MarketAxess Holdings Inc (MKTX) — Q1 2018 Earnings Call Transcript

Good morning, and welcome to the MarketAxess First Quarter 2018 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, 2017. 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 to discuss our first quarter 2018 results. This morning, we reported first quarter results driven by record trading volume of $465 billion up 18% compared to Q1, 2017. Additionally, volume records would set this quarter across each of our four core products. Our estimated U.S. high grade market share also reached a record of 18% this quarter, up from 15.9%. On the back of strong trading volumes, first quarter revenues were a record $115 million, up 11% compared to Q1, 2017. Operating income for the quarter was $60 million up 9% from a year ago and diluted EPS was up 14% to a new high of $1.27. Expenses of $54.5 million were up 14%, including $1.7 million in duplicate rent expense for Hudson Yards. As per the double rent charge, EPS would have been up 17% year-over-year. Open trading adoption continues to accelerate and reached record volume of $81 billion, up 38%. Additionally, the trading volume with international clients reached a record $130 billion this quarter, representing an increase of 30%. Slide four provides an update on market conditions. Overall secondary trading conditions improved modestly in the first quarter. Interest rates moved higher and volatility improved in both interest rate and credit spreads. Overall trade’s high grade market volumes in Q1 were relatively flat year-on-year while high yield trades volumes were down 4%. As a result, our trading volume and revenue growth was driven primarily by market share gains. New issuance was down 13% versus last year's first quarter. U.S. credit mutual fund inflows continue to be strong. We are pleased with our results in the context of the market environment and remain confident in the secular trend towards greater electronic trading in global credit markets. Slide five provides an update on open trading. Open traded volumes were $81 million in the first quarter with average daily volume of $1.3 billion, up 40% from the same period last year. Open trading represented 17.5% of our volume in Q1, up from 15% last year. Approximately 204,000 open trading transactions were completed in the first quarter, up from 147,000 in Q1, 2017. Liquidity providers or price makers on the platform drove 820,000 price responders, representing a 71% increase in activity in the first quarter. Liquidity takers staged an estimated $32 million in transaction costs through open trading on the system, up 28% from the first quarter last year. Participants benefited from average transaction cost savings of approximately 2.4 basis points in yield when they completed a U.S. high grade transaction through open trading protocols. In a recent Greenwich Associate survey, investment managers cited price improvements and all-to-all trading as the two most important factors for selecting a trading venue. Slide six provides an update on our international progress and MiFID II. The momentum in our international business continued in the first quarter. MiFID II implementation contributed growth in European Client traded volumes and post-trade revenue. European Client volume was up 29% year-over-year, led by a 52% increase in emerging market volume and a 22% increase in euro bond volume. In addition, Trax’s post-trade services revenue increased by $2.1 million in Q1 primarily due to MiFID II regulatory reporting services and non-recurring MiFID II implementation fees. European data revenues were up 25%. In Asia, client onboarding is accelerating with our new regulated trading venue in Singapore. To date, over 35 dealers and 80 investor clients are engaged on the RM level. Our emerging markets business continues its strong growth trajectory with first quarter record trading volume of $105 billion, up 33%. Approximately 940 firms are now active in global EM trading on the system. In addition, on the EM External debt trading, we are encouraged by the progress we are making in local currency bonds. Trading volume in the 25 local EM markets available on the system grew by 43% during the quarter with further progress in block trades. Volume from international clients now represents 28% of global volume, up from 18% three years ago. Now let me turn the call over to Tony, for more detail on the financial results.

Thank you, Rick. Please turn to slide seven for a summary of our trading volume across product categories. U.S. high grade volumes were $251 billion for the quarter, up 14% year-over-year. Higher estimated market share accounted for the vast majority of the volume gain as U.S. high grade trades to market volume was up an estimated 1%. We completed approximately 66,000 block trades during the first quarter, almost double the number in just two years ago. Our estimated market share of U.S. high grade trade over 5 million in trade size was potentially 9% during the first quarter and is a big contributor to the 2.1 percentage point increase in overall market share. Volumes in the other credit category were up 25% year-over-year as our emerging markets high yield and euro bond trading volume all hit records during the quarter. Sooner, the U.S. high grade market share gains were the main driver behind the emerging markets high yield and euro bond volume growth. April had seen a reverent to 2017 type market conditions with the decline in volatility and credit spreads. Aggregate estimated market volumes for our core products are down around 14% from the first quarter levels. With four important trading days remaining in April, estimated U.S. high grade and high yield market share is running below first quarter levels but similar to shares posted in January. On slide eight, we provide a summary of our quarterly earnings performance. Overall, revenue was up 11% year-over-year. The increase in trading volume drove commission 9% higher. The uplift in post-trade services revenue is due to a combination of new customers and added services and the impact of the weaker U.S. dollar versus the Pound Sterling. Operating expenses were up 14% year-over-year leading to a 9% increase in operating income. Excluding duplicate rent expense recognized during the build-out phase of the company’s new corporate offices in New York City, operating income was up 12%. The effective tax rate was 21.4% in the first quarter and reflects a reduction in the federal income tax rate and other changes associated with the Tax Cuts & Jobs Act and $1.8 million in excess cash benefits related to share-based compensational awards. As mentioned on the January earnings call, we expect the effective tax rate for the next three quarters will be roughly 25%. Now diluted EPS was $1.27 on a fairly stable diluted share count of 37.9 million shares. On slide nine, we have laid up our commission revenue trading volumes and fees per million. Total variable transaction fees were up 3% year-over-year as the 18% increase in trading volume was offset by a mix shift within certain products and the impact of our new high yield fee plan implemented in the third quarter of 2017. US high grade fee capture was down both sequentially from the fourth quarter of 2017 and year-over-year. There are three primary reasons our U.S. high grade fee capture varies from period to period. First, our fee plan is tiered based on ticket size, second the fees we earn are dependent on bond duration, and third, we give dealers a choice of fee plan. The sequential decline in high grade fees per million reflects a higher percentage of volume traded in modular sized buckets and lower duration caused by a decline in years to maturity. Our product credit category fee capture was down $11 on a sequential basis. Approximately half of the variance was due to Eurobond fee schedule changes implemented effective January 1st. We also experienced the typical swing resulting from mix shifts, namely a higher percentage in emerging market volumes in sovereign bonds. Slide 10 provides the details on expenses. Sequentially, expenses increased by 10%, primarily due to higher costs for compensation benefits. The variable bond was $3.7 million higher, and employment taxes and benefits rose as a result of typical first quarter seasonality. The sequential rise in occupancy costs is attributed to a duplicate rent expense of $1.7 million. Year-over-year, expenses increased by 14%. Excluding the duplicate rent expense and the effects of foreign currency fluctuations from the weaker dollar, the year-over-year rise in total expenses was around 7%. An approximate 10% increase in average headcount led to a $1.6 million increase in compensation and benefits costs. On slide 11, we present the balance sheet information. As of March 31, cash and investments totaled $400 million compared to $407 million at the end of 2017. In the first quarter, we distributed our year-end bonuses and related taxes, totaling about $32 million, along with a quarterly cash dividend of $16 million. We also repurchased a total of 72,000 shares during the quarter, comprising 31,000 under our share buyback program and 41,000 related to tax obligations upon the vesting of employee stock awards. As of March 31, approximately $88 million was available for future purchases under the share buyback program. Following the first quarter results, our board has approved a $0.42 regular quarterly dividend. Now, I will hand the call back to Rick for his closing remarks.

Thank you, Tony. We are pleased to see the improvement in the secondary market environment leading to record volumes and market share in the quarter. MiFID II implementation has created additional momentum in our European and International business. Adoption of open trading is accelerating leading to important transaction cost savings for our clients. Now I'd be happy to open the lines for your questions.

Hey guys, good morning.

Good morning, Chris.

Good morning, Chris.

So I think over the last year or two, you've seen more dealers auto quoting for smaller trade sizes, just want to get your take on what inning you think we are in, in that trend with the bigger dealers and is that happening mostly today on trades under a million, two million? I think that’s somewhere in the range. And to what extent are you seeing those thresholds increase?

Sure, I’d better take that one, Chris. There has been a significant increase in algo generated price responses over the last two years. As far as where we are, I would say probably fourth or fifth inning we are seeing new dealers come on with algos virtually every quarter. Most of the trade prices are sub 1 million and even more specifically probably sub 500,000. But I think what you are seeing is a transformation of high-grade trading where dealers increasingly are responding through algos, and client adoption of our execution is picking up as well, whereby when certain parameters are met with the price responses they receive, they execute that trade without manual intervention as well. I think this is a really important development for the market. You are all aware that nearly 90% of tickets reported their trades are under $1 million. So this is another way that we can significantly increase the efficiency of trading smaller tickets at lower costs for both dealer and investor clients.

Right, great thanks, Rick. And then regarding block trades, good progress there especially on shorter duration paper. I’m assuming you look at blocks share by duration, so can you give us a sense of what – to what extent you are seeing improvements in longer duration paper as well, if at all. Thanks.

Sure, I’ll take that one as well. It was a great quarter for us for block trading. The big story starting the year was the increase in economic activity in the world, some uptick in inflation numbers and growing expectation that the Fed will move rates up more quickly than people had anticipated. On the back of that, it led to quite a bit of short-end activity and we were pleased to see many block lists come into the market are consistent and receive great pricing leading to record numbers in blocks or record share. As Tony mentioned, it was a quarter of more of those block trades and block lists. We’re at the shorter end of the curve, which was one of the factors that reduced the fee capture in high grade during the quarter. We had seen improvement out of the curve as well, but this quarter the majority of the activity was in – within block trade three years and under a maturity.

Okay. And then lastly guys the expanded relationship with Blackrock in Asia, just maybe talk about what that means, kind of beyond the marketing message, what it means on the ground? Thanks.

Well I think you know as Blackrock has been a very important partner for us. And with their full support and activity, we have made great progress with open trading in the U.S., increasing momentum in Europe, and this is the third leg to really promote open trading throughout the Asia region. So as I have mentioned before there are lots of components of that partnership with Blackrock, one is they fully support the move to all-to-all trading with their trading activity. We get excellent advice from them on protocols and things what they believe would work well in the market and the piece that’s also an important part for both of us is the integration with the Latin client network. And so all those parts are in motion with the extension of our joint venture with Blackrock into the Asia region.

All right. Thank you guys.

Yes, hi Rick, hi Tony. Good morning. So I guess the first question is on the fee per million and trying to understand sort of the pricing dynamics. Can you give us any insight if rates continue to go up, with the different moving parts that you sort of outlined what moves the rate per million? How would you expect it to generally play out? Is it a general trend? If you looked over the last few years, if you looked way back before rates went down to zero, you know the high grade was significantly less so, so any scenario analysis that you’ve done that sort of can help us think about the rates going forward?

Rich, we can. And I said three big items in the prepared remarks around trade size, duration, and the dealer choice on the fee plan. At times we've given some guidance or rule of thumb on how to look at those variables and just to put in perspective. The yield movements are probably the least important of those three items, so if you had a for example, a one percentage point change across the yield curve, that could equate to something like $10 or $15 per million and that's all out equal that would give a rule of thumb or sensitivity around the yield change. When I say the bigger pieces, they're probably – they are probably around maturity and even the dealer mix has a big influence. On the maturity side, we did see some of that impact in the first quarter where yes the maturity came in almost one year versus the fourth quarter. Every year, the maturity could be $10 or $15 per million as well, so you have some influence there. I would tell you this on a longer terms basis, if you look at the high water mark for fees per million for high-grade, which was a little over $200 per million, by far and away the largest impact has to do with the dealer mix or the dealer choice of plans. Today we have 33 dealers on the distribution fee plan. When we hit the high water mark of $205 per million, we had 22 dealers on the plan. So, if you recall there's a geography switch in where we have more fees coming through distribution fees and lower fees coming through variable fees. So longer term it’s a dealer choice influence the outcome significantly. Shorter term you see those mixes around duration and around trade size as well.

And I know longer term as far as revenue and I guess that's where we're all focused on, but longer term you would increase revenue, but when you expect more dealers to go to – just the 33 number to go up and maybe volumes go up, but fee capture decline as you say it’s the biggest factor?

It's tough to predict what the dealers are going to do. We do provide choices in particular in U.S. high-grade and high-yield. It's tough to predict what dealers are doing. They're responding to their own forecast and projection. They're responding to the economics of our fee plan, so it's tough to predict. Every time we say we're not tracking any dealers who are going to migrate up. We get one or two, but right now we have 33 under the distribution fee plan and another 40 or so on the variable plan. So there is potential for momentum, but right now we're not tracking anything.

Got it. Okay. And then just one last question, quick question on expenses, so I saw the head count was flat from year end, expenses were certainly below what we expected and I guess the question is, the expense guidance remains the same for the year, so did some of the sort of the expense increases get pushed out and would be later in the year versus in the first quarter?

Rich, by not saying anything on the expense guidance we can figure out that we're still expecting 2018 expenses to fall within that range. And there are still some swing factors that we have going forward. I'll tell you head count is one of those swing factors which I'll comment on the second, but where we come out in headcount could move the expenses up or down. The variable bonus accruals tie to performance, so that's the swing factor there. And I'll give you one more, which is just on the foreign exchange movement where we have around 45 million in expenses and that FX movement influences where we come out, but right now, we're expecting to be within the range. If you look at Q1 versus the expectation for the rest of the year, we do expect to have to go up. We've been pretty accurate in forecasting headcount for the last several years. We do expect headcount from this point forward to go by about 10%, so you figured another 40 to 45 bodies we expect to add by the end of the year. And with that one, almost half of those positions are already filled, so between new hires starting in April and May, we have an analyst program that for those new hires come in later in the summer. We've got half of the bodies that are committed already, so you would expect compensation to go up. And the other one that I would tell just if you are isolating line items, you'd expect to go up. On the marketing and advertising line, it is dependent on advertising campaign. It's dependent on trade show participation. What you saw in the first quarter is not indicative of what you're going to see in Q2, Q3, and Q4. You will see an increase in that line item going forward.

Understood. Thanks, Tony and thanks Rick.

Thank you.

Hi. Thanks for taking my questions. I guess first is on the post-trade line, obviously really strong growth you realized in the first quarter. I think you mentioned that some of those may be one-time implementation fees for MiFID. Just wondering if you could kind of break those out and maybe help us frame if there's a new range for the revenue growth for that post-trade line versus the greater than 20% growth you had said previously?

Yes. You saw we reported was about $2.1 million increase year-over-year in post-trade, and three quarters of that, that is new customers and new services related to MiFID II. So that's – the largest chunk is we do believe this is repeatable. There were some implementation fees, it was around $300,000, so I would take that out, that's more one-time and non-recurring. We also had the same foreign exchange impact and that would have been maybe around $400,000 or so. If you're looking going out the next several quarters and that's probably as good as we're going to get in terms of projecting out, we would expect revenues to be in that $4 million to $4.5 million per quarter. So you see the sort of step function increase from last year to this year that is MiFID II driven. Going forward it's going to be dependent on our ability to bring new customers online to add new services, but looking at what we have is sort of a crystal ball right now for the next several quarters, I'd narrow that to that range of $4 to $4.5 million per quarter.

Okay, great. Just a follow-up, I guess on the block trading as well. I think you said a decent portion of the 2.1% market share gain was from block trading. Looking at the charts and the slide deck it looks like about half of that in the right range. And then also if you could help us understand what the average capture rate is on those block trades during the quarter?

So, Kyle, the good news on the market share. We had market share gains across all size buckets, so it wasn't just that – it's block trading. If you look at 100,000 million to 1 million, 1 million to 5 million trade size, over 5 million in trade size. There were pretty robust gains across the board. And yes, it was probably about half of the gain was from the block trading. On the fee capture, it’s a harder one to answer. On the block trading peaks, it does vary from period to period, it is dependent on duration as well, but if you were looking at over 10 million in trade size. Remember, our fee plan doesn't exactly match up with the trade's block designation, but if you look at over 10 billion in trade size, it's somewhere between $50 to $60 per million.

Okay. All right. That's really helpful. And last one from me is just a question on open trading. I think you disclosed Eurobond specifically, 13% of Eurobond volume was open trading. I thought it was lower than that maybe 5% or so last year just due to the fact that buy side clients maybe weren't as comfortable using a price protocol to respond to inquiries. Just wondering if that 5% number I just quoted was accurate for last year? And if you're seeing good uptake in Open Trading in Eurobond specifically and I guess what's driving that if so?

We are seeing good uptake and it’s a result of introducing new protocols for European Open Trading. Kyle, so we're pleased with the progress that we're starting to make there. There's more work to be done, because of the challenges with price page protocols that you mentioned. But we have introduced some new protocols over the last three or four months and it just clearly making a difference.

Hi, good morning.

Good morning, Conor.

Maybe just follow-up on Kyle's question, obviously another good quarter for Open Trading, just longer term as this business continues to grow how should we think about this impacting your balance sheet flexibility? And then I just want to get your thoughts on how we should be thinking about the prospects for maybe larger role for clearing in this product say five years, just be curious how you think this product works in 2023 for example?

Do you take the second one? I'll take about the balance sheet.

You go ahead. You start with the balance sheet.

So, on the balance sheet, Conor, the nature of our Open Trading business today is matched principal trading using a clearing agent. It really does not influence our regulatory capital requirement. Having said that, we are consciously holding excess capital in our regulated entities, so if you look at end of March we had somewhere around $100 million of excess capital in the regulated entities and that to support open trading. I guess my counterparties up to trade through us. If we look at estimated credit losses based on historical default models and even if we use stress environment, the output is significantly lower than the capital that's residing in the business is great now. So we're comfortable with the balance sheet position. So that even if we – and we will, this Open Trading will continue to grow even at multiples of what we're trading today. We still feel that we have a healthy capital position does get to help to get counterparties comfortable with our credit. So no change in the immediate view around the excess capital we were retaining in the regulated entities.

On the longer term outlook for settlements I would expect that we would see positive progress in the industry as a whole and continuing to reduce settlement periods, so the capital at risk will decline with shorter settlement periods and we have a huge benefit in real-time digital, post-trade messages that are going to our dealer and investor clients. And as electronic trading continues to grow, we believe there's further opportunity to use those digital messages to reduce this settlement time from the current two days in corporate bonds. And I think as our activity grows we are working on long-term solutions. We are, as you know, working with the settlement partner today. We would expect at some time to examine more carefully the pros and cons for self-clearing, but we would expect to be part of industry initiatives around how to improve the efficiency of trade settlement overall. And this is where I think you'll see the most progress and we would be big supporters of that clearly because we think that would be yet another benefit of greater electronic trading in the credit markets.

That's really helpful color. Thanks. And then, I know you had been pretty clear that one of the drags on your market share gains in 2017 was some of the e-TFR traders had really pulled back from the market, just I'm remembering it, I think it was 40% of volume in peak and it was down to more like 20% last year. Just curious how much of a pickup in volume you saw from these players given resumptions of some volatility in 1Q?

It is absolutely better year to-date than where we were especially through the last two or there quarters of last year. And my own view is that we are starting to see the very beginning of global quantitative easing unwinding and that is going to move more quickly over the next three or four quarters. I believe this is a significant change in the market environment versus where we have been over the last eight or nine years with consistent bond buying in all three regions from quantitative easing. And you see a very different posture from the Fed. You see important changes taking place with the ECB and the Bank of Japan also wondering whether they need to keep up this level of stimulus. That to me is a very, very important change for the market that is likely to lead to higher rates and more volatility. And with volatility comes more ETFR activity, so in my opinion the odds are greater that we are on a positive half there with participation from that client segment.

Thanks. And maybe just one clarification from me, Tony, the 14% decline number you mentioned was that in reference to the industry or your volumes? Thanks.

Yes. The 14% what I referenced was market volume, so what we're seeing coming through trades what we're seeing coming through our Trax business across U.S. high-grade, high-yield emerging markets and Eurobonds we're seeing about 14% decline in market volumes versus the first quarter.

I would just add to that and tell about a week ago the direction of interest rate had reversed in the first couple of months of the year, treasury 10-year yields went up about 40 basis points and then beginning and around mid-March when the trade more discussions really heated up, treasury yields went the other way and credit spreads did as well. So we had a short-term shift in the market environment, which also created a pause in some of the short-end block activity that we have seen in Q1. Obviously, over the last week the direction of rates has reversed yet again and rates are moving higher, so this situation is pretty fluid but we did have a three-week period where the market environment was different than it had been through most of the first quarter.

That's helpful. Thanks for taking my question.

Hey, good morning, guys.

Good morning, Patrick.

Question for you on the initiative that a bunch of dealers are trying to push out in terms of creating an electronic venue for bond issuance allocation, so not the secondary market but the primary market. Is there any second order impact on you guys in terms of if the industry gets comfortable getting their primary allocation like ETFR, maybe the more comfortable trading on the secondary market electronically?

There has been new issue technology broadly utilized by the dealer community for many years, and much of that is on current platforms today, Patrick, so what we've seen in the media is all we know and something similar to what you're seeing, which is that some dealers have a different view of what that technology should look like and what the protocol should be. But we have been peacefully co-existing with new issue syndicate technology for the entire existence of market access beginning in 2000. And there really isn’t a significant overlap in the technology solution that's at work for underwriting in syndicate and the technology that we have invested heavily in for secondary trading. So I didn't really don't see that as any significant change in the landscape between new issue technology in what we do.

Got it. It's helpful. And then I was hoping you can maybe talk about some of the workflow changes that your clients had implement given the introduction of MiFID II?

Yes. A large part of it is around the new obligations that investments managers have for regulatory reporting, and I'd say, in the near term that has been the biggest change was the source of the client expansion that we mentioned in our prepared remarks. So pretty big change, right, because previous with MiFID I the non-equity reporting requirements reside purely with the dealers. Now they include investment managers. But a lot of that work as you know was going on throughout 2017 so that everyone would be prepared to comply beginning 2018. But it’s a significant change for investment managers in terms of the regulatory reporting regime with MiFID II. The other part of it is around demonstrating analytical measurements for best execution. This opens up new data sales opportunities for us, which is one of the reasons that we're seeing consistent growth in data sales in Europe. The third part, the prevailing view in Europe is that any low market impact trade is better off on a regulated trading venue where the regulatory reporting obligation shifts through the venue. So we think that has done an impact on trading behavior for the low market impact trades resulting in the volume increases that we reported earlier.

Got it. That's helpful. And then last one from me. Do you guys have the ability to look at the yield curve and look at how changes in the yield curve have impacted the revenue caps on the past and say, okay, given what the yield curve looks right now here's how that might impact your high-grade pricing or there just too many variables involved to really trade that analysis?

Patrick, there's so much of work in so many different leverages that impacts fee capture and we're talking specifically about U.S. high-grade here. We could go back and look at longer-term trends and look at the yield curve compared to our fixed-rate fee capture as opposed to floating rate note fee capture, you're going to see that when the yield curve is flatter, clients are trading – and if you trade shorter dated paper you're going to see the fee capture come in a little bit. I caution because you have lots of other factors that work. And I gave the sort of rule of thumb before on what movement in yield means to what and to get much more granular and isolate that we can do it, but it's probably not telling the whole story.

And even in the short-term Patrick, this month is a good example of all the different moving parts being fairly complicated to predict fee capture because while the treasury curve has flattened, our fee capture is actually up due to fewer block trading programs being in the market versus what we saw earlier in the year. So there are lots of moving parts and the best we could do is we fully transparent with you on how our fee model works and report on a regular basis on how they're impacting average fee capture, but it is very difficult to predict one month to the next.

Fair enough. Thank you very much.

Morning guys.

Good morning, Chris.

I guess, just following up on Patrick's last question and I realize you've given us a lot of color. I'm just kind of wondering if you could give us any characteristics in terms of what durational profile looks like this past quarter versus maybe prior peaks and prior troughs, just maybe give us the kind of rule of thumb there as well. I know it's been a concern for some investors in terms of moving forward that's going to revert at more normalized levels as rates revert. So if you could give us any color in terms of where that's in this past quarter in prior peaks and troughs that would be very helpful?

Yes. Peak and fee capture, I mentioned it a little bit earlier, but in the third quarter of 2010, our U.S. high-grade fee capture was at $205 per million. At that the years to mature was about nine years and the 10-year treasury yield was about 2.9 percentage point, so not much change in the 10-year yield versus where we were in the first quarter. Here's the maturity were about a year and a half longer, so that did influence fee capture when we reported the $205 per million. The other difference would have been around our fee plan, where in the first quarter this year we had more trading accruing in larger trade sizes. But as mentioned before, by far and away the biggest difference between the peak and where we are today would be a post-crisis trough, but by far and away the largest impact was dealer choice on the fee plan as they were on. And just to put in perspective, if we were at 205 in the third quarter of 2010, we just reported 154 per million in the first quarter of 2018, $51 difference, and $35 per million has to do with the choice of plan that the dealers were on. And I'll just mention just briefly on sort of the pre-crisis trough, the biggest difference on the pre-crisis trough where we were down if we're just for the variable fee plan we were down at something like $128 per million. The biggest difference there was 30% of our business at that time was floating rate notes. 30%, you look at today, 5% of our business, floating rate note very short duration, the fee capture is appreciably lower, that's a big difference in fee capture, and the years to maturity were 5.5 years, and they were 7.5 years. So it's different environment and again lots of moving pieces here, but today is different than eight years ago, we reported 205 and it's different than 12 years ago when we reported something appreciably lower than where we are today.

Thanks. Very helpful. My other questions have been answered. Thanks guys.

Thanks, Chris.

Sorry, guys. Sorry it's Kyle again. Just one more or two more on fee capture. Just given you just said on distribution fee plan, it seems to be a very attractive options for most of your dealers in your platform, any desire to change the monthly fee there or to introduce more volume tiers for those distribution fees?

No. We don't really have any changes in mind, Kyle, we like more dealers on the distribution fee plan, because in our view it gives them further motivation to have more of their trading conducted electronically on market access. So we are happy with the way that plan works. I think it creates good alignment between market access and the dealers and we don't currently have any plans to change the distribution fee plan.

Okay. And then, I think you mentioned earlier in the prepared remarks that the other credit fee capture was impacted by changes to the Eurobond fee schedule. Can you give us a general range for that Eurobond business is shaking out in terms of fee capture and where you expect to go going forward?

Sure, Kyle. We did make some changes effective January 1st and that is the Eurobond stake and Eurobond specifically it is competitive stake, so we did reevaluate our pricing schedules in light of the increase transparency post MiFID II, so that we have a lot more visibility on where fees are in the market. So we did make some adjustments to put us in line with the market. And as we've predicted we don't fees to be obstacle to growing our business and then we don't being obstacle to growing our Eurobond business. There is lots of momentum with European clients. You saw the numbers we posted. It was 1.9 billion a day in average daily volume, your volumes up almost 30%. So we have to remember that also that more than half of the volume from our European clients is from emerging markets in U.S. credit. So it is a diverse set of bonds that they are trading. Very specifically on where we're coming out now on fee capture and we're four months into the changes that we put in place January 1st, we're in that $110 to a $125 per million range, and even there I caution a little bit because it is maturity-based. It is size-based. We have different fees for European high yields than we do for investment grade, so I do caution, but the first four months here the range been about $110 to $120 per million.

Okay. And then last one I guess is could you tell us or explain again or just go over the dynamics for local EM? You're growing so rapidly in the local EM market. The growth of the entire EM product complex has been fantastic, but in local EM specifically the fee capture differential between that and the external EM capture rates? That's it from me. Thanks.

Okay. Kyle, I probably covered this on prior calls, I don't remember right now, but we have emerging market corporates and emerging market sovereigns, and that will be the two big break points on fees, so typically for emerging market corporates its $400 per million and again regardless of size, regardless of majority $400 per million and then if you look at emerging market sovereign bonds including most of what we do in local markets is sovereign bond its $150 per million. And I'll tell you we are completely transparent on this. We have posted our fee schedules under the new SEF rules. It is posted on our website. So you'll see that 400 for corporates, 150 for sovereigns, that's how our fee plan works right now.

And most local market trading is sovereign bonds.

Yes. Okay. Thank you very much.

Thank you for joining us this morning and joining us this spring and we look forward to talking to you next quarter.