Ladies and gentlemen, thank you for standing by. Welcome to the MarketAxess Second Quarter 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded on August 6, 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 second 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 Ilene Fiszel Bieler, Chief Financial Officer, 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 second quarter results. Turning to Slide 3 of my strategic update. We delivered 10% total revenue growth, including the benefit of the Pragma acquisition, and diluted earnings per share was $1.72. We continue to execute our strategy this quarter and delivered solid growth in commission revenue across most credit products, with strong revenue growth in our international product areas. We continue to be disciplined around our expense management with total operating expenses increasing 12%, including the impact of Pragma. We released our July trading metrics yesterday, which reflected continued solid growth in our credit complex across most product areas. While our U.S. credit estimated market share continues to disappoint, we believe that our core RF [ph] business, underpinned by our differentiated liquidity in Open Trading reflects our continued leadership in the institutional client to dealer e-trading space. We have a clear strategy to return to market share growth through our global rollout of X-Pro. We are also pleased that we are continuing to grow our market share in the global credit e-trading space outside of U.S. credit. I would like to welcome Ilene to our first earnings call as CFO. In the short time that she has been here, she has already made a significant impact on the business. And more broadly, we have made several key hires recently, including a new Head of U.S. Sales, a new Head of Global Emerging Markets and a new Head of Client Solutions, all great hires that significantly enhance the already deep bench strength at MarketAxess. We have always guided investors to look at long-term trends and not read too much into the month-to-month gyrations in our estimated market share as we saw in July. Slide 4 lays out our strategic priorities…

Thanks, Chris. On Slide 9, we highlight the expansion of our trading business across geographies, products and protocols. We generated strong growth in international client trade volume and trade count in the second quarter. Trade volume was up 12% versus last year, with a three-year CAGR of 12%. The trade count was up 14% versus last year, with a three-year CAGR of 22%. A key driver of this strength was strong growth in emerging markets trading ADV, up 23% year-over-year, driven by a 26% increase in hard currency and a 17% increase in local currency trading ADVs. We are also seeing strong contributions from growing client segments, including hedge funds, systematic funds, dealer-initiated flow and private banks. We generated $230 billion in trading volume, up 25% from these important client segments, which now represent 26% of our total credit trading volume up from 24%. We are also seeing strong product diversification in municipal bonds with record estimated market share of 7.4%, up from 5.4% in the prior year. We expect the soon to be available additional liquidity from ICE TMC to support further market share growth. We now have the top 10 largest municipal dealers signed up for tax-exempt and taxable trading on our platform. Slide 10 provides an update on Open Trading, our market-leading all-to-all liquidity pool. Open Trading ADV was $4 billion, and share of total credit volume was 34%, in line with the prior year. Open Trading generated strong growth in trade count, up 18% from the prior year. Hedge fund trade activity has continued to expand on our platform with ADV of $1.6 billion in the quarter, up 28% from the prior year. A record 204 hedge funds provided liquidity through Open Trading in the quarter, a 5% increase from the prior year. Lower volatility and lower price dispersion in the market continues to reduce the price improvement opportunity in Open Trading, as shown on the lower left of this slide. Open Trading continues to be the largest single source of secondary liquidity in the U.S. credit markets, driven by our diverse liquidity pool. Adoption of our automation suite of products continues to grow, as shown on Slide 11. We experienced another quarter of strong growth in automation trade volume and record trade count, with three-year CAGRs of 29% and 39%, respectively, and a record 248 active automation client firms. Automation trade volume now represents 10% of our total credit volume and a record 27% of total credit trade count. There were 10 million algo responses from dealers, an increase of 38% year-over-year. Now, let me turn the call over to Ilene to review our financial performance.

Thank you, Rich, and thank you, Chris, for those kind remarks. I cannot be more excited about the opportunity ahead for MarketAxess. Turning to our results. On Slide 13, we provide a summary of our second quarter financials. We delivered revenue of $198 million, up 10% from the prior year. These results include $8 million from the Pragma acquisition. Looking at each of our revenue lines in turn. This was the second highest level of quarterly commission revenue generation with only 1Q 2024 being higher for commission revenue. Record information services revenue of $13 million was up 8%. 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 $10 million was up 10%. The largest driver of other income was an increase in interest income due to the favorable interest rate environment, which contributed $6 million of interest income across our investment portfolio and cash holdings up from $5 million. This was partially offset by a $1 million net foreign currency transaction loss. The effective tax rate was 24.8%, and we reported diluted earnings per share of $1.72. On Slide 14, we provide more detail on our commission revenue and our fee capture. Total commission revenue was $172 million, representing an increase of $13 million or 8% for the quarter. The increase in credit commission revenue was due to solid growth across emerging markets, up 22%, U.S. high grade, up 4%, and Eurobonds, up 11%. Growth across these product areas was partially offset by lower estimated market share and high yield. The reduction in total credit fee capture from the prior year was driven principally by product and protocol mix, specifically lower high-yield activity and increased portfolio trading. The decline in fixed distribution fees was…

Thanks, Ilene. In summary on Slide 17, we continue to execute our growth strategy and delivered solid financial performance in the second quarter. We have seen an increase in market volumes and the velocity of trading is trending up. These factors combined with the increased potential for rate cuts in 2024 and the recent increase in volatility are all indicators of an improving macro backdrop for us. We are continuing the rollout of X-Pro by extending the platform to our global client base and across most products. We are executing our plan to grow market share, our client franchise continues to expand, and our strong geographic product and protocol diversification continues to drive growth. Last, we are well positioned to deliver higher levels of growth in the coming quarters. Now, we would be happy to open the line for your questions.

[Operator Instructions] Our first question comes from the line of Chris Allen with Citigroup. Please go ahead.

Yes, good morning, everyone. Thanks for taking the question. I wanted to dig in a little bit on the ICE deal. Just can you provide any color just in terms of how it came about? Any color on the benefits of connecting towards largely a retail-oriented liquidity pulling the ICE side? And then Chris, you referred to connecting to other liquidity pools of your algo suite. Is that necessary to really flourish? And how - any update just in terms of the opportunity to connect there? Is that really a possibility moving forward?

Sure. Thanks, Chris. First, yes, we’re very excited about the ICE announcement. Just a little bit of backdrop, we have a long-standing relationship with ICE around data. We purchased data from ICE and we sell some data to ICE. Separately with the recent acquisition of Pragma, Pragma had an existing technology relationship with the NYSE owned by ICE. So again, just a very strong relationship there. And really, the design of this partnership came out of the request of clients, clients that see liquidity in both our destination in RFQ, but also on the ICE platform. They have two leading platforms that are connecting their liquidity to the benefit of clients. So it’s a very exciting really response to client needs. As we mentioned, it is a shift in strategy here at MarketAxess. We are opening up our network to external destinations, which is a unique shift in strategy. We have said in the opening remarks and on prior calls that we are protocol agnostic. We want to find the right protocols both internally and externally for our clients’ needs, and that’s really what we’re answering here. We are leveraging our institutional distribution and we see the benefits of ICE’s very strong retail and private client distribution. So putting those two liquidity pool together is really an important benefit for both our clients as well as ICE’s strong distribution. Rich, do you want to add to that?

Yes. Yes. Thanks, Chris. So yes, we’re really excited about this one because it’s complementary liquidity pools. So it’s a great way for us to bring some of that more odd lot liquidity that’s a specialty for ICE TMC to our institutional clients. And as Chris said, we heard from them that - our clients, that they love our institutional workflow, the ability to RFQ and do list and have it processed very efficiently back into those systems, but they wanted to get the odd lot of what we call micro lot liquidity, especially under 100 bonds in size that TMC is really a specialist in. So this allows us to bring it all together for our clients through Open Trading. So they don’t have to do anything different. They don’t have to go anywhere else. They just put their inquiries into our system, their orders the way they always have, but now they get access to this expanded liquidity pool. So it’s a great combination. It will be interesting in corporates as well. I mean that’s, of course, a much stronger area for us, but as we have introduced investment grade trading on price, which is very attractive to private banks, this is another area where some of that retail liquidity can flow through to our institutional clients.

And Chris, just to respond to the second half of your question around algo solutions and accessing additional liquidity destinations. With the acquisition of Pragma, we now have the technology and the wherewithal to add to algos, both our internal destinations and internal protocols as well as external. So this does open up that opportunity to have available for our clients a variety of protocols and a variety of both internal and external destinations through the algo technology.

Thanks guys. I’ll hop back in the queue.

Our next question comes from the line of Patrick Moley with Piper Sandler. Please go ahead.

Hey good morning. Thanks for taking the question. So you touched on it a little bit in your opening remarks, but in the last few days, we’ve seen spreads widen out and yield curve dynamics look like they’re becoming a little more favorable for you guys. So could you maybe just talk about what you’ve seen over the last few days in terms of client engagement protocol utilization? And any expectations you have about whether this is sustainable and how it’s expected to impact you? Thanks.

Sure. Well, I’ll start by saying when you walk through the desert and you see an oasis of volatility, you’re suddenly very excited. But three days is still a little bit too early to predict a trend. We have seen certainly positive trends across the platform during the three days, so we are excited about that. There’s obviously - we’ve seen positive activity among certain participants, particularly our ETF market makers, we’ve seen their activities pick up. If you look at just the overall activity of the fixed income ETFs in the market, you saw HYG go from an average of 30 million shares a day to over 100 million shares a day. So certainly positive trends and LQD also went from an average of, call it, 25 million shares a day to just over 50 million shares a day. So many of the positive attributes of volatility are playing out on our platform, and we’re seeing the macro backdrop improve. I would say the question is, is this sustained volatility or is it more short-term volatility that we’ve seen in spikes volatility in the past. I am encouraged that these are economic events driving this volatility, and you tend to have more longer-term volatility play out versus something like a geopolitical-driven volatility of that. So certainly, the rates backdrop is encouraging and the overall macro environment is encouraging. But again, we’re only seeing three days of this volatility. Rich, anything to add?

Yes. Caveat to comment also with three days, and of course, we look closely yesterday about what was going on and when you see the market getting that choppy, that’s where the relative importance of liquidity versus workflow starts to tip the balance. And unsurprisingly, when we looked at, say, OT numbers for yesterday, just to give some color, on a day like yesterday, we see OT up around 50% of liquidity provision and in comp activity, IG and high yield, that’s well above averages that we typically see. I’m not going to say that, that’s sustainable throughout a month, but it is indicative about what happens when you get into a higher vol environment and our clients start to think a lot more about, how do I get the best pricing on this trade? How do I make sure I get responses for what I need to trade versus am I in the most efficient workflow in doing a PT, for example. It doesn’t mean PTs go away, obviously. But on a relative basis, you see this shift back to a protocol where the pricing matters a lot more than in calm waters [ph].

Great. Thanks for the color. That’s it for me.

Our next question comes from the line of Dan Fannon with Jefferies. Please go ahead.

Thanks good morning. I was hoping you could expand on the rollout of X-Pro and how behavior has changed as you’ve been rolling this out selectively to certain subsets of clients. So just curious as to what the change in behavior, increase in velocity and/or activity has been post adoption?

Thanks, Dan. Sure. We’re pretty excited about the rollout of X-Pro. Again, we started this over a year ago, really targeting our most active traders among our largest clients where we saw a high ticket count and they saw - they had a need for the benefit of the new technology and the workflow that it presents. We’re now seeing over 60% of the trade activity from our largest clients coming through X-Pro. So a very successful rollout across just traditional RFQ. The second phase of the X-Pro rollout was really targeting portfolio trading starting in the third quarter of last year. And now I’m happy to report that X-Pro is seeing, just in the second quarter, about 56% of the portfolio trades came through X-Pro. Again, an encouraging stat. And overall, our portfolio trading volume is up in the second quarter and continues certainly here into July. The X-Pro rollout is now headed to Europe. We’re launching what we call our Global PT solution, which allows clients to trade global product across the platform, and it’s exciting to finally have X-Pro in Europe and available in EM, where we’re also seeing growing demand for portfolio trading across both the euro market as well as the EM market. So still early days for the global rollout of X-Pro, but very encouraging signs of what X-Pro is capable of. More importantly, the development cycle around the new tech is quite rapid, certainly more rapid than our legacy platform, and we’re able to deliver new tech and new functionality in a much more rapid delivery, particularly given that it’s cloud-based technology with obviously additional capacity, but the turnaround for development is quite high, which allows us to address clients’ needs in a much more rapid pace. So all the benefits of X-Pro that we have predicted are playing out as we roll out across the globe.

Great. Thank you.

Our next question comes from the line of Kyle Voigt with KBW. Please go ahead.

Hey, good morning. Maybe just a question on the concept of moving into larger trade sizes. You have two newer initiatives here with Adaptive Auto-X, which may help chopping up those blocks into smaller trade sizes. And then the high-touch offering that you’ve been speaking about for the past quarter or so. I guess, what do you see as the bigger opportunity for helping move that block market electronic between those two initiatives near term? And how does that compare to how you view the block market evolving over the long run?

Sure. On the block market, first of all, just to put it into context, over 40% of the TRACE market is greater than $5 million in trade size. So it’s the largest segment of the market that is still largely nonelectronic. And so solving the transition from phone and chat to an electronic solution is our goal as we set out to roll out new tech and new products for our clients. There is actually an acceptance of moving blocks to an electronic form but provided they replicate the current phone-based market. So protecting from information leakage is probably the key ingredient that we hear from our clients. Our high-touch solution that we’re rolling out in X-Pro, really the first leg of high-touch was portfolio trading with the additional pre-trade analytics that we embedded in our portfolio trading solution, but also carrying those pre-trade analytics into our high-touch solution for block trade sizes. It’s a much more targeted solution where you can target one or several dealers. And what we do is we enrich the platform with unique proprietary data. Two key data elements that I’d point out are, one is our AI-based dealer selection tool, which really is looking at dealer activity on our platform, dealer acts information and helping a trader decide who is more likely to not only respond but win your request for price. The other piece of the puzzle is a new data product called CP Inquiry, which is really designed for both the size and the direction that the trader is trading. It gives real-time price information and predicts price for both your direction as well as your size. So it’s a critical ingredient to traders that are trading block size liquidity and in need of block size liquidity. Those elements are rolling out in X-Pro in the third quarter. So we’re excited about that new entry to attack that 40% market, that is what I’d say, underserved by the electronic solutions. Separately and similar in the target is our algo launches. And we’re now up to about 40 clients using our Adaptive Auto-X algo solution. And you are correct, it is designed to not only help clients trade without crossing spread, but also seek liquidity in a more quiet less market impact method by slicing your sizes down to smaller trade sizes. That is out in the market. And as you suggest, it does target that block market. Rich, anything you want to add?

Yes. Kyle, I was just going to add to this because you asked which one, it’s really important that we pursue both of these strategies. And I think what clients gravitate to is going to be a function of what’s going on in the market. So if the markets are relatively calm and the dealers are flushed with capital and they’re making markets in large size and taking down risk, in our high-touch solutions through X-Pro where we’re giving advice on where a client should go with those orders is a great way to trade it. But if we end up in a much choppier market, and we’ve seen this time and again in the past where the dealers have tended to back off in terms of liquidity positioning and risk positioning, I should say. And that’s a great opportunity then for clients to use our algo solutions, and it makes it very easy for them to leave a resting order in the market and wait till other clients and other risk takers in the market come to them, whether that’s through responding to RFQs or someone engaging directly with that party. So both solutions are being pursued, and we’re kind of positioning ourselves to be successful with this regardless of what the market conditions are.

Thank you.

Our next question comes from the line of Alex Blostein with Goldman Sachs. Please go ahead.

Hey, good morning everybody. Thanks for the question and Ilene welcome to the call. I wanted to go back to the ICE partnership again. A little bit unusual, so I was hoping again maybe a little more details around it. So can you maybe talk about sort of the goals that you think this could achieve for both of your combined platforms? And how economics will be split either in terms of revenue share or however else it is structured? And I guess bigger picture, munis is still a fairly small part of the market, but are you seeing a push from clients asking you to break down the silos with any other larger liquidity pools, particularly in corporate bonds? Thanks.

Yes. Thanks, Alex. It’s Rich. And yes, this was really about putting out the liquidity to make sure that clients stay with us and keep their orders here. As I mentioned earlier, they like the workflow. It’s very effective for an institutional investor to come in. But the request we were getting is like, well, we don’t want to have to go to another platform to get liquidity, especially on the smallest trades. And that’s where ICE TMC comes in. Now, they can just come to MarketAxess and they can get all of their trades done. So for us, it was very attractive in being able to keep clients on our platform regardless of the size that they’re looking to trade. With regard to the economics, it’s pretty straightforward. It’s each of our platforms, we make money on the trades. Open Trading transaction fees and ICE has their fee model for when they’re trading and the respective platforms are able to collect the revenue themselves. So there’s not a payment going one way or the other. It’s taken out of a markup and best price wins if the level that comes back net of the fees coming across from TMC into MarketAxess, and that will be at the top of the stack, and that’s where the investor will trade. And otherwise, it might be coming directly from one of our liquidity providers on the system. So it’s pretty straightforward when it comes to the economics. The last part was about, you asked about connecting to other venues. I’d say we’re always open to connecting when there’s unique liquidity available that we can bring to our clients. That’s really the driver for this. Is it going to be additive to the platform? If there’s another venue that has the same liquidity sources that we already have, then there’s not really much to add in that way.

Our next question comes from the line of Benjamin Budish with Barclays. Please go ahead.

Hi, good morning and thanks for taking the question. Just one for Ilene. Welcome to the call. Just wondering how you’re sort of thinking about balancing growth and margins? It sounds like there’s a lot of growth initiatives. At the same time, you’re trending towards the low end of your target range for OpEx. You’re buying back more shares opportunistically. So how are you thinking about the priorities there? And any like longer-term philosophical thoughts on growth versus margin expansion? Thank you.

Sure. Thanks so much for the question, Benjamin. We really look to strike the right balance, right, between everything that you’re saying. Obviously, growth is incredibly important to us, and you’ve seen us really invest for growth, right? You’ve seen that over the course of the last two years. And I think you’re starting to see some of the success from those investments. And some of that success actually, these are not mutually exclusive in terms of concepts, right? If you think about what happened with expenses for instance, to your point, this quarter, I would put those into two different categories, two different pockets of success, right? One of them is that we’ve seen some efficiencies coming through from some of those investments. And you can really see that with - like a good example is the Pragma acquisition, right? So that’s something that we did for both growth and efficiency and really being able to leverage that technology. If we go into sort of expenses again, I’m happy to kind of go into more detail here. I’m sure some folks have some questions about this as well. But if you look at sort of - Chris also talked about some really important hires, right, that have not yet come on and they’re not yet in our run rate from an expense perspective. We expect, if you think about sort of other things to drive growth in the back half of the year, that we would see maybe another $10 million in timing of expenses that are not in the current run rate. And so that includes things like marketing expense, T&E, things like that, and so those are - as well as some more technology expense. So you can see in the way I’m answering this that these are not mutually exclusive concepts, right? You can run a disciplined, efficient organization while you are investing in driving growth. And I think that’s really our focus on our plan.

Got it. That’s helpful. I’ll jump back in the queue.

Our next question comes from the line of Jeff Schmitt with William Blair. Please go ahead.

Good morning. Emerging market volumes continue to be a real bright spot. What’s your growth outlook for EM over the next three years to five years since electronic penetration still fairly low there? And is the opportunity - it seems to be in local currency volumes?

Yes. Great question. And obviously, we had a lot of focus on the EM market opportunity in our opening remarks. Obviously, this is one of the largest markets outside the U.S. credit market and a market that we are fully engaged in and continue to see signs of growth across our platform and across regions. In particular, we’ve been adding local markets to our platform. And as you mentioned, seeing sizable growth in that local market arena. And in fact, our overall local market revenue was up 22% in the quarter, and we’re still seeing engagement from our clients across the local markets. There has been changes in the index, the large indexes that are followed by many of our investors, and one key ingredient is India being added to the index. So we do see that broad EM market still being a very attractive asset across the broader investment arena and having access to all those local markets is a key ingredient for our platform. One driver that we’ve seen is growth of portfolio trading across the EM market. So not at the levels that we see in high grade right now. But certainly, there’s higher demand for access to portfolio liquidity in that EM market. And certainly, we’re seeing some benefits across our portfolio trading tool in EM. The other area that we’re seeing growth is in block-size liquidity on the platform. We saw a record of block trading in EM on the platform, largely driven from the local markets and the rates and nature of those local markets. So again, some very positive factors playing out in that EM, market and obviously still highly in demand across our global investors.

Got it. Thank you.

Our next question comes from the line of Brian Bedell with Deutsche Bank. Please go ahead.

Great. Thanks. Good morning. Thanks for taking my questions. Welcome, Ilene, to the call as well. Maybe just to go back to the ICE agreement. Can you just talk about just how we think about market share in the space. Does this change that dynamic in terms of how you’re thinking about your overall liquidity pool within the confines of looking at market share and realize that the revenue will happen where it gets executed? But does that change your reporting in any way in terms of something coming through, let’s say, MarketAxess and getting executed at ICE or vice versa?

Thanks for the question, and it’s an area that I’ve spent many a year in when it comes to routing and both external and internal liquidity. We’ll be very transparent around both our market share. It’s really based on where the trade reports flow from. So certainly, look, you have two leading liquidity pools, particularly in munis. We hit a record 8.5% of the muni market in July. So we’re very excited about the levels of liquidity that we’re hitting on our own platform. We also have seen the rise of ICE bonds and the growth that they’ve seen in the retail segment of the market. And we think connecting those two leading liquidity pools really solves the need for clients, which is access to liquidity just more broadly across the market. The structure of this is unique in the bond market. But it’s a structure that we’ve seen in other markets play out quite successfully. And when I look at our client needs and where there are areas of resources are being dedicated, it’s largely being dedicated to collection of assets and not really technology solutions for trading assets. And so we’re helping solve those resource needs. Large institutional investors are able to access our platform and now will be able to access both our platform in another leading pool of liquidity through the ICE bonds relationship. So it’s really solving client needs, which is the focus. Obviously, we’ll be very transparent on where transactions take place and who’s the beneficiary of those - of that revenue getting executed.

Yes. That’s great color. And then maybe just on the pricing. I realize a lot of this is due to the mix, certainly between high yield and investment grade. But as portfolio trading or as you’re more successful in portfolio trading going forward, do you expect that to be a headwind on pricing? And also the high-touch strategy in contrast within X-Pro, do you view that as a counter to potential pricing pressure from more portfolio trading?

Hey Brian, its Ilene. Nice to talk to you. Let me start on that, and then Chris might want to come in with some of his views as well. I would say the first thing to think about when you look at sort of the fee capture and fees of per million is, overall, how is pricing? What is it looking like? And how are we seeing our fee cards? And they’ve really been stable, right? So we’re not seeing moves or changes really in terms of the overall fee pricing mechanism. And it really is protocol and product mix, which you commented on, right? And we do know that the portfolio trading, obviously, we were really quite happy to see our share at 17.2% in July. Obviously, that had some impact. One of the other things I would note, though, is that our muni business, we also saw good share there as well. And we saw increasing share there, and we had some dealers come on that was part of the MuniBrokers acquisition, and they’re on some legacy fee plans, right? And so there are different puts and takes here. I think we also have to remember how this model works in terms of fees as well. And so if you think of high grade for instance and you think of duration, I think we talked a little bit, just both Rich and Chris have talked about the environment. And obviously, it’s early days. And so we need to see how this all plays out in the macro. But I’m sure I don’t have to tell you, I know how closely you follow what’s going on in the macro, but we’ve seen, for instance, if you think about the curve, right? We’re at a point right now where we…

Yes, Brian, I’ll just add on the high-touch solution that we’re rolling out. It is targeting, obviously, larger trade sizes that come with our traditional capture. There are embedded caps to certain trade fees. But what’s exciting about that opportunity is because it’s direct to dealer and much more targeted to a dealer, we don’t have variable costs associated with clearing that trade. And so our - it scales from a margin perspective quite attractively at the traditional capture rate that we enjoy on the platform, but the variable costs aren’t there. So the margin for those trades are technically higher just given the size of the trade, the capture and the underlying cost, it’s just a platform cost, there’s no variable cost to it.

Great. That’s great color. Thank you both.

Our next question comes from the line of Simon Clinch with Redburn Atlantic. Please go ahead.

Hi, everyone. Thanks for taking my call. I was wondering if you could - I’m just going back to the comments you’re making, Chris, about the past three days, I know it’s short term, but a lot of the things moving in the direction that you would hope to see. I was wondering if you could comment on what the similar dynamics would be in, say, portfolio trading in terms of overall penetration of the market and the liquidity provided for that protocol in a period of heightened volatility. Have you seen any sort of real change in dynamic there? That would be useful. Thanks.

Again, it’s three days, so I do want to caveat what we’re seeing in just three days. I do think portfolio trading is a key tool adopted by our clients and will remain a tool for our clients to use, both in times of high vol and low vol. It’s really a question of cost. As spreads gap out in this type of environment, both spreads in a single bond as well as a portfolio trade due. And we’ve seen evidence of these gaps in spread. They do gap out in this environment. So it just becomes a different trade from what it was just four days ago. So we have seen and it’s, again, three days, but lower levels of PT activity. That said, our clients are in when they have either capital inflows or capital outflows depending on the market environment, they may use portfolio trades to enter and exit more quickly in an environment like this, where there’s certainty of execution. But obviously, over the long period of time, we’ve seen portfolio trading, mid-market trading, like those session-based trading, those are harder to execute in heightened volatility versus the low volatility that we’ve been experiencing for literally in the last several quarters, and tightened spreads over the last several quarters. So again, three days does not predict a trend, but what we certainly thought would happen in higher volatility, we’re seeing playing out in the market.

Great. Thanks. And I guess just a follow-up. Could you just give us a sense of sort of how you’re thinking about the capital allocation going forward? You use your free cash flow. You’ve clearly - you’ve got $250 million of buyback authorized in here. So how you’re thinking about putting that to work? But generally speaking, longer term, is there any change to how you’re looking at the balance sheet, et cetera? Thanks.

Thanks so much for the question. Yes. I mean I would say that if you think about capital optimization, right, and how we look at it and really driving value for our shareholders with capital optimization, I don’t know that - I would say that there’s a change necessarily. I would start by saying that the new authorization really does reflect, as I said in my comments, the Board’s confidence in the future performance of the company and our ability to generate cash, right, as we continue to execute on the strategy that Chris and the team have been talking about. And we really are a pretty strong cash-generative model, and that does allow us to continue to fund growth, right, to self-fund growth, make investments, et cetera. And really, what this is about is flexibility, right? There’s no exploration on this authorization. So it gives us the ability to opportunistically be in the market and buyback when it makes the most sense for our shareholders, right, in terms of we’re going to obviously continue to return capital to shareholders through dividends, buybacks opportunistically. But if you think about kind of the overall hierarchy, our focus continues to be to reinvest in the business, right? We really want to drive that long-term opportunity that we see in the fixed income market. We’re going to continue to look at bolt-on acquisitions, similar to Pragma that we’ve been talking about that allow us to take technology and leverage it across the tech stack, which is going to enhance our capabilities, add to efficiency. And then we would - and I would say it’s really important. One thing I would say about utilizing that cash and balance sheet in that way is that it’s really important to do this with the expected amount of rigor and discipline, and that’s really important. And third, we’ll continue to return capital to shareholders through dividends and buybacks and be opportunistic with that. And that’s really what this is about. We just have that additional flexibility now.

Great. Thank so much.

Our next question comes from the line of Michael Cyprys with Morgan Stanley. Please go ahead.

Great. Thank you. Good morning. I just had a question on information services. I was hoping maybe you could elaborate on some of your key initiatives to drive growth with the information services and technology services businesses that you have. I know in the past, you’ve mentioned some opportunities around indexing and end-of-day pricing. Just curious where those initiatives stand? What are some of the steps you’re looking to take over the next 12 months to 24 months? And as you sort of look at the contribution of revenues in those line items today, I guess how do you think about that mix changing as you look out over the next three to five years? Thank you.

Sure. Thanks, Michael. And really, we’re pretty excited about our information services business line. We’re excited about the pipeline of products that we’re bringing. Again, first, we’re bringing product to the platform to help traders determine how to trade, when to trade and many times in the context of a portfolio, trade some of that portfolio construction on what to trade. So there’s key ingredients of our data is making its way first to the platform, and it’s exclusive on our platform. We obviously have some very successful data products like our CP+ data across high-grade, high-yield Eurobonds and more importantly EM, I do think our opportunities in the international sector are quite exciting, particularly those local markets that we’ve talked about today. Our CP+ for EM is in a backdrop of a market where there’s no TRACE, no last sale. These are dark markets, generally broker-driven market. So having a real-time feed is a very important component to being a dealer or being a client in that market. So we do see a great opportunity for our real-time data feed across the international sector and certainly seeing opportunities as we offer that data feed in APAC, in LATAM and throughout Europe. Many of the products that we’re putting on the platform like tradability, AI Dealer Selection, CP Inquiry, these are designed for both how traders engage the market, and that’s why they’re exclusively on our X-Pro platform, but also they can be - can help portfolio managers construct portfolios on any given day. So we see an opportunity of pipeline opportunity, not just at the trader level, but also at the portfolio construction level. Separately, you mentioned our index opportunities. Obviously, we announced a partnership with MSCI. We’re excited about the indexes that we have crafted with MSCI as part of that partnership, and we think there’s a bigger opportunity in that fixed income index market as more and more products and more and more investors move to passive strategies across the fixed income landscape and not just managed strategies. So and then finally, we haven’t talked about it in a while, but the launch of CP+ for munis is very exciting for us. Not only does it help power our automation suite in the muni market, which is growing rapidly, but it’s a new data product, a new real-time data product in the muni market and something that is certainly needed in that market. So we see a really heightened opportunity as we roll out CP+ for munis as well. So again, strong product in the current mix and opportunities for growth, but very excited about the pipeline and the opportunity behind the pipeline of growth as well.

Great. Thank you.

Our next question comes from the line of Eli Abboud with Bank of America. Please go ahead.

Good morning. Thanks for taking the question. You mentioned that you’re connecting to TMC specifically. So I was wondering if there’s an opportunity to grow this partnership with ICE? Could you enable connectivity to ICE’s other execution assets like BondPoint and NYSE Bonds as the next step? Or maybe is there a way to leverage your overlap in fixed income data?

Yes. Hi Eli, it’s Rich. Yes, I mean, it’s really up to our friends over at ICE. We’re connecting in. Right now, I believe that they have not combined their two retail entities. The other one was BondPoint. So it’s possible we could connect directly into that one as well. But ultimately, I think that will be coming together and we’ll connect via the existing pipes that we have. So it’s definitely going to be something we’re going to be doing. Again, it’s not just from munis, it’s for corporates as well. So if they’ve got the additional liquidity on their other venue, I’m sure that’s one that will tee up in the near future.

And Eli, I’d just add to those comments. I mean, we are excited about the ICE relationship and more importantly, the retail opportunity that we see in the overall market. We see SMAs growing rapidly. They’re at $2 trillion today, expected to go to $5 trillion. We’re seeing a great deal of SMA activity on our platform because they traditionally come through the institutional execution areas of large investors, but they also execute on a platform like ICE. So I think both parties coming together in this unique partnership leverages the growth of the overall retail market, whether it comes through traditional retail or if it comes through SMA, like we’re seeing on our platform. So yes, a lot of excitement around this partnership. And really what it says about our view of market and market structure going forward in the fixed income market effects.

Got it. And do you foresee any regulatory risks to the arrangement given the overlap in muni execution?

No. In fact, these are two connectivity points where their liquidity is their liquidity, it’s represented on our platform, and our liquidity will be represented on their platform as well. So it’s a way for our clients to benefit through a technical connection and a commercial relationship. So we would not expect any regulatory concerns around how we structured the partnership.

Got it. Appreciate the color. Thanks.

This will conclude our question-and-answer session. I will now turn the call back to Chris Concannon for closing remarks.

Thank you for joining us today. Obviously, we’re excited about the macro backdrop in the market and recent volatility, and looking forward to update you at the next quarter. So thanks for joining us today.

This concludes today’s conference call. You may now disconnect.