Looks like we're live. All right, everyone. Next up, MarketAxess. Excited to have, for the first time here, at least since I've run this conference, Chris Concannon, CEO, and new addition to the team, Ilene Fiszel Bieler.
You got it right.
I was like, "Wait a minute, that's our name. It's not right." That's why you shouldn't use a teleprompter. Anyways, thanks for coming.
Thanks for having us.
Let's just dive right in, and I usually like to start a little bit bigger picture. A lot of initiatives in place in 2024 that you know put in place, and now you need to execute in 2025. I just mentioned it before, so most of them are focused on gaining market share or regaining market share in the core U.S. credit business. Can you give us a little bit of sense of how these new growth initiatives are progressing, which have the biggest promise, and what are your thoughts about timing and who should actually see a material impact to revenue and earnings?
Right. And, again, thank you for having us today. It's a great conference. It's great weather. It's certainly better than New York weather. First, as I look at 2024, it was a build year. We were making, sizable investments in our technology. And the good news is, those investments are now delivering product. And so 2025 is a delivery year. It's what you would call an execution year. Not only do we have to deliver it, we also have to get people to use it.
So that conversion is an important part of that delivery. When I think about the business, and, and how we're executing it, it's really three different channels. The most important channel is that client-to-dealer channel. How do clients find liquidity in the dealer community, and how do we serve them best to give them different tools to find that liquidity?
Today, we have the dominant RFQ platform in corporate bonds in the U.S. That's traditional RFQ going out to all, and a true all-to-all solution, highly active and a great deal of liquidity. Our portfolio trading tool sits within that client-to-dealer. We carve it out as a separate offering. It's a very important protocol. It's a way for clients to move a great deal of flow, either inbound flow or outbound flow if they're exiting positions. Again, somewhere around anywhere from 9%-10% of the market as high. We've seen peaks around 13% of the market.
That's an important tool. We've now reached what I call kind of, you know, functionality completion or feature complete, where we're really offering similar solutions, but with better data and pre-trade analytics than some of the competition offer. That's out now, and that's been in production for some time. We had a release this morning that went exceptionally well, so we're constantly doing these releases. We had a release last month as well, so the portfolio trading channel is a very important channel from a share perspective.
It does move market share, but from a fee perspective, it obviously doesn't attract a lot of revenue just given the nature of that offering, and then there's the dealer-to-dealer channel, so what's interesting is if you look at the market, portfolio trading and electronic trading has impacted turnover, so the turnover of the overall market is up this year. It was up last year, and it was up the prior year, so electronic trading is having an impact on the velocity of trading, and portfolio trading does have a role to play there.
The dealer-to-dealer space, where dealers are exiting their inventory positions, that's grown from, call it, 24% of the market up to about 29% or 30% of the market. So another part of the market is growing fast. And, and it makes sense. As dealers take on this inventory from portfolio trades, they want to exit it as fast as possible.
They're willing to use our market and other market solutions to get out of that inventory. So the three segments are where we're having sizable investment in the going back to the client channel, that client-to-dealer space. The block offering is now out in the market. It's in EM. We talked about it over a year ago. It's in EM. It's in Eurobonds, and now it's been launched in our IG market just for a targeted solution piloted by a few traders.
The real solution comes in May, where you can have click-to-trade against an AX and go direct to a dealer, which is a pretty exciting solution in the bond market because that's not something that really has traditionally existed. It doesn't have all-to-all. It goes to just a select few. So the impact on information leakage is quite low. And then it has good results.
So the performance that we've seen, we've done over $1 billion of bond blocks done on that platform, and the outcome has been quite, quite good from a performance standpoint. And then our well our portfolio trading tool, which I talked about, again, a big part of the market will remain big. We do see it fluctuate around volatility in the market. So when high vol comes in, it tends to move down a little bit in terms of performance.
When volatility is what it looks like today, which is very little vol, very tight spreads, portfolio trading is a very viable tool. That dealer-to-dealer space, we expect to deliver a new solution in the second quarter. We talked about that on the earnings call. We think we'll have a very viable, what I call mid-market solution in the market, in mid, second quarter, something that the dealers can use and find new liquidity.
Again, it's an all-to-all solution as well, but it's a very streamlined API-delivered, matching solution for the dealers. And, that's the piece that we'll price aggressively relative to the competition, but still, it's incremental revenue. It's something that we don't offer today, and it will be new revenue for us. But it's an area that we think we can move flow and solve liquidity for the dealer community.
You gave us a lot of detail already, but I'm gonna come back to all those three quickly. So on blocks, that seems like your biggest focus area. So hopefully I got that right. Anything that you've learned already from the quick start or the start a few weeks ago in EM now that you're going to the U.S.? And again, why do you think is this gonna make you more informed when you finally start in the U.S.?
So first, when I think about our investment last year in the tech, we were investing in our portfolio trading suite, and there could have been a decision that we made to overinvest in that and just keep focused on growing portfolio trading solutions. But we made a strategic decision to attack the block market. It's the next 50% of the market.
It's the biggest, TAM that we have staring us in the face. It's just by far the biggest opportunity. Blocks exist in every one of the markets that we engage in, and they're still done over phone and chat. So for me, the easiest investment decision was, let's stick to a block trading strategy. Let's convert blocks from phone and chat to an electronic form. I just think that's naturally better for the end clients. It's also, ironically, slightly better for dealers, certain parts of that market.
It's more efficient for dealers that are fully automated. What we learned from the launch in EM in December was, one, traders do want to trade blocks electronically. They just don't want information leaked out to the market by going to an all-to-all solution. They want to go to a single dealer. They want to go to three dealers that they trust.
And doing that electronically is similar to how you would do it over chat. The other piece that we learned is that our data was helping select dealers. So we have Smart Dealer Select in that market. We also have our AI dealer selection tool. By perfecting the right dealer in their request and keeping that request to just a few dealers, the performance is much better.
So they are getting a hit rate of 90%, which is relative to the traditional RFQ, somewhere around 60%-70%. So when you think about information leakage, if I have a hit rate at 90%, I'm not leaking information because dealers are being responsive and trading with me. If I have a low hit rate, technically, I've leaked information about my block, and there's dealers not really responding or not actively responding, and therefore, I leaked information to them, and they've not done anything for me. So it's an important component about the trader not wanting to leak information. A 90% hit rate is quite high.
I want to go back to portfolio trading just for a second because it's been a big focus, but clearly, it seems like you think there's more emphasis that you should put on the blocks, but look, you used to be number one on portfolio trading when I look at last year. Looked like very, very good progress, so anything that you can point to that's helped with getting share, and a few years ago, you said you wanted to be number one in portfolio trading. I don't know if that's still an ambition you have, but yeah, where do you think you stand there?
It is an ambition. We made sizable investments there. As you mentioned, we have made share growth across portfolio trading. It does, when I think about the investment opportunity, it would be great to attack 9% and be number one. I'd much rather attack 50% of the market and be number one there. So in balancing where we put all our resources, it's obviously targeting the block market.
I certainly wanted our competition to think we were very focused on portfolio trading because they're investing heavily in that PT space. We see them releasing, you know, new data and new functionality on a regular basis. I want to compete in that kind of movement of activity and functionality. And we think this quarter, we said that we were going to be feature complete.
What I mean by that is the material gaps that we had relative to where the market was, we'd be completed, and all those offerings would be in the market. The next piece of the portfolio trading solution is really about around unique analytics around how to build your portfolio to optimize it.
So you might want to trade 1,000 line items, but 10 of those line items are impacting the pricing of your portfolio. If we could give a client data that suggests where they should be priced, and if you remove those line items, how much more improved your pricing would be, that's the work that we're doing now and the work that we're rolling out now.
Great. And then you also mentioned that dealer-initiated trades already again, lower penetration so far. I forget if you're giving numbers, maybe sub 10%, but correct me if I'm wrong. Anything specifically you can do to differentiate yourself better? And then you said you're hoping to enable the dealers a little bit there too. So what, how has that been going in particular, given there's been times of mixed relationship with the dealers? Where are we in that?
Again, the dealer business, that's that 29% of TRACE and IG, a very important component of the market. But when you think about how dealers think about their own inventory, if they're in risk, they've taken down a position in a bond, they want to exit that risk, as efficiently as possible. There was a time where they could sit on that risk and exit only by selling it to a client. When they sell to the client, it means the client cross-spread, the dealer made full spread in entering the position, and they made full spread and exiting the position. That's a pretty good business model. Unfortunately, that doesn't always work out.
And in this new world where most dealers want out of inventory rapidly, and it's why we see the turnover in the market that we see, we see dealers within the first few minutes of taking down a portfolio back in the market exiting that portfolio risk. So huge demand to get out. We have two offerings. One is dealer RFQ, which means you're going to cross the spread, but you're going to access liquidity in our all-to-all network.
So probably a good outcome. You'll likely get filled if it's a small-sized trade. The other piece is dealers want to trade at mid-market. So if you got into the position having a client cross-spread and you get out at mid-market, that's a pretty good trade. Right now, that's a big part of that dealer market. We have an offering in Europe, a mid-market solution called Midex.
We're rolling out on Pragma, our new technology, a mid-market solution called Midex for U.S. corporates. And that's what's coming in the second quarter. When I talk about price and that offering, we will have attractive revenue in that offering. So we will charge fees because you're accessing our network of liquidity. But it will be price competitive relative to where the competition sits. And Tradeweb does exceptionally well in that dealer-to-dealer space with their suites offering.
The way we think about pricing is it needs to be dynamic around the size of the dealer. So if a dealer is a good dealer, a good liquidity provider for us, and they enter risk on our platform, we'd like to make sure that they get out of that risk in an attractive way from a fee perspective. Our fees will be dynamic in that solution, certainly, associated with large dealers versus small dealers.
Then maybe to finish on, I guess the parts that you have been the best, which is the traditional RFQ and the all-to-all Open Trading. You know, again, I think still very dominant position there, but it does appear like the others are trying to eat away a little bit at that share as well. So what are you doing to defend that turf, the smaller-sized trades where you still, at least by my math, have the very much dominant position?
So your math is accurate. We are the dominant player in what I'd call traditional RFQ, traditional electronic RFQ. We have a number of solutions that make our offering attractive. One is our automation suite. If you look at our automation suite, it has been growing year after year, month after month, quarter after quarter. It's a very attractive offering.
It makes trading bonds super efficient. Clients load that offering in, and it's a no-touch trading solution. What's interesting about automation is, the penetration rates by client are very different, and they vary client by client. Our largest automation client is a third the size of our largest client, to put it in perspective. So how people adopt automation does differ, but from client to client. We have automation running across all of our products, so it's a very successful offering.
Within that traditional, very dominant RFQ, the biggest growth challenge to our traditional RFQ has been portfolio trading. So if you look at the average ticket in a portfolio trade, it's a lot of line items, 1,000 line items, but the ticket size is under $1 million. That, that ticket came from MarketAxess when you really step back and look at the broader market.
So we've been losing share to PTs. We just haven't been good at PTs. And now we're getting good at PTs. We want to win that share back. But we've still been growing that pool of dominant liquidity, dominant RFQ. And the competition has been there. By the way, they've been offering client RFQ for 20 years. So 20 years, a little bit of share might be leaking, but really the biggest challenge was, one, the market environment that we sit in.
All-to-all RFQ is not as attractive in a market where you have zero spreads and tight and tight volatility. The volatility in this market has not been all that great from a historical perspective. We have very tight spreads in the market. Makes the all-to-all liquidity less interesting. So from a broader market environment, our all-to-all RFQ is still dominant, but it becomes the less attractive protocol right now.
Maybe we'll actually come back there in a minute, because I do want to talk about the near-term environment. But if I actually step back a little bit more, one of the things that people have forgotten about, that sometimes it seems that there's still very exciting underlying growth in the end market.
There's this maniacal focus on market share in your credit business. But when you look at industry volumes last year, really good volume growth. So maybe you can just talk about some of the underlying factors of electronification and then where you see the market will be and how electronic, the question that you get every time in three, five, ten years, where can we actually go?
First of all, the macro market makes electronic trading quite attractive. If you look at fixed income more broadly, it's an attractive asset class. Yields are up from a historic perspective. All across the bond market, globally, you have actually attractive ratings, so you have more upgrades than downgrades. That makes for the investment environment quite attractive, so we continue to see the market grow as an asset class.
New issue has been quite vibrant, particularly in high grade this year. Turnover and that velocity of trading, we're at near historical levels again where it was, and so that's attractive. The market has grown. The notional that we see on Trace every day is astonishing relative to what we thought was a big year last year, so overall, you can only get that kind of turnover because of electronic trading.
Portfolio trading has done unbelievable things to increase that turnover. It hasn't just increased a, you know, when you see $1 billion portfolio trade come into the market, it certainly adds to TRACE. But it's the secondary trading that spins off of that that adds more volume. That dealer is not holding on to $1 billion of that portfolio. It creates secondary trading and pretty robust secondary trading. To answer your last question, like, where does this go?
One, we've got an attractive asset class. What's interesting is the clients that dominate that asset class, have fee compression. So even though you have inflows coming into the fixed income market, the largest asset managers still feel fee compression because they're competing against ETF fees and low-fee bearing, index-based, fee plans. So, there is fee pressure, which means they want to trade more without less expense.
That means less traders, more automation, more automation solutions. So, it's increasing the demand for electronic trading by the actual client base. And that's really compelling to what I think the real outcome is. If we crack blocks like we just started to in EM, that's 50% of the market is still on phone and chat, and it's all block.
And so we have a very big part of the market that has not been tested for electronic trading. All we have to do is get traders to start moving that chat and phone activity into a more efficient way onto the platform. So I'm super excited about that next 50%, because it's logically going to move. If you get to 60% electronic, you're going to 90%. It's not going to stop.
It's not going to stop at trade size $10 million and below. If I can do a block with a dealer electronically of any shape or size, I'm going to do electronically for all shapes and sizes. Ironically, a portfolio trade is a $1 billion block trade that is done fully electronically. That, to me, means we can do it all fully electronically. And so we're headed in that direction, but it doesn't stop at 60.
One thing you mentioned earlier was automation. So you gave us a little bit of some insights there. But somebody I talked to the other day in the industry said 2025 will be that year where automation really fully kicks in. So maybe just a couple of thoughts from your end if you agree and what you do in particular. And then I'm going to be a little bit nitpicky because I looked at your fourth quarter deck, and you have those long-term charts, and then you actually saw over the last few quarters some of the automation stats.
I don't know if they're the right stats, but the Auto-X, right, like the Auto-X, right? They kind of plateaued a little bit, maybe even go down. I think the number of automated firms went down a little bit. So, yeah, is there anything happening that we're not appreciating why it's not showing up in those stats? Or, yeah, where are we going in general?
Yeah, I mean, or if you look at what we disclose, and we're pretty transparent around most of our activity, we do disclose the number of clients leveraging automation. And so that number of active clients in automation is, you know, growing but still flatlined in the last quarter. The key ingredient there is type of client. I'd much rather add one client that has never automated and is now penetrating at, call it, 20% levels.
That's much more attractive to our stickiness of traditional RFQ than adding five clients that are doing a little bit of automation. So we're targeting much larger clients. And it's scary that there's very large firms out there that have not automated their corporate bond trading. In this day and age, we have clients that are trading billions of dollars through automation.
And that number, by the way, the notional amount that we have automated in this market has grown consistently quarter over quarter. So the number of automated trades, meaning no trader really engaged in the trade, is growing. Again, that's compelling. Where is electronic trading going? Well, clients clearly want to automate what they've already made electronic. So we have a nice runway in what we can automate.
The other ingredient that we changed in 2024, again, it was an investment build year. We migrated our basic auto RFQ, which is your Auto-X that you referred to. We moved that onto a Pragma algo. So we replicate it. So it's still an auto RFQ. You just load your list, and we automatically take care of everything. But now that it's in Pragma, it can be a more streamlined algorithm. So you can have Auto-X.
You can turn the dial a little bit and have a little bit of Auto-X and auto responder. So you might actually not cross-spread. So there's a lot more flavors and a lot more functionality that we made available for clients. And that was part of our investment and part of our build solution. Now we're migrating clients to that much more preferred automation suite. And, I think that investment, it may have impacted the number of clients we onboarded, but it was the right investment going into 2025.
Okay. Since we're talking about exciting areas, you have one thing, again, that doesn't come up as much, unfortunately, is emerging markets. I think, again, you don't disclose it specifically, but it should be your second largest business by revenues now. Ilene, correct me if I'm wrong, but bigger than high yield now. So where do you see that market going? What are you doing? And then, you know, others are talking about that more now too. So how do you keep your leadership position?
Well, one, they were. Others have been talking about corporate bonds for 20 years. So I hope I have a 20-year runway. Now, more importantly, EM is just a great market. It's an exciting market. From a macro perspective, it's still attractive to our clients. We're certainly a dominant player in that market. We are by far the largest electronic platform.
Bloomberg is active in that market as well. But when you go across the globe, it's converting manual traders to electronic trading for the first time. It's not like you're converting an electronic trader to do portfolio trades. This is first-time electronics. So it's pretty exciting. Our platform certainly has a brand that's going across regions. If you look at our LATAM growth, just last year, it continued into 2025.
We had a very exciting January in LATAM, despite threats of tariffs and all kinds of things. The EM market is vibrant. It's diversified. It's got local markets. You've got U.S. hard dollar markets. You've got local players trading with large institutional banks that may not face them, may not have a counterparty relationship. So there's this wonderful network effect in our all-to-all platform. You've got automation.
And right now, in portfolio trading, we're clearly the dominant portfolio trading platform in EM and intend to keep that dominance by rolling out new portfolio trading functionality to our clients. So we feel great about that market as consistently grown over the last couple of years. We don't see anything impacting its growth rate. The only thing that could impact volumes is EM out of favor from an investment perspective.
But when it comes to growing market share, again, it's hard to know what our true market share in that market is because most of the markets aren't reported volumes. But what we can tell from the market, we are growing share in that space. So it's a pretty exciting.
Still very early.
It's when if you look at.
Very early.
EM from an electronic adoption perspective, we're still probably under 5% of the total market.
Great. And then to just come back to the trading environment comments from earlier, some would say you are operating in probably the worst environment for your business. So things can really only get better. So I hope you agree, or do you agree? And then what does a better environment actually look like? Like, what are we waiting for here in terms of what do we want?
So, look, we run a company that has to operate in all environments. We happen to have a protocol that does exceptionally well in higher volatility, wider spread in market. It just means that all-to-all and alternative liquidity is a better solution than going direct to a bank. We just price it better. And when spreads gap out, people come back to MarketAxess. The environment that we would like is the environment last Monday when there was announcement around tariffs.
We looked at our platform, and it became pretty vibrant, in that moment in time, until volatility kind of disappeared, and went back to the norms that we're seeing in this quarter. But really, a slightly healthier volatility. We're at very low vol. And then a much healthier. What's more important is volatility around spread.
So when spreads gap and get volatile, that's a very attractive market for us. But what we just covered and all those other topics, each one of those protocols, if you think portfolio trading, block trading, and dealer-to-dealer are kind of three initiatives, each one of those tend to perform in all markets, particularly in this kind of environment. We see vibrant portfolio trading and block markets. If you look at the stats, block markets increased as a % of TRACE in January, which certainly impacted our all-to-all attractiveness.
Yeah. Okay. Maybe, maybe to give Ilene a chance.
Yeah.
because the other thing that comes up.
You're asking all the passionate topics that I have, so.
Well, you can.
He's on a lot of.
If you're passionate about fee per million, you can.
No, I don't want to answer that.
But look,
Too many factors to figure out.
Yeah. So look, fee per million has been challenged cyclically as well. So, and that really the fees have come down over the last couple of years. A lot of it's been mixed.
Sorry. Fees have not come down. Fee per million.
Fee per million.
So I'll get to the fees come down next, and you can chime in there.
Yeah, yeah, yeah.
But look, can you talk about, you know, higher duration or, sorry, lower duration, higher rates? And again, maybe just help us with the sensitivities. Sometimes people think maybe as this changed, will it actually come through when we get a better environment? So just give us an update about the fee per million component of being kind of at the bottom of the cycle.
Yeah. Let's talk about the sensitivity first because I think that one that helps people, I think, frame things. Duration in high grade is obviously very important. We know that if we think about weighted average years to maturity as being a very, very important component of the duration calculation, if we see trading on our platform going out further on the curve, one year is equivalent to about $15 of capture for us, right? That's pretty significant. On the yield side, you want to see it going in the other direction. If we see yields coming in and we see that about 100 basis points, let's call it lower, that gives us about $3 to $5, and so both of those things, if they go in those directions, would be positive if we start to see that behavior.
Now, we know traders can change behavior very quickly, right? And so what you saw in January, speaking about your low level that I know you're talking about, what we saw in January was actually not things going in the directions we would have liked. We saw headwinds, not tailwinds, right? What we saw was, let's call it 8.2 or so in terms of weighted average years to maturity, in January. And we saw, let's call it 5% yields. Well, we've already seen now again, things can change. The first few days of February does not make a quarter, does not make a year. But just in the early days of February, we saw that change already to where weighted average years to maturity traded on a platform had gone out to nine years already, right?
So those are important things to keep in mind, those sensitivities, because they really do matter in high grade, and it does clearly impact overall fees per million. So what else can these sort of macro beta factors that impact fees per million? And I wish I could give you, I know people want the, but what do I do and how do I do it? And, you know, how much, when, what dollars go here, what dollars go there? It is pretty rough to do that. I will tell you that high yield is obviously a pretty significant component as well. You have seen less high yield mix traded on the platform recently. I don't need to tell folks that. Over the course of, call it the last two years, we've seen that be a headwind of about $5 towards fees per million for us.
Now, that can turn around. That could come back if we start to see more trading, if we start to see credit spreads widen, if we start to see more volatility, there could be changes for us there, right? We just haven't seen it yet for all the macro factors that Chris just talked about before this. But that's another one that could go in the positive column, right? Another one is Open Trading. So our Open Trading protocol, when you see a good amount of volatility, which let's be clear, the CVIX is very, very low. And right now it's at about 22. The history of, since the CVIX was created about 10 years ago was around 40, 42 is an average. We are definitely below volatility averages right now.
But if you see more vol, you see more open trading, that again, positive to fees per million. Now, some of the things that have impacted fees per million, for instance, that I don't know that we would get back, and in fact, I don't think we would say it would, was really portfolio trading. So just to your point, portfolio trading comes in at lower fees per million. We've seen that be about a $5 also headwind. And I don't know that we're getting that back, to be honest. And that's been over, let's say, the course of the last two years. And that one is going to, is less macro driven, but that's another component. So what I would say is you've got sort of these puts and takes.
There is definitely the possibility for fees per million as we change macro conditions, as we see more open trading, as we see different things happening in high yield, as we see duration extending. There's lots of opportunity for fees per million, but right now, I think that helps explain at least what's happened in the recent history.
All right. Now that I got Chris a little bit fired up earlier when I talked about pricing, I will ask about pricing on a like-for-like basis. Because look, whenever we talk to your competitors and everyone, it's like pricing is, I don't know, number four or five on the list of what matters, in terms of getting share. But at the same time, people will be like, well, but there are incentive fee schemes and this and that. And you're a leader yourself, as you said, and on the deal initiated side, you're being so aggressive, I think was your word that you used earlier. So look, what, where is price competition? Is there really none or where are you seeing it a little bit?
So first, if you just think about how we run the business, we're not, we're not being strained by pricing in our client-to-dealer space where clients come in and look for liquidity, whether it's a small trade size or a block trade. In portfolio trading, everyone repriced portfolio trading. I think there's folks offering it for free. We don't have to reprice our portfolio trading. So we don't feel the price competition or even price discussion with clients. It's all about features and functionality. So the number one tool to move market share is add features and functionality. And that's why we've been investing heavily and not spending time on fees. The fee per million will move, as Ilene explained. It moves, with all different types of market environments. It's not moving because we're repricing. The area that we've dabbled in fees are really around the dealer business.
Dealers are very price sensitive. They do move a lot of volume around in the market. The important thing for us was making sure we had the right relationship with our dealers from a liquidity provider standpoint, meaning are you a good dealer providing liquidity in all different shapes and sizes? Traditional RFQ blocks? Are you giving us pre-trade analytics and axes? Are you doing portfolio trading? And then finding ways to help them with their dealer inventory and getting out of positions. But I will tell you, we're not in a price war. Bloomberg's been free for 20 years, and it's not gaining market share in the RFQ land. There's been competition in and out of the bond market offering free deals, and that really hasn't moved market share at all. Wherever there's anyone who is in the market, it's all features and functionality.
So it is truly a feature functionality war, and then it's data war. Data is going to ultimately win who owns market share in electronic trading. Those with the best data provide the best outcome to the trader and inform the trader about the next trade. And that, that's the key ingredient, and that's where we're putting all of our investment. Features is this year, and data is now coming into those features, and it's driving share in the market.
I would just add to what Chris said in terms of the places where we are being more competitive on the dealer space and all the things that you're seeing that we're getting from the dealers, et cetera. That's incremental revenue for us. These are things that we're not currently doing. So that's. It's new for us to be doing this. So that sensitivity is something we're able to go after in a sense because it is all new.
Yeah.
It's like, someone was selling yellow socks recently. I'm sure it's a new market that they're trying to create. It's all new incremental revenue that they generated.
I don't know if this is on video, but very good. All right. Then just staying with Ilene for a second, give you another chance on the expense side. And it's, but it's, I, Chris, please chime in because for one, the question is like, talk about, you know, what you're doing this year, but you just laid it out in the earnings call. But the other side of the coin really is while you're being good at investing and within your guidance, some people still think maybe you should be investing more. Maybe you should really make sure that you're defending your turf rights and whatever it takes. So are you investing enough? And then yes, maybe Ilene just remind us what you're doing on the expense side.
Sure. So if you look back over the last five years, which I would encourage everyone to do and look at the expense growth rates of this firm, it is very, very clear that we have been investing. If you go back to 2020, I want to say that the growth rate of investments was something like plus 21%. It has been double digits or high single digits every year since then. So it is definitely the case that we have been investing. And if you look at what we put out for the 8% or so, if you take the midpoint of our range of 505 to 525 that we guided to, right, you can see that we laid out pretty clearly where we think that's coming from. About 2%-3% of it is coming from what we call inflationary.
You think of that as like merit, carryover, things like that. Maybe 1.5%-2% of it comes from what we call variable costs. Variable costs, that could change, but you know what? That also means like we're, that's for self-clearing costs. We're seeing more tickets come through. We self-clear. That's okay. That's good. That's good expense dollars. The big majority of what's left of that goes into software, goes into development, goes into what we're talking about and many of the things that Chris laid out. I would also remind everybody when they ask this question is we told everyone we're going to do $65 million-$70 million in CapEx, of which 80% of that is going to also go towards development and software. So I think we feel pretty good about our investment spend.
I think at the same time, though, it's really important for us to make sure that we are having sort of good corporate hygiene and make sure that the things where we should be disciplined on expense management, that we are. And so it's a combination of both of those things.
I would just add, you know, I've been in this market my whole career. I've seen lots of companies in situations similar to what MarketAxess, great 20-year history, lacking a little bit of investment, modern investment, modern tech investment, and then they have to pivot and transition. And so many companies have made the mistake of just pure blind investing and just saying, I'm going to throw a bunch of money at this and just invest my way out of it. And that's a pure strategic error. And I've seen it happen, you know, at least 30 times across this, this wonderful fintech space. The key ingredient is proper targeted investment. Do the things that scale you to a better place. Think of portfolio trading.
Just having, call it 10 developers produce a portfolio trading tool that handles 2,000 line items over a UI, I can move market share by 200 basis points. That's the right investment. If I can add a little bit of data that comes off the platform, really at no cost, a couple of analysts sifting through our data, that makes our portfolio trading a premier offering. So it's the targeted smart investing that we have to do as a company and targeting the things that have the biggest TAM. Portfolio trading, not great TAM, but it moves market share. Block trading, by far the biggest TAM that we're staring at, untouched, untapped. To me, that investment is a very targeted investment. It's actually using the same tech developers that build portfolio trading, build RFQ, and build data and proprietary data. So it's really smart investment.
Where we made a big tech investment was the acquisition of Pragma. So you saw our expenses go up, step function because we acquired a very productive tech platform, all technologists, basically all technologists. It's now incrementally changed our outcome. We're launching all Pragma Algos. We're launching Pragma Algos in rates. It's touching our rates platform. It's touching our corporate bond platform. It's now our kind of enhanced automation tools. And soon it will be our dealer-to-dealer mid-market matching solution as well. So it's the right investment, and getting it to scale properly. That's the key ingredient.
I would just quickly say that the Pragma technology and what we've done with Pragma has also allowed us to really be more productive and be more efficient. And that also helps if you think about the expense growth algorithm because we are really able to take that Pragma technology and use it across the firm. And that is investments we would not have to make in the future because we've already made them.
Excellent. I see the red light. Sorry we didn't leave any time for questions, but, you know where to find us and them. And, why don't you help me thank, Chris and Ilene for a great chat. Thanks for coming down.
Thanks.
Thanks, Alex. Thanks for having me.