MarketAxess Holdings Inc (MKTX) — Q3 2017 Earnings Call Transcript

Good morning, and welcome to the MarketAxess Third Quarter 2017 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 discussion of some of the risks and factors that could affect the Company’s future results, please see the descriptions of risk factors in our Annual Report on Form 10-K for the year-ended December 31st, 2016. 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 Rick.

Good morning. And, thank you for joining us for the Third Quarter Earnings Call. Our earnings report this morning reflects a solid quarter in a trading environment that remained challenging. Third quarter trading volumes of $347 billion were up 8% year-over-year. International client volume increased by 24% to $89 billion, and our emerging market product area experienced continued momentum with a 22% increase in trading volume. Open trading set a new record this quarter in client participation. Revenues for the third quarter were up 7% to $97 million. Expenses of $49.5 were up 13% due to ongoing investments in our business and expenses related to global regulatory changes. Diluted EPS of $0.90 was up 10%. Third quarter U.S. high-grade estimated market share TRACE increased to 17.2% from 16%. Slide four provides an update on market conditions. In the third quarter credit spreads continued to trend lower and spread volatility remained at historically low levels. U.S. credit inflows continue to be very strong due to global investor demand for yield. Like other credit market participants, very low market volatility coupled with investors chasing scarce funds create a difficult trading environment for our business. In light of these market conditions, we believe our business performed well during the quarter. Overall TRACE high-grade market volumes in Q3 were relatively flat year-on-year, while high-yield TRACE volumes were down 7%. The lack of volatility in high-yield has led to fewer trading opportunities for alternative market makers and EPS relative value players, both important client segments for our high-yield trading business. New issue activity remained strong as issuers respond to strong demand at historically low corporate bond yields. The combination of low market volatility and high new issuance increases investor focus on the new issue calendar. Slide five provides an update on open trading. Open trading volumes were $56 billion in the third quarter with average daily volume up 29% from the same period last year. Approximately 155,000 open trading transactions were completed in the third quarter, up 45% from 106,000 in Q3 2016. Liquidity providers or price makers on the platform drove a 51% increase in price responses in the third quarter. Liquidity takers saved an estimated $21 million in transaction costs through open trading on the system. Participants benefited from average transaction cost savings of approximately 2.1 basis points in yield when they completed a U.S. high-grade transaction through open trade protocols. When compared to our composite price, real-time midmarket estimated for corporate bonds, we believe the liquidity providers are achieving similar savings in transaction costs. Dealer initiated open trades reached a new high of 24% of all open trading volume in the quarter. Open trading is increasingly becoming an important distribution channel for dealers and their efforts to increase trading velocity and reduce balance sheet usage. Our vast network of investors and dealers operating an open trading provide an additive tool of liquidity for dealers to move bonds. In the third quarter, open trading accounted for 37% of U.S. high-yield volume, 15% of U.S. high-grade volume, and 13% of emerging market volume. Slide six provides an update on our international progress. International client volumes were up 24% year-over-year driven by a 26% increase in the number of active clients to over 600 firms. All four of our core products continue to show solid growth in active trading clients. Emerging markets activity was especially strong during the quarter. Overall EM volume with international clients was up 38% and local market volumes were up 22%. We had approximately 900 firms globally trading EM during the quarter. We are encouraged by the momentum we see in EM in spite of benign market conditions. Our preparations for MiFID II are on schedule and we have reached multiple milestones to support our clients in meeting their regulatory obligations. MarketAxess has been granted approval by the U.K. FCA to operate as an APA for trade publishing and as an ARM for transaction reporting. MarketAxess was also recently approved by the Monetary Authority of Singapore to operate as an RMO. This demonstrates our continued investment in the region, but also addresses clients' demand by providing a new trading platform with a regulatory structure that meets the needs of our clients in Asia prior to MiFID II implementation. We expect the MiFID II reporting, transparency, and best execution obligations to drive greater demand for electronic trading and market data solutions. We have made significant investments in all three areas to help our clients with the upcoming regulatory changes. Now let me turn the call over to Tony for more detail on our financial results.

Thank you, Rick. Please turn to Slide 7 for a summary of our trading volume across product categories. Our global volume increased 8% in spite of the continued lackluster market environment. Global trading volumes passed $1 trillion on a year-to-date basis, up $132 billion year-over-year. U.S. high-grade volumes were $201 billion for the quarter, up 13% year-over-year primarily due to an increase in estimated market share. Volumes in the other credit category were up 9%, while estimated aggregate market volumes for emerging market, high-yield, and Eurobond were down 5% year-over-year. There has been a fairly consistent pattern over the past three quarters with strong growth in emerging markets trading on our platform and lower than average growth in high-yield in Eurobonds. For the first time, municipal bonds traded on the platform exceeded $1 billion in the quarter, and over 50% of the trading volume was through open trading. Recent news has had an impact on Micro Lot trading in U.S. high-grade bonds. Our trading volume and market share in Micro Lot have grown significantly over the past five years. Our estimated market share trading volume under $250,000 in trade sizes was 23% compared to the aggregate of all retail ATS trading platforms of 21%. With five important trading days remaining in the month, high-grade and high-yield market share are tracking below third-quarter levels. While overall average daily volume is tracking similar to the third quarter. On Slide 8, we provide a summary of our quarterly earnings performance. Quarterly commission revenue and overall revenue were up 6% and 7%, respectively, and are fairly consistent with the overall growth in trading volume. Information and post-trade services revenue increased by 14% driven by higher data revenue. Operating expenses were up 13% year-over-year leading to a 2% increase in income before taxes. The effective tax rate was 28% in the third quarter and reflects excess tax deductions of approximately $3.8 million relating to the new standard for share-based compensation accounting adopted effective January 1st, 2017. The full year effective tax rate is trending towards the lower end of our 26% to 28% guidance range. Discussions around tax reform heated up, and while it’s too early to speculate on the outcome at 2017 earnings levels and business mix, we estimate that a 10 percentage point reduction in the U.S. Federal Corporate Income Tax Rate would increase EPS by approximately $0.40 and drop the effective tax rate by 7 percentage points. Our diluted EPS was $0.90 for the quarter on a stable diluted share count of 38 million shares. On Slide 9, we’ve laid out our commission revenue, trading volumes, and fees per million. Total variable transaction fees were up 2% year-over-year as an 8% increase in trading volume was offset by a mix shift and the impact of our new high-yield fee plan. U.S. high-grade fee capture was up $7 per million on a sequential basis, likely due to a roughly half-year increase in yields for bonds traded over the platform. The percentage of volume in our tiered size bucket did not change much in the second quarter. Our other credit category fee capture was down $22 on a sequential basis. In addition to the typical swings in fee capture, this was only resulting from fee mix among products and protocols. The third quarter other credit fee per million also reflects the impact of the new high-yield fee structure implemented effective August 1st. At this time, we have 10 dealers participating in the distribution fee plan which amounts to $1.5 million in monthly distribution fees. The variable transaction fee per million for all high-yield bond trading post-implementation has been roughly $350. We expect fourth-quarter distribution fees to be approximately $1.5 million higher than third-quarter levels. Slide 10 provides you with the expense detail. Sequentially, expenses increased by 4% due to higher compensation and consulting fees mainly associated with various regulatory-related initiatives. A loan of non-recurring lease costs was offset by a decrease in marketing and advertising expenses. September year-to-date expenses were up 8% and full-year 2017 expenses are expected to land in the lower half of our original guidance range of $192 million to $208 million. Overall headcount is tracking close to our original plan and is up 44 from the year-end 2016 level. The majority of the expense variance versus the midpoint of our guidance range results from lower than anticipated variable incentive compensation. On Slide 11, we provide balance sheet information. Cash and investments, as of September 30th, were $376 million and trailing 12 months free cash flow was approximately $147 million. During the quarter, we paid a quarterly cash dividend of $12 million and repurchased 64,000 shares also at a cost of $12 million. In September, the existing share repurchase program was terminated and our board approved a new $100 million program. Repurchases under the new program began on October 2nd. Consistent with the prior plan, the primary intention of the new repurchase program is to offset dilution from employee equity grants. Facing the third quarter results, our board has approved a regular quarterly dividend of $0.33. Now let me turn the call back to Rick for some closing comments.

Thank you, Tony. In spite of extremely difficult trading conditions, we are pleased with the growth we are seeing in many aspects of our business. We are investing more than ever in technology solutions for our clients to meet their regulatory and trading needs. The future opportunity in electronic trading for credit markets remains large and our competitive position has never been stronger. Now I would be happy to open the line for your questions.

Hey, good morning guys.

Good morning Patrick.

Good morning.

So, with yesterday’s news of BondPoint selling to ICE for $400 million. How do we evaluate the competitive threat that ICE would pose at some point in the future? And, do you see is there any difference from when Tradeweb acquired BondDesk in 2013?

Thanks, Patrick. Today the retail segment has largely remained separate and apart from the institutional business that we operate, and we don’t really see any changes to that dynamic. Our Tradeweb acquisition of BondDesk four or five years ago is an example of where that business remains largely retail without much intersection into the institutional business. We have great respect for the team at ICE and what they have been able to accomplish, and we are sure that they’ve been thoughtful about the acquisition. I think our calculation and thought process for various reasons was a little bit different and, as Tony pointed out, we are very active in that segment of the market already and our share has been growing rapidly in trades under $250,000. When we look at it today, our share of those trade sizes is greater than all other retail ATS systems in the aggregate. What is perhaps less well known is that all of the retail market participants are now active on the MarketAxess System. The retail liquidity providers have been here for a long time given the Micro Lot institutional trading opportunities that we create for them, and increasing retail brokerage firms and wealth advisors are finding us. The component of that business that’s been growing in trades under $250,000 is coming from retail market participants. We continue to believe there are three key things driving a successful marketplace: the liquidity providers in the vast network of available liquidity, order flow from liquidity takers, and technology. We feel very comfortable with our assets in that phase, and the one change that we would need to make to have a more focused effort on retail is providing responses through streaming prices as opposed to our current queue. We are very comfortable with where we sit in that part of the market, and the beauty of our platform is that there are no boundaries, and we do see an increasing presence with retail clients on the MarketAxess System.

All right, thanks, it’s very helpful. And, then as a follow-up to that, if we were to see more competition in the institutional space, what would concern you more? Would it be somebody entering with an aggressive pricing strategy or if somebody had new trading protocols? Is there anything out there that would really concern us and look different from everything we’ve seen in the past?

Well, I think we’ve seen a lot, Patrick. As you know, you’ve been following us for many years. We’ve seen various competitors come with new pricing schedules, including zero pricing in some cases. We’ve seen them come with new protocols and new approaches, but what has proven to be the case through time is that our 17 years of investment in building our technology platform with various trading protocols relevant to institutional investors and building the broadest network of liquidity providers and clients on our system has made it difficult for new entrants to come into the space. There are no signs of that changing. The competitive data we picked up during the third quarter demonstrates that we continue to be the strongest E-trading platform in credit markets, and our growth rates are extending that lead. What we worry about is if we were not investing; if we were standing still and hoping to maintain our share based on what we have done in the past, that would be an enormous mistake. The reality is we’re investing more than anyone else in the space by a wide margin. We continue to add client segments, new products to our trade systems, and we continue to add new trading protocols. Importantly, we are investing very heavily in data tools for our clients. That investment gives me confidence that we can continue to extend our competitive lead.

All right, thanks very much. I’ll jump back in the queue.

I just want to circle up on BondPoint again. I appreciate your comments on your thought process on the deal being a little different. Maybe just a two-part on that. Can you talk about some of the metrics that you look at when you consider M&A more broadly? And then for this deal specifically, can you discuss the scenario where it made sense to go beyond some of those metrics given that it could have been an opportunity to keep the competitor at bay?

Sure, I’m happy to answer both. As you would expect, we are very interested in acquisitions that are going to add important clients to our platform or new product capabilities or new geographies. This deal didn’t do any of those. As I mentioned, the retail clients are already on the MarketAxess System, and we have the largest share of trades under $250,000 today. So, our calculation on this one was that this is a very modest add in terms of earnings accretion for our shareholders at a very full price. We think that by investing more into technology and sales focus organically, we can achieve much better earnings accretion for our shareholders at a much lower cost. We are playing a long game here and thinking about where we want to be 5 or 10 years from now. We are wide open to acquisitions, and anything that would really add technology, products, or clients to our trading systems that would benefit our shareholders is something we continue to be very interested in. We also don’t restrict ourselves to trading acquisition—dealer, data analytics, and post-trade services are also valuable to us. So, those are the kinds of things we think about as we look at potential acquisitions.

That’s helpful, thanks. And then just want to get your updated thoughts on building your own retail trading platform now that BondPoint is off the market?

Sure. We have a tremendous amount of focused effort and we’ve been gaining a lot of traction in retail. We’re happy to provide more specific numbers, but retail liquidity providers and increasingly wealth advisors and retail brokerage firms are important parts of the daily trade that takes place on MarketAxess. That’s why you see our share of trades under $250,000 larger than anyone else by a wide margin. To compete directly with the retail ATS businesses, we would need to convert what is now an institutional protocol—highly competitive RFQ—into a price stage for which is a fairly straightforward change. We would also need more sales focus in terms of convincing retail market participants to take advantage of the pricing that’s on our system. We have the largest share in the $250,000 and under trade segment because we provide the best places in that space, which is why the most price-competitive clients in the world use MarketAxess for micro lots. I am confident that as we focus more on this, we have an organic opportunity to continue to expand our retail business.

Got it, that’s helpful. Thanks. And then Tony, just one for you on the balance sheet. You’ve always operated with a very clean balance sheet; cash rich partly, I think that’s been because M&A opportunities can come up from time to time. Any thoughts on changing your leverage position now that one potential opportunity is gone?

Really no change in our thoughts around the balance sheet. We’ve always had the philosophy of maintaining a strong balance sheet; we like the operating flexibility it gives us to act opportunistically if there are M&A activities or share repurchases. There’s really no change in our plans for capital returns, including the dividend. We’ve been targeting about one-third payout of free cash flow and earnings. We’ve increased that dividend 400% since launching it in 2019, keeping pace with earnings and free cash flow growth. On the repurchase side, we’ve had a stated policy of having a repurchase plan in place; we like that, and the primary goal of the current repurchase program is to offset dilution from equity grants. We plan to stay the course on that. So really no changes, but we have the flexibility to adjust if needed.

Thanks for taking my questions.

Hey guys, good morning. Open trading has been 15% or so of high-grade volume now for four consecutive quarters. Just talk about why you think that has slowed. I know markets are very tough right now with low volatility, but I’m particularly interested in how the market environment impacts the ratio of open trading as a percentage of total high-grade volume.

We are happy with the growing participation we see in open trading, but there is no doubt that the market environment impacts those growth rates as it does for our overall business. I think when the time comes for open trading, it will show its value to our clients as we move from a heavily one-way market with investors looking to add bonds to a two-way market where both investors and dealers are looking for alternative sources of liquidity. This is far from a normal secondary market environment we are dealing with right now. Despite the ongoing challenges, we think we are positioning the business well for the future as an extremely valuable source of liquidity when market conditions change.

Okay, great. And then on the global regulatory changes that you guys talked about with MiFID, can you quantify what you are incurring this year, and what next year could be in terms of being higher or lower, and then any sense from a revenue perspective or an opportunity perspective, just how you may benefit? I know you can’t quantify at this point, but any broad sense?

Yes, Chris. I’ll give you some insight on the expense side, and then we’ll have Rick cover a bit on the revenue side. We are incurring additional expenses this year; the majority of those are related to professional consulting. The bulk of that uplift year-over-year and from the second to the third quarter is tied to planning on MiFID II and establishing new trading venues and responding to regulatory changes. There have been additional expenses this quarter, in particular, and some of these will recur while others are non-recurring. There is a chunk of technology-related costs; we’ve incurred approximately $4.5 million this year for MiFID II compliance, which has been capitalized. Once MiFID II goes live, we will start amortizing those costs over a period of three years. As the landscape changes, particularly as we register in more jurisdictions and meet client needs globally, you will see an increase in expenses in this area.

On the revenue side, Chris, we believe we are well-positioned to take advantage of changes primarily through MiFID II. First, of course, our track status business should benefit from the increased regulatory reporting obligations for both dealers and investors. Given the clients’ options for transactions, we anticipate reporting revenues will increase beginning in January next year. Secondly, our data products are doing well; much of that generates from tracks data products which require clients to think more specifically about execution and transaction cost data, which is a critical component of that analysis. Finally, on the trading side, there are clear advantages for investors and dealers to trade on regulated trading venues built into MiFID II. We expect that our trading activity will grow on regulated trading venues, and we think we are seeing signs of that as our growth rates in trading volume with European clients are currently outpacing growth elsewhere in the world. We believe all three sides of our business will benefit from increased electronic trading adoption, growing regulatory reporting revenue, and a larger base of revenue coming from our data products.

Okay, thanks. And one last one on high-grade fee rates, Tony. It looks like in October, quarter-to-date, volumes are a little more tilted to larger bonds. So, is high-grade fee capture turning down a little from Q3 levels so far in the quarter?

As much as I would like to provide day-to-day or month-to-month updates on high-grade fee capture, we typically don’t offer that level of granularity. You are correct that when looking at the trade volumes for this month in October, larger trade sizes have picked up a bit. However, I can tell you that often, we should be cautious about drawing conclusions from this early in the quarter. While you might expect a bit of downward pressure on fee capture as a result of this, keep in mind that we did not have the full new high-yield fee plan reflected in the third quarter, so you would expect the other credit fee capture to decrease in the fourth quarter. Just remember that there is a bit of a flip between distribution fees and variable transaction fees, and I wouldn’t be surprised if today’s volume levels are mildly accretive.

Hi, good morning. Just a follow-up on MiFID II. You outlined that could accelerate electronic verification in the market. But in the quarter, we saw MarketAxess and other trading platforms in Europe address a letter to ESMA that MiFID II could drive business away from Europe. I’m trying to understand if you could help us understand this dynamic or its potential risk.

Sure. Our concern is that the regulatory reporting requirements are so onerous that any client that does not need to be captured within the MiFID II environment will choose to operate outside of it. You see some signs of that already with client segments that are not directly in the EU. I don’t think it necessarily changes the amount of trading that clients will do within European fixed income or emerging markets, which remain active within the European region, but any client who can avoid the obligations built into MiFID II is working hard to do so. The letters about reporting obligations indicate that our acceptance of trade-by-trade reporting requirement at 75 pages is something we’ve never seen, and we’re working hard to make that as easy as possible for our customers. However, that is a significant burden for institutional investors having thousands of transactions per day in many cases.

Okay. And then, I guess one more on MiFID, could you add color on what you’re seeing in terms of changing behaviors at this point from MiFID II? I know you mentioned the growth in Europe is outpacing the U.S., but are you having discussions with global asset managers affecting their entire business including the U.S. or is this really going to be isolated to the European business in your view, with the U.S. trying to stay out of a lot of these regulations?

That’s an open question right. Global asset managers are grappling with it right now; if they run a global portfolio and unfortunately it is in Europe, do they need to adopt MiFID II standards for the entirety of the portfolio, or just for the part based in Europe? Every firm has a slightly different view on that. It’s safe to say it is having implications beyond just Europe. The primary areas we are focused on now aren’t directly in line with dealer research. There’s a ripple effect occurring beyond Europe, while most of the activities we’re involved in deal directly with clients getting ready to comply with new reporting requirements, best execution requirements, and fulfilling all obligations built into MiFID II.

Okay. Just one more for me. There was a recent article in the Journal regarding the increases of ALGOS and automated trading by dealers in the U.S. corporate debt markets. I think this is an opportunity you mentioned in the past, but what could the impact be to your business? Are you seeing increased adoption of ALGOS by dealers on your platform, and do you think this could increase hit rates on your platform over time?

Absolutely. It’s part of the growing success we have seen with small tick sizes: the growth in ALGOS is significantly increasing the price responses for smaller trades. Most of that activity, which is fully electronic from the ALGOS, is in the $500,000 and under trade sizes in corporate bonds. We have definitely seen an increased number of ALGOS that are live and working on the MarketAxess System, and we are aware that more are coming. I think it’s a positive development for the small ticket business in corporate bonds, as clients will see more pricing and competition from those investments.

Yes. Hi guys. I don’t think your operator likes me, but anyway. So, my first question involves what Rick talked about in this other credit that emerging markets, the growth has outpaced high-yield in Eurobonds and certainly that’s the case year-over-year. However, if you look more recently, it seems the mix has changed a lot more. So, can you add any insight into the growth rates in that bucket, the other credit bucket between high-yield, emerging markets, and Eurobonds? What’s causing emerging markets to appear to be dropping off quarter-over-quarter?

You mean the growth rate is slowing, is your point Rich? It’s not dropping off, right?

Yes.

I think relative to anything, any growth right now is good growth; it’s not a normal environment by any means. You can look back at previous periods and see when credit spread volatility is this benign that you get flatter growth rates. We are now at levels where spreads do not normally go any lower, and the key question is when that starts to happen. These are great growth rates in this kind of environment because we’re building a global EM marketplace that includes all major currencies in external debt and local markets. Clients are embracing the platform across all regions. We’ve seen great growth and new clients coming on board in Asia, and new clients coming on board in Latin America. The technology on MarketAxess has no boundaries, so the ability for EM market participants around the world to trade with each other is creating efficiency and lowering transaction costs. When you compare our EM growth rates this quarter to everything else going on, we look exceptionally good. And the nice thing is it’s only the beginning; we still think our overall market share in EM is high single digits. There’s a tremendous opportunity with broadened client participation and increased market activity, which gives us great confidence this will be a long-term growth area for MarketAxess.

That’s fair, Rick, that’s fair. I assume one last question on BondPoint; the way you explained it with your liquidity metrics, your match rates ought to be much higher. I assume due to the streaming coding capabilities you’re missing. How fast could you build that, and if that’s the case, why have people been using BondPoint? If you have significant liquidity, what’s preventing them from using MarketAxess other than the need for streaming capability? How quick can you build that, and is it a matter of allocating investment or capital and so forth?

Absolutely, yes, it’s clear given the adoption of the retail client segment on our platform that we need to invest in those modest technology changes. It’s all about prioritization. When you look at the retail market in U.S. credit and consider trades, the total market share of trades under $250,000 is about 5%. We’ve focused on the 95% of the market, which is dominated by institutional clients. However, since our liquidity is good for trades under $250,000, retail clients have been increasingly finding and using MarketAxess. The pricing is attractive, and we need to convert what is now an institutional protocol—which is the RFQ model—into a price-based format that retail brokerage firms are familiar with. We are optimistic that we can make those changes and grow our participation in that segment even further.

Yes. Follow up on your Micro Lot market share. How much of that market share gain has been driven by your efforts to build up share with retail wealth managers and market makers, and how much comes from ETF market makers attempting to trade in smaller lots?

I think the majority of it is from the former. We have always been a key venue for retail market makers because of the Micro Lot trading opportunities that our institutional investors cannot conduct on the platform. We have many trading opportunities throughout the day for those market makers, which has been a key source of liquidity for us in small ticket trades. The ETFs are increasingly getting involved too, and that area has been a growth area for us over the last year or two. However, I would emphasize that retail market makers constitute a much larger part of our activity on the platform for those trade sizes.

Got it, and then one more question if I could? It’s still early days with your new high-yield pricing strategy and we can see what the market share has done. In conversations with liquidity providers in the high-yield space, do they seem more inclined to provide liquidity now that their variable costs will be lower?

I think the answer to that is yes. We are pleased to have 10 major high-yield dealers embracing the new fee plan. It’s a fee model that scales well for them as it allows them to do more volume on the system. Anecdotally, that’s the feedback we’re receiving, and the new fee plan includes benefits for our clients and liquidity takers as well, given the variable fee is roughly half of what it was prior to the change. It’s a better fee model all around, and the major dealers are happier with this plan and willing to support future growth in high-yield. However, the key difference in high-yield this quarter is that it doesn’t stem from traditional institutional investors or major dealers. It’s simply that the players driving high-yield volatility are very quiet right now. The ETFs that are very active trading the shares versus the bonds are seeing significant drop-offs in activity, which is reflected in the trading volumes.

Hey guys, thanks for taking the follow-ups. Two real quick ones: in Eurobonds, it’s small today, but given the market share declines over the last couple of quarters, do you see any need to adjust the pricing? And then, secondly, in block trading, can you give us the market share numbers and how that has changed year-over-year?

So, Chris, on the Eurobond side, you might recall in the second quarter earnings call, we had some comments about probably revisiting a couple of elements of the fee structure. There was some concern from dealers about specific components. In September, we made adjustments to certain specific elements around European high-yield fees and we actually reduced the fees to be more consistent with our new high-yield plan in the U.S. We also made changes to long-dated paper, but we weren’t seeing much traction there. We made those changes, but as Rick mentioned on high-yield, the macro environment is dominating the landscape right now. It’s difficult to assess the medium-term impact of these adjustments, but we do expect that these changes will help mitigate some of the noise around specific components of the plan.

Just to add on that Chris, I think the trends we see in our European business are representative of broader market behaviors. With the ECB's quantitative easing—including corporate bond purchases—over the last 18 months, Eurobond spreads are at all-time low levels. European institutional investors are trading more in EM and U.S. credits than in Euros. Our overall European business is growing well, but product activity has shifted toward EM and U.S. credits due to the strong demand for yield among European investors, rather than Euros. It’s quite possible that tomorrow might mark the beginning of a shift in ECB quantitative easing policies, and the market is awaiting announcements on their intended actions. This could create opportunities for trading as the ECB ceases corporate bond purchases.

On block market share, it was quite consistent with what you saw in the second quarter, which was right around 9%. To recap, we talked about this in the second quarter call: it was approximately 7% last year for the full year, 8% in Q1, and the last two quarters have been about 9%.

Hey Rick, just one follow-up on your relationship with BlackRock and the Aladdin platform. Is that exclusive, or can Aladdin hook up with other parties? Are they already connected to other platforms, or is it exclusive?

They are totally hooked up to other parties. Aladdin is a broad trading risk and analytics solution for not just BlackRock but all their Aladdin clients. They are connected to many different trading venues and ensure they’re delivering the best pricing for their clients. They are highly confident that MarketAxess continues to deliver great liquidity, excellent pricing, and efficient integration with the Aladdin System.

Thank you for joining us. We look forward to talking to you next quarter.