MarketAxess Holdings, the New York investment firm, made a bet that traders want to cut out the middlemen when buying and selling bonds, and that wager appears to be paying off.
Last week it reported second-quarter financial results in which revenue surged 17.3% year-over-year to $125.5 million. Earnings per share grew 19% compared to last year’s second quarter but fell short of Wall Street views. Trading volume for the quarter was 25.3% higher as more bond trading takes place electronically. The biggest hit to MarketAxess during the June ending quarter came on the employee compensation side. It now accounts for 50% of the fintech company’s total expenses and is up close to 25% from a year ago.
"Trading volumes remained strong across all product categories and regions as dealer and investor adoption of electronic trading continues to accelerate,” said Rick McVey, Chairman, and CEO of MarketAxess said when announcing quarterly earnings results. “We are especially encouraged by the strong demand we are seeing for new trading automation tools in credit markets by both our dealer and investor clients.”
MarketAxess isn’t new to the fintech market, it's been around since 2000, but it is capitalizing on the digital revolution that is changing the way institutions trade. The company operates an institutional electronic trading platform, providing customers with more liquidity opportunities, improved execution of orders and reduced costs for buying and selling in the global fixed income markets. Today it has more than 1,500 firms, including large asset managers and institutional broker-dealers using the platform. In 2018 alone $1.7 trillion of U.S. investment-grade bonds, U.S. high yield bonds, emerging market debt, Eurobonds and other fixed-income securities was traded through MarketAxess’ platform.
The company has become a force in the credit market with 85% market share. It competes against Tradeweb Markets and Bloomberg for institutional investors and traders. Investors have been rewarding its dominance and growth prospects. The stock is up materially so far this year.
As it stands, around a quarter of all U.S. corporate bonds are bought and sold electronically, leaving a lot of room for MarketAxess to continue to grow. Unlike stocks, which were moved to electronic platforms in the 90s, the fixed income market has taken a slower path toward electronic trading. Coming off the Great Recession big banks were forced to add more capital to their balance sheet which meant they couldn’t buy and sell as much debt as in the past. That opened up a window for the likes of MarketAxess to create an electronic trading platform for debt. That has grown over the years with it setting a record in terms of trading volume last month. In June it reported total monthly trading volume of $182.9 billion, comprised of $91.3 billion in U.S. high-grade volume, $86.5 billion in other credit volume, and $5 billion in liquid products volume.
