[Operator Instructions] I would now like to turn the call over to Dave Cresci, Investor Relations Manager at MarketAxess.

Good morning, and welcome to the MarketAxess second quarter 2012 conference call. For the call, Rick McVey, Chairman and Chief Executive Officer, will review the highlights for the quarter and will provide an update on trends in our businesses; and then Tony DeLise, Chief Financial Officer, will review the financial results. Before I turn the call over to Rick, let me remind you that today's call may include forward-looking statements. These statements represent the company's belief regarding future events that, by their nature, are uncertain. Company's actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the company's future results, please see the description of risk factors in our annual report on Form 10-K for the year ended December 31, 2011. I would also direct you to read the forward-looking disclaimers in our quarterly earnings release, which was issued earlier this morning and is now available on our website. Now, let me turn the call over to Rick.

Good morning and thank you for joining us to discuss our second quarter 2012 results. This morning we released solid second quarter financial results, in spite of industry-wide headwinds during the quarter. Revenues of $48.8 million and pre-tax income of $21.2 million were both 7% above the second quarter of 2011. Diluted EPS improved $0.34 compared to $0.30 one year ago. Despite the softer overall market volumes, we feel very good about the progress made during the quarter. Our estimated U.S. high grade market share accelerated to a record level of 12.4% compared to 11.1% in the second quarter of 2011. Emerging markets and high-yield volumes were both up over 25%, and reached record levels during the quarter. Importantly, we continue to deliver new electronic trading solutions to help our dealer and investor clients interact with new counter-parties and develop new sources of liquidity. Slide 4 displays some details on our quarterly results and financial strength. Solid revenue growth in the quarter was the principal driver of the growth in pre-tax income to $21.2 million. EBITDA was up 8% to $23.2 million versus the second quarter of 2011. Operating and EBITDA margins were 43% and 48%, respectively. Free cash flow and strong balance sheet have allowed us to return cash to investors through share repurchases and growing dividends. Our cash and securities balance at June month end was $188 million or $5.03 per diluted share. The Board has approved a regular quarterly dividend of $0.11 per share. Slide 5 provides an update on market conditions. Credit concerns reemerged in Europe during the quarter and market volumes of cross products were softer than the first quarter averages. For the first half of 2012, high-grade TRACE is on pace for $3 trillion in annual volume, flat to 2011. Inflows into bond funds…

Thank you, Rick. Slide 9 displays our quarterly earnings performance. Revenues of $48.8 million were up 7% from a year ago, driven principally by growth in variable transaction fee commissions. The year-over-year decline in technology products and services revenues was due to lower professional services fees. Total expenses were $27.6 million, up 7% from the second quarter of 2011, and pre-tax income was $21.2 million, also 7% above last year. Our year-to-date incremental margins were 63%. This means for each additional revenue dollar generated, approximately $0.63 fell to the operating income line. Our year-to-date effective tax rate is 40.6%. We are trending towards a higher-end of our 2012 tax guidance range due to a decline in foreign-sourced income. Our diluted EPS was $0.34 on 37.4 million diluted shares. The second quarter diluted share count reflects the full impact of the share repurchases completed in the first quarter of 2012. On slide 10, we have laid out our commission revenue trading volumes and fees-per-million. Distribution fees were $14.3 million during the second quarter of 2012, down 8.5% from the second quarter of 2011 and 11% from the first quarter. The $1.8 million sequential decline is consistent with the guidance provided on our first quarter earnings call. We currently expect that third quarter distribution fees will be consistent with the second quarter level. U.S. high-grade fees-per-million were $202 in the second quarter, up from $184 in the second quarter of 2011, and $188 in the first quarter of 2012. The sequential change was primarily due to a combination of an increase in the duration of high-grade bonds traded and greater impact of the execution fee from the all-variable dealer plan. The other product category fees-per-million were $205 in the second quarter of 2012, up from $182 a year ago and consistent with…

Thank you, Tony. Our second quarter results show solid growth in core products and positive progress in developing new electronic marketplaces. We believe that we have the right trading network and technology capabilities to provide a full menu of liquidity solutions to address today's changing credit market structure. We are excited about the opportunities ahead. Now, I would be happy to open the line for your questions.

[Operator Instructions] And your first question comes from Howard Chen from Credit Suisse.

Rick, just wanted your latest thoughts on competitive landscape. Over the years, you've been really consistent and saying that any electronic offering that come to this market is ultimately good and validation of the MarketAxess business model. But it does look like maybe you're becoming like more in direct competition with some of these new offerings that we read about. I mean, would you agree with that statement? And is there any different sense or evolution of the thinking on competitive landscape from your perspective?

Not really. No. I think what you see from some of the new initiatives is a desire to promote investor-to-investor order matching, especially in larger trade sizes. And that is where there is strain in the secondary markets today and you can see that through the decline in block trading that is coming through on a quarterly basis in the high grade. And I think when we look at these initiatives it does validate that there is a desire for more electronic connectivity in the market. We need to keep building new solutions, which we are confident that we are doing. And I think you'll see a core belief here that while investor-to-investor order matching can compliment dealer liquidity, it will never replace it. And where we are going, Howard, it is to really make sure that we have a full suite of electronic trading solutions that promote not only investor-to-investor order matching, but investor-to-multi-dealer and now increasingly dealer-to-dealer, so that we can help all clients move bonds through the market more quickly and efficiently. And as you're well aware, during the quarter, investor-to-investor matching has certainly made for some interesting headlines. But when you really get into the facts in the secondary market for credit, there is a limit to the amount of investor matching that could conceivably take place. And specifically, when we look through our TRACE and the customer buys and sells on a daily basis, we estimate that if you had access to 100% of the investor orders during the day, you could match approximately 12% to 16% of high-grade TRACE volume. And I think this reflects the challenge in the market, which we also think supports our strategy, that we need solutions across every possible client segment to promote more liquidity in the markets. So I do you think that the world is changing and people are going to try different things. What we're seeing from our investor and dealer clients, broadly based, is full support for the direction that we are taking, the independence of the company and the size of our network. And we think we're on the right track.

And then second one for you, Rick. Nice expansion within the U.S. market share. I'm curious, if you have any thoughts about how much of the share gaining is secular trends, as in more electronification, increasingly constrained dealer balance sheet? And how much of this is maybe cyclical, that the company gets a bit of a rebound when issuance levels are low and overall liquidity is low within the broad U.S. high-grade industry?

There is definitely a cyclical nature to the quarterly share, Howard, as you know, where typically the fourth quarter is very favorable for electronic share and the first quarter, where you have very heavy new issuance, tends to be slightly softer. But I think anyone looking at the last 3 years of share gains would say that there is a meaningful and sustainable increase in electronic market share taking place in credit. And I think the second quarter was another great data point. And as we pointed out earlier this morning, the 12.4% share during the second quarter compares quite favorably to the second quarter of last year. And that trend has been with us now really for 3 straight years coming out of the credit crisis.

And then final thing for me, Rick. The 150% growth in CDS volumes, I realize we're probably talking about growth of a very modest base. But could you just provide a little bit more detail about where that growth is coming from? How the flow is maybe changed since you've launched the offering? And what if 150% growth and volume translated into revenues and earnings?

Yes, and just to repeat, we are not currently charging transaction fees in the CDS platform. So it has no current impact on revenue or earnings. But we are seeing very good signs of growth in participation in our CDS platform from both dealers and investors. And we're seeing growth and activity, and it's becoming more consistent on daily basis. And what differentiates our offerings, we think, from the others in the marketplace, are the breadth of the solutions that we provide, where each quarter we're adding new functionality. We're now trading not only in the index markets, but we're also trading in the single-name markets. We have completed our connections to both ICE and the CME for central clearing. We've added limit or capabilities to the platform. We have both request-for-quote and multi-dealer streaming protocols. So we feel very good about the developments. And we think it's starting to come true in the increase in trading activity on the platform.

Your next question comes from Patrick O'Shaughnessy from Raymond James.

First question, kind of going back to the competitive landscape question that Howard had. So when we read stories about the buy side getting together with the sell side in Boston and trying to come up on the new system, how much do we read into that, that the buy side is not satisfied with the MarketAxess solution versus some other trends that might be taking place that you think are an opportunity for you guys?

I think that the growth in buy side participation and share on MarketAxess reflects their satisfaction with the service that we are providing. Having said that, Patrick, with 12.5% of the market now on MarketAxess, investors are still trading 87% of their volume the old fashion way. And much of the interest in meeting with dealers is to talk about the changes that are taking place in dealer balance sheets and how investors and dealers can work together to develop new solutions. And much of that feedback, whether it's from investors or dealers, is coming directly to us. We've had many, many meetings during the quarter, both individually and with groups of investors, about the new solutions that we are delivering. We've been taking their input on a regular basis. They are defining our roadmap for the next 3 or 4 quarters. And we also work very closely with the dealer community. So I think what it reflects is that there is a shift in market structure taking place and as a result some new enhancements and solutions need to go to work. And we're very pleased with the amount of interest that we're getting directly to MarketAxess in jointly developing those solutions with investors and dealers.

Second question touching on revenue capture. To what extent do you guys think that these trends that you've seen are sustainable? My guess is, the component of the dealers moving from the fixed rate to the variable rate plan, that's probably going to stick, it seems like. But how confident are you that the duration-aided benefit that you guys are experiencing is going to be sustainable?

Patrick, it's Tony. On the U.S. high-grade fees in particular, there is a lot of different variables in there. It's not only duration dependent, which is influenced by years to maturity and yields. We also have -- within our plan, there is a tiered plan based on volumes, so that the larger the trade size, the smaller the fee. And also that dealer mix does influence it, just between the mix between the all-variable plan and dealers on the major plan. So you've got a bunch of different variables there. And I'll just tell you -- you look sequentially, that we did have a sequential increase in the fee capture and it was almost equally split between duration impact and the execution fees. So they both equally contributed to the increase. But you look out from where we are today and can we maintain that current level? Certainly with what's coming out of the Fed in terms of keeping rates low, we can at least see that in the near-term that will be the case. The yield curve has definitely narrowed over the past 12 months. It's probably come in 150 basis points between the 10 year and the 3 month. So that yield curve's narrowed, it really has not influenced the years to maturity. And as a matter of fact, years to maturity actually extended slightly in the second quarter. And even though those dealers on the all-variable plan, we haven't seen a significant movement in the percentage of their volume. But it's still -- the execution fee is still contributing significantly to that fee capture. So I guess, it's a long-winded way of saying there's lots of variables, it's tough to predict. In the near-term it seems like it's sustainable. You have to have, from here on forward, a marked movement saying years to maturity more than anything else at this point in time to bring down that fee capture.

And then if you can remind me, as far as revenue capture specifically on the high yield. Is there an element where you guys get, all else equal, you get paid less for lower rate bonds?

This is on high yield, Patrick?

Yes. Sorry, high grade.

Can you just repeat the question?

I think there is a couple of elements to your revenue capture on high-grade. One is the duration of the yield to maturity. The longer duration, you guys get paid more. I think if I recall correctly, there is also a second element, which is kind of a higher rate that is on the bond, the more you guys are going to get paid. Is that correct?

It's a tiered plan. I say tiered, so it's tiered based on trade size. So the smaller the trade size, the higher our fee. So our fees are designated on high grade, it's in yield spread over the underlying treasury. And it does range from 0.5 on the high-end with a smaller trade size to 0.1 of the low end, typically averages about 0.2 of 1 basis point. But yes, because we have this tiered-plan based on trade size, the smaller the trade size, the higher the fee capture.

And then, lastly, just kind of touching on your expenses. You said that it looks like you are running towards the high-end of your guidance. Are you sticking by your guidance for the full year?

We're still sticking by the guidance for the full year. When you look at the first half of the year, we were at $55.6 million. There will be, or at least we're expecting is, just a moderate increase in expenses in the second half of the year. And even if you just took the second quarter as the run rate for the second half, you'd be closer to $110.5 million or $111 million. So right now, sitting here, it does feel like we'll be more towards that higher-end of the range, but still within the $112 million upper-end of the range.

Your next question comes from Matthew Heinz from Stifel, Nicolaus.

Given the new kind of new anonymous trading protocols that you're rolling out and introducing, and also the well-known problems that are facing the buy side in block liquidity and cross matching, what issues other than maybe just familiarity do you think would prevent clients from turning to MarketAxess increasingly as a solution to execute more of that 12% to 16% that you cited kind of as the market as cross matching potential?

I think it's just continuing to deliver the various matching solutions that buy side thinks could be viable. I do think, Matt, that we have a terrific head start in this. We've been fast at work on bringing new investor clients onto the MarketAxess system for the last 12 years. We have close to 300 of them that are directly integrated into this system with their STP and order management systems. And they are very familiar with the technology and the trading platform. So we think we're in a great place to continue to be the platform of choice as investors look for new matching protocols to complement the existing liquidity that they have in the marketplace. And I don't really see any obstacles. In fact, from what we've seen so far, we do have enthusiastic support in the meetings that we've been holding with a variety of different investors.

And then just kind of piggy-backing on that question. Have you seen any dealer pushback towards your promotion of market lists and some of the other efforts to encourage more client-to-client matching?

The answer to that is really no. I think the dealers are as aware as anyone that market structure is shifting. Dealers need to operate in different ways. We have worked, in all of our solutions, to be inclusive of dealers and investors, because ultimately we think that will create the best liquidity solution. So in no way are we trying to go around the dealers, because we don't think that would be particularly successful overtime. So we're working very closely with them. They're well aware of our strategy and what we're doing. Some of them are offering clients various ways to get orders to them as well. And I think that reflects their recognition that the business model is changing.

Your next question comes from Hugh Miller from Sidoti & Company.

I guess one question I had, I didn't catch. Did you guys comment on initial expectations for July market share?

No, we didn't. And you and others criticized us for misguiding you because we said something last quarter, when we still had 5 days of trading left and we actually outperformed expectations because of those last 5 days. The first thing we would say is that we do have 5 important trading days still left in July. And probably especially important this month, Hugh, because the July 4 week was a very soft week across markets because of the fact that the holiday fell right in the middle of the week. So our guidance to you right now would be, that based on what we see so far, we would expect July share to be above the second quarter levels. But we do have 5 important days of trading still in front of us in the month.

And would you also anticipate that you'd probably give back a touch of the gains you enjoyed in June?

Can't really comment on that just yet, with those 5 important day still remaining.

And I guess another question I had is, if you take a look at kind of the industry-trading volume on an average daily basis, TRACE trading was somewhat sluggish in June compared to the prior June. As you look at the trends, and obviously as you mentioned, we've got some important trading days left, but as we look at July, it is trending down again on an average daily basis. Can you just talk about why you think that, that might be for the last couple of months, just given that we are still seeing solid inflows into taxable funds?

Hugh, when we look at TRACE volumes and look at the first half of this year compared to the first half of last year, it’s almost identical. Same thing within the quarter. Second quarter was virtually identical to the second quarter of last year. Albeit, off 15% from the first quarter, which was at record levels. And even when we look at July, and Rick mentioned that first week was really a killer. When we look beyond the first 4 trading days, which is in, say the past 4 years, the only time we had a midweek holiday. We look beyond those first 4 trading days and the TRACE volume is spot-on with the prior 3 years. So if you look at say, July, in isolation, the July average daily trading volume in the last 3 years is right around $11 billion. You take out the first 4 trading days, again which were a killer, take out the first 4 trading days in July of this year, and it's a little north of $11 billion. So we're not seeing it fall off, again if we exclude those first 4 days. So Rick made some -- in the prepared remarks, some comments about it trending towards $3 trillion for the full year. Again, without having the ability to forecast trades with any real accuracy, we're still seeing that trend right now.

I understand that over -- you take a look at the half it looks a little bit differently, but when you look at it for June and July, and it's good color that you provided in July, being that the holiday fell midweek, so that may have influenced it more than it normally does. But if you just look at for the last 2 months, it's just been a challenge. And I know that it wasn't the case for your trading activity in June, when you saw tremendous market share growth. But I appreciate the insight there.

And just to expand on Tony's comment. The holiday impact this year with the Fourth on a Wednesday, was really a 4-day impact. And when we looked at the prior Julys, it was maybe 1 or 2 days. And I assume, Hugh, that you're seeing that across other asset classes, too, just highly unusual with that holiday sitting right in the middle of the week.

And another question I had was, if you can give us an update on kind of your efforts to leverage your transaction cost analysis with clients. Obviously you saw, and I see, year-over-year improvement in inquiries. But what's the feedback you're getting from clients you are sitting down with? How many, to this point, have you been able work with and how many more are kind of on the plan for the rest of the year and next year?

It's now become really part of our quarterly work with investor clients, both those that are using the system actively and those that are using it less than others. And it's been very well received. I think they feel that the analysis is done in a professional and credible way. We do think that is one of the key drivers that is continuing to move our market share up. And it's reflected in the significant increase in investor order flow that we reported this morning with orders up 24% from a year ago. So I think the transaction cost savings are a key part of the value proposition that we are delivering to investors. And all signs are that, that's one of components that's helping us drive the share higher.

So is it safe to say then since you're kind of already incorporating that with your quarterly reviews, that a good portion of that benefit is already now kind of worked in, because you've kind of had a chance to review that analysis with the majority of your clients?

I think that the work is more familiar to people. We still see investors at various stages of adoption around electronic trading. And I think what the recent press has done is it's refocused everyone on the benefits of electronic trading and some of that is clearly accruing to us. So the work is out there. Is the full benefit being reflected in the potential yet? We don't think so. But we think we're moving in the right direction.

And another question I had was, as we think about the kind of the focus on growing the dealer-to-dealer trading, how does the pricing in that product compare to client-to-dealer? And how should we be thinking about that?

Hugh, right now it doesn't vary significantly from what you're seeing on the client-to-dealer side. And it's a little bit of a nuance here, because in that case we're a counter-party to both sides of the trades. So as is the norm, we are reporting both sides of the volume. So I think if you looked at it as a single trade, the pricing would be higher. But when you count both sides of the volume, it looks similar right now to the client-to-dealer pricing, in that $200 per million ranges.

And then the last question I had was just with regard to your share buyback authorization. I know you still have a little bit remaining, given that you haven't been using. But given the pullback we've seen in the stock, is there a kind of a change in sentiment there to revisit share buyback and potentially increase the authorization?

Hugh, at this time, the Board didn't take any further action to increase that buyback to what's remaining under the buyback. And it's really, when you look at what we did back in the first quarter in terms of big block repurchase with J.P. Morgan., they just didn't feel it was necessary at this point in time. Having said that, we did suspend the repurchase plan in connection with the J.P. Morgan offering. We still have $10 million remaining, authorized under that plan. And while we didn't make any repurchases under the plan in the second quarter, we're still free to utilize that authorized amount. But the Board, again at this point in time, they did look at regulatory and working capital requirements. We're closer to the SEF rules, so we'll have more visibility on the SEF capital requirements, investments we're making obviously in these organic initiatives around CDS and D-to-D, and open trading and international expansion. So I think in light of all of that and in light of what we did in the first quarter, they just didn't take any further action right now.

Niamh Alexander from KBW is online.

The credit derivatives businesses. Should we still think about maybe you targeting more of the single-name credit default products rather than the indices, which kind of it seems like the regulators would very much like to guide the indices more toward exchange-type venues. And in that case, that's the SEC right, who you're signaling is probably going to be 2013 before they approve the SEF stuff. Is that fair?

That's our best sense right now. And I think there are two different questions there, Niamh. One is about our focus in CDS, index versus single-name. And then, two, about the regulatory path. We're really -- we're focused on delivering the broadest CDS product offering, which we ultimately think will serve our dealer-investor clients the best. So you do see us out ahead in functionality that addresses both index and single-name trading today. When we get into single-name trading, the liquidity dynamics of single names look more similar to corporate bonds than what you would see in a highly liquid index. And that's why we think some of our technology and network advantages will come through most clearly in single names. Based on what the commissions have been saying, we do expect that the CFTC is very close to finalizing their SEF rules and we would expect those rules to be out this quarter. So we'll get more clarity on the trading protocols, on the implementation dates, et cetera, that are important on index regulation. From what we can tell, and again this is just our best guess and all of you have your own sources as well, but it would appear that the SEC is probably about 6 months behind that time table, which is why we said this morning, if we had to guess we think these security-based SEF rules are more likely to come out in 2013.

The other thing, I guess we've seen your stock and I thought it was taking a hit as these, kind of, competitive news headlines were coming out. But there is almost like 2 different markets in the corporate bond world, where you have the block trades happening and then you have the non-block, which is your core business. And it seems like the industry is really struggling and looking for solutions for the block trades, on the big size trades, but your stock still gets hit every time there is an announcement of, or a discussion even, of some competitors. Am I understanding it correctly that right now, the struggle is finding liquidity for the bigger size trades and finding a solution for those? And while you absolutely have functionality to participate in that, that's still not the core, the majority of what you do today?

I think that's right. What we are excited, when you look at block trading, the nature of block trading is changing, right? More of it is shifting into what people traditionally think of as our sweet spot, in $1 million to $5 million trade sizes and undoubtedly that's another factor that's driving our share higher. But when we think about some of the anonymous order matching capabilities that we have started to deliver and the plans that we have over the next 2 or 3 quarters, we think we've got some really interesting solutions to participate in more block trading business, too. So what this really reflects is, I think, that all 3 major segments of TRACE, whether it's D-to-D, block trading or the $5 million-and-under client-to-dealer business all have greater potential for electronic trading. And we think we are the best position to deliver the solutions across all 3 of those segments of TRACE and I think this quarter is a great sign of support and validation for some of those new initiatives which to us increased the size of our addressable market.

And then on the dealer-to-dealer, thanks for the new data points there. So you said, like over 32,000 orders submitted. Can you help me understand, is the hit rate improving? Is the match rate improving? Because if the traders don't get the hit and the match, then eventually they give up putting in the orders, too. So are you seeing a notable improvement here? Are you seeing a notable level of hit rate there that you could share?

I think you said D-to-D first, but it sounds like you're asking about Market List. So far the hit rates are still pretty low but this is a multi-pronged process to get to the point where more matching could take place. The orders coming in is a great sign to us. And we are starting to see some clients default to making all of their MarketAxess lists publicly available through Market List. We are also seeing a lot of take-up in more investors setting up watch lists to match the bonds that they are trading and most interested in, which will then create alerts for them when other investors are in the market trading those bonds. So we think we're on the right build up here. We have people thinking about creative ways to use Market List to encourage more investor-to-investor matching. On the D-to-D side, since you gave me a small opening there, too. Initially, if you look at our D-to-D platform, we have almost double the number of dealers participating in our dealer-to-dealer system than we do in our client-to-dealer high grade platform. And what that really reflects is that we're starting to connect the institutional dealer market to the retail-dealer market and we're providing a valuable service in terms of allowing the large dealers to move inventory items off of their balance sheet more quickly and get those bonds out to regionals that might be servicing retail customers or very small institutions. That's also part of the new market structure because if we could help those dealers to clear capacity on their balance sheet through our D-to-D solutions, it's then going to free up more capital go back to work in our institutional system with institutional investor orders. So in our mind, all 3 of these things are really interconnected and that is why we're excited about the unique position that we have to provide solutions across all of these different parts of the market.

And then I guess just lastly. The international offices expansion you had kind of kicked off in Latin America. Initially you were kind of trading a local product -- or trading the international product, but now you're also going to be trading the local product locally. What are the plans for Asia? Are you kind of plowing ahead with that? Or are you going to take it a little bit more slowly there?

We are still doing all the work around expanding our EM local market capabilities. We are seeing nice take-up in terms of new Latin American clients coming on the MarketAxess platform and we're getting more local market debt trading done in both Mexico and Brazil. We really want to see those efforts paying off with validation from the market, but at the same time we are studying additional EM local markets and some of those, as you point out, are in Southeast Asia.

And the access fees. Have you explicitly changed your fee levels at all over the past quarter?

No, Niamh. We haven't changed the fee schedules. We did have that fee change in Europe back in the first quarter. But no, we haven't changed the fee schedules. And even when you look through that Other category, I know it gets little muddied up when we have 3 different principal products in there. The fee capture individually for emerging markets, high-yield agencies did not swing really with any significance quarter-to-quarter, year-over-year, and no, we have not made any fee plan changes in the second quarter.

Your next question comes from Justin Hughes from Philadelphia Financials.

I just want to follow-up actually I think on one of Hugh's questions, when he was talking about kind of the weak start to July, although you had some good explanations on why it could pick up. If -- historically, we've seen in kind of quieter periods you've picked up market share, in the real volatile periods market share's maybe pulled back. Do you think that's still the case or is that from kind of dated in year's past and you should be a more net market share grower consistently?

Where we've seen -- at least in recent times, where we've seen pockets where our market share has slowed down it's been in those times where there's been a significant imbalance in orders. So when you look, say, at February of 2012, October, 2011, those are periods where there was big imbalance in the market and in particular favoring the offer side at a time when dealer balance sheets are at these all time lows. So that probably more than anything else influences, at least in the market share side, it's really that bid offer mix and the big imbalance that could take place.

And you don't see anything like that currently, correct?

It's interesting you'd say that because at least in July to date, and again 5 important days left, at least what we're seeing in terms of order flow, there is a bit of an imbalance. It looks similar to that February and October timeframe where it's more of, say, a 60-40 split, offers to bids, which in a more historical context would be more challenging from a market share standpoint. But as Rick said, right now our market share for July is trending above the second quarter level. So we'll see what happens the next 5 days, but July is, at least right now, is looking like one of those imbalanced order type months.

Is your read through that it's from maybe some of these large investment banks that have announced new initiatives to try to lower their leverage and take down their balance sheet? I think Deutsche Bank, just yesterday or the day before, said that they're going to try reduce leverage more. Morgan Stanley said they were going to reduce their FICC exposure. Is that what you would read through on that?

It is what I would read through, is I think that they are looking for additional ways to participate in client orders while still operating with smaller balance sheets.

And then, related to that if it does end up being a slow second half to the year, would you rethink your expense guidance or you wed to that because of the initiatives you have?

There is still some variability in that expense number for the second half of the year. And if market volumes continue to trend lower, let's take that sort of scenario, we do have pretty big element of our expense base which is variable. And in particular, that's our variable bonus incentives gain, which is tied directly to operating performance. So sort of in the natural course, if you did see a drop in overall market volumes and even with an increasing market share, a drop in revenues for us, there would be a natural decline in expenses vis-à-vis that incentive bonus.

I think just expanding on that a little bit, Justin, given the number of large opportunities that we see in front of us in bonds and in CDS, I don't think you should expect us to radically change our investments during the second half of the year. This is a time where we want to be expanding our capabilities to address the long term opportunities. And while there is some natural variability in our expense base that Tony pointed out, we are committed to making the investments in the solutions that the market really needs to address the changing market structure.

Your next question comes from Patrick O'Shaughnessy from Raymond James.

Couple of quick follow-ups. On the dealer-to-dealer, are you able to quantify what percentage of your volume, at this point on the high-grade, is dealer-to-dealer?

Patrick, we're not sort of disclosing that separately but I will tell you it's a very small, almost negligible portion of our market share. And just to put it in context, if you look at overall second quarter market share, 12.4%. It was about 0.2 of 1%, is what it accounted for.

And then on CDS, you talked about how you're not charging for it right now. Do you have a timeline that you're willing to share in terms of when you think you will be at a point where you're ready to charge for that?

We do not have a stated timeline on that. We've said that with the cost involved in operating a SEF we would expect that transaction fees on CDS are likely to come into play around the time of implementation of the new regulatory rules but we have not stated any official timeline on that.

[Operator Instructions] And your next question comes from Matthew Heinz from Stifel, Nicolaus.

Just a quick follow-up on the capture rates in the Other segment. It looks like you're trending towards all time highs there, up quarter-over-quarter. Can you just speak a bit on the changes in mix shift and whether the kind of shift towards more emerging market in the high yield has continued in the third quarter? And then also, how much impact has the elimination of CDS volume reporting had on those metrics?

Matt, on the very last point in terms of the CDS impact, really negligible, if any impact. So as Rick mentioned, we are not reporting CDS volumes in there and even when we looked at it year-over-year, it's just -- where there were some CDS volumes in the second quarter of last year it's sort of a negligible impact. What you've seen here, and Rick mentioned in the prepared notes, we've got EM and high-yield volumes continuing to grow at a pretty healthy pace, both north of 25% year-over-year. And we've had really a moderation on the agency side. So we're not seeing the type of growth in agency bonds that we saw in 2009, 2010, 2011. So that mix has shifted and just to put it in little bit of context, if you went back to last year, say the second quarter of last year, it was probably closer to a 50-50 split. If you took agencies compared to emerging markets and high-yield combined. So about a 50-50 split. And then you fast forward to the second quarter of this year and it's closer to say, 57% or 58% is in emerging markets in high yield and agencies is the residual. So you've seen the shift again, really around the moderation on the agency side and a continued growth in high yield and emerging markets.

[Operator Instructions] We're showing no further questions at this time. So I'll now turn the call back over to Rick.

Thanks for joining us this morning and we look forward to catching up with you again next quarter.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating .You may now disconnect.