Earnings Call: Q1 2018

Apr 25, 2018

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded, April 25, 2018. I would now like to turn the call over to Dave Cressey, Investor Relations Manager at MarketAxess. Please go ahead, sir. Good morning, Welcome to the MarketAxess Q1 2018 conference call. For the call, Rick McVeigh, 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 Dillece, 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 beliefs 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, 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 Q1 2018 results. This morning, we reported 1st quarter results driven by record trading volume of $465,000,000,000 up 18% compared to Q1 2017. Additionally, volume records were set this quarter across each of our 4 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, 1st quarter revenues were a record $115,000,000 up 11% compared to Q1 2017. Operating income for the quarter was $60,000,000 up 9% from a year ago, and diluted EPS was up 14% to a new high of $1.27 Expenses of $54,500,000 were up 14%, including $1,700,000 in duplicate rent expense for Hudson Yards. After the double rent charge, EPS would have been up 17% year over year. Open Trading adoption continues to accelerate and reach record volume $81,000,000,000 up 38%. Additionally, trading volume with international clients reached a record $130,000,000,000 this quarter, representing an increase of 30%. Slide 4 provides an update on market conditions. Overall secondary trading conditions improved modestly in the 1st quarter. Interest rates moved higher and volatility improved in both interest rates and credit spreads. Overall, trade high rate market volumes in Q1 were relatively flat year on year, while high yield trade 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 Q1. 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 5 provides an update on open trading. Open trading volumes were $81,000,000,000 in the first quarter with average daily volume of $1,300,000,000 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 Q1, up from 147,000 in Q1 2017. Liquidity Providers or price makers on the platform drove 820,000 price responses representing a 71% increase in activity in the Q1. Liquidity takers saved an estimated $32,000,000 in transaction costs through open trading on the system, up 28% from the Q1 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 Associates survey, investment managers cited price improvement and all to all trading as the 2 most important factors for selecting a trading venue. Slide 6 provides an update on our international progress and MiFID II. The momentum in our international business continued in the Q1. MiFID II implementation contributed to growth in European client trading 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 Eurobond volume. In addition, Trac's post trade services revenue increased by $2,100,000 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 RMO. Our emerging markets business continues its strong growth trajectory with 1st quarter record trading volume of $105,000,000,000 up 33%. Approximately 9.40 firms are now active in global EM trading on the system. In addition to EM external debt trading, we are encouraged by the progress we are making in local currency bonds. Trade 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% 3 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 7 for a summary of our trading volume across product categories. U. S. High grade volumes were $251,000,000,000 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 trays market volume was up an estimated 1%. We completed approximately 6,600 block trades during the Q1, almost double the number from just 2 years ago. And our estimated market share of U. S. High grade trades over $5,000,000 in trade size was 10.9% during the Q1 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 market high yield and euro bond trading volume all hit records during the quarter. Similar to U. S. High grade, market share gains were the main driver behind the emerging market high yield and euro bond volume growth. April has seen a reversion to 2017 type market conditions with the decline in volatility and credit spreads. Aggregate estimated market volumes for our core core products are down around 14% from the 1st quarter levels. With 4 important trading days remaining in April, estimated U. S. High grade and high yield market share is running below 1st quarter levels, but similar to share posted in January. On slide 8, we provide a summary of our quarterly earnings performance. Overall revenue was up 11% year over year. The increase in trading volume drove commissions 9% higher. The uplift in post trade services revenue is due to a combination of new customers and MiFID II 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 Q1 and reflects the reduction in the federal income tax rate and other changes associated with the Tax Cuts and Jobs Act and $1,800,000 in excess tax benefits related to share based compensation awards. As mentioned on the January earnings call, we expect the effective tax rate for the next three quarters will be roughly 25%. Our diluted EPS was $1.27 on a fairly stable diluted share count of 37,900,000 shares. On Slide 9, we have laid out 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 feed plant implemented in the Q3 of 2017. U. S. High grade sea capture was down both sequentially from the Q4 of 2017 year over year. There are 3 primary reasons our U. S. High grade fee capture varies from period to period. First, our fee plan is tiered based on ticket size. 2nd, the fees we earn are dependent on bond duration. And third, we give dealers a choice of fee plans. The sequential decline in high grade fees per million reflects a higher percentage of volume traded in larger size buckets and lower duration caused by a decline in years to maturity. Our other credit categories recaptured was down $11 on a sequential basis. Approximately half of the variance was due to Eurobond fee schedule changes implemented effective January 1. We also experienced the typical swings resulting from mix shifts, namely a higher percentage of emerging market volumes in sovereign bonds. Slide 10 provides you with the expense detail. Sequentially, expenses were up 10%, largely due to higher compensation and benefits The variable bonus accrual was $3,700,000 higher and employment taxes and benefits were up reflecting the typical Q1 seasonality. The sequential increase in occupancy costs is due to the duplicate rent expense of $1,700,000 On a year over year basis expenses were up 14%. Excluding the duplicate rent expense and the impact of foreign currency movement from the weaker dollar, the year over year increase in total expenses was approximately 7%. A roughly 10% increase in average headcount drove the $1,600,000 uplift in compensation and benefits costs. On slide 11, we provide balance sheet information. Cash and investments as of March 31 were $400,000,000 compared to $407,000,000 at year end 2017. During the Q1, we paid out our year end employee bonuses and related taxes of roughly $32,000,000 and the quarterly cash dividend of $16,000,000 We also repurchased 72,000 shares in total during the quarter, including 31,000 under our share buyback program and $41,000 associated with tax obligation net downs upon vesting of employee stock awards. As of March 31, approximately $88,000,000 was available for future repurchases under the share buyback program. Based on the Q1 results, our Board has approved a $0.42 regular quarterly dividend. Now let me turn the call back to Rick for some closing comments. 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 would be happy to open the line for your questions. Our first question is from Chris Shutler with William Blair. Your line is now open. Hey, guys. Good morning. Good morning, Chris. Good morning, Chris. So I think over the last year or 2, you've seen more dealers auto quoting for smaller trade sizes. Just wanted to get your take on what inning you think we're in, in that trend with the bigger dealers? And is that happening mostly today on trades under $1,000,000 $2,000,000 I think that's somewhere in the range. And what extent are you seeing those thresholds increase? Sure. I'll take that one, Chris. There has been a significant increase in algo generated price responses over the last 2 years. As far as where we are, I'd say probably 4th or 5th inning. We are seeing new dealers come on with algos virtually every quarter. Most of the trade sizes are sub-1000000000 and even more specifically probably sub-five 100,000. But I think what you're seeing is a transformation of odd rod trading where dealers increasingly are responding through algos and client adoption of auto 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. Think this is a really important development for the market. You are all aware that nearly 90% of tickets reported at Trace are under $1,000,000 so this is another way that we can significantly increase the efficiency of trading smaller tickets and lower costs for both dealer and investor clients. All right, great. Thanks, Rick. And then regarding block trades, so good progress there, especially on shorter duration paper. I'm assuming you look at block share by duration. So can you give us a sense of to what extent you're seeing improvements in longer duration paper as well, if at all? Thanks. Sure, happy to 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 access system and receive great pricing, leading to our record numbers in blocks and our record share. As Tony mentioned, it was a quarter where more of those block trades and block lists were at the shorter end of the curve, which was one of the factors that reduced the feed capture in high grade during the quarter. We have seen improvement out the curve as well, but this quarter the majority of the activity was in block trades 3 years and under in 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, 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 3rd leg to really promote open trading throughout the Asia region. So as I mentioned before, there are lots of components of that partnership with BlackRock. One is they fully support the move toward alt alt trading with their trading activity. We get excellent advice from them on protocols and things that they believe would work well in the market. And the piece that's also been important part for both of us is the integration with the Aladdin client network. 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. Our next question is from Rich Repetto with Sandler O'Neill. Your line is now open. Yes. Hi, Rick. Hi, Tony. Good morning. So I guess the first question is on the fee per million and trying to understand the sort of the pricing dynamics. Can you give us any if rates continue to go up with the different moving parts and you sort of outline 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 year or so, it's trended down. If you look way back before rates went down to 0, the high grade was significantly less. 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 flagged 3 big items in the prepared remarks around trade size, duration and the dealer choice on the fee plan. And at times, we've given some guidance or rule of thumb on how to look at those variables. And just to put it in perspective, the yield movement is probably the least important of those three items. So if you had a, for example, a 1 percentage point change across the yield curve, that could equate to something like $10 or $15 per 1,000,000 and that's all else equal that would give you a rule of thumb or sensitivity around the yield change. When I say the bigger pieces 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 Q1 where years to maturity came in almost 1 year versus the 4th quarter. Every year to maturity could be $10 or $15 per 1,000,000 as well. So you have some influence there. I would tell you this though, on a longer term basis, if you look at the high watermark for feet 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. We today we have 33 dealers on the distribution fee plan. When we hit that high watermark of $205 per million, we had 22 dealers on the plan. So if you recall, there's a just a geography switch then where we have more fees coming through distribution fees and lower fees coming through variable fees. So longer term, if that dealer choice influences 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 what we're all focused on, but longer term it would increase revenue, but wouldn't you expect more dealers to go to $33,000,000 number to go up and maybe volumes go up, but fee capture declines as you say if 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 projections. They're responding to the economics of our key plan. So it's tough to predict. Every time we say we're not tracking any dealers who are going to migrate up, but we get 1 or 2. But right now, we have 33 on the distribution fee plan and another 40 or so on the variable plan. So there is a potential for some movement, but right now we're not tracking anything. Got it. Okay. And just one last question, quick question on expenses. So I saw the headcount 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 will be later in the year versus in the Q1? Rich, by not saying anything on the expense guidance, you can figure out that we're still expecting 2018 expenses to fall within that range. And And I'd tell you headcount is one of those swing factors, which I'll comment on in a second, but where we come out in headcount could move the expenses up or down. The variable bonus accruals tied to performance, so that's the swing factor there. And I'd give you one more, which is just on the foreign exchange movement where we have around $45,000,000 expenses and that FX movement could influence 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 headcount to go up. We've been pretty good at forecasting headcount the last several years. We do expect headcount from this point forward to go up by about 10%. So you figure another 40 or 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 May, we have an analyst program that where those new hires come in later in the summer. We've got half of the body sitting in committed already. So you would expect compensation to go up. And the other one that I would tell you just if you're isolating line items, you'd expect to go up on the marketing and advertising line, it is dependent on advertising campaigns, it's dependent on trade show participation. What you saw in the Q1 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. Our next question is from Kyle Voigt with KBW. Your line is now open. Hi, thanks for taking my questions. I guess, first is on the post trade line, obviously, really strong growth that you realized in the Q1. I think you mentioned that some of those may be one time implementation fees from 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. Sure, Kyle. So you saw what we reported was about a $2,100,000 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 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 $4,000,000 to $4,500,000 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 as sort of the crystal ball right now for the next several quarters, I narrow that into that range to $4,000,000 to $4,500,000 per quarter. Okay, great. Just a follow-up question, 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 in the slide deck, it like about half of that. Is 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 that it was isolated to block trading. If you looked at $100,000 to $1,000,000 $1,000,000 to $5,000,000 in trade size, over $5,000,000 in trade size, there was 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. It On the block trading piece, it does vary from period to period. It is dependent on duration as well. But if you were looking at over $10,000,000 in trade size, remember our fee plan doesn't exactly match up with the trade block designation. But if you look at over $10,000,000,000 in trade size, it's somewhere between $50 to $60 per 1,000,000 Okay. All right. That's really helpful. And then last one for me is just a question on open trading. I think you disclosed Eurobond specifically, it was 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 based protocols that you mentioned. But we have introduced some new protocols over the last 3 or 4 months and it is clearly making a difference. Great. Thank you very much. Thank you. Our next question is from Connor Fitzgerald with Goldman Sachs. Your line is now open. Good morning. Maybe just a 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, 5 years out. Just be curious how you think this product works in 2023, for example? You want to take the second one? I'll take the I'll take the balance sheet. You would go ahead. You would start with the balance sheet. Yes. So on the balance sheet side, Conor, the nature of our open trading business today, this match 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 looked at end of March, we have somewhere around $100,000,000 of excess capital in the regulated entities and that's to support open trading, we get when counterparties opt to trade through us. If we looked at estimated credit losses based on historical default models and even if we use a stressed environment, the output is significantly lower than the capital that's residing in the businesses right now. So we're comfortable with the balance sheet position today. 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 helps get counterparties comfortable with our credit. So no change in that in the immediate view around the excess capital we're retaining in the regulated entities. And 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 investor clients. And that are going to our dealer investor clients. And as electronic trading continues to grow, we believe there's further opportunity to use those digital messages to reduce the settlement time from the current 2 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 a settlement partner today. We would expect at some time to examine more carefully the pros and cons of self clearing. But we would also 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 ETF arbitrators had really pulled back from the market. The stats I'm remembering is I think it was 40% of the volume at 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 a resumption of some volatility in 1Q? It is absolutely better year to date than where we were, especially through the last 2 or 3 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 3 or 4 quarters. I believe this is a significant change in the market environment versus where we have been over the last 8 or 9 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 ETFRV activity. So in my opinion, the odds are greater that we're on a positive path there with participation from that client segment. And then maybe just one clarification for 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 tracks business across U. S. High grade, high yield emerging markets and Eurobonds, we're seeing about a 14% decline in market volumes versus the Q1. I would just add to that. Until about a week ago, the direction of interest rates had reversed. The 1st couple of months of the year, treasury 10 year yields went up about 40 basis points and then beginning in around mid March when the trade war 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 had seen in Q1. Obviously, over the last week, the direction of rates has reversed yet again and rates are moving higher. So the situation is pretty fluid, but we did have about a 3 week period there where the market environment was different than it had been through most of the Q1. That's helpful. Thank you for taking my question. Our next question is from Patrick O'Shaughnessy with Raymond James. Your line is now open. 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 allocations electronically, maybe they're more comfortable trading on the secondary market electronically? There has been new issued technology broadly utilized by the dealer community for many years and much of that is on Ipreo today, Patrick. So what we've seen in the media is all we know and it sounds like it's 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 coexisting with new issue syndicate technology for the entire existence of market access beginning in 2000. And there really isn't any overlap in the technology solution that's at work for underwriting and syndicate and the technology that we have invested heavily in for secondary trading. So I really don't see that as any significant change in the landscape between new issue technology and what we do. Got it. That's helpful. And then I was hoping you could maybe talk about some of the workflow changes that your clients have had to implement given the introduction of MiFID II? Yes. Well, a lot of it is around the new obligations that investment managers have for regulatory reporting. And I'd say in the near term that has been the biggest change and was the source of the client expansion that we mentioned in our prepared remarks. It's a pretty big change, right, because previously with MiFID 1, the non equity reporting requirements resided 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 reg 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 is the prevailing view in Europe now is that any low market impact trade is better off on a regulated trading venue where the regulatory reporting obligation shift to the venue. So, we think that has had an impact on trading behavior for low market impact trades, resulting in the volume increases that we reported earlier. Got it. That's helpful. And then last one for me. Do you guys have the ability to look at the yield curve and look at how changes in yield curve has impacted your revenue capture in the past and basically say, okay, given what the yield curve looks right now, here's how that might impact our high grade pricing or are there just too many variables involved to really chart that analysis? Yes, Patrick, there's so much at work and so many different levers that impact recapture 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 tending to trade shorter dated paper, you're going to see the fee capture come in a little bit. But I caution because you have lots of other factors at work. And I gave the sort of rule of thumb before on what movement in yield means to us. 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 is 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 a lot of moving parts and the best we can do is be 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 1 month to the next. All right. Fair enough. Thanks very much. Our next question is from Chris Allen with Rosenblatt. Your line is now open. Good morning, guys. Good morning, Chris. I guess just following up on Patrick's last question and I realize you guys have given us a lot of color. I'm just kind of wondering if you could give us any characteristics in terms of what the rational profile looked like this past quarter versus maybe prior peaks and prior troughs? Just when you gave us the kind of rule of thumb there as well. I know it's been a concern for some investors in the stock in terms of moving forward, it's going to revert back to more normalized levels as rates revert. So if you could give us any color in terms of where that stood this past quarter and prior peaks and troughs, that would be very helpful. Yes. So peak and sea capture, and I mentioned this a little bit earlier, but Q3 of 2010, our U. S. High grade fee capture was at $205 per 1,000,000 At that time, the years to maturity was about 9 years. And the 10 year treasury yield was about 2.9 percentage points. So not much change in the 10 year yield versus where we were in the Q1. Years to maturity were about 1.5 years longer. So that did influence recapture when we reported the $205 per 1,000,000 The other difference been around our Tier 3 plan where in the Q1 of this year we had more trading occurring in larger trade sizes. But as I mentioned before, by far and away, the biggest difference between the peak and where we are today, which would be a post crisis trough, but by far and away the largest impact was dealer choice on the fee plan that they were on. And just to put it in perspective, if we were at $205,000,000 Q3 of 2010, we just reported $154 per 1,000,000 in the Q1 of $2,069 difference. $35 per 1,000,000 has to do with the choice of plan that the dealers were on. And we've given rule of thumb before for every dealer that moves from the variable plan to the distribution fee plan at today's volume, it reduces the fee capture by about $3 per 1,000,000 So, if you're looking at it today at about $35 per 1,000,000 of that decline was because of the dealer choice of plant. 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 adjust for the variable fee plan, we were down at something like $120 per 1,000,000 The biggest difference there was 30% of our business at that time was floating rate notes, 30%. If you look at it today, it's 5% of our business, floating rate notes, very short duration. The fee capture is appreciably lower. That is a that's a big difference in fee capture. So and the year to maturity were 5.5 years and say we're at 7.5 years. So it's a different environment. And again, lots of moving pieces here. But today, it is different than 8 years ago when we reported the 205 and it's different than 12 years ago when we reported something appreciably lower than where we are today. Thanks. It's very helpful. My other questions have been answered. Thanks, guys. Thanks, Chris. And we have a follow-up question from Kyle with KBW. Your line is now open. If your phone is on mute, please unmute it. Sorry, guys. Sorry, it's Kyle again. Just one more on or 2 more on fee capture. Just given what you just said on distribution fee plan, it seems to be a very attractive option for most of your dealers in your platform. Any desire to change the monthly fees there or to introduce more volume tiers for those distribution fees? We don't really have any changes in mind there, 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're happy with the way that plan works. I think it creates good alignment between MarketAxess 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 where that Eurobond business is shaking out in terms of fee capture and where you expect it to go going forward? Sure, Kyle. So we did make some changes in effective January 1. And you know that the Eurobond space and Eurobond specifically, it is a competitive space. So we did reevaluate our pricing schedules in light of the increased 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 what Rick said, we don't want fees to be an obstacle to growing our business and we don't want to be an obstacle to growing our Eurobond business. There's lots of momentum with European clients. You saw the numbers we posted. It was $1,900,000,000 a day in average daily volume. Volume was up almost 30%. So you have to remember that also that more than half of the volume from our European clients is from emerging markets and U. S. Credit. So it is a diverse set of bonds that they're trading. Very specifically on where we're coming out now on decapturing, we're 4 months into the changes that we put in place January 1. We're in that $110 to $125 per 1,000,000 range. But even there, I caution a little bit because it is maturity based, It is size based. We have different fees for European high yield than we do for investment grade. So I do caution, but the first 4 months here, the range has been about $110,000,000 to $120,000,000 Okay. And then last one, I guess, is could you just help us understand again or just go over the dynamics for local EM because you're growing so rapidly in the local EM markets. I mean, the growth in 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? And that's it for me. Thank you. Okay. Yes. So and Kai, we probably covered this maybe on prior calls. I don't remember right now. But we have emerging market corporates and emerging market sovereigns. And that'll be the 2 big breakpoint on fees. So typically for emerging market corporates, it's $400 per 1,000,000 and again regardless of size, regardless of maturity $400 per 1,000,000 and then if you look at emerging market sovereign bonds, including most of what we do at local markets in sovereign bonds, it's $150 per 1,000,000 dollars And I'm telling you, we're completely transparent on this. We have posted our fee schedules under the new FTX rules. It is posted on our website. So you'll see that 400 for corporates, 150 for sovereign. That's the that's how the fee plan works right now. And most local market trading is sovereign bonds. Yes. Okay. Thank you very much. And I'm showing no further questions. I would now like to turn the call back to Rick McVey for any further remarks. Thank you for joining us this morning. Enjoy the spring and we look forward to talking to you next quarter. Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect. Everyone have a great day.