Ladies and gentlemen, thank you for standing by. Welcome to the MarketAxess First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded on May 7, 2024. I would now like to turn the call over to Steve Davidson, Head of Investor Relations at MarketAxess. Please go ahead, sir.

Good morning, and welcome to the MarketAxess First Quarter 2024 Earnings Conference Call. For the call, Chris Concannon, Chief Executive Officer, will provide you with a strategic update on the company. Rich Schiffman, Global Head of Trading Solutions, will update you on the performance of our markets this quarter, and then I will review the financial results. Before I turn the call over to Chris, 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. The 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, 2023. I would also direct you to read the forward-looking statement disclaimer 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 Chris.

Good morning, and thank you for joining us to review our first quarter results. Turning to Slide 3 of my strategic update. We delivered 4% total revenue growth, including the benefit of our Pragma acquisition and earnings per share was $1.92. While we are not happy with recent trends in our estimated market share in U.S. credit, we recognize the importance of being equally strong in the faster-growing areas of the market and we have a quick strategy to return to higher levels of share growth. We are attacking these faster-growing areas of the market while maintaining and building on our leadership in the institutional investor RFQ market. Our strength in this segment of the market is underpinned by our leading global client franchise and the largest single source of liquidity in the credit markets, Open Trading. First, in the quarter, our global client franchise continued to expand. We had a record 2,100 active client firms. Next, we delivered record commission revenues across several credit product areas. U.S. high-grade commission revenue grew 8%, and we delivered record levels of commission revenue in emerging markets, Eurobonds and municipal bonds, helping to offset the impact of lower U.S. high-yield activity. The benefits of our geographic and product diversification continue to pay dividends. Non-U.S. credit revenue was a record $92 million in the quarter, representing a record 44% of total revenue. Last, we continue to be disciplined around our expense management with total operating expenses increasing only 9%, including the impact of Pragma. We delivered these results against a market backdrop of historically low levels of credit spread volatility, which has created the ideal conditions for growth of portfolio trading and dealer-centered protocols. These low levels of volatility have also impacted ETF market participants and hedge funds, decreasing activity in our U.S. high-yield…

Thanks, Chris. Slide 9 highlights the continued strong expansion of our client network. We had a record 2,118 active client firms trading on our platforms in the first quarter, which included 1,619 client firms active in U.S. credit and a record 1,066 active international firms. Trading volume from hedge fund and private bank clients increased 23% year-over-year and represented 18% of total credit volume, up from 16% in the prior year. Adoption of our automation suite of products continues to grow, as shown on Slide 10. We experienced another quarter of record automation trade volume and count with 3-year CAGRs of 34% and 40%, respectively, and a record 231 active automation client firms. Automation trade volume now represents 10% of our total credit volume and a record 25% of our total credit trades. There were a record 11 million algo responses from dealers, an increase of 50% year-over-year. On Slide 11, we highlight the expansion of our trading business across geographies and products. Continuing the theme of strength in our international businesses, we generated record international client trade volume and trade count in the first quarter. Trade volume was up 13% versus last year with a 3-year CAGR of 10%. Trade count was up 10% versus last year with a 3-year CAGR of 19%. A key driver of this strength was record total emerging markets trading volume, up 15% year-over-year driven by a 28% increase in local currency trading volumes. Our LATAM and APAC clients generated record levels of emerging markets ADV in the quarter, up 11% and 55%, respectively. We were pleased to see a strong increase in EM volumes in the first quarter, and that strength has continued into April. Emerging markets continues to be a very attractive growth opportunity for the company. Last week, we announced that…

Thank you, Rich. On Slide 14, we provide a summary of our first quarter financials. We delivered revenue of $210 million, up 4% from the prior year. These results include $8 million from the Pragma acquisition. Foreign currency was a $1 million benefit in the quarter. Information services revenue of $12 million was up 8%, including a $200,000 benefit from currency fluctuations. The increase was driven by new contracts as we continue to experience strong adoption across our data product suite, especially CP+. Post-trade services revenue of $11 million was up 8%, including a $200,000 benefit from currency fluctuations. The favorable interest rate environment contributed $6 million of interest income, up from $4 million. The effective tax rate was 24.9%, and we reported diluted EPS of $1.92 per share. On Slide 15, we provide more detail on our commission revenue and our fee capture. Total commission revenue increased $3 million or 2% in the quarter. The increase in credit commission revenue was due to stronger estimated market volume across several product areas, mostly offset by lower estimated market share in high yield on lower credit spread volatility. The reduction in total credit fee capture from the prior year was driven principally by product mix, specifically lower high-yield activity. The decline in fixed distribution fees was driven principally by the consolidation of 2 global bank trading desk operations. On Slide 16, we provide a summary of our operating expenses. First quarter operating expenses of $118 million included $8 million from Pragma and a $600,000 negative impact from foreign currency fluctuations. Based on the progression of expenses in the first quarter, operating expenses for full year 2024 are tracking to the low end of the previously stated guidance range of $480 million to $500 million. On Slide 17, we provide an update on our balance sheet, cash flow and capital management. Our balance sheet continues to be solid, with cash and investments totaling $513 million as of March 31, and we had no outstanding borrowings under the credit facilities. We repurchased 47,000 shares in the quarter for a total of $10 million and a total of $90 million remains on the current Board authorization. During the trailing 12-months, we paid out approximately $110 million in quarterly dividends to our shareholders. Our Board of Directors declared a regular quarterly cash dividend of $0.74 per share based on the financial performance of the company. Now let me turn the call back to Chris for his closing comments.

Thanks, Steve. In summary, on Slide 18, we continue to execute very well against our growth strategy in the first quarter. The increase in new issuance, higher rates and an increase in velocity of trading all point to a healthy and growing fixed income market. We are disappointed with our market share in U.S. credit, and we've recognized the importance of being equally strong in the faster-growing segments of the market. We have a clear strategy to attack these areas, leveraging X-Pro as our delivery mechanism for the retooling of our trading offering. While we continue to drive adoption of X-Pro with clients, we are maintaining our leadership position in the investor client e-trading space. And our focus continues to be on the largest, most attractive order flow in the credit markets and building the client toolkit of the future and to help our clients do more with less. Now we would be happy to open the line for your questions.

[Operator Instructions] And our first question comes from the line of Chris Allen from Citi.

I wanted to follow up on portfolio trading. You talked in the past about making inroads into the traders who control portfolio trading, who are also the key market participants for block trading. So I wonder if you could give us an update on what kind of progress you have made there adding any new clients? And also the 40% share noted in the last day of April, was that due to one large trade, new clients turning on or some other factors?

Sure, Chris. Thanks for the question. Obviously, we've had a great deal of focus on portfolio trading more recently. As you know, we recently launched our new platform, X-Pro, just last year. And obviously, we launched X-Pro specifically for portfolio trading with an embedded portfolio trading solution just 9 months ago. We've been ramping up features, functionality on that platform as well, and we've seen some of the benefits of that. More importantly, we do see that pre-trade analytics, particularly with our proprietary data, is a critical part of that strategy, providing traders with those pre-trade analytics, helps them with not only how to trade the portfolio but also how to construct the portfolio and optimize that portfolio. So that's been an area of positive feedback that we've been getting from the portfolio traders in the space. Again, remember, portfolio trading is quite concentrated somewhere between 30 to 40 traders in the U.S. really drive the largest market share of PT trading and with the largest clients driving the largest share of PT trading. So more recently, particularly in April, we saw benefits of the rollout of X-Pro portfolio trading. In April, it now makes up -- X-Pro makes up about 60% of the volume -- PT volume that we see on the platform. And then with regard to your question around that end of month statistic. End of month is a unique time for us in the market, there's quite high volumes where people are repositioning their portfolio. So you do tend to see a higher number of portfolios. It was not 1 or 2 portfolios. There was a series of portfolios that we saw that day. Rich, anything to add on portfolio trading?

Just the chunky nature of it, and you can have a lot of spikes up and down, Chris, I mean, with adoption on any given day. As Chris pointed out, it's a targeted group. It's a relatively small number of PTs that we're all after. We estimate about 20 to 40 per day of substantial size, call it, $50 million and above. And we're all going after those. So on the days where we can capture it and we had a great day on month end, you see a number like that, 40%. That gives us a lot of confidence that we can carry that on to -- throughout the entire month. So clients are open to using different platforms. And with being the same across, it's a matter of coming up with the best workflows and unique features that are going to attract the traders to our solution.

And just on my follow-up, I just wanted to ask about X-Pro. You gave us the metric around the top 20 clients, but I'm wondering where you guys stand in rolling it out to your overall client base. And then specifically, where are you in the process for signing up with dealers for dealer access to X-Pro?

Sure. Again, just to remind everyone, X-Pro is our new platform, it comes with new features and offerings. It really allows clients to trade bonds of any size or complexity, like things like portfolio trading. It also is a cockpit for traders to start their day. So it is a unique offering from market access. We rolled out X-Pro for RFQ, traditional RFQ last year. We were targeting our largest clients. And within our largest clients, what we call our power users, these are traders that trade higher volumes in ticket count. We've seen, since that rollout, very positive trends as a result of X-Pro use. At the trader level, anecdotally, we've seen somewhere around 20% increase in ticket handling so that there is great efficiency embedded in X-Pro. Currently, with regard to the rollout, Chris, only about 16% of our total U.S. credit volume is going through X-Pro at this point. So we still have a long way to go to accelerate the rollout of X-Pro. And again, as I mentioned earlier, we only launched the PT solution on X-Pro just 9 months ago and continue to add additional features, functionality and obviously, pre-trade analytics. We do have an important phase of X-Pro coming this summer. It's our first phase of X-Pro for what we call high touch or block trading, and that's regarding your question around dealer content. We are onboarding dealer content as we speak. We're quite encouraged by the dealer feedback around providing content to our platform. Remember, our high-touch solution, our block trading solution is very dealer-friendly. It allows dealers to be in comp without all-to-all. So it allows them to price clients based on a smaller universe of competition. We are also adding to X-Pro what we call unique proprietary data, AI Dealer Select, which helps the clients select the preferred dealer in a given CUSIP or a given bond. So these are all proprietary solutions that we're seeing should be rolled out starting in late summer. We'll start seeing additional phases of our X-Pro rollout for what we're calling high touch or block trading solution.

Our next question comes from the line of Alex Kramm from UBS.

I know there's a lot of focus on portfolio trading. But if I look at your TAM chart, you clearly think that dealer-initiated opportunities is bigger. So maybe you can give us an update there. It's a very crowded space, and you obviously have admitted that you're kind of late to it. So just seeing where you stand today, any inroads you've made, any feedback you've gotten? And how pricing may be a differentiator there in particular?

Yes. Alex, it's Rich. And we feel really good about our dealer business. It's something that we've been in for a number of years. And we lead there with our flagship protocol, which is RFQ. And we've offered that to dealers for over a dozen years now. And its adoption rate is pretty wide. Where we have work to do is on single price auctions or matching protocols, which have become pretty attractive over the past several years in the market now. That is a protocol where network effects really matter and you need critical mass and we have a solution in the market, and now we're actively working on building up the adoption for it. We're doing that in both London for the Eurobond market, and we're doing it here for investment grade and high-yield markets. And it's an onboarding process and getting the adoption built up. And we're confident we'll be competitive in that space as well. We are working on delivering new tools for dealers, similar to the way that we're rolling out X-Pro for buy-side traders, we're going to be doing similar for the sell-side traders so that they can more productively access these protocols. So it's a combination of traders who use it from a front-end tool, and also via APIs for the firms that have their own internal trading systems and they want to connect through there in a more efficient manner. So investments in interfaces, investments in protocols, and then also tying those protocols together is something we're focused on, so that someone can try, I'm going to be matching at a mid, if I don't get that available, maybe I want to leave a resting order in an order book or then I ultimately want to tap in, I have to sell or have to buy, I'm going to hit the bid or lift the offer using RFQ. So it's combining these pieces that we have right now, which are kind of operating independently. We believe that's going to be really attractive to the sell-side traders.

And Alex, I'd just add, as Rich was mentioning, some of the new protocols and offerings that we're providing the dealers, one important one, which only rolled out in December of last year is our automation suite. It's quite a popular suite of solutions for our clients. We now provided that automation suite to dealers. It is now about between 17% to 20% of our dealer RFQ that allows dealers to price quite effectively across the spread using an automated RFQ tool. So that's well received among the dealers and continues to ramp up and we're seeing positive benefits in our deal RFQ volumes as a result.

All right. Very good. And then just maybe just a super quick housekeeping question. On FPM, maybe for the first quarter or April. Can you give us a little bit of a breakdown where we stand on the different product types, high yield versus high grades, Eurobonds, et cetera?

Alex, it's Steve here. In terms of the fee per million in April, we've mostly seen pretty stable pricing across the products. What you've seen in April was the impact of higher PT, which definitely dampened it a bit. We were down overall about $2 per million. So a lot of that was PT. But I think that the Eurobonds piece was a little bit better if you think about it year-over-year. Last year, remember, we had those crossing trades, which depressed the fee per million, and it came back this year in April back to more normal levels around 120. So overall, I think pricing is pretty stable. It's just that, that PT increase in April was outsized.

Our next question comes from the line of Patrick Moley from Piper Sandler.

I just -- not to hammer on portfolio trading, but appreciate the disclosure around market share in the last day of April being 40%. I was hoping you could just maybe frame -- help us frame that, like how did that compare to the rest of the month and maybe where you've been year-to-date? And then given that this is going to be a big focus area moving forward, is there anything you can give us in terms of guidepost for kind of measuring how you guys are performing from a market share standpoint in portfolio trading?

Yes, Patrick. And obviously, we expected a focus on portfolio trading today, and we've obviously been focused on portfolio trading for some time, particularly with rollout of new solutions to solve the portfolio trading market. We do think the portfolio of trade is an important tool for our largest clients. Obviously, it's a tool for immediacy and efficiency of trading. In this credit environment where we're seeing high levels of demand for fixed income products, that's a benefit to our client franchise, and we're seeing them convert those -- that demand for fixed income into large portfolio trades. I think the month of April was what I'd call an unusual month for portfolio trading. We saw a number of very large portfolio trades during the month, somewhere around $10 billion and $7 billion in size. So those are quite sizable portfolio trades that we haven't seen, almost record size. We expect portfolio trading to continue to be a vibrant part of the credit market, and that's why we're so focused on delivering a solution. As we mentioned, just a number of trades, a handful of trades can swing market share in the PT market. But it's such an important part of our clients' demand for immediacy that we're trying to deliver an enhanced solution through X-Pro to solve the PT. We do think that those pre-trade analytics are a critical part of our traders, and we get positive feedback. We've added things like tradability that help you really analyze your portfolio and make decisions around what should and shouldn't be in the portfolio. We've added other portfolio construction tools as well. And we've also increased the line item capacity. So our clients can trade very large line items, over 2,000 line items is part of the demand we're seeing from the largest clients. So we do see it as a critical tool kit in our clients' tool kit, and we will continue to report. Obviously, we have our monthly reports where we share our PT volume regularly and the overall TRACE PT volume in the market. So hopefully, you could just look out for our monthly reports and you'll see greater progress throughout the course of the year in our PT volume.

Okay. And then you repurchased 10.1 million worth of shares this quarter. I think that was the first or the most significant repurchase you did since the middle of 2022. Can you just -- can you talk about that decision and maybe what we should expect in terms of the size and pace of buybacks from here?

Yes. Patrick, it's Steve here. So there's really been no change to our approach with capital. I think we're still focused on the dividend. And our buyback activity is really still focused on just offsetting dilution. And I think that we basically front-loaded some repurchases about 2 years ago. So we almost put like 2 years of repurchases a couple of years ago. So I think we'll be opportunistic going forward in terms of repurchases and -- but no change overall in terms of the philosophy for capital.

Our next question comes from the line of Kyle Voigt from KBW.

Maybe just first on the high-yield side. The share has been a bit volatile month to month this year. I guess a question on April with the uptick in share, was that primarily from higher pure ETF market maker flow given some of the elevated high-yield ETF volumes we saw in the month, but the systematic traders have remained disengaged? Or are you really starting to see in April some of those systematic traders or hedge funds reengage in that market yet that you had called out earlier this year that had kind of pulled back?

Kyle, it's Rich. It's a combination. I mean we were happy to see a little bit of a pickup back from March, 13.9 versus 12.7 from March. We've still got a way to come back, but we're seeing the signs that the market conditions are becoming more favorable. It's a combination of activity from both real money and from the ETF community. So it's definitely trending in the right way here, so.

Okay. And then just maybe one more follow-up on PT. You noted some of the added functionality there. But can you remind us of differences in fee structures in your PT offering versus your competitors? I recall there was maybe something you were evaluating in terms of changing the fee structure of the billing for the product. I guess, have any final decisions been made on that? And do you think that could make a difference in positioning the offering competitively in addition to what you're doing in terms of adding functionality to the product?

Yes, Kyle, it's definitely a competitive space on PTs. And we've talked about it in the past that the PT fee capture is at a lower rate than income business and substantially lower than, say, all-to-all Open Trading business. And there are different ways to levy the fees. We know there are competitors out there that are trying to make a name for themselves and break into this market even going sometimes without any fees on it. We are shifting to a model where it's a levying of the fee on the dealer. It's consistent with the way others in the market are charging and we didn't want to have a fee model that was standing out and putting us in an adverse position. So I'd say competitive on the fees and consistent in the manner of charging fees with others who are levying fees on these trades.

And so is that already in place? You said the move to build the dealers or...

That's going to come in place with our next major release, which is coming in the next few weeks.

Our next question comes from the line of Dan Fannon from Jefferies.

Sticking with the topic of PT. I was hoping you could just talk about what you think the normal steady state of this protocol is as a percentage of volume or where it could get to? I think you put out some numbers previously, but the market has continued to evolve. So I was hoping to get your updated thoughts on kind of what you think that protocol can ultimately be on a consistent basis?

Sure. I'll take that. And look, we certainly are at a fairly historically low levels of credit spreads and credit spread volatility. That certainly creates a ripe environment for not only in portfolio trading, but also the dealer-to-dealer mid-market match solutions. So we certainly see at these levels of volatility that we've witnessed here in 2024 and certainly, at times during 2023, higher levels of PT and higher levels of mid-market matching solutions. So we -- as credit spread volatility can increase, we do see it impacting levels of PT. Certainly, in April, we had some spikes of volatility. During those periods, we saw slight decreases in PT during the trade day but we continue to see a high level of PT throughout the month of April as volatility decline. So we are not -- certainly not predicting that these levels, historically low levels of credit spread volatility will remain for the continued period of time. They typically go through cycles. We do think portfolio trading -- that said, portfolio trading will be an important tool for our clients, and they will continue to remain at levels that we're seeing today. And we don't expect massive growth of the PT market over time. We do think it'll probably stabilize at a certain level and be just another important part of the market ecosystem.

Yes, Dan, I'll just add to that. I mean it's definitely here to stay. It provides a lot of benefits to clients in terms of the workflow. It's going to be interesting to see what happens when the market environment changes and volatility increases and the PT becomes a relatively more expensive trade, whether it's still going to maintain the kind of percent of the market right now, we're seeing roughly around 10%. Whether that number goes down, stays the same, I would not think that that's a number that's going to rise in a high vol environment when it becomes relatively more expensive versus doing trades in comp. So something to consider.

Great. And then just as a follow-up on expenses. I know it's early in the year, but you're already tracking towards the low end of the guidance for this year. So I guess, first, kind of what has changed since the initial guidance a couple of months ago? And then as we think about the rest of the year and the factors are going to take you to the lower than the low end or back towards the midpoint or higher? What are those? Is that just volumes? Is it market share? What are the other factors?

Dan, it's Steve here. I think if you step back, I think we're exiting a period of some pretty substantial investments that we've made with X-Pro, our proprietary data ADX. So I think we've come out of that period. In the fourth quarter, we achieved some significant efficiencies coming out of the year. And I think what's going on in the organization is that we're more disciplined as we look at the expense base coming out of that spending. And we're looking for opportunities to really be more efficient across the board, but at the same time, ensure that we're really maximizing our investments for the future because we do have that huge runway. So I think that as we went through the first quarter, I think we saw some opportunities to achieve incremental efficiencies. I think that as we move through the year, you'll probably see a bit of a bump up in terms of incremental new hires given the normal seasonality. But I think that the first quarter run rate in terms of comp is probably a pretty good place to be, $61 million or $62 million, and that reflects the incremental hires that we should be making throughout the remainder of the year. But just remember that there is that seasonality in terms of our hiring through the year. So I think we feel pretty good coming in at the end -- at the bottom of the range right now. And obviously, we'll continue to monitor that and update you as we progress through the year.

And I would just remind you that 18% of our expenses are variable. So that's the piece that can move up or down with volumes. So that's an important component to how we think about our guidance. And as we mentioned earlier in the call, we're tracking to the lower end of our guidance, and it's just too early to update where we think we'll end up being in the year.

Our next question comes from the line of Jeff Schmitt from William Blair.

On X-Pro, thinking how does it execute portfolio trades differently than what you were doing sort of prior to its rollout? And I guess importantly, though, like how does it compare to competitors now? Do you have any edge there?

Jeff, it's Rich. As you note, so from an execution perspective, it's consistent, and we have the back end of the trading system that's managing this. The real productivity gain and the difference maker is on the front end and how traders interact with our capabilities, okay? So think of X-Pro, it's a modern interface. It's designed to better handle large lists and be able to manipulate them more readily, which is something that was more challenging, let's say, to do in our legacy application. So the back end, it's leveraging all of the capabilities that we have in terms of how we process trades and how we send them through post-trade and downstream to the parties. But it's that interaction at the front level, at the user interface that is really making a difference. And that is where we're going to be doing all of our new front-end development is in this new tool. So we're saying earlier, it's not just isolated to PTs, although that's where our major focus is at the moment, but it's also going to be the front end that traders use for the high-touch initiative, and it's already actively used today by traders who need to manage large lists, for example, so it can do several hundred line items in comp, RFQ in comp much more easily than we can do in the old interface. So that's going to be the area of significant investment for us and we believe that's going to be well received by the traders and will lead to more business.

And Jeff, I'd just add that X-Pro, both the portfolio trading tool and X-Pro for RFQ are all built in cloud-based technology. So it's all new tech that we've rolled out here. It also allows us to make changes and introduce new features and functionality in a more rapid development environment. So we've seen changes rolled out from -- really from trader feedback back out into production within weeks rather than within quarters and months. So it's a very powerful tool, not just from the proprietary data that we can embed in it and all the pre-trade functionality that we can offer a trader, but it's also -- it speeds up our delivery to market, any new features, functionality or data that we're providing. So that makes it highly competitive for us in an already competitive environment.

Great. And then a question on your high-grade market share. Could you discuss how institutional RFQ share is trending? I mean, is that a part of -- in the drop at all?

Yes. On the share, I mean, we did see a bit of a decline. We are -- upon analyzing that, it's definitely due to the pickup in portfolio trading that occurred and also on the dealer business. We attribute it mostly to those 2 factors. And hence, the extra effort that we're making in both of those areas. Those are the 2 significant investment areas for us to regain share. We think in terms of our in-comp client dealer RFQ business, on very solid grounds with that and Open Trading being the difference maker in terms of the liquidity pool and our ability to do all of the in-comp activity very efficiently for clients. So it is largely due to the challenges in PT right now and dealer business, dealer-initiated business.

I would just add that our high-grade market volumes did increase in Q1 by 18%. Our block trading ADV increased as well. And more importantly, our automation continues to grow within the high-grade market. That's one area where we're highly penetrated throughout that area, and we continue to see more automation ramping up. And Q1 automation was up 40% and that automation volume is quite sticky. We see people moving into automation and remaining at those levels. So across the high-grade market, we've seen growth, we've seen records and more importantly, we've seen sizable penetration with our automation solution.

Our next question comes from the line of Brian Bedell from Deutsche Bank.

Maybe just sticking with X-Pro. I think you quoted about 16% of your volume now is running through X-Pro and it's accounting for 60% or nearly 60% of your portfolio trades. Just maybe if you can just comment on where you ultimately want to get that to or you think you can get X-Pro to in terms of your overall volume. And then to what extent is portfolio trading a big part of that process or if we -- if the market does shift back away from portfolio trading over time because of higher credit spread volatility, how do you see that algorithm working within X-Pro of getting more of your volume on and having that expand your overall market share?

Great question. And obviously, X-Pro is designed to replace our legacy user interface for our clients. So we intend to put X-Pro in front of all traders and all clients globally. X-Pro, you'll see X-Pro rolling out in Europe and throughout the international client base this summer. So we're excited to continue the rollout of X-Pro not just for traditional RFQ, but more importantly, for portfolio trading. As I mentioned, we started that rollout for what we call power users. That's where we see the biggest benefit. The workflow efficiency designed in X-Pro does help those users. And we do think that the portfolio trading tool is also a benefit. Rich mentioned some of the features and the benefits of longer -- larger line item capacity on X-Pro. We do see -- the biggest opportunity for X-Pro is really this summer and the quarters ahead around the block trading solution. One of the biggest feedback that we hear from our clients and traders are information leakage with regard to all-to-all and X-Pro allows our clients to easily engage dealers directly, either one-on-one or multidealers in an RFQ. That's being rolled out and should -- really, we're targeting to, call it, the $3 million to $10 million size bucket, which is a very large part of the TRACE market here in the U.S. And so really X-Pro is designed to touch every trader, every client and across all our products when we're done with the overall rollout. More importantly, as I mentioned, X-Pro does allow us to move at a quicker pace from a development and delivery standpoint. And that's the most exciting part about this new technology and as we roll out across the client base.

That's great. Actually, that leads into the second follow-up question on that, and that's the large block sizes. So I think you quoted that last time like [ 30% to 60% ] of the market is trade sizes over $5 million. That's obviously been the area where more has been done with voice over time, and it's been tougher to crack. So I guess, what is your view on that part of the market electronifying over, say, the next, call it, 3 years or so as sort of the next leg of the electronification of the market?

Yes, Brian, it's Rich. I mean we think it's going to increase. And I've said before, we're going to see a high penetration rate across all sizes. Some of that might just be trade processing and more efficient ways to do a bilateral trade with a known dealer. And that's fine. That's part of what this portion of X-Pro is designed to do very efficiently. But we want to make sure that we've got a way to -- when a trader puts their orders into our system that they have a variety of ways that they can trade that, whether it's going to be recommending to them who the likely dealers are to engage, whether it's just processing a trade bilaterally with a trade that's been executed maybe on the phone, let's say, or it might be engaging in Open Trading in some way with clients that we're able to identify who are likely to engage with that party on the trade. So think of it as a central point where that trader can access all of the tools that MarketAxess has available, the different ways of trading across our variety of protocols, all from one place where they manage their order. And that's the key part of it is once their order is in X-Pro, they can kind of launch off in these different directions, depending upon what's available, what's best recommended for that, how they want to operate, all from one point, which is a little bit different than the way our legacy system works, which is a bit more siloed in the capabilities and making the trader work a little harder to tap into the capabilities. With X-Pro, it's all central and available right from their order.

Brian, I would just add that we hear regularly from our clients that they obviously want to do more with less. They're not hiring traders on their desks. That's a trend that we've seen. And this area of the market is a fairly inefficient area from just a workflow perspective. You can imagine using phones and chat has not been the end result of this market evolution. What we're trying to do is replicate their experience on phone and chat, minimizing information leakage to just the right important dealers in that CUSIP with both the data and the pre-trade analytics and the content that we're collecting and pumping through X-Pro will help those traders, one, identifying the size of their order that the market can consume; and two, the best dealers to interact with for that specific order. So we're pretty excited about the opportunity to convert a sizable portion of what is today phone and chat market onto the electronic platform. And it's definitely -- one thing we see from portfolio trading and the demand for portfolio trading is the need for immediacy, certainty and efficiency of workflow is high, at an all-time high among our clients as they see more capital flowing into their own platforms, they are not hiring traders to solve that influx of capital.

Our next question comes from the line of Michael Cyprys from Morgan Stanley.

I have a question on Pragma. Maybe changing topics away from PT. I was hoping you could update us on the progress there with Pragma. Maybe you can elaborate on the contribution of the business, how you see the growth path ahead. And strategically, maybe you could update us on how you see this being strategically additive to the firm?

Sure. Obviously, we closed on the Pragma transaction in the fourth quarter, and we're quickly integrating Pragma into the broader MarketAxess technology framework. We're excited about some of the technology synergies that we're seeing. Obviously, Pragma has been a key ingredient to the launch of the first credit algo in the credit space. So we're excited to see that algo and the demand that -- and the feedback that we're getting from clients on the algo. More importantly, Pragma, we're seeing opportunities to use Pragma technology throughout our technology footprint. Right now, Pragma, is consuming some of our automation suite. So what we want to do, the goal of the current integration is to have both algos and automation all be part of one suite of offering, so you can get basic auto RFQ, basic auto responder and a suite of algos all within the same API or the same suite of selection of products. So pretty excited about the integration of Pragma in automation. The next piece of integration that we see playing out is the Pragma EMS solution, it is able to maintain order state and control orders and connect multiple destinations. Obviously, we're using the various protocols within MarketAxess, but we do see an opportunity for that EMS technology to be deployed further in the market. So we see further integration of Pragma. It's an important technology acquisition for us. And we're actually seeing higher benefits of the synergy of that technology. We also plan on using Pragma in our dealer-to-dealer business. We think there's interesting solutions, not only automation that we're rolling out for dealers, but new protocols in that dealer suite of products as well, particularly around the mid-matching solutions that we see in that market. So it's still early days for our excitement around the Pragma acquisition, but we definitely see it becoming a more important footprint in the overall technology footprint of MarketAxess.

Great. And just a follow-up question, if I could, on emerging markets. Great to see the renewed strength, particularly in local markets, EM, particularly in April. Just curious what you're seeing there. Maybe you can elaborate a bit more broadly on the EM initiatives that you have and any other regions that you're particularly more focused on? And where do you see scope for more innovation ahead in EM?

Sure. On the EM front, pretty excited about the growth that we've seen in EM in Q1. Obviously, we were seeing lower volumes in 2023. And we weren't expecting that to change, but it did change and obviously saw record volumes, record ADV and obviously, record commission revenue up almost 11% in Q1. One interesting area that we've seen growth, and it's really as a result of growth of protocol, and that is our block trading ADV is up almost 34% year-over-year in the first quarter. So we're excited about that block trading growth, certainly a predictor of hopefully further block trading growth across all our products. The other area of sizable growth was our local markets. Obviously, they are up 30% in Q1 year-over-year. The local market is obviously the bigger market opportunity in the EM market, close to 80% of the overall volume is estimated to be within the local markets. And then areas of excitement, obviously, we've seen our APAC volumes grow year-over-year. APAC was up 33% in Q1, and APAC was up even further in April, almost up about 40%. Out of APAC, we're seeing APAC as a key driver of our EM volume. Our local market volume, in particular, was up from APAC almost 60%. So that international growth and our international expansion is reaping benefits across our EM market, particularly the APAC growth rates that we were seeing in Q1, and then that continued into April.

Our next question comes from the line of Alex Blostein from Goldman Sachs.

Just one for me. You spoke extensively today and just over the last couple of quarters that the path towards more of sort of bridging the gap in IG with some of the market share is likely going to come from PT and dealer-initiated RFQ. Can you talk a little bit about the pricing and the fee per million in both of those? I think you kind of hit on the PT a little bit. But just how does that compare to the kind of $150, $160 that you're running at a credit right now? And do you expect that your initiative there to put more pricing pressure on that part of the market as a whole for other competitors as well?

Sure, Alex. It's Rich. And yes, I did mention about the fee capture in PT being lower. With dealer business, which tends to be -- it's an Open Trading, it's an all-to-all type of business, where we're delivering more value, our fee capture is relatively higher there. And one of the things I should note is when we deliver liquidity to dealers, about 30% of the time, that comes from buy-side firms, not just other dealers. And that's some of the most valuable connections that we can make and allows us to charge a relatively higher fee for that. So I think the prospects for fee capture in the dealer-initiated side of the business is quite promising. We should note, and as pointed out during the prepared remarks, that we see plenty of opportunity for growth in the traditional client-to-dealer in comp business, leveraging Open Trading and being able to make those connections between clients directly with each other, into other dealers and things. And that remains also attractive from a fee capture perspective. So the most challenging area, the lowest fee capture is definitely on the PT. It is very much a workflow solution and less about the benefits that we can deliver as a marketplace. And it's when we're operating as a marketplace and connecting the thousands of participants in it, that gives us the opportunity for richer fee capture.

Our next question comes from the line of Ben Budish from Barclays.

I just wanted to double check on the dealer initiated segment. I don't think you talked about how much of your business that comprises today. So can you maybe talk about that and where it's been in the past? And then looking forward, if you think about how much of that piece can electronify versus the broader market in IG? How do you think about the potential there versus client to dealer and some of the other trade types?

Yes. Ben, it's Rich again. And no, we definitely feel strongly about our opportunities there. And you can say, roughly speaking, it's about 30% of our RFQ activity is coming from dealers initiating on the RFQ side. So that has room to grow. And again, as I was just saying, it's a promising area of fee capture. That's, right now, using our RFQ protocols. As we introduce our matching solutions in the market, which we know has been very attractive to firms and also our order book live markets is another area that we think is going to be attractive to that user base, it's pretty significant.

Our next question comes from the line of Eli Abboud from Bank of America.

Can we have a little bit more of an update on Adaptive Auto-X? I think last quarter, you mentioned that 13 clients were using it. How has penetration progressed? And what can you share about the early feedback?

Sure, Eli. Yes, we're pretty excited about the innovation of Adaptive Auto-X, as I mentioned earlier, it's the first client algorithm launched in the credit space. Right now, we have 25 clients live on Adaptive Auto-X. There's about 30 clients approved, still waiting to be onboarded. And then there's more, obviously, in the pipeline. We also are excited about a new launch of an algo this summer, really a dynamic liquidity-taking solution. The feedback has been quite positive, the feedback from clients. We have some very large clients waiting in the queue in the pipeline. We've obviously been showing demos of the product to all our clients, and the feedback has been quite positive. Again, it's still early days with this product rollout, but we're just seeing a healthy outcome in terms of execution quality, both in terms of avoiding spread as well as with some of the larger blocks being sliced into smaller sizes. We're also seeing better trade execution quality as a result of eliminating -- limiting market impact from executing larger block sizes. So again, early days with the product, but pretty exciting feedback. And obviously, the demand is quite high given the size of the client onboarding that we're dealing with right now.

Got it. And you mentioned the block trading had a particularly strong quarter earlier. How much of this is attributable to this early progress on Adaptive Auto-X? Or is it other technologies and protocols that are driving that progress so far?

Really, the block trading that we're seeing the success in, particularly in EM, we offer a request for market that has been an offering, a protocol that we launched quite some time ago, and that's really been driving some of our block trading experience here. And as I mentioned, in EM, block trading was up 34%. The other areas, obviously, in EM is local markets. We're seeing larger block size in local markets as well. So it's -- and then I also mentioned in investment grade, block size running through our current platform is where we're seeing an increase in block trading. We also mentioned that our intent is to roll out X-Pro for a high touch. Again, that's targeting the block size market, and that's still to come in the coming quarters. So a lot of opportunity around the block size solution, both from algorithms breaking down blocks as well as solving blocks for electronic trading by just reducing information leakage for those size trades.

That concludes our Q&A session. I will now turn the conference back over to Chris Concannon for closing remarks.

Great. Well, thank you for joining us today. We're exceptionally excited about the things that we're building and rolling out this summer, and we look forward to updating you on our progress at our next quarter call. Thanks, everyone, for joining.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.