Earnings Call: Q1 2020

Apr 29, 2020

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen only mode. Later, we'll conduct a question and answer session. Please note each person is limited to one question before being asked to rejoin the queue. As a reminder, this conference call is being recorded on April 29, 2020. I would now like to turn the call over to Dave Cressey, Investor Relations Manager at MarketAxess. Please go ahead, sir. Good morning, and welcome to the MarketAxess First Quarter 2020 Conference Call. For the call, Rick McVeigh, Chairman and Chief Executive Officer, will review the highlights for the quarter Chris Concannon, President and COO, will discuss automation and our operational resiliency and then Tony D'Elise, 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 ks for the year ended December 31, 2019, and our quarterly report on Form 10 Q for the Q1. 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 review our first quarter 2020 results. First, let me start by sending our heartfelt thoughts to all of those suffering through hardship and loss caused by the COVID-nineteen pandemic around the world. These are extraordinarily difficult times, and we hope to begin to see the seeds of recovery in the coming months. The sharp increase in credit market volatility beginning in late February led to record quarterly credit trading volume on MarketAxess of $660,000,000,000 up 29% versus Q1 2019. The value of our leading electronic trading platform was evident in record quarterly volumes for all of our core products, U. S. High grade, high yield, emerging markets and Eurobonds. We also set new volume records in new and important product areas, including municipal bonds and U. S. Treasuries. High grade market share was 20% for the quarter, up from 17.6% 1 year ago. Open Trading provided unique trading connectivity to institutional market participants during the crisis and volumes were a record $209,000,000,000 up 55% year over year. The acceleration of trading activity led to record financial results as well. Revenues of $169,000,000 were up 36%, operating income jumped 44% and EPS was $1.96 up 41%. Operating leverage came through clearly during the quarter with operating margins of 54%, up from 51%. Slide 4 highlights market conditions. The sharp increase in credit market volatility started during the week of February 24. Unlike the global financial crisis in 2,008, average daily market volume reported to TRACE increased 27% in high grade and 24% in high yield in the last 5 weeks of the quarter. Market share on market access also jumped higher during the volatile weeks. Unique liquidity available through open trading differentiated our platform. Open trading average daily volume was up 67% in the last 5 weeks of the quarter versus levels seen before the event. The speed of credit widening in Q1 was far greater than 2,008. For example, the high yield spread index jumped from 400 over treasuries to 1300 over in just 4 weeks in Q1. That same level of spread widening occurred over 11 months in 2,008. We have seen an improvement in credit trading conditions over the last 3 to 4 weeks, partly due to the liquidity programs launched by the Fed and other central banks. Corporations rushed to issue more debt as markets began to stabilize in late March, leading to a record $480,000,000,000 of new high grade debt in the quarter. Many companies also tapped their bank credit lines to improve their liquidity position. It is likely that debt issuance will continue to grow in both the private and public sectors, leading to even greater secondary trading opportunities. Slide 5 provides an update on Open Trading. Open Trading played a valuable role in keeping global market participants connected for trading throughout this credit event. 1500 institutional firms utilized the unique open trading liquidity available on MarketAxess during the quarter. Open Trading average daily volume grew to a record $3,400,000,000 up 53% from a year ago. Open Trading represented 31% of total trading volume for the full quarter, up from 26%. As price dispersion in credit markets exploded in March, Open Trading delivered sharply higher transaction cost savings to clients. Liquidity taker estimated savings reached $201,000,000 for the quarter and liquidity providers saved an estimated $87,000,000 Estimated client transaction cost savings on the trading system exceeded company revenues for the quarter. During the quarter, investment managers reached a new volume record for providing liquidity on market access and dealers reached a new volume record as liquidity takers. We believe this demonstrates a trading behavior change that will lead to an even better global fixed income market in the years ahead. The open trading marketplace is the only broad based continuous all to all electronic market in global fixed income. For the quarter, MarketAxess had over 30,000 daily institutional client orders available to both dealers and investors in open trading, totaling $16,000,000,000 in notional value on average per day. We believe we play an important role in improving overall market liquidity and reducing market risk during times like this. We also believe that our significant competitive lead in electronic credit trading for the institutional market widened even further during the quarter. Now let me turn the call over to Chris to provide an update on automation and our operational resiliency. Thank you, Rick. Slide 6 demonstrates the growing momentum of automation in credit trading. Automated trading volumes rose to over $31,000,000,000 in the first quarter, up from $12,500,000,000 in the Q1 of 2019. 84 firms used our auto execution functionality in the Q1, up from 52 the prior year. The use of dealer algorithms is also growing, with approximately 3,000,000 algo responses in the Q1, resulting in 249,000 trades. While we saw a modest reduction in the average number of responses per inquiry, we believe this was largely due to the extreme market volatility in the second half of the quarter. Thus far in April, we have seen algo responses return to pre crisis levels. We're seeing a growing adoption of our automated trading tools for both liquidity providers and liquidity takers, and we are actively working with both investors on enhancing our functionality. Slide 7 provides a summary of our trading volume across product categories. Our U. S. High grade volumes were up 19% year over year to $330,000,000,000 for the quarter, due almost entirely to an increase in estimated market share. While estimated U. S. High grade trace volumes were up 28% year over year in March, market volumes were up marginally year over year for the full quarter. In the other credit category, U. S. High yield, emerging markets and Eurobond trading volume were each up 30% or more compared to the Q1 of 2019. US high yield was the standout, up 70% on the heels of record estimated market share of 12.2%, coupled with a 25% increase in estimated TRACE market volumes. We're also highly encouraged by the growing adoption of municipal bond trading. In the Q1, 3 16 unique client and dealer firms traded a record $3,300,000,000 in municipal bond volume on the MarketAxess platform, up 143 percent from the prior year. Our rates category is mainly composed of trading volume in U. S. Treasuries and reflects the post acquisition contribution of LiquidityEdge, now known as market access rates. On a pro form a basis, average daily volume for U. S. Treasuries was up 57% year over year. We believe these volume gains were primarily driven by an increase in estimated market share. Our April month to date average daily credit volume is tracking more than 35% higher than April 2019 and currently above the Q1 level. I'm also thrilled with the progress we have made with our recently announced Greenbond Trading Initiative, which supports clients' ESG related investment mandates. In the Q1, over $6,500,000,000 worth of green bonds were traded over the platform, resulting in over 32,000 trees being planted in critical regions across the world. Slide 8 provides information on our operational resiliency and our response to the COVID-nineteen pandemic. I'm proud to say that our teams across the globe were able to swiftly and safely transition to a work from home environment, all while providing an uninterrupted level of service to our clients. Our client service and operational teams enabled over 10,000 individual trading system users during this time, allowing them to seamlessly connect to the MarketAxess trading system from home and remain engaged with the market. Given our ability to quickly mobilize and connect clients to our credit trading marketplace, we saw a record number of active firms and active users trade over the MarketAxess platform in March. This drove a significant rise in average daily inquiry volume, transactions and open trading settlements. The market access trading system remained resilient while experiencing high trade volumes and a broad level of access. Our risk control risk and control processes were effective throughout this period. Now let me turn the call over to Tony, who will walk through the financial results in more detail. Thank you, Chris. On Slide 9, we provide a summary of our quarterly earnings performance. Overall revenue was a record $169,000,000 up 36 percent year over year. The 29% increase in credit trading volume and the inclusion of U. S. Treasury trading commissions resulted in a 38% uplift in commissions. Information Services revenue was up 17% in the 1st quarter and includes one time data sales of approximately $800,000 Expenses were up 27% and operating income was up 44% year over year. We are particularly pleased with our operating margin of 54% in the Q1. Strong trading results are providing the resources required to simultaneously expand margins, increase investments in new growth areas and increase dividends to our shareholders. The effective tax rate was 18.4% in the 1st quarter and reflects $6,300,000 of excess tax benefits related to share based compensation awards. We continue to expect the full year effective tax rate will be within our previously stated guidance range of 20% to 22%, although we do expect variability in our quarterly rate based on the timing of equity award exercises and investings. Our diluted EPS was a record $1.96 The year over year increase in our diluted share count was largely due to the 146,000 shares issued as part of the LiquidityEdge acquisition. On Slide 10, we have laid out our commission revenue, trading volumes and fees per million. Total variable transaction fees were up 45% year over year, driven by the increase in credit trading volume, higher U. S. High grade fee capture and the inclusion of U. S. Treasury trading commissions. U. S. High grade fee per million was $5 higher on a sequential basis, mainly due to slightly longer years to maturity on bonds traded over the platform. Our other credit category fee per million increased $8 on a sequential basis, principally due to a shift in volume mix among products. Fee capture at the individual product level was very similar to the Q4. As expected, rates fee per million declined sequentially and was $3.87 in Q1, reflecting a full quarter of U. S. Treasuries trading activity. As a reminder, the rates category of treasuries and U. S. Agencies and there could be some variability in rates fee capture due to product mix and due to volume tiering under our treasury's fee plans. U. S. High grade distribution fees were $1,300,000 higher than the 4th quarter level, primarily due to several dealer transitions to distribution fee plans during the quarter. Slide 11 provides you with the expense detail. On a year over year basis, expenses were up 27% for the quarter. Compensation and benefits accounted for over half of the year over year change in expenses as we continue to add personnel to support our growth initiatives. A year over year increase in headcount of 60, an uplift in the variable bonus provision and higher stock based compensation expense were the main contributors to the rise in compensation of benefits. Clearing costs more than doubled year over year, reflecting the 55% increase open trading volume and inclusion of net principal treasury trading volume. The increase in depreciation and amortization reflects the continuing investment in product development and the trading platform, along with the amortization of acquired intangibles. And the biggest factor influencing the increase in technology and communication costs was higher software licensing fees, some of which are tied to trading activity. On Slide 12, we provide balance sheet information. Cash and investments as of March 31 were $499,000,000 and trailing 12 months free cash flow reached a record $250,000,000 During the Q1, we paid out year end employee bonuses and related taxes of roughly $40,000,000 and a quarterly cash dividend of $23,000,000 We also repurchased 76,000 shares in total during the quarter, including 15,000 shares under our share buyback program and 61,000 shares associated with vesting of employee stock awards. We continue to have no bank debt outstanding and didn't borrow against our revolving credit facility. Based on those first quarter results, our Board has approved a $0.60 regular quarterly dividend. Now let me turn the call back to Rick. Thank you, Tony. This was the most challenging quarter in modern times for people and economies around the world. We certainly hope that medical advancements and good judgment will bring an end to this pandemic in the quarters ahead. We are proud of the role MarketAx has played in helping to keep credit markets functioning. We will continue to invest heavily to create lasting improvements in global fixed income markets. I would like to thank all of our employees for their dedication and unwavering client focus. We could not have achieved these results without their extraordinary efforts. We would now be happy to open the line for your questions. Our first question I guess, I believe Chris said that April to date was up 35% year over year. If that and just making sure that's correct, but if it is, just wanted to get sort of the open trading percentage. And I think you said that algo responses had gone back to pre crisis levels. So does that speak to open trading as well? Sure. Rich, I'll take the question. In yes, you did hear my comments correctly for April volumes. We have seen liquidity stabilize across the market in April, and we have seen consistent market share of our open trading platform. As you are well aware, liquidity in March was much like toilet paper, it was hard to find. But OT, our open trading solution, clearly was a critical part of the ecosystem throughout the March crisis. And so its market share did increase. But relative to the Q1, we continue to see open trading perform at quite high levels in terms of the overall volume on the platform, but even across individual assets like Munis, like EM and other products. So continue to see robust performance in the open trading solution. So I guess I interpret that as the open trading percentage of volume is similar to 1Q on the percentage basis? And I guess and the last follow-up Rich, I would just say it's actually similar to March level. So we still have very high credit market spread volatility and that is creating an important layer of new liquidity through open trading and the open trading percentage of our volume is actually closer to March levels. Wow, that's impressive. And then my follow-up would be, you had the Fed stepping in and just trying to get to see whether you can sort of parse out sort of the impacts. Did that how does the Fed stepping in improve liquidity? Did it improve volumes during the month? Does that carry it over? And I know there was a lot of new issuance at the end of the quarter. So that probably is trading in the secondary market more freely now. So just trying to parse out sort of the impacts of those two things on volumes in Q2. Yes, sure. Happy to. I think the Fed's initial focus was on short term funding markets and the liquidity programs were generally focused on repo and other short term funding markets to make sure that they were functioning properly. It's our understanding that they continue to make preparations to be able to participate actively in the primary and secondary corporate bond markets and the ETF markets for fixed income shares. We are not certain that any of that has started yet, but we believe that they're making their preparations to be able to do so. So right now in terms of the bond activity, I don't think that is directly related to the Fed, but they obviously had a material impact in improving liquidity conditions in the short term financing markets. So do you think that what are the volumes in at least on while the volumes in April so far more driven by the incremental volumes by the issuance? I think that they're driven by ongoing credit spread volatility. Credit markets bottomed out around March 23. And fortunately, credit spreads have been narrowing and we've retraced about half the move over the 4 weeks since the lows. And it is these are unbelievable new issue numbers. And we were up around $250,000,000,000 in new issuance in March, most of it in the last 10 days of the month. And it looks like we're going to be even higher than that in April. And those are remarkable new issue numbers as corporations are really tapping the high grade market in particular to create more liquidity on their balance sheet. But to put that in context, a good month for high grade new issuance is normally a bit over $100,000,000,000 This will be the 2nd month in a row that we've been up at around 250,000,000,000 dollars And for you and others that have been following us for a long time, you will know that when new issuance is high, you normally see some short term dip in our share. That has not been the case in March April. So I think it speaks very well to the long term trend in market share on the MarketAxess system. Share has remained high even though new issue levels are so robust. Super. Thank you, Rick, and hope you and your team and your families all stay safe and healthy. You too, Rich. Thanks very much. Thank you. Next question comes from Dan Fanning. Your line is open. Thanks. I guess following up on that last portion, just trying to disaggregate some of the long term structural changes that continue to be at your benefit versus the near term benefits of spread widening. And so you gave some good stats around price improvement and activity. I guess if you could just elaborate in terms of how you're thinking about either new customers that have been interacting with your venue or how we can think about kind of the on some level of normalization. And one thing I think would be interesting is the work from home environment, one of the dynamics around adoption of electronic trading has been behavioral from a user perspective. I'm wondering if you think this is sort of a kick start or a catalyst around some of that? Sure. No, happy to take that one. Thank you. But March was a really interesting month because we started the month with all of the major dealers and major investment managers trading off their main trading floors. And by the middle of the month, everyone was trading from home. And I think it's personally remarkable that Trace volumes grew the way that they did and MarketAxess volumes grew the way they did through that difficult transition. And I do think the work from home environment puts a premium on electronic trading. It's just easier to access the entire market from home, using electronic venues. And I do think that that was one of the reasons for uplift in share and volume on our system. We expect that to last through most of the Q2 when we look at the plans to return back to main headquarters and trading floors. It's a very gradual process that most people expect to begin in June. So I think this quarter will be a full quarter of work from home. 3rd quarter will be a little bit of mix of both as people test getting back into their main offices. But what we saw in March and carrying into April is that our volume gains were a very healthy mix of more volume from existing clients and new clients using the system for the first time. And not only new firms, but new individual trading users within existing firms. And the net result was in March, we had a new record in terms of the total number of active trading firms and a new record in terms of total active individual trading users. So we're really seeing this as an inflection point where more firms and more individuals are taking advantage of the efficiency of electronic trading as well as the transaction cost savings that are available. Thank Our next question comes from Jeremy Campbell of Barclays. Your line is open. Hey, thank you. Rick, so the Fed taps BlackRock to quarterback the credit purchases in the market. And obviously BlackRock is a very large user of the MarketAxess electronic platform. I'm just kind of wondering if you guys are seeing any disproportionate part of the Fed purchase flow through the electronic venue either on a first order level like BlockRock Fed purchasing cash funds themselves through the electronic venue or maybe through a second order level like Sure Sure. First of all, we don't comment on any individual client activity on the trading system. We it's our belief that BlackRock is actively advising the Fed on all aspects of the program, including primary and secondary corporate bond activity and ETF fixed income share purchases. But we don't believe that there's been any sign that they've been in the market yet. So what you're seeing right now is traditional customer and dealer business flowing through our platform at very high levels. And I remain optimistic that credit spread volatility is likely to remain high through the balance of this year. I made the comment in my prepared remarks, we would expect issuance levels to stay very high throughout the balance of this year given the challenges that are going on for many corporations that are likely to last for a few quarters. There's also more credit spread dispersion than we've seen a long time across different sectors and across different issuers. And that leads to more trading activity. So our expectation is that you're going to have higher levels of credit spread volatility than we expected throughout this year and that and combined with active new issuance and that combination is likely to keep market trading volumes elevated throughout the balance of the year. Great. Thanks. Thank you. Our next question comes from Ari Ghosh with Credit Suisse. Your line is open. Hey, good morning, everyone. So heading into the year, you had several growth initiatives from live markets, portfolio trading, expansion of your rates complex. There was a lot of these different initiatives in play. So could you give us an update on maybe how some of these initiatives look for this year, just given ones that might get pushed back because of the COVID crisis versus others that are perhaps easier to execute near term despite the disruption? And then, Tony, the way some of these ins and outs might filter into the expense outlook for the year as well as it stands right now? Thank you. A little open ended, but I'll try to uncover as much as I can. Obviously, as you could see from our prepared remarks, our employees were phenomenal throughout, the COVID crisis in their ability to migrate to home office, while maintaining high levels of performance and even in some situations improving their overall performance that we've seen. And so we are on track across all of our initiatives for 2020. There are a couple of initiatives where we're relying on some third parties that are likely going to be slightly delayed. But in terms of rates, I'm certainly excited about the rates performance on the D2D business in the Q1, obviously record volumes there. With regard to our integration of the Rates platform, we continue to move forward unimpeded by the current crisis. Our hedging, which went live in Q4, continues to roll out. We have several dealers already live and a robust pipeline of dealers right behind them. Our integration of the Liquidity, the formerly known LiquidityEdge platform into our institutional business is underway as well. Our first phase of that integration begins at the end of May, where we will have institutional clients trading through the market access network, the market access broker dealer into the Rates platform. So I'm happy to see that integration moving smoothly. Phase 2 of that integration is where our institutional clients can use full OMS integration into our rates platform and that's in second half of twenty twenty and on schedule. The last piece of rates integration is our net hedging solution, which is on track as well for second half of 2020, certainly the earlier part of second half, where we'll be able to provide net hedging of client orders across the platform. So we're excited about those integrations. Other areas of initiatives, obviously, we talked about the municipal bond initiative that saw record volume in the Q1 as well. We rolled out our taxable muni solution for EU and UK MTFs. That's an important introduction in the Q1, which had immediate adoption by several of our major institutional clients that wanted access to those muni products and needed to use an MTF. Portfolio trading also was saw a phenomenal growth in the Q1, over $1,000,000,000 in portfolio trades in the Q1, 50% of those came in March. So we saw an active adoption in the crisis. We now have 8 active clients and 6 active dealers. And we plan to roll out European products, credit products and additional functionality in Q2. And an important component of our portfolio trading solution is that we provide a multi dealer in competition solution. So you can actually have dealers bidding on your portfolio at the same time, which is important to improve the price efficiency. Obviously, we continue to roll out product in our data business. The data business had great success in the Q1 as well. We've launched a treasury composite product and CP Plus, our pre trade analytical tool continues to grow. So right now, I think the only impact that we're seeing from the crisis and the pandemic is really a slight delay in our self clearing project, largely due to our reliance on third parties as we roll that project out. So while we're fully prepared internally, we are slightly delaying the delay is really to the end of the second quarter potentially into the sorry, end of the second quarter potentially into the beginning of Q3. Great color. Thank you very much. Thanks. Thank you. Our next question comes from Kyle Boat of KBW. Your line is open. Thank you. Good morning. Thanks for taking my question. First is just on the U. S. Treasury market. There's a lot of press around illiquidity in the U. S. Cash treasury market in late March as dealers kind of step back from providing liquidity, especially in house that runs. Just wondering if your experience in the U. S. Credit markets with open trading being a real solution to the market as dealers stepped away. Does that experience make you more confident that some form of all to all trading solution could eventually be successful in U. S. Cash treasuries? It's a great question because as we've all seen, the U. S. Treasury market was hampered by a liquidity challenge across the market, obviously not just in off the runs, but even on the runs. And so it was an unusual liquidity event for the treasury market. We did, however, on our rates platform, see market share increase because of we think the unique liquidity solutions that our platform provides. It's not a traditional clob. It does allow for customized liquidity provision, both for dealer and for client. So we do think that that model is the future of the liquid product market. It also was an anonymous all to all. So to your point, our anonymous all to all open trading solution that performed exceptionally well in the middle of the most challenging times of the crisis, we do expect that an all to all solution that does allow you to customize liquidity for rates would be a very viable solution as we go forward. So the performance of both our open trading, for credit and the performance of our rates platform in the most severe moments of stress really provides us with a great confidence as we start to integrate those 2 markets. Thank you. Our next question is from Chris Allen of Compass Point. Your line is open. Hey, morning guys. I just wanted to ask a quick one on pricing, specifically investment grade. Maybe you can just walk through some of the dynamics, how that filtered through in the quarter in terms of duration, yield to maturity and yields? And then just how the second quarter is kind of setting up and the outlooks there? I'm just trying to think about how that would be changing moving forward. Sure, Chris. This is Tony. On the investment grade side, there's lots of different factors that influence the investment grade fee capture. You've got years to maturity where yields are, trade size matters under our tiered fee plan, dealer mix matters, whether dealers are on distribution fee plans or all variable plans. At times, floating rate note activity also matters. But when you look at it sequentially, the fee capture was up $5 from the Q4 to the Q1. Years to maturity were a little bit longer and less than a half of the year longer. There was no impact from changes in the size buckets. There was a little bit of dealer mix change there. So it really was all about years to maturity. When you look year over year, a much bigger change year over year, Q1 of last year to Q1 of this year. But again, that was all duration related. It was longer years to maturity on average lower yields. Going forward, and on the April numbers, what I'd tell you on April right now is that and this is not just for investment grade, but looking across the board, it's early in the quarter right now. There are lots of factors that I just mentioned that could influence fee capture. But if you're looking at April activity, there is not a lot to report on any variance of note at any product, not only investment grade, but for high yield emerging markets, Eurobond. Right now, the fee capture all looks similar to the Q1. Remember though, early in the quarter, and that could change, but right now it's looking similar to the Q1. Great. Thanks guys. Thank you. Our next question comes from Chris Shutler of William Blair. Your line is open. Everyone. Good morning. Hope you're all well. Can you talk about the breadth and depth of long only asset managers providing liquidity or being price makers on the platform in March? And then also touch on what you've been seeing in April and any longer term changes you see from the current crisis to client workflows? Yes. Happy to take that one, Chris. The number of client firms that are providing liquidity on the system continues to grow. And we think that's the differentiator. When you have volatility like we had in the last 5 weeks of the quarter, the more trading connections you have, the better off you will be in terms of sourcing liquidity and reducing transaction costs. So we had a record during the quarter of over 900 firms that provided liquidity on the market access system. The vast majority of those over 700 were asset managers. So this is where we think we're making a big difference is that when markets get to these sorts of stress levels, our technology connects investors and dealers all around the world and the best price can come from anywhere. And you did see asset managers taking advantage of opportunities when there was heavy selling in the market. You saw dealers taking advantage of using the platform to take liquidity when they needed to reduce risk. So we think that this was an important quarter in terms of the advancement of all to all trading. And clearly, the transaction cost savings that were approximately 3 times greater than the average quarter in 2019, validate the value of what we're doing and create behavioral changes because the pricing during the stressful days oftentimes was just so significantly better than what clients were able to find through other means. So very broad based in terms of liquidity providers, 1500 active firms utilized open trading during the quarter. It's really becoming a very important global marketplace for credit. Thank you. Our next question comes from Alex Blostein of Goldman Sachs. Your line is open. Hey, guys. Good morning. Thanks for taking the question. I was hoping to peel back the layers a little bit on the trade in activity that you saw in the course of margin, maybe what you're seeing today in terms of the average trade size, both on the IG side and the high yield side. Just curious to think about whether penetrating some of the larger size trades was also part of the story here, given the illiquidity in the rest of the market or the majority of the increase, was really predicated on some of the smaller kind of typical size trades for market access? Alex, it's Tony. I'll take the question. Looking at the market share gains, were obviously pretty healthy year over year and those market share gains were across all trade sizes and all maturity buckets. So even in realizing our block trading market share was around 10%, If you looked at it year over year, it was up more than 1.5%. So regardless of trade size, regardless of the maturities, market share did improve year over year. Great. That's helpful. And then just as a quick follow-up, I was wondering if you guys could give us a sense of how a potential large number of downgrades in the IG market could play a role into kind of opportunities set for high yield opportunity on the market access side. So meaning that BBB is obviously a big part of the market. We're probably going to see a bunch of downgrades. As those occur, do they come through as a high yield trade at obviously a higher capture rate for market access or an IG trade? Yes. Good question, Alex. Happy to take that one. Two things. When you have a period like we're seeing currently with more downgrades than we've seen in a long time in Fallen Angels, it does create trading opportunity, right? Those bonds oftentimes have to come out of investment grade portfolios and move into high yield or crossover portfolios or insurance portfolios that have the flexibility to operate in either place. So it's good for overall trading activity. And yes, at the margin, as large high grade issuers slide into high yield and begin to trade on price not spread, that is also positive for our fee capture. And as you can see from the Q1, volumes by product, high yield was the standout. Volumes were up nearly 30% overall, but high yield more like 70%. So that's where the standout has been. We're taking share there and high yield volumes have been robust. This too is something I would expect to carry on throughout the year. We have not had an active period of default concerns in nearly 10 years. There really hasn't been a distressed market, large concerns about defaults until we got into this crisis earlier in the Q1. So this is a very different credit market than what we expected when we started the year in January. And I do think for a host of reasons, it will require more risk transfer, which leads to secondary trading. And I think we'll also continue to bring out the importance of all trading to source liquidity from any place in the world. Great. Thanks for the answers there. Thank you. Our next question comes from Brian Bedell of Oddity. Your line is open. Great. Thanks. Good morning, guys. Most of my questions have been answered, but maybe just to follow on, on the issuance question, the market share. Obviously, the market share tends to dip when new issuance is heavy. And I appreciate your comments about in this environment, assess what kind of headwind do you think that is on your market share? In other words, if that did normalize, how much your market share would increase? And the underlying question there is how much is the sort of the permanent changes that have that you think might occur in electronification of trading, the underlying growth of that actually increasing and being masked by the new issuance, the heavy new issuance? It varies, and there are so many factors that come into play in terms of overall market volume as well as the electronic share of volume that it does vary. But more often than not, when you get new issue as high as it's been the last couple of months, you also see the block trading percentage of TRACE grow and our share can be 1%, 2% lower during those months before those bonds are distributed and start trading with the rest of the secondary market over the following 3 or 4 weeks. So we do feel really good about March April share trends, given that new issue activity is well above anyone's expectations for the pace that we would be on this year. And it's clear that there's a transition going on with institutional client behavior. 95% of our order flow is initiated by institutional customers. And when we look at our institutional share of TRACE for High Grade for institutional customer volume, it's now up around 24%. So we're getting close to a quarter of the activity with institutional clients taking place on the platform. We think that the combination of trading efficiency and transaction costs that we can reduce. And we also saw an incredible number of orders that were completed in March where open trading was the only price. So this is to us all going to create a more permanent behavioral change given the experience that clients have had in our platform, sourcing liquidity at the most difficult time. And we're pleased to see the underlying trends in share taking place across all of our products, quite frankly. Our next question comes from Ken Hill of Rosenblatt. I wanted to build on, so you guys had a lot success with open trading during the quarter. We also had that explosion in new issuance activity. But I kind of thought something like live markets was supposed to build on the open trading activity, could help maybe kind of get you guys into a little bit more flow on the new issuance as it kind of gets into the secondary market there. I was hoping to comment, I know that's still early days, but maybe if kind of the recent activity you've seen in the market has helped some clients along getting live markets kind of going on their platform or if you're seeing any increased interest because of that? Thanks. Great question. I'll take that one. So live markets, which we were piloting in the Q1, late Q4, Obviously, we've been focused on onboarding dealers to provide their streams. That process obviously is a bit of a setback given the current crisis. But what we have seen is a number of our clients, as Rick mentioned, looking to provide liquidity, seeking methods and techniques for providing liquidity. Live markets is an obvious solution for them to provide liquidity because they can join the bid side or the offer side of that market. So we are seeing higher levels of demand from our client base looking to provide liquidity and achieve some of those huge cost savings that the OT market is providing. So again, slight setback given dealers have been distracted with the crisis and their own internal technology needs. So but again, the client side demand continues to grow Our next question comes from Talbot of KBW. Your line is open. Hi. Thanks for taking my follow-up. There's a lot of press, especially in late March around HYG and some other bond ETFs that were trading at pretty significant discounts to their NAV intraday, which could have been made worse due to the lack of liquidity at that time. I'm just wondering if you think the regulators will be looking at the bond ETF market in the wake of this in terms of maybe putting certain liquidity requirements on underlying holdings or something of that nature? Or do you think that's going to be low on the priority list for regulators? So Kyle, happy to take that one. I guess I have a different perspective on the ETF performance during extremely volatile times. And it's important to remember that the credit market is so fragmented and there are so many unique issues that oftentimes in my opinion what you were seeing was that the bond NAVs were behind, not the ETF share price. So when you've got 7, 8000 different bonds in an ETF, then anyone with a real time pricing mechanism is dealing with the level of volatility that we had during March, those prices are whipping around. There's an actual transaction taking place between 2 parties when the shares trade. And in my opinion, that's the best form of price discovery is an actual transaction. And when you look at the major ETF fixed income shares in March, it's a great story for risk transfer and market liquidity. Share volumes were up over 100% in the major fixed income shares and up over 70% for the full quarter. So I actually think that the ETF market held up incredibly well. It was part of the liquidity solution, not part of the liquidity problem. And I think you're seeing very clearly this new liquidity model evolve where ETF share trading is definitely part of the fabric for the institutional fixed income market now, almost all dealers and investors are using ETF shares as a way to transfer risk when they need it. They clearly did that in March. Portfolio trading held up well in March and that's another way to transfer risk. And of course, all trading is providing an essential layer of liquidity for all market participants as well. So I think it was a great indication that the reason that trace volumes were able to grow in March when they fell so sharply in 2,008 is because all of those liquidity tools were at work during the crisis ETF shares, portfolio trading and alt alt trading through MarketAxess Open Trading. That's why market volumes were able to go up and clients and dealers were able to transfer the risk that they needed to during those chaotic weeks. Thanks. And then maybe a second question for Tony. Obviously, it's been a really strong volume environment to start the year and especially through April, over 35% year over year growth. If we see similar type volume growth for the remainder of the year in that 30% -ish type range, Just wondering how you think about the expense guide and where that leaves you in terms of the current expense guide from when you started the year? Because I think there's multiple things. Obviously, the volumes are going to push up certain areas of the expenses, but then the COVID-nineteen impact specifically, maybe that reduces T and E in some other areas of expenses. So just wondering how we should kind of put those pieces together, if there's any help there would be great. Thank you. Sure, Kyle. Happy to answer that. And the fact that we didn't say anything in the prepared remarks about the expense guidance, you can probably assume from that that we're still expecting the expenses to be within that original guidance range of $297,000,000 to $314,000,000 But under the scenario you suggest there or propose, if market volumes for the balance of the year were consistent with the Q1, we could be near the high end of that guidance range. And I would tell you that, that would be good news. And we've got a number variabilities in there. So people, we've got a fairly healthy hiring plan as we enter 2020. We can't, in some ways, we can't control the level of attrition or the timing of hiring necessarily. But we're on budget with our hiring through April. We're effectively onboarding new hires even in this environment. We expect to continue to hire to support our growth initiatives. That's all good news. Other line items like variable compensation that are tied directly to results, you can imagine the Q1 we had exceptional results off of the back of significant market volumes. If that continued, that would be good news if that expense line item is running higher than expectations. Same thing with clearing costs. You saw clearing costs doubled year over year and that's because open trading volume was up massively and we had a great quarter in treasuries as well. So those clearing costs are running higher than expectations. That's all good news. So I would suggest that if we hit that high end of the range, it also likely means that top line performance, top line revenue growth is higher than expectations as well. Got it. Thank you. Thank you. I'm showing no further questions at this time. I'll turn the conference back over to Rick McVey for any closing remarks. Thank you so much for joining us this morning and we wish you all the best getting through this crisis and be well and be safe. Thanks very much. Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for participating. You may all disconnect.