MarketAxess Holdings Inc (MKTX) — Q3 2015 Earnings Call Transcript

Good morning. And welcome to the MarketAxess Third Quarter 2015 Conference Call. For the call, Rick McVey, Chairman and Chief Executive Officer, will review the highlights for the quarter and will provide an update on trends in our businesses, and then Tony DeLise, Chief Financial Officer, will review the financial results. Before I turn the call over to Rick, let me remind you that today's call may include forward-looking statements. These statements represent the company's belief regarding future events that by their nature are uncertain. 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, 2014. I would also direct you to read the forward-looking 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 Rick.

Good morning. And thank you for joining us to discuss our third-quarter 2015 results. We reported solid results this quarter driven by continued momentum in market share gains across all of our core products with record estimated market share in U.S. high-grade and high-yield. This resulted in strong volume growth including a record quarter for high-yield and emerging market volumes. Total trading volumes were up 32% compared to the third quarter of last year. Revenues for the quarter were $74 million, up 16% year-over-year. Pre-tax income was $35 million, up 25% and EPS was $0.60, up 30%. Expenses were up 8% to $39 million. Open trading adoption continues to build with new records for open trading volumes and participation. Slide four provides an update on market conditions. We saw some signs of changes in the market environment in Q3 as concerns about global growth through credit spreads grew wider and mutual fund flows turned negative. Taxable bond funds saw outflow during the quarter following two consecutive quarters of inflows. At the same time, aggregate holdings of U.S. high-grade and high-yield bonds for market making by primary dealers continue to decline, falling to a new low of $8 billion by the end of the quarter. Credit spreads widened almost 30 basis points during the quarter and credit spread volatility is on the rise. Combined U.S. high-grade and high-yield TRACE volumes were up slightly year-over-year while our Trax estimates through emerging market and euro bond volumes were down. High-grade new issuance was 18% higher than the previous year and high-grade and high-yield corporate debt outstanding is now over $8 trillion. Slide 5 highlighted the breadth and depth of our trading platform. In order to navigate the liquidity challenges in today's credit markets, we believe market participants give the ability to access order flow from the widest possible network together with a broad set of trading protocols. 957 firms were active on MarketAxess during the third quarter, up 14% from a year ago. Broad client engagement helped drive total trading volume up by 51% year-over-year. Total inquiry count was up 43%. We are continuously expanding and enhancing our range of innovative trading options for all trade sizes. Our protocols including market lists and client access are fully integrated into the workflow of our RFQ model, as a result, we are delivering enhanced liquidity to our clients in an easy and efficient manner. Additional tools such as workup functionality and dark orders bring greater flexibility to the trade process and increase the probability of finding a trade match without information leakage. We continue to see significant activity in block trades. During the third quarter, 66% of our high-grade volume was in trade sizes over $1 million and 21% of our volume was in trade sizes over $5 million. The number of trades on the platform greater than $5 million in size increased by 27% compared to the third quarter of last year. 9% of all our block trades over $5 million reported to TRACE during Q3 were done on MarketAxess. Slide 6 provides an update on open trading. Open traded volumes and client participation showed strong momentum during the quarter. A record 45,000 open trading transactions were completed, up 125% year-over-year and trade volume was $23 billion for the quarter, up 130%. 421 firms provided all-to-all liquidity during Q3 up from 262 one year ago. This growing engagement from market participants created 100,000 additional price responses for open orders during the quarter. We continue to see a broad cross-section of firms active in open trading with dealers winning 40% trades while only asset managers winning 35% and other market participants winning 25%. While we are encouraged by the early growth of open trading, only about one-third of large investors have embedded all-to-all trading in their daily trade process. We believe this bodes well for future growth. Over 13% of U.S. high-grade and high-yield volume on the platform now takes place through open trading protocols and market participants continue to benefit from transaction cost savings of more than 3 basis points in yield when they complete the U.S. high-grade trading in open trading. Slide 7 provides an update on Europe. Our European business continues to grow with a 65% year-over-year increase in trading volumes of European clients during Q3. In addition to euro bond trading, European clients are increasingly active with us in emerging markets debt and U.S. credit products. The enhancements that we made to the European platform earlier this year have been well-received. By providing the clients the choice to send their order flow to a broader number of dealers, we have been able to attract eight new dealers to the European platform in just the last two quarters. The enhanced liquidity of the European system is driving our hit rates higher. We're also encouraged by the rapid adoption of open trading in Europe with 65% of euro bond increase now being submitted to market lists. As such, technical standards for MiFID II were finalized last month; the regulations will require increased regulatory transaction reporting for both buy and sell sites firms and will aim to bring greater premium post-trade transparency to European markets. We believe that the implementation of these rules is likely to create greater demand for electronic trading, market data, and post-trade services. In advance of these regulatory changes, our innovative data products are already providing benefits to clients through increased transparency and our data revenues are up 18% year-over-year. Now let me turn the call over to Tony for a closer look at our quarterly financial results.

Thank you, Rick. Please turn to slide 8 for a summary of our trading volume across product categories. Our overall global trading volumes were $240 billion, up from $182 billion one year ago. U.S. high-grade volumes were $140 billion for the quarter, up 28% in the third quarter of 2014. The improvement in high-grade volume was attributable to the increase in estimated market share, combined with a 10% year-over-year increase in estimated U.S. high-grade trades volume. Volumes in the other credit category were up 49% year-over-year, driven by order flow increases in the trading products. For the third consecutive quarter, we reported record trading volumes for high-yield and emerging market bonds. Euro bond trading volume was up over 80% year-over-year. Trax and TRACE data indicates that overall emerging markets and euro bond market volumes were down by about 20% while high-yield market volume was up approximately 7% year-over-year. This means that the vast majority of volume growth in our other credit category resulted from market share gains. Slide 9 displays our quarterly earnings performance. Revenues of $74.2 million were up 16% from a year ago, driven by the estimated market share gains and resulting growth in commission revenue. The stronger dollar dampened year-over-year revenue growth by 130 basis points or approximately $800,000. Total expenses were $38.8 million, up 8% in the third quarter of 2014. As the impact of the stronger dollar, the expense increase was approximately 10% year-over-year. Operating margin expanded by 370 basis points year-over-year to 48%. The third quarter effective cash rate was consistent with the year-to-date rate of 35.5%. At this point, we expect that the full-year 2015 effective tax rate will be around 150 basis points below the full year 2014 level. Our diluted EPS was $0.60 on a diluted share count of 37.6 million shares. On Slide 10, we have laid out our commission revenue, trading volumes, and fees per million. Total variable transaction fees were up 26% year-over-year as a 32% increase in trading volume was offset by a 4% decline in total transaction fees per million. Our U.S. high-grade fee capture is influenced by a number of factors including the duration of bonds traded on the platform, trade size, and dealer mix. Most of the $10 per million sequential decline in high-grade fee capture was due to the migration of two dealers during the third quarter from all the variable fee plans to the distribution fee plan. The migrations were roughly revenue neutral. The sequential and year-over-year decline in the other trade category fees per million was principally due to our mix shift within this category with a heavier weighting to euro bonds and emerging market sovereign bonds. U.S. high-grade distribution fees were up almost $1.3 million sequentially on a combination of the dealer migration impact and higher unused minimum fees on the all-variable plan. We currently expect two dealers to migrate from the distribution fee plan to the all-variable high-grade fee plan, resulting from a reduction in their market-making business models. Fourth quarter distribution fees are projected to be approximately $1 million lower than the third quarter levels with some offset in variable transaction fees. Slide 11 provides you with the expense details. Total third-quarter expenses were up $400,000 from the second quarter level. The sequential change in headcount was due to an increase in headcount from 311 at June 30 to 335 at September month-end. The majority of headcount expansion related to sales and technology personnel in support of open trading and other initiatives. On a year-over-year basis, the 13% growth in compensation benefits was due to a combination of higher variable bonus accrual which is tied directly to operating performance, higher equity-based compensation, and higher salaries expense on an increase in headcount. In the aggregate, non-compensation costs were up less than 3% year-over-year. Higher clearing costs reflected in the G&A line were offset by lower IT consulting costs and lower technology-related costs. On Slide 12, we provide balance sheet information. Cash and securities available for sale as of September 30 were $256 million and trailing 12-month free cash flow reached $103 million. During the third quarter, we paid a quarterly cash dividend of $7.3 million and repurchased 58,000 shares at a cost of $5.6 million under our share buyback program. As of September 30, approximately $42 million was available for repurchases under the program. Our board approved a $0.20 regular quarterly dividend payable on November 18 to record holders on November 4. There was no change in our capital structure during the third quarter; we have no bank debt outstanding and didn’t borrow against our revolving credit facility. Now, let me turn the call back to Rick for some closing comments.

Thanks, Tony. We are encouraged by the growth trends in our business across products and regions. The strength in corporate bond liquidity is becoming more pronounced, driving greater demand for alternative sources of secondary market liquidity. We continue to invest actively to deliver valuable technology solutions to our clients for trading, data and post-trade services. Now I will be happy to open the line for your questions.

Good morning, gentlemen. A question here on open trading. Rick, you mentioned that in terms of customer penetration, about a third of your long-only customers are active with the open trading protocol. Are they all responding with prices to increase?

I would say they are all responding. I think that the group that does respond is probably closer to 70% of the top investors that use the system. The ones that are doing so regularly and actively are the one-third of that group that I mentioned, so each quarter we see an increased base of investors that are changing their trading process in order to be able to respond, and I would say even for those that don't respond electronically, they are seeing many more trade opportunities through the open order book than ever before, and they do have the ability to provide prices through one of their dealer counterparties to submit through the system. So it’s quite possible that the impact on the open orders is broader than we see on the fully electronic trade responses.

Got it, thanks. And then I think you guys did a nice job of explaining some of the pricing dynamics in the third quarter, but can you talk more broadly about some of your pricing plans outside of high-grade? The other credit products, the price there has been static, but we’ve seen the liquidity pool increase substantially, so just trying to figure out what the long-term trajectory is there, like any potential changes that are maybe on the drawing board for other credit?

Mike, it's Tony. So on the pricing side, I'd say that we’re spending more time thinking about pricing. In some cases, we would like to learn from our behavior. For example, in open trading, we do have situations where we are promoting participation and discounting pricing. Right now, on the other products in that category, we have made some changes over the years to our euro bond pricing model. We have a variety of programs and dealer choices for those programs, and we feel pretty static right now as to high-yield and emerging markets where those programs have been in existence for a while. We think that the program or the pricing model that scales better is the take or pay model; right now, those are dealer pay models. It’s a little too early to say really whether we would change anything there. But we continue to think more about pricing and how we can incentivize in that case.

Got it. And maybe somewhat related to this, but Rick, could you update us on the competitive market environment? We touch on it every quarter, but there have been quite a few new launches and one established equity platform that recently made a pretty high-profile entrance into corporate bond trading. Have you seen or heard of any changes from your competitors there?

I don't think there is anything substantial that's changed in the competitive landscape during the third quarter, but I continue to believe that the big challenge is getting client connectivity established to the point where trade matches are possible on some of the new entrants. Nothing that we see in the competitive landscape would suggest that anything has changed during the third quarter. You can see our growth numbers have done nothing but accelerate, so we feel very good about our competitive position. We continue to expand the platform in terms of the number of participants, the protocols offered, and the orders available on the platform, and right now, we believe that our competitive position is as strong as ever.

Got it. One last one from me, and then I’ll get back in the queue. But Tony, in terms of compensation, you noted that I think you added about 24 employees during the quarter. Can you talk about what the pipeline looks like in terms of open positions you are trying to fill before year-end? And just in terms of timing of those adds, was it more front-loaded or back-loaded?

Yes, Mike, we did end the quarter with 335 employees. It was a very active period for us in terms of hiring. I will say most of those hires were in sales, which are revenue-generating positions, and in technology. To give you a little bit of color, it was both in support of new initiatives like open trading and geographic expansion. That mix, from a geographic standpoint, was around 50% in the U.S. and 50% outside of the U.S. It was probably evenly distributed, maybe a little bit back-ended in that case. There is still a handful of open positions that we’re hiring for right now. It's tough to predict where we will end the year, but we do expect to hire several additional positions over the course of the fourth quarter. Barring any attrition, we’ll be up slightly at year-end. If you look at the compensation expense and all else being equal, we would expect that compensation expense to decrease a bit in the fourth quarter.

I want to follow up on that last question about the growth of your sales capacity. To what extent has your sales model changed as you've rolled that into more open trading and try to push block trading? And as you adapt to the business model, has your sales model changed, or are you just trying to have more contact points and just get in front of people more often?

I think it's a combination of the latter and the fact that we are serving more dealers and clients than ever before right now. When you look at the increase in the client base, both investors and dealers, over the last year is significant. The improvement in Europe is partly due to the technology enhancements and partly because we've significantly increased our sales force to work actively with European clients. So I believe it's a little bit of both, but as we add clients and we add more protocols and products to the trading platform, we will also continue to add sales resources to ensure that we’re in front of our clients regularly.

Then moving on to the competition topic. Some of the competitors are trying to compete on the basis of price, not necessarily in the near term, but over the long-term how well do you think you guys are positioned against price competition? How stable do you think your pricing model is going to be over the long term?

Well, it's pretty clear over the long term it's been extremely stable. And remember, Patrick, in the world of credit, transaction fees are a very small part of the net cost of the transaction to the client. When we see an open trading that we’re delivering more than 3 basis points in yield savings to the client, that’s the most relevant factor to them. What is the liquidity pool doing to lower their transaction costs? When you look at our transaction fee relative to that level of savings for the client, it's still very small. This is not new, Patrick; you know from following us for many years that most competitors have tried to compete on price. The reality is our liquidity pool is unique and the protocols that we have available consistently drive a lower cost of transactions to the clients that use our system. So I think looking at commissions is just one part of the equation. The competition is really about who can deliver the best net cost to the client, and our liquidity pool has consistently done that.

From the data that we’re looking at, it looks like October industry-wide trading has been very healthy, particularly in high-yield bonds. What do you ascribe that to? And then I guess, how do you kind of square that with everybody’s concern about getting access to liquidity? It doesn't seem like that has been a big constraint right now.

The early few weeks of October you're right, the U.S. numbers are up. I think it's a lot of one-time flow from an active period in M&A, the HP restructuring and a significant amount of that activity in 144As. Some of it is situational that’s not likely to be sustained over longer periods. When we look at emerging market and euro bond volumes, we don't see the same kind of growth rates, although euro bonds have bounced back from the seasonal lows in the third quarter.

So a couple of questions. One, I appreciate the color you guys gave on the adjustments for Q4, with the two dealers that are going to move away from the all-you-can-trade platform. Typically, when we think about dealers migrating upward, you always talk about how it's relatively revenue neutral in the near-term. In this case, can you talk about how we should be thinking about the potential fee offset from the reduction in the distribution fees?

You are right. Typically when we have migrations from the variable plan up to the distribution fee plan, in the short term it is revenue neutral. In this case in the fourth quarter, what we’re tracking is two dealers who have really changed their business model and changed their market-making capacity; they will be rolling off of the distribution fee plan. If we just look at their activity for the third quarter, I would tell you that in this case, it is likely not to be revenue neutral, and we would have some offset from the reduction in distribution fees with an increase in variable transaction fees, but it would not be revenue neutral.

Okay, so we should just think about potentially a moderate or a modest offset on the transactional side relative to the contraction in the $1 million contraction in fixed rate fees?

And I do say, all else equal, because there are lots of items that impact that high-grade fee capture, including duration and dealer plan mix, and trade size, and protocols; there's lots of influence. But just in isolation, yes, you're right.

And did you guys -- I didn't catch it, did you guys update your expense guidance for the year? I'll leave it there.

No, we didn't update, so that original expense guidance still stands, which at this stage is a pretty broad range of $153 million to $159 million. If you look at where we were through the first nine months and then just did some simple arithmetic and assumed the fourth quarter was similar to the third quarter, it's going to get you somewhere around $154 million or $155 million. So, we're still tracking a couple of items that are variable; that variable incentive bonus which is tied to operating performance could swing it up or down, the headcount growth which I think, again, I'm pretty certain that the salary expense line will increase just given the recent headcount growth; we always track foreign exchange impacts so that could swing it one way or another. But we're going to be squarely in the middle of that range or maybe a little bit below the middle of that range.

Sure, sure. And you guys had given some color regarding the other credit category for pricing there, obviously seeing a shift towards more euro bond. Within EM, can you just remind us again about the fee capture between corporate and sovereign blend, what you're seeing there, and how we should be thinking about the trends there and the fee capture on a go-forward basis for that part?

What we talked about before, we have and we haven't changed our fee plans for emerging markets, and that mix between corporate and sovereign does matter. When we look at EM, you can think about it in three buckets: we have emerging market external corporate debt, we have an emerging market external sovereign, and we have an emerging market local markets sovereign debt. Right now, that mix is about 40% external corporate, 40% external sovereign, and 20% local market sovereign. Where we've seen the growth over the past year has been in sovereign debt, and even though all three of those buckets have grown year-over-year, the growth has been in sovereign debt trading and in particular in local markets trading. We’ve added more dealers, more market-making dealers; we had more currencies that were making markets. And we put out a release about a month and a half ago on activity in the local markets area, and that trading volume is up around 200% year-over-year. So, just from a mix standpoint, it matters, and roughly speaking, the fee capture for corporate emerging markets is about double the fee capture for sovereign bonds; that figure is about $150 million or so per million for sovereigns and $300 plus for corporates.

That's very helpful. That's kind of where I think the disparity came with what we're modeling out. Is there anything that would cause you to see that changing in the coming quarters? Obviously, nobody has a crystal ball, but any trends you're seeing there, or should we continue to expect to see sovereign growing as a percentage of the total?

From a geographic standpoint, we are spending more time in Latin America and in the Asia Pacific region; we've added resources there, we've added dealer liquidity there. If that trend continues in driving local markets trading forward, you could see some compression there. But a lot of this is market conditions related as well. You look over the past year; emerging market volumes are down significantly, and it is a bit episodic, so it's a little difficult to predict that mix between corporates and sovereigns.

And with regard to -- we talked a little bit about the overall October volumes that we're seeing in the U.S. and outside, what are you guys seeing in regard to market share for U.S. high-grade so far in October?

It's very early -- we're just a little over halfway through the month, so hard to make our conclusions about where the month or the quarter might end up. When we look across our four products, there are not huge surprises. As I mentioned earlier, there are some M&A situations driving growth in high-grade trading activity especially in 144A; they're not the kind of trades that we would typically take part in a large way. So, the monthly number is a bit softer in high-grade, but it's too early to draw any major conclusions. Yes, as we talk to clients, it's clear that the liquidity challenges stretch far beyond just the credit areas that we offer today. We are getting more and more regular requests from our clients to expand the product offering that we have on our system. Quite honestly, we've been investing very actively through this year in open trading in Europe and we’re really encouraged with the returns from those investments. So we are hard at work thinking about ways that we can better serve our clients with expanding the products that are on the trading system. We have three main areas that we’re looking closely at, and I think it’s likely that in the new year you are going to see us get involved in more markets. We’ve had requests from our clients in the municipal bond market, for leveraged loan trading, and we are also expanding our service offerings to the ETF community, and I think those three product areas are likely to feature in the New Year.

Okay, that's helpful. Typically, when we look at expense growth from you guys, we’re looking at mid to high single-digits as we think about the expansion there. Obviously, it's not something that's going to be revenue or earnings accretive in the near term, but how should we be thinking about the incremental cost of some of those investments as we think about the growth rate for expenses next year?

I’m not sure about your question about earnings accretive. Obviously, the expense increase this year has been earnings accretive. Our earnings are up by 30% this quarter, and the expense rate is up, and it's all because of our confidence in the long-term growth of this business. These challenges brought on by regulatory change are widespread, and we believe that we can continue to deliver technology solutions to our clients that will help with these changes in market structures that are taking place. So we think the exact right thing for the company to be doing at this time is expanding our staff to be able to deliver broader and deeper solutions to our clients to deal with the changes that are taking place. We have had great returns on the investments that we’ve made: 30% earnings growth this quarter and 48% margins, I think reflects that we are investing in the right areas, and I think we are going to invest as we see opportunities in the New Year. Has it radically changed the expense run rate increases that we’ve seen in the past? No, it has not. We would not expect it to in the New Year either, but we are investing, and one of the things I feel best about in the third quarter is the quality of the staff that we are able to attract to the company that help us grow the business for many years out. So, I do think we’re going to continue to add staff just because we see a very large opportunity in the future.

Hi, thanks for taking my question. Most of my questions were answered, so I’ll just ask one on capital. If the cash balance is up again in the third quarter to around $266 million, I think as you said in the last call that you are happy enough with the cash balance as of June 30 to support your open trading initiatives, which I guess implies there is some excess cash in the balance sheet. We again expect it to grow in the fourth quarter. I guess you have done special dividends in the past; I am just trying to understand whether there is any change in the thinking at the board level with respect to preference for returning cash to shareholders?

Today we have two standing programs in place to return capital, and that’s the recurring dividend and the share buyback. We’re reviewing our capital plans with the Board every quarter; we do speak to and listen to our shareholders as well. You can see a pattern, at least in the dividend, where it's a typically a once-a-year exercise in January where we’re revisiting the level of that recurring quarterly dividend. We also like having a standing repurchase plan in place and at a minimum offsetting dilution there. Clearly, we have lots of flexibility today, but I'll tell you that the plan in the short-term is to stay the course. The plan is to continue with the recurring quarterly dividend in the short-term and to continue to execute on the share buyback program. Also in January, I'm pretty sure you will hear from us about what we’re doing with the recurring quarterly dividend. We believe it's probably a little bit of both. I think the demand for electronic trading is growing in all regions, but the pace of our growth in Europe is well beyond the overall markets, so part of it reflects taking market share away from some of the other electronic trading venues in the region. I think it's a combination; we’re offering unique protocols that have proven to deliver better transaction costs to our clients, and we have increased our sales resources to be in front of more clients. We’re encouraged by the early results, but it is early days in Europe. We are not where we want to be; we have a lot more work to do, but we think we’re on the right track, and the client response to the changes that we have made this year has been very good.

So, first question just to circle back on October. I was wondering if you could just size the adjusted volume number once you back out the 144A and back to backs, so give us a base market share.

I'm not sure I understand the question. The TRACE numbers are obviously public, Ashley, so…

No, the way you adjusted, you mentioned that 144As outsize this quarter so far this month, and there is some high-yield related M&A activity that you're not really participating in. So I was just curious if you could dive down further.

Actually in October, and this is for high grade, typically 144A it runs something like 10% or 11% to 12% of total high-grade TRACE volume. But it's a pretty consistent pattern on 144A. In October what we’re seeing is 144As account for over 20% of TRACE volume. So we’re seeing a significant increase in the percentage of high-grade TRACE volume in 144A.

The next question I had was just on the ongoing dealer migrations. I was just curious how many dealers are, when you look at your current client roster, are there a lot of dealers who are in a position where it just makes more sense to transfer from a variable to a fixed refund?

Ashley, just based on the parameters of the variable fee plan and the distribution fee plan, purely looking at that from an economic decision, there probably are not many in the queue that would move one way or another. Today we have 30 dealers on the distribution fee plan for high-grade and around 40 on the variable plan. There is a couple of dealers on that variable plan who economically maybe are bumping up against a move, but there is lots that go into their decisions and it's difficult to predict. But right now we’re not tracking any other moves currently.

And then just a question on this open trading. I understand if you are discounting pricing incentivized behavior. So just curious that the two-thirds of clients who haven't really embedded your solutions and protocols into their workflow, what will it take to get them over the finish line?

I think it's happening every quarter. I think trading behavior with institutional investors is slow to change, but I think the combination of accessing liquidity through traditional means is getting more difficult, and the success that we’re having delivering new sources of liquidity is moving more and more clients our way each quarter.

Okay. And then when I look at TRACE crossable activity, it seems like high-yield demand activity that's crossable continues to increase. I am just curious if you could give us insight into what's driving that? And really what's driving that, because it's going to divert from, I guess, investment-grade which seems relatively flat?

I am not sure I fully understand the question you are asking; you are looking inside TRACE at the crossing opportunity?

Yes.

Sort of that might be the story bond in high yield that has been very active recently around some of the upgrades and downgrades in M&A activity. You might be seeing short-term packages of concentration around certain issues over bonds. Within -- while we see in open trading the demand tracking and trade runs greatest for our least liquid bonds, we do see higher percentages of our volume that is completed in open trading in high yield, compared to high-grade, which makes consecutive sense to us as that is where it's most difficult to access traditional liquidity. People are seeking new protocols through open trading to find the other side of the trade.

One last one; I don’t think we really touched on the regulatory environment. There was a recent development when the SEC proposed new liquidity risk management rules for mutual funds. Seems like this could create some additional demand for your data services, so just wanted you to comment on this opportunity and maybe give a sense for how large this can be; will it really move the needle for the data business?

I think you are absolutely right; we see that increased demand for data products coming through on both the U.S. and the European side. The early days of liquidity stress testing for investment management portfolios really requires quality products around turnover and volume statistics for the underlying securities. We are seeing growth in incoming inquiries on that front in both regions. When you look at the European side, there are also best execution guidelines that are increasing demand for both data products that we have in Trax as well as TCA analytics. Over the next 18 to 24 months, you are absolutely right that regulatory changes are likely to drive demand around data products. Thank you for joining us this morning, and we look forward to talking to you next quarter.