MarketAxess' Q3 2025: Contradictions Emerge on U.S. High-Grade Market Share, Portfolio Trading, and Block Trading Growth

Date of Call: March 7, 2025

Financials Results

• Revenue: $209M, up 1% YOY (included $1M FX benefit)
• EPS: $1.84 diluted EPS (no YOY comparison provided)

Guidance:

• Reconfirmed full-year 2025 expense guidance; expect to be at the low end of prior range ($501M-$521M ex-notable non-GAAP; $505M-$525M GAAP).
• Continue deploying technology releases and new protocols (including closing auction) through the remainder of 2025.
• Plan to expand MIDEX sessions and dealer participation to grow dealer-initiated volumes.

Business Commentary:

* Market Conditions and Revenue Performance: - MarketAxess reported revenue of $209 million for the third quarter, marking a slight increase from the prior year. - The growth in non-U.S. credit segments, such as emerging markets and Eurobonds, was strong at 10%, while U.S. credit saw a 9% decline in revenue. - The challenging market conditions, including limited volatility and tight spreads, impacted revenue growth in U.S. credit.

• Block and Portfolio Trading Initiatives:
• MarketAxess saw a 10% increase in block trading ADV across U.S. credit, emerging markets, and Eurobonds in Q3, with October growth reaching 21%.
• Total portfolio trading ADV increased by 20%, with U.S. high-yield ADV reaching record levels.

• The adoption of new protocols and workflow tools, such as targeted block trading and portfolio trading, has driven growth in these areas despite competitive challenges.

• Dealer-initiated and MIDEX Launch:

• The dealer-initiated ADV grew by 18% in Q3, with October seeing an 22% increase, supported by the launch of MIDEX for U.S. credit and Eurobonds.
• MIDEX launched in September, executing over $1.3 billion in matching volume in October, indicating early success.

• The introduction of MIDEX supports the dealer community's need to exit positions efficiently, contributing to incremental revenue.

• Financial Performance and Expense Management:

• MarketAxess reported a 1% revenue growth with diluted earnings per share of $1.84 in Q3, driven by a $1 million benefit from foreign currency fluctuations.
• Total expenses increased by 3%, primarily due to higher employee compensation and technology costs, but the company reconfirmed its full-year expense guidance.
• The company's disciplined expense management and self-funded investments support long-term strategic growth while maintaining financial stability.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted modest revenue growth ($209M, +1%) and strong volume momentum in new initiatives (block, portfolio trading, MIDEX) while acknowledging U.S. credit revenue challenges and ongoing heavy tech investments: "we feel good about our positioning" and "confident that we can execute faster to generate higher levels of revenue growth."

Q&A:

• Question from Chris Allen (Citi): On the MIDEX U.S. launch — pipeline to add dealers, interaction with portfolio trading, and benefits; and how you will deliver faster technology enhancements to address competition and legacy areas?
  Response: MIDEX is off to a strong start (one daily session, ~ $2.7B monthly run-rate); company will add sessions/dealers; MIDEX helps dealers exit portfolio positions; CEO emphasized broad, multi-front tech investments (portfolio trading, MIDEX, automation, blocks, closing auction using Expro/Pragma) that are driving volume momentum but currently weigh on fee per million with revenue gains expected as rollouts continue.

• Question from Patrick Moley (Piper Sandler): Size of the closing auction opportunity, implications for data and market share, and how large could this be for credit over time?
  Response: The closing auction is a true all-to-all auction targeting the most liquid IG and HY bonds to create a relevant end-of-day price for index/ETF needs; it leverages CP Plus data and partnerships (S&P, large managers, dealers) to power evaluated closing prices and is designed to capture a meaningful slice of month-end/close liquidity.

• Question from Alex Cram (UBS): Can you unpack U.S. block trading progress and timing for adding dealer liquidity and expected uptake?
  Response: Block trading is the largest opportunity; momentum is accelerating (Q3 +10% block ADV → Oct +21%; U.S. IG Oct +30%); expanding dealer content (Axx) and upcoming Expro/feature rollouts are the key levers to drive more dealer liquidity and client adoption.

• Question from Benjamin Butters (Barclays): With continued low credit spreads and low volatility, how do you plan to grow if that environment persists and what could change that trend materially?
  Response: Growth is episodic tied to volatility; recent November widening (TRACE +46% IG, +25% HY) shows liquidity unlocks our all-to-all value, but if low-vol persists the firm relies on protocol-agnostic offerings (PT, MIDEX, blocks, automation) and potential Fed-driven curve steepening to improve secondary turnover.

• Question from Michael (Morgan): If the macro backdrop remains challenging, which business segments can deliver higher growth over the next 12–18 months?
  Response: The protocol-agnostic strategy: portfolio trading, dealer-to-dealer MIDEX, block tools and automation are the primary growth levers in low-vol regimes, supported by data-driven protocol selection to steer flow to the best execution method.

• Question from Simon Clinch (Rothschild): Why are trade sizes splitting (larger blocks and smaller non-block trades) and is this trend structural or cyclical?
  Response: Smaller-ticket growth is structural (portfolio trading, SMAs, algos breaking blocks into smaller executions); larger blocks grew in low-vol regimes but are expected to fragment as volatility normalizes; MarketAxess is positioned to serve both ends with automation and targeted RFQ.

• Question from Dan Fannon (Jefferies): Update on curve/duration trends, fee-per-million sensitivity, and drivers of the implied Q4 sequential expense increase (and 2026 outlook)?
  Response: High-grade duration sensitivity: ~+$3–5 fee-per-million per 100bp; a one-year increase in WAM could be ~+$15 fee-per-million; Q4 run-rate implied around $134M (incremental $10–12M vs Q3) driven by depreciation, technology, hires and timing; prior cost actions reduced FY expenses by ~$17M and self-funded investments.

• Question from Eli About (Bank of America): Open Trading rose to ~39% of credit volume in October despite modest volatility — why the stronger adoption?
  Response: Open Trading adoption was boosted by new liquidity sources: systematic hedge funds and buy-side clients deploying automation and auto-responders, plus higher HY participation (~43%), which collectively increased OT penetration even without large volatility spikes.

• Question from Patrick Asanasih (Raymond James): What are the unique challenges to growing electronic market share in high yield and how are you addressing them?
  Response: High-yield growth is constrained by limited liquidity and information leakage risk; MarketAxess is addressing this via better high-yield block/dealer content, AI-driven dealer selection tools, and increased portfolio-trading adoption supported by ETFs to improve liquidity access.

• Question from Simon Clinch (Rothschild) — follow-up: Any other competitive changes affecting revenue pools across protocols?
  Response: Revenue mix shift reflects growth in lower-fee protocols (portfolio trading, dealer-to-dealer/MIDEX) which add incremental volume but lower fee-per-million; international (EM, Eurobonds) and product expansion remain strong, partially offsetting mix-driven revenue pressure.

Contradiction Point 1

Market Share Trends in U.S. High-Grade

It reflects differing perspectives on the market share trends in U.S. high-grade bonds, which impacts understanding of the company's competitive positioning and growth trajectory.

Can you discuss the pipeline for adding dealers, interactions with PT, and progress on share gains for MIDEX U.S.? While new product uptake is strong, why have overall share gains remained limited? - Chris Allen(Citi)

2025Q3: In the U.S. high-grade market, our share is down to around 3%. They are a very good hint that we have a lot of room to grow our share. We're not discouraged by the fact that we're down at this point in time. - Chris Concannon(CEO)

Can you provide details on progress of new initiatives, client adoption, and the rest-of-year outlook? How does Q2 progress compare to July volumes, particularly in U.S. high-grade market share? - Christopher John Allen(Citi)

2025Q2: In the U.S. high-grade market, our share is down to about 3% on a trailing 12-month basis. This level is considerably lower than the 6.6% share we reported at the end of last year. The market share decline was driven by large blocks moving to phone and chat. - Christopher Robert Concannon(CEO & Director)

Contradiction Point 2

Impact of Low Volatility on Portfolio Trading

It involves differing views on the impact of low volatility on portfolio trading activities, which affects understanding of the company's strategic positioning in evolving market conditions.

On the MIDEX U.S. launch, initial volumes are strong. Can you update us on the dealer expansion pipeline, its integration with PT, and how overall market share gains are progressing despite strong adoption of new offerings? - Chris Allen(Citi)

2025Q3: We've also seen good uptake of new offerings in the portfolio trading realm. But overall share gains in high-grade have been elusive. This is a function of the outsized impacts of large blocks of business shifting to phone and chat. - Chris Concannon(CEO)

How are clients using portfolio trading (PT) differently, especially during low volatility periods? - Simon Alistair Vaughan Clinch(Redburn)

2025Q2: PT is typically more used during low volatility periods. However, we've seen some PT activity during high volatility, driven by client demand for liquidity and cash. We continue to grow our PT market share and are enhancing our tools with pre-trade analytics and dealer-client portfolio showcasing. - Christopher Robert Concannon(CEO & Director)

Contradiction Point 3

Portfolio Trading Expansion and Market Share

It involves differing statements about the company's portfolio trading market share and its strategic importance to the overall business.

What's driving the shift in trade size distribution between block and smaller trades in credit volumes? - Simon Clinch(Rothschild)

2025Q3: Portfolio trading is the fastest-growing segment with a market share of 27% in the first quarter. We continue to expand our lead in portfolio trading, which now represents 30% of our total credit trading volume. - Chris Concannon(CEO)

Can you update us on high-grade fee capture in Q1 and April metrics, and what caused the YoY and QoQ declines? - Kyle Voigt(KBW)

2025Q1: Our fee capture has been affected by growth in portfolio trading and dealer-to-dealer markets, which have lower capture rates. - Ilene Fiszel Bieler(CFO)

Contradiction Point 4

Block Trading Growth and Challenges

It highlights differing perspectives on the growth and challenges in block trading, which is a significant strategic focus for the company.

Can you explain U.S. block trading and discuss its challenges and growth expectations? - Alex Cram(UBS)

2025Q3: Block trading is our biggest opportunity. U.S. growth is not at desired levels but improving. - Chris Concannon(CEO)

Can you discuss the block trading launch in the US and the impact of dealers on block penetration success? - Chris Allen(Citi)

2024Q4: Block trading is an area where we are very pleased with the progress we've made in the EMEA region. Our European market share in block trading has increased to 20% from just over 10% in Q1 of 2022. - Christopher Concannon(CEO)

Contradiction Point 5

Portfolio Trading and Market Share in High-Yield

It addresses the company's growth strategies and market share in high-yield portfolio trading, which is a critical revenue stream.

What is the opportunity size for closing auctions and their potential market share in the credit market? - Patrick Moley(Piper Sandler)

2025Q3: Portfolio trading has grown even in volatility. - Chris Concannon(CEO)

Can you explain the decline in the high-yield business's market share from 17-18% to 12%? - Kyle Voigt(KBW)

2024Q4: Portfolio trading also has increased its share of the high-yield market, growing from 16% in Q1 to 18% in Q3. - Christopher Concannon(CEO)