we made that press release a couple of weeks ago, we got more inbound calls from some of our biggest clients asking for seminars, asking for opportunities to learn more about it. And so I think we placed the right flag in the right way if this makes sense with the right kind of company around this, and we'll take it from there. But the world evolves like very quickly on these things, and we want to make sure that we're being obviously as thoughtful as possible on it.

Perfect. I think that's a great place to wrap up. So I appreciate everybody for coming this morning, and thank you very much for Billy.

Thank you very much. Thanks a lot.

Thank you.