Good morning, welcome to Tradeweb's fourth quarter 2019 earnings conference call. As a reminder, today's call is being recorded and will be available by playback. To begin, I'll turn the call over to the Head of U.S. Corporate Development Investor Relations, Ashley Serrao. Please go ahead.
Thank you, and good morning. Joining me today for the call are our CEO, Lee Olesky, who will review the highlights for the quarter and provide a business update, our President, Billy Hult, who will dive a little deeper into some growth initiatives, and Robert Warshaw, our CFO, who will review our financial results. Our fourth quarter earnings release, accompanying presentation, and January volumes report are available on the investor relations portion of our website. I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our earnings release and periodic reports filed with the SEC.
In addition, on today's call, we will reference certain non-GAAP measures. More information regarding these non-GAAP measures, including reconciliations to GAAP measures, are included in our earnings release and earnings presentation hosted on our website. Lastly, we provide certain market and industry data, which is based on management's estimates and various industry sources. For more information, see our earnings presentation posted on our website. To recap, this morning, we reported GAAP earnings per diluted share of $0.25. Excluding certain non-cash stock-based compensation expense, acquisition and Refinitiv-related D&A, and certain FX items, and assuming an effective tax rate of 26.4%, we reported adjusted net income per diluted share of $0.26. Please see the earnings release and the Form 10-K to be filed with the SEC for additional information regarding the presentation of our historical results. Now, let me turn the call over to Lee Olesky.
Thanks, Ashley Serrao. Good morning, everyone, thank you for joining our fourth quarter earnings call. Since our inception, we have harnessed the creativity of our employees and power of our technology to solve problems for our growing global network of clients. We also continue to respond to secular trends. These include the increasing sophistication of technology, globalization of debt, focus on reducing cost, the proliferation of data-driven decision-making, and the growth of ETFs driving changes across other trading products. These are the defining trends that we believe will fuel the digitization of markets and improvement in the quality of trade execution for our clients. As you can see on slide four, in 2019, our continued focus on client needs led to another strong year of execution at Tradeweb. Record volumes translated into 13% and 15% revenue growth on a reported and constant currency basis, respectively.
As a result, we recorded our 20th consecutive year of record revenues. The scale generated by our strong top-line results drove approximately 500 basis points of EBITDA margin expansion and 22% earnings growth. As our growth initiatives continue to scale, we maintained our tradition of consistent and focused organic investment. In institutional credit trading, after leveraging the liquidity of our treasury platform to support Net Spotting, we continue to innovate by adding electronic portfolio trading, a game-changing protocol that has seen strong uptake by our clients. We further enhanced Ai-Price and credit. That today prices over 19,000 bonds and functions as the reference price for our electronic session and portfolio trades. Beyond credit, we leveraged our multi-asset class footprint to electronify asset swaps and improve our block trading solution for U.S. options. We've also expanded our U.S. Treasury streaming offering to cater to institutional clients.
For the first time, institutions are now able to consume customized liquidity, complementing their RFQ workflows on Tradeweb. Additionally, we executed several partnerships and integrations, augmenting our offering for institutional municipal bonds with investor tools, interest rate swaps with OpenGamma and Cassini, and market data with ICE, to just name a few. 2019 also marked another milestone for Tradeweb as we began a new chapter in our life as a publicly listed company. Our IPO has elevated our brand globally and made us a more attractive destination for top-tier talent. During 2019, we added senior talent across cybersecurity, data, technology, infrastructure, and product management. As we look ahead, we expect 2020 to be no different. We will continue to operate with a growth mindset and invest to amplify our network, enhance our global footprint, and pioneer electronic solutions across our asset classes. Our operating philosophy remains the same.
We will do this by leading advances in financial technology and continuing to strategically work close with both existing and new clients. Turning to slide five, we reported the strongest fourth quarter in our history and set multiple new volume records across U.S. high grade and high yield credit and equity derivatives. Specifically, gross revenues of $197 million during the fourth quarter 2019 were up 10.5% year-over-year on a reported basis, and nearly 12% on a constant currency basis, despite a significantly lower overall industry volume and volatility backdrop when compared to the same period in 2018. Our financial performance was once again characterized by strong growth, both domestically and internationally. We continue to be pleased with our international progress and see a lot of potential to continue to scale our footprint across European, Asian, and emerging markets over time.
Our double-digit revenue growth and the resulting scale translated into improved profitability as our fourth quarter adjusted EBITDA margins increased to 46.9%. Turning to slide six, you can see the diversity of our revenue growth as our biggest asset classes, rates, and credit continue to grow strongly. Specifically, they both registered their eighth consecutive quarter of double-digit revenue growth. Our equities revenue declined year-on-year given challenging comparisons for the U.S. ETF market relative to the fourth quarter in 2018. That was marked by substantially elevated volatility and tax management trades given the market sell-off in December of 2018. Our data business grew 16% on a reported and constant currency basis. Moving on to slide seven, let me provide a brief update on our four main focus areas, global interest rate swaps, U.S. Treasuries, U.S. credit, and global ETFs.
Starting with our largest rates product by revenue, interest rate swaps, our total volumes were up over 30% year-on-year during the fourth quarter, with swaps greater than one year in duration growing by over 11%. We continue to be very focused on driving electronification higher in this market by partnering with our clients to broaden our product set, enhance our functionality, and improve workflows. Moving on to Treasuries. While our volumes were down 3% year-on-year, given the challenging market conditions during the fourth quarter, I'm pleased that our organic growth initiatives have allowed us to take share here using a variety of trading protocols in both the institutional and wholesale sectors. We estimate that our share as of year-end was 12.5% of the U.S. Treasury market.
We hit another record on our wholesale streaming platform as we continue to leverage our proprietary technology to actively onboard a healthy pipeline of dealers. Traction has continued into 2020 with streams reaching another record in January. The U.S. Treasury closing price initiative, in partnership with ICE, has generated a lot of interest in the industry, given the demand for trusted reference price data. We have already enhanced the methodology and are currently engaged with a variety of industry bodies and participants to drive adoption. We've made rapid strides in U.S. corporate credit during the fourth quarter as we continue to lead the current wave of innovation. We estimate that our overall share in high grade and high yield increased to a record 15.8% and 4.3% respectively, with electronic share also hitting new records. Our institutional client count increased by 18% year-over-year.
We see significant runway to grow as our network and liquidity continue to become stronger. The momentum has continued into 2020 as we reported new volume records for both overall high grade and high-yield trading in January. As our strategy of focusing on the entire U.S. credit market, including making strong inroads into the institutional sector, continues to pay off. Finally, with institutional ETFs, volumes were up 5% as organic growth efforts in Europe more than offset subdued market volatility. Going ahead, we remain well positioned to benefit from the continued growth of ETFs globally. Today, we see a broad range of clients interacting over our ETF platform, from pension funds to wealth managers to hedge funds, as our solutions continue to facilitate the transfer of block risk more quickly and efficiently than alternative venues.
Building on our success in ETFs over the past few quarters, we have developed an RFQ solution for U.S. options. Still early days for that, the business is off to a promising start and nicely complements our flagship ETF RFQ offering. With that, I will turn it over to Billy Hult to give you some more color on trading automated global swaps and portfolio trading.
Thanks, Lee. Our markets continue to evolve gradually, led by the twin driving forces of workflow simplification and advances in risk management. Once in a while, a single innovation like portfolio trading really revolutionizes the way trading is done. I'll talk about that in a bit, let me start with an update on a multi-year trend that is unfolding around over-the-counter trading automation and how we are using AiEX to be the market leader on slide eight. The search for liquidity continues to become more quantitative. We are helping our clients navigate the growing complexity involved in staging orders to improve execution outcomes with rules-based trading. For years, dealers have continued to invest in auto quoting capabilities. AiEX allows the buy side to interact with dealers more efficiently by sending inquiries in an automated fashion. This is a win-win solution for both sides.
We are leading this automation of trading in fixed income, ETFs, and now across derivatives, leveraging our wide network and OMS integrations. Today, approximately 25% of our institutional trades are driven by AiEX, with plenty of room to grow. Our top 10 AiEX users have automated over 50% of the trades they sent to Tradeweb on average, doubling their usage over the last four years. After adding a record number of new clients in 2019, the pipeline remains strong. We are also seeing trade sizes gradually increasing, especially as AiEX continues to penetrate swaps. Trading behavior is changing as we speak, and we are still in the early days of adoption. There is plenty of room for automation to grow, even within our top 100 and most sophisticated clients. Another key growth area for us is global interest rate swaps. 2019 was another record year.
The investments we made to respond to market structure changes, like the advent of central clearing and demand for compression tools, are paying off. Our ability to also offer trading in correlated and adjacent asset classes like mortgages and government bonds, have also helped attract more swap traders to our platform. It has also allowed us to connect markets with innovations like electronic multi-asset package trading. When combined with Tradeweb's expertise in navigating regulatory change, we believe we have become the leading venue for clients to trade interest rate swaps. Our market share continues to increase, and we believe our offering is resonating across currencies. It's important to note that the volume growth is not just confined to Europe, a region that is undergoing rapid change post-MiFID II. We are seeing broader-based regional growth.
On the regulatory front, we are partnering with market participants to help them transition swaps away from LIBOR indices. Specifically, we are providing transparency into risk-free rates and portfolio solutions to switch reference rates. Improving client workflows has been fundamental to everything we do at Tradeweb, and swaps is no different. We are now expanding our request for market solution or RFM to include more swap types. RFM is a great example of a solution where we have partnered with our clients to move large risk efficiently and electronically while mirroring the protocols used in voice execution. We are focused on ensuring that clients have access to the broadest scope of protocols to execute their interest rate swaps. Turning to credit on slide nine, 2019 further validated our differentiated approach to the credit market.
We are laser-focused on the big picture, which is helping clients leverage our search engine in an illiquid market to find the other side of a trade. The focus, our heritage of pioneering electronic solutions across asset classes, and the creative talent that Lee Olesky referred to earlier, has helped us lead the current wave of innovation in corporate credit. We are defining the future of electronic credit trading by using our proprietary technology to integrate liquidity across the traditional retail, institutional, and wholesale sectors. Our multi-sector presence allows us to focus on bringing electronic workflows to 100% of the U.S. credit market today, as measured by TRACE. Electronic and digital execution workflow options and credit have never been better for customers, and you can find all of them at Tradeweb. During the fourth quarter, our market share increased materially as our network continued to season and client engagement improved.
As Lee Olesky mentioned, the momentum has continued into January, and we believe we have significant runway to add more clients and grow our share across both high grade and high yield credit. When we step back, we are pleased to report that our differentiated strategy and focused investment is firing on all cylinders. Our growth was broad-based across both traditional protocols such as all-to-all and RFQ, and also across the next generation of innovations that we are leading, such as Net Spotting, trading session, and connecting retail liquidity into institutional RFQs and portfolio trading. We are very excited about the future of portfolio trading, which we see growing in tandem with the growth of fixed income ETFs and increasing precision of real-time reference pricing sourcing tools like Tradeweb's proprietary Ai-Price. This is a light bulb moment with our most sophisticated and largest clients.
It's a global trend and we believe more clients will follow. We estimate portfolio trading has grown rapidly over the last 18 months to now account for 3%-4% of TRACE. This is another win-win solution that addresses the inefficiencies in risk trading. Clients are able to now trade large and complex baskets containing a mix of bonds across the liquidity spectrum at an attractive price with speed and certainty. Dealers are able to increase balance sheet velocity and reduce holding periods. Many dealers have created or are in the process of creating dedicated portfolio trading desks to capitalize on this. They are also investing heavily in improving their tools to price and manage this risk. Looking ahead, we expect client demand to continue to increase and dealers to continue to play a central role in driving the broad-based adoption of portfolio trading.
With that, let me turn it over to Robert Warshaw to discuss our financials in more detail.
Thanks, Billy Hult, and good morning. As Lee Olesky indicated, our continued year-over-year growth in fourth quarter, our full year 2019 growth in volumes, revenue, earnings, and improved margin, and our volumes in January 2020, lead us to have confidence by providing sustained value for our clients. We also are creating sustained value for our shareholders. As I go through the numbers, all comparisons will be to the prior year period, unless otherwise noted. Let me begin with an overview of our volumes on slide 10. We reported quarterly ADV of $685 billion, up 16%. As you can see, the growth was broad-based. We believe the diversity of our business is one of our strengths. Slide 11 provides a summary of our quarterly earnings performance. The strong volume growth I just described translated into gross revenues increasing by nearly 11%, and by 12% on a constant currency basis.
We derived approximately 35% of our revenues from international customers, and recall that 30% of our revenues base is dominated in currencies other than US dollars, predominantly in EUR. Our variable revenues increased by 14%, and our total trading revenue increased by 10%. Fixed revenues related to our four major asset classes continued to grow as expected. We continue to expect a low single-digit growth rate going forward. Other information services increased by 22% due to growth in our APA reporting business. Adjusted EBITDA margin came in at 46.9% and expanded nicely well to fourth quarter 2018 as we continue to benefit from scale and the lack of IPO-related costs. Full-year adjusted EBITDA margin increased to 45.5% from 40.8% in 2018. All in, we reported adjusted net income per diluted share of $0.26. Slide 12 lays out the trends in fee per million.
We have not made any changes to our fee schedules. The trends I'm about to describe are driven by mix of the various products within our four asset classes. Our blended fee per million declined 3% year-over-year. Excluding lower fee per million short tenor swaps, our blended fee per million was up 2% year-over-year. Let's spend a minute reviewing the underlying trends by asset class. Starting with rates, average fee per million for rates decreased slightly due to mix shift towards short tenor swaps. Excluding short tenor swaps, fee per million was up year-over-year, primarily due to growth in non-GNMA mortgage activity, which carries a higher fee per million. Continuing to credit, average fee per million for credit increased 9%.
This was primarily driven by mix shift away from derivatives products due to higher growth in cash products as our investments to grow electronic credit pay off. Continuing with equities, average fees per million decreased 20%. This was primarily driven by growth in U.S. equity options, which carry a lower fee per million than our other equity products. We expect U.S. equity options to continue to grow as we onboard clients and as liquidity builds. Finally, within money markets, fee per million decreased 9%. This was primarily driven by growth in repo, which carries a lower fee per million than other money market products. Slide 13 details our expenses. At a high level, we continue to invest for growth. There has been no change to our philosophy here.
While our fourth quarter operating expenses declined year-over-year, our full year 2019 adjusted expenses grew more than 4% and almost 5% on a constant currency basis, in line with our expectations. As a reminder, adjusted expenses excludes non-cash stock-based compensation expense related to options, acquisition of Refinitiv-related D&A, and certain FX-related gains and losses. Adjusted expenses for the fourth quarter declined 6.5%, 7% on a constant currency basis. Recall, approximately 15% of our expense base is denominated in currencies other than dollars, predominantly in sterling. Fourth quarter 2019 operating expenses were lower than compared to fourth quarter 2018 due to the timing of performance-related compensation accruals in 2018. Adjusted non-competitive expense declined 3.5%, or 4.2% on a constant currency basis.
Specifically, general and administrative fees declined as increased public company insurance expenses were more than offset primarily by one-time items such as a decrease in our bad debt reserve. We expect D&A to trend around $10 million-$11 million a quarter, excluding the impact of FX going forward in 2020. Professional fees declined primarily due to reduced consulting and legal fees, in part driven by outlying costs in fourth quarter 2018 tied to the IPO. Occupancy increased due to higher costs tied to our Amsterdam offices that we opened in response to Brexit. Slide 14 details capital management and our guidance. First, on our cash position and dividend policy, we ended fourth quarter holding $461 million in unrestricted cash and cash equivalents, and free cash flow for the year reached $267 million.
CapEx for the year was $45 million, an increase of 6% year-over-year, in line with our expectations. With this quarter's earnings, the board declared a quarterly dividend of $0.08 per Class A and Class B share. Turning to guidance for 2020, we will continue to invest in 2020 and are expecting adjusted expenses to range from $495 million-$510 million. The midpoint of this range will represent an approximate 8% increase. We believe we can drive operating margin expansion at either end of this range. As Lee Olesky and Billy Hult mentioned, harnessing data to drive execution is an important part of our story. As such, our guidance includes $5 million in investment primarily tied to our data strategy. We also continue to invest in cybersecurity and risk. Our guidance also includes approximately $3 million of duplicative rent expense in advance of a potential office move in 2021.
We are still finalizing specifics of our move, and we're working with landlords to minimize the duplicate expense that we may incur. For forecasting purposes, we are now assuming a non-GAAP tax rate for 2020 of 22% compared to 26.4% in 2019. The lower tax rate is driven by both changes in marginal tax rates across various jurisdictions, as well as windfall benefits from the PSUs we award as part of our share-based compensation. We expect these changes to occur in subsequent years. We expect CapEx to be about $45 million-$50 million. Acquisition and Refinitiv transaction-related D&A, which we adjust out to the increase associated with push-down accounting, is expected to be $110 million. Finally, let me discuss our share count. We've updated our quarterly share count sensitivity for 2020 to help you calibrate your models for fluctuations in our share price.
Now I'll turn it back to Lee Olesky for concluding remarks.
Thanks, Robert Warshaw. 2019 was another record year, marked by numerous milestones for the company and our products. We continue to expand our opportunity set across all of our businesses, and we are very excited by the potential we see for Tradeweb. We're focused on capitalizing on the various growth opportunities ahead of us, and continuing to strike the right balance between investing for the future and driving margin expansion to create long-term value for our shareholders. Markets that we operate in are fundamentally changing as we speak. We believe that digitization of fixed income is accelerating, and this technology-fueled transition will continue to play out for years to come. As such, we believe that our multi-asset, multi-sector, multi-protocol, and global presence gives Tradeweb the ideal vantage point to both participate in and lead the next generation of progress.
The momentum from 2019 has carried over into 2020 so far, with January volumes increasing 29%, with broad-based growth across our four asset classes and new volume records in mortgages, European government bonds, U.S. corporate credit, and repo. I'd like to conclude my remarks by thanking our clients for their business and partnership in the quarter, and I want to thank my colleagues for their efforts that contributed to our strongest fourth quarter in our history, and a truly record year for Tradeweb. With that, I'll turn it back to Ashley Serrao for your questions.
Thanks, Lee. As a reminder, please limit yourself to one question only. Feel free to hop back in the queue and ask additional questions at the end. Q&A will end at 9:30 Eastern Time. Operator, you can now take our first line.
Ladies and gentlemen, if you have a question or a comment at this time, please press star then the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Rich Repetto with Piper Sandler.
Yeah. Good morning, Lee Olesky and Billy Hult and Robert Warshaw. I guess, since I have one question, I guess I'll go to the portfolio trading side of it. I know you made a lot of comments on automation and how the market continues to move in that direction. Could you talk about the portfolio trading side? I know you include that, Billy Hult, as fully electronic. Are these trades truly fully electronic, and what's the outlook there? How can that grow and impact your fully electronic share, I guess, in credit?
Yeah. Hey, Rich Repetto, how are you? Very good question. The straight answer is, yes, we look at that as fully electronic business. I think the evolution around portfolio trading is going to be from what we would consider non-competitive trading into more competitive environment-type trading. I've described it as the kind of light bulb moment with customers, and I think absolutely it's an innovation, not to be on any level dismissed. It is one of those things where once clients understand the value of it, they absolutely onboard and start their usage that way. On some level, it's about from the client perspective, do they get better levels when they send out bid lists, offer lists, or do they get better levels when they send out portfolio trades? 100%, we are seeing more and more clients using portfolio trades.
We have never dismissed, Rich Repetto, the reality that there are always going to be some voice process trades in the marketplace, and we think that's an important investment for us. 100%, we think about portfolio trades as fully electronic trades.
Yeah. There's risk transference in these portfolio trades that you reported.
100%.
Got it.
Yeah.
Thank you.
Okay.
Our next question comes from Ari Ghosh with Credit Suisse.
Hey. Good morning, everyone. I was hoping you could give us an update on some of your newer European initiatives and just overall growth expectations from that region. Just curious what type of traction you're seeing from recent rollouts, including portfolio trading, your cross-asset MAP tools in the region. If you're seeing any client demand weakening at all from the region as well, that'd be really helpful, like some of your peers have noted seeing. Thanks so much.
Well, thanks, Ari. Good morning. This is Lee Olesky. Yeah, Europe is a key component of our international growth story. We see a lot of opportunity within a number of areas in Europe, the corporate cash
Credit business, the interest rate swap business, and as you mentioned, portfolio trading, Billy Hult spoke about that a bit, is really a global trend. We just started doing it in a meaningful way in Europe. As Billy Hult said, we just think there's a lot of room to go with this. The percentages are going up quite rapidly in terms of both the U.S. and in Europe. Adoption continues. It's still relatively early days with this. We've been doing portfolio trading now as a company for over a year. We've clearly been the leader in this space. I think as a result we have a nice meaningful share of activity, in portfolio trading. We also have, as you mentioned, the multi-asset package activity that started in Europe. That's kind of asset swaps in my old speak, really started with the sterling market, and sterling swaps.
We're rolling that out now to other currencies. That's part of our whole connect-the-dots concept. You'll hear us talk about that a lot. We've basically linked together the swap market and the bond market electronically. It's a market that's existed for some time. The package trading and the asset swap trading obviously has been going on for 20-plus years, but we're doing it now electronically. That's a real time saver and a real efficiency to be able to link these markets. You have to be in both of the markets to begin to link them. Europe, we're also seeing, as in the U.S., the beginning of the move away from LIBOR to the global risk-free rates. That's something we're spending a good deal of time on. Also in Europe, we have a focus on emerging markets that continues. There's an awful lot happening in Europe.
It's been a great area of growth for us, a great place to innovate, and we're very excited about the opportunities over there.
Got it. Thank you.
Our next question comes from Ken Hill with Rosenblatt.
Hi, good morning. In the prepared remarks, I think you highlighted you expanded the U.S. Treasury streaming offering to institutional clients so they're able to customize the liquidity a little bit. I was hoping you could kind of flesh that out a little bit as to maybe what you're seeing from a competitive environment perspective there, and then maybe how that's being implemented in client behaviors, and how that might be additive to you guys versus more of an RFQ-type processor?
Yeah. That's a great question. We have that business that we call Stack. We think that there are certain types of clients in certain environments that are going to want to consume streamed pricing. We think that's an important evolution of the government bond market. We feel very strongly that we've always been a leader in this space. We think playing a leadership role around this evolution is obviously a very important thing. Is RFQ and that type of trading going away? Absolutely not. There is going to be evolution. Some of that evolution will be around streaming. We're going to play a leadership role around that.
In terms of the kind of competitive environment that you're describing, the one thing I would say is obviously in the rate space, it's a pretty crowded landscape, obviously, where you have Tradeweb in the leadership role that we've played. You have Bloomberg, you have CME, you have Nasdaq, you have Fenics. It's a pretty long list of competitors in that field. When we step back a little bit, one of the things that makes us feel pretty confident about our offering is just the breadth of offering that we have and that we offer to clients. 100% laser-focused on this space and a strong feeling that streaming is an important strategy, and we're glad that we're in it, and we're glad that we're playing a leadership role around it.
Okay. Thanks for the detail there.
Yeah.
Our next question comes from Alexander Blostein with Goldman Sachs.
Great. Hi, good morning, everybody. I was hoping to dig a little bit deeper into the recent share gains you guys have seen in the credit business. Feels like, again, dynamic has been accelerating quite a bit in terms of volumes. Maybe spend a little bit of time in terms of the incremental revenues, incremental areas of revenue growth within that product. Sort of what are the capture rates you guys are seeing on that set of incremental volumes you've seen over the last couple of quarters?
Well, hey, Alex, it's Billy Hult. One way I think we would describe it a little bit is you kind of heard us, you heard Lee Olesky and I talk a little bit in the prepared remarks around something important, which is creating efficiencies for our clients. That is kind of something Tradeweb's always done. It's a little bit of our oxygen. I say this in kind of a very obvious way. We have a lot of clients, right? Some of our clients are asset managers, some of our clients are banks, some of our clients are hedge funds. Some of our clients are wealth managers, some of our clients are alternative market makers. We don't always necessarily think about the boxes around institutional trading and D2D trading and D2C trading, right? If you think about the credit landscape for a second, it's pretty interesting, right?
You have, obviously, clients that trade with dealers. You have clients that trade with clients, and obviously that's the kind of all-to-all environment that we've all spoken about a lot. You have dealers that trade with dealers, and I think we've played a very strong role around that innovation in our suite product, right? Then you have actually dealers that send out RFQs that clients respond to. You have this very kind of evolving market structure in credit. If you step back a little bit.
You see that Tradeweb is actually the company that's playing the leadership role in all of these segments. That's really kind of how we think about our business, which is how do we create efficiencies for our clients, and how do we put enough bets on the table where we're going to play a leadership role as this market structure evolves. That's kind of the best way I can kind of answer that. In a separate way, obviously, Alex, when we talk about portfolio trading and Net Spotting and those types of innovations, we're talking about how we derive value and efficiencies for our buy-side clients. Doing that with our buy-side clients in our institutional business is always a massive and huge priority for us.
I think, I'll just add one thing to that, and that is, as that happens, one of the impacts of that is we would expect that cash credit will continue to grow faster than our derivatives piece of credit. When you look at fees per million, we'd expect that to start lending higher over time as well. That's just a byproduct of what Billy Hult described.
Got you. Okay. Thanks very much.
Our next question comes from Michael Cyprys with Morgan Stanley.
Hey, good morning. Thanks for taking the question. I was just hoping to hear an update on your business and strategy in China. In particular, how does the recent trade deal impact any sort of timing or development in your view of international access to Chinese bond market? I think the markets there and your build-out of the business, any impact that you're seeing there in terms of activity volumes from the coronavirus? I guess maybe more big picture, what risk do you see to the China growth story longer term?
Right. Thanks, Michael Cyprys. The international demand for access to China and their bond markets continues to grow and be very real. Our focus has been on increasing the participation with this electronification, mainly with asset managers. We continue to kind of outperform that segment in terms of capturing real money demand. We account for a significant majority of the net inflows into China via Bond Connect. The current coronavirus situation and market conditions, putting aside the humanitarian impact, definitely create some short-term volatility. Our execution plans, our long-term outlook for our China business is unchanged. We continue to see significant secular growth and international demand for participation in China's bond market. We had a situation in January that you see from our volumes, our average daily volume went down.
Some of that was also the fact that the Chinese New Year actually hit in January this year, and last year, the Chinese New Year lunar calendar actually hit in February. There was a little bit of that timing. Of course, the markets were closed, I think, for a day in January as a result of the coronavirus. Short-term, it's a challenging situation for all of us who have some of our team based in China and for the markets there. Medium-term, longer term, we continue to be very committed, and expect we'll get out of this just fine.
Great. Thank you, sir.
Sure.
Again, ladies and gentlemen, if you have a question or a comment at this time, please press the star and the one key on your touchtone telephone. Our next question comes from Michael Carrier with Bank of America.
Hey, good morning. This is actually Sameer Murukutla for Michael. Thanks for taking my question. Lee, you've highlighted several times on the call that you're kind of laser-focused on both investments in the business to drive revenue growth and margin expansion. Given that the new peers keep pushing into the rate segment and then there are already many well-funded peers, I guess, how confident are you that you're spending enough to defend your market share and revenues? I guess, Rob, any details you can provide on what kind of margin expansion you're budgeting on the low and high end of your guidance?
Right. Of course, rates part of our franchise has long been our leading kind of component of our revenues, and we've been known for many years. As Billy Hult pointed out, and you're pointing out, it's a pretty competitive space, has been for as long as we've been in the market. Yet we've grown from day one and continue to grow and have grown right up until the fourth quarter and even the January numbers that you see. We like our trajectory. We like our opportunity set. It's all about innovation. It's all about creativity, about building the software that meets the client's needs and demands. It's about being clever. Mostly it's about listening to the clients and as I've said before, connecting some of the dots between markets that allow for greater flow.
I expect we'll just continue on that path, and we are obviously investing and building new things and different innovations. The results, I think, kind of speak for themselves. We're on that same track. I think in terms of the guidance, I'm going to let Robert Warshaw comment on that, sort of the expense guidance and
I think as we've said on either side of the expense guidance, we believe we can still deliver some margin improvement. The reason for that, I think, is several parts. One is, as we've talked a lot about over the last quarters, is we have a scale business, and as we get to different stages in our investments in different products, we start to see that scale improve, and we believe that'll continue to improve through 2020 in the products that we've been investing in. With some new investments, which will also deliver some value. I think that's the first thing I'd say. I think the second thing is that part of the reason that works is because we have a certain amount of our expense, particularly compensation expense, is variable against performance, both on revenue and on earnings.
It goes up if we get more revenue and/or more earnings. It sort of goes up more slowly than the scale of the revenue and the earnings. I think that also is a way that we've put in devices, I guess you would call them that, to make sure that we are continuing to deliver more value with new revenue. I think the last thing I'd say is, obviously some costs we had in 2019 that were related to first being a public company, we don't expect those to increase substantially in the same way they did in 2019. Yet in 2019, we demonstrated we can still deliver substantial margin growth in spite of having to absorb the costs of being a public company.
There's still some more of those that'll show up, but for the most part, that's now what we think is sort of a status quo. Growth, again, will get delivered against that, because without that substantially increasing in that regard. I think those are some samples of the kinds of things we're doing. We're obviously always looking at expenses and figuring out if we can be more efficient. The primary drivers, as you would notice, obviously, scale and compensation.
Perfect. Thanks again.
Our next question is a follow-up question from Michael Cyprys, Morgan Stanley.
Hey, thanks for taking the follow-up. I just wanted to circle back on the ETF business. Just curious what the mix is between fixed income ETFs versus equities versus, say, commodities and other types of products. Where are you seeing the bigger opportunity if you were to look at the ETF market by geographic region, but also by strategy as well?
Thanks for that question. ETFs for us is pretty reflective of the overall market. The breakdowns between equities and fixed income. I know we're known as a fixed income platform, but in the ETF space, we are broadly reflective of the underlying volumes in the marketplace, the splits between equities and fixed income. There's nothing there. I do think the correlations that we see with the credit markets are obviously of particular interest to us. The links into the portfolio trading that we've built, that is kind of the evolution of the credit market, is particularly interesting to us because we're not any sort of meaningful player in the underlying equity instruments, but we are obviously in corporate bonds and derivatives and all the other things that make up ETFs.
We see those connections as a kind of harbinger of future growth opportunity, future connectivity, whether it's the clients that we're bringing into our system that are liquidity providers or focus on ETFs and linking to credit. Those are really interesting things to us. To answer your first question, what's our split? It's reflective of what's going on in the market between equities and fixed income ETFs.
Okay, great. Thank you.
Our next question comes from Ken Worthington with JPMorgan.
Hi, good morning. We can talk a little bit about the tax guidance at 22%. I think those pre-IPO and post-IPO, you're really looking at a 26.4% tax rate, and there's a pretty decent gap between the 22% and the 26%. Can you talk about what's driving the change in tax outlook? Is this more unique to 2020, or is the 22% something we can think about as a best guess as we look further into the future?
I think it's a great question. I love talking about taxes, so it makes my morning.
Make it short.
Make it short. Yeah, exactly. There's really two primary things that are causing the change and a few other smaller things. The two primary things are, as we spent a good amount of time this last year looking at where revenue is sourced and what the different jurisdictional tax rates are, we determined there was some marginal tax rate savings that we could ingest into our tax calculations, and that's about 50% of the change. That's a major piece of it. A lot of work associated with it. It's pretty complicated, but it's basically a jurisdictional marginal tax rate thing. Another big piece of it is how one accounts for PRSUs.
I think that we call it sort of windfall benefit because when we book the expense for PRSUs, we book it for accounting purposes at basically the value of equity at the time of issuance of the PRSUs. When we book it for tax purposes, it's the point in time when it vests and the value of equity at that time. There's a much higher expense associated with it for tax purposes than for accounting purposes, and as we sort of unraveled all the different pieces of equity, in particular, PRSUs have this particular impact. That's a good part of the rest of it. There's some R&D credits we've done. There's certain things related to GILTI and FDII, which I'm sure you don't want me to talk about. That's foreign tax benefits. That's the major pieces of it.
We decided to change the rate because we believe this is a multi-year impact, it certainly goes to the next couple three years, so 2021, 2022. We'll obviously update if we see a material change. As you know, we tend to, once we make these terminus for the year, it's the rate that we plan to use for the year unless there is a material change in some form. That's the story behind it.
Great. Well, thank you very much.
Our next question is a follow-up question from Alex Blostein with Goldman Sachs.
Hey, guys. Thanks for the follow-up. Real quick on data, specifically Refinitiv, looks like the quarterly number picked up there sequentially, and I think going back to the IPO, remember there was a new contract you guys had in place with Refinitiv that kind of temporarily raised how much well, not temporarily, but on a one-off basis, I guess, kind of raised how much you're making from that contract. What drove the increase in the quarter? Is it good run rate, and how are you thinking about the Refinitiv revenues longer term?
Thanks, Alex Blostein. Yeah, look, let me just take a little bit of a broader lens on data. Refinitiv, in particular, allows us to redistribute data to our clients around the world. The contract with Refinitiv should grow over time. We have delivery milestones. If we achieve them, we can continue to have growth there. We don't feel at all restricted. It's been a great partnership. We had some nice growth, as you saw it in the fourth quarter. We don't talk about what our expectations are for revenue going forward. I don't want to wade into that world other than to say data is a very important component of our business.
For the markets in general, as we all know, with the increase of electronification and the way the trading desks are changing with data scientists, quants, we've got a real focus on how we can further monetize our data. Right now, it's been about how do we use the data to really drive more intelligent execution. There's a number of different paths that we're investigating with respect to data. We're very excited about what we're doing. We've got the Ai-Price that we've built that's now being used in our suite protocols, and it's coming from retail sectors, institutional sectors. We're working on a number of different closing price standards that are IOSCO compliant. We just did that with Treasuries, with ICE. We did it previously with FTSE in gilts. We have TCA.
Data is a meaningful focus for us going forward, and we think that the Refinitiv deal that we have in place is incredibly complementary to our overall strategy in data.
Great. Thanks very much.
Sure.
Our next question comes from Michael Carrier with Bank of America.
Hey, thanks for taking my follow-up. Just a quick one on capital management. Seeing tremendous cash build despite your investment. Any update you can give on your thoughts around the dividend, and maybe when we can see some dialogue with the board on possibly increasing the dividend? I guess over the long term, is the growth more tied to earnings or any other metric?
I'll take that one. Thanks for the question. We kind of look at this as, we obviously had the year of IPO when we had some other cash uses. We had the pre-IPO dividend. As we're heading to 2020, we are looking at what potential uses for cash might have. The central theme is delivering value back to shareholders. That's in a number of ways. Obviously, acquisitions are potential, increasing dividends, potentially buybacks. I'll go through all three of those quickly. Buybacks, we don't have any current plans to do it. If we change that, obviously, we'll make that announcement appropriate. On dividends, we've talked about sort of tracking that against how we're doing on cash flow and obviously the sources of cash flow.
I think there, we're going to walk a little slowly, but again, it's up to the board as to whether we increase it or not. The reason we're going to walk a little slowly is because we want to make sure that as ideas come up inside of our four walls about possible things we might want to look at externally, that we retain as much of the cash to do that, particularly this year as we're examining those things. I think that's really the story, focus on value for shareholders, and that's the three ways we do it. Finally, inorganic growth is one of the things we said we'd look at, and we're going to make sure we accumulate cash to support that, at least through this year.
That's good. Perfect. Thank you.
Our next question comes from Patrick O'Shaughnessy with Raymond James.
Hey, good morning. For the entirety of 2019, your commission revenue grew by 33%, while your transaction fee revenue grew by 14%. Can you explain the dynamics underlying why commission revenue would have grown a fair amount faster than transaction revenue?
It's a bit of an accounting historical definition problem in that commission revenue isn't exactly, in every case, what you think is commission revenue. It's not, for example, all related to our wholesale voice business, which is, I think we can consider it normally. It has to do with the way we have collected revenue over time in some of the other products. This looks more transactional. Without going into the gritty details of that, it's something which we may look to refine a little bit as this year goes on. We need to be consistent with past comparisons in our accounting statements, which is what makes it a little bit noisy. Less than 10% of our total revenue is related to voice, which is where you would normally think commission is coming from.
We have some models and some of our electronic products that are commission-like, but not commission, and they end up in that category. If that's helpful.
Got it. Thank you.
Our next question comes from Rich Repetto with Piper Sandler.
Thanks for taking my follow-up. I apologize if this has been asked. I've been jumping back and forth here. On expenses, Robert Warshaw or Ashley Serrao, this has played out almost exactly as you talked about as far as margin expansion being 500 basis point margin expansion year-to-year. You had a 78% incremental margin in the year. This whole idea about revenue growth outpacing expense growth definitely played out. My question is, expenses grew 5% or 4.5% this year. You get them going 8% next year. We're off to a good start in volume. I guess the question is, was there anything peculiar why you accelerated the expense growth for next year when you had an IPO year this year, and it only grew 5%?
Yeah, we identified some of the reasons for that. There's a couple things. One in that number is the potential that we may have some overlap rent expense if we are likely to move our offices in 2021. As you know, that sometimes requires a six or seven-month lead-up to the event, there's some potential costs. They're only potential because we're negotiating with different landlords about ways to not have to spend that money this year, if that's what we end up doing in terms of agreeing on a new space at that time. The new space has mostly to do with when leases are up and that sort of thing for our New York office. That's one piece of it.
The second piece is we wanted to identify as new expense some of the additional expenses we're doing on related to data in particular. As Lee Olesky and Billy Hult both talked about is how important data's become to our execution business. We have become focusing more and more how to sort of unleash more and more of our data for that purpose. Yes, off of that might come specific revenue opportunities as well. That's really what the focus has been. A good part of about $5 million that's mostly due to data and some due to cyber and risk, but mostly due to expanding our capabilities and in effect, farming our large data pools to help execution. That's why we thought we are adding some expense, it's investment towards execution, and we thought we should identify it and be pretty specific.
Obviously, the $3 million that's identified may not actually happen.
Yeah. Look, what I would just add to that, which is pretty much Robert Warshaw said, I'll just reiterate it. Our view is this is a growth business. We have a lot of different opportunities in front of us around the world, different asset classes, different products, et cetera. We're going to continue to invest in the business to seize those opportunities. Are we going to continue to be focused on enhancing margin? Of course, we are, right? We accept that that's a factor in how our shareholders view our performance for the business. First and foremost, we think there's a lot of opportunity out there and a lot of potential for growth. We're going to continue to invest in people, invest in regions, invest in businesses, and mostly invest in innovation with respect to technology, which costs money.
Right. The last thing I'll add to that is, as we indicated, we think at both ends of the range, we're still going to get margin expansion. It's kind of done in the context of can we get margin expansion and invest, and we said we believe we can, and we believe we can.
Got it. Thank you.
Thanks, Rich Repetto.
I'm not showing any further questions at this time. Let's turn the call back over to our hosts.
Well, okay, great. Thank you all very much for joining us this morning. We're really excited about, obviously what we got done last year and even more excited about what we have to look forward to in 2020. Thank you very much.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.