MKTX - NASDAQ

Ladies and gentlemen, thank you for standing by. Welcome to the MarketAxess Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. The conference call is recorded on November 7, 2025. I would now like to turn the call over to Steve Davidson, Head of Investor Relations at MarketAxess. Please go ahead, sir.

Good morning, and welcome to the MarketAxess Third Quarter 2025 Earnings Conference Call. For the call, Chris Concannon, Chief Executive Officer, will provide you with an update on our strategy and our trading businesses. And Ilene Fiszel Bieler, Chief Financial Officer, will review the financial results. Before I turn the call over to Chris, let me remind you that today's call may include forward-looking statements. These statements represent the company's belief regarding future events that, by their nature, are uncertain. The company's actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the company's future results, please see the description of risk factors in our annual report on Form 10-K for the year ended December 31, 2024. I would also direct you to read the forward-looking statement disclaimer in our quarterly earnings release, which was issued earlier this morning and is now available on our website. Now let me turn the call over to Chris.

Good morning, and thank you for joining us to review our third quarter financial results. As highlighted on Slides 3 and 4, our third quarter results reflect a return to more challenging market conditions and historic levels of new issue in September as well as continued revenue growth challenges in U.S. credit. Revenue was $209 million in the quarter, up slightly from the prior year. Our revenue growth outside of U.S. credit was strong at 10%. With regard to the operating environment, we are focused on providing our clients with a platform that has the right mix of protocols and workflow tools to meet their needs in all market conditions. We intend to deliver a platform that will be protocol agnostic that uses data and analytics to help clients decide the appropriate protocol for each trading situation. Our current model does exceptionally well and higher volatility when spreads are widened out and liquidity is in higher demand. Unfortunately, we have only seen limited periods of volatility over the last several years, and we continue to see fairly tight spreads. Revenue growth in U.S. credit has also been impacted by the growth of new protocols like portfolio trading, the growth of the dealer-to-dealer market and smaller-sized trades moving from RFQ to portfolio trades at lower capture rates. The good news is that we are modernizing our technology platform, while at the same time, delivering new protocols and workflow tools to help our clients be more efficient. Most importantly, we continue to gain significant traction with our new initiatives. In the client-initiated channel, we generated 10% growth in block trading ADV across U.S. credit emerging markets and Eurobonds. This strong growth continued in October with a 21% increase in block trading ADV. In the portfolio trading channel, we generated a 20% increase in total portfolio trading ADV with record U.S. high-yield ADV. In October, total portfolio trading ADV was up 25% and market share in U.S. credit portfolio trading increased 300 basis points. And last, in the dealer-initiated channel, we generated an 18% increase in dealer-initiated ADV. Again, this strong growth continued into October with a 22% increase in dealer-initiated ADV, supported by strong growth in Mid-X for Eurobonds and the addition of Mid-X for U.S. credit. As announced earlier this week, we will also be launching a new protocol introducing the concept of closing auctions to the fixed income market. Many of you are familiar with the auction protocol used in the global equity markets, now we are bringing it to the fixed income market. We believe a closing auction in the most liquid bonds will provide the market with an end-of-day liquidity solution while delivering a more organized market closing process. Protocol innovation, market data and automated solutions will continue to evolve as this market becomes more and more electronics. Before moving to the next slide, I wanted to provide some context for our October volumes. As you will recall, the prior year period is a tough comparison for U.S. credit given the heightened level of activity in advance of the U.S. presidential election. Despite this, our U.S. high-yield ADV growth in October was strong, up 9%, reflecting a strong performance of our platform with only a slight increase in volatility during the month. While we know we need to drive higher levels of share growth, we were pleased to see the improvement of market share month-over-month in both U.S. high grade and high yield and across all of our key initiatives. Slide 5 highlights the underlying strength of our global credit franchise. As you can see from this slide, our credit business is a global business and increasingly diversified. While U.S. credit trading volume is growing at a 4% CAGR in North America, our other credit products are growing double digits in North America and throughout the rest of the world. Furthermore, 36% of our global credit trading volume is now driven by clients outside of North America, up from 29% in 2020, and we continue to add international clients. This trend is supported by the over 6,000 international dealer and investor traders that are now on the platform. Slide 6 and 7 provide you with a year-to-date view of how well we are executing with our new initiatives in the 3 strategic channels as well as the strong growth we are continuing to see with automation. On Slide 7, in the client initiative channel, we continue to make strong progress with block trading globally. Our targeted block solution continues to grow in emerging markets and Eurobonds, while we see consistent growth in block trading in our U.S. credit business as well. Block trading represents the next step function to the growth of electronic trading and is an opportunity for real transformation in the fixed income markets. We are attacking the block market in two ways. First, we are leveraging automation by providing clients with unique tools that execute blocks in a more automated way. The second way we are attacking blocks is through our targeted RFQ workflow, which allows clients to target a short list of dealers for liquidity while increasing execution likelihood and reducing information leakage. Our total block trading ADV is approximately $5 billion year-to-date, up 23% across U.S. credit, emerging markets and Eurobonds. Our cumulative block trading volume since the launch of our targeted block trading solution in U.S. credit, emerging markets and eurobonds was approximately $12 billion through October 2025. The. Next, in the portfolio trading channel, total portfolio trading ADV year-to-date is running 50% above the prior year. U.S. credit portfolio trading market share was over 18%, up 210 basis points over the prior year, including a 360 basis point increase in U.S. high yield. In the dealer-initiated channel, we are continuing to see progress. Dealer initiated ADV was $1.7 billion year-to-date, representing an increase of 34%. Our new Mid-X solution for U.S. credit was launched in September. And while it is early days as we expand the number of sessions and bring on new dealers over the last 10 days, we have executed over $1.3 billion in matching volumes. So we are pleased with the recent momentum. The evolution underway in the U.S. high-grade market is highlighted on Slide 8. The average size of non-block trades are decreasing, while at the other end of the spectrum, the average block size trades are increasing. Blocks greater or equal to $5 million in trade size represent approximately 45% of trade volume in U.S. high grade, and they are largely executed over chat or the phone. This is the segment of the market that we are attacking with our targeted RFQ solution. Trades less than $5 million in size, make up the other 55% of the market in terms of volume, but approximately 98% of the ticket count. This is the segment of the market that we are attacking with our suite of low-touch automation tools as well as our portfolio trading tool. In the third quarter, 2/3 of trades executed by our largest clients were done through automation. The good news is that this business comes in at a more attractive price point and become sticky as clients convert. Part of this evolution has been the explosion in ticket count as shown on Slide 9, driving client demand for automation underpinned by our differentiated liquidity. Trades in U.S. high grade, less than $5 million in size have almost tripled since 2021. This significant increase in tickets has been driven by a couple of factors including the growth of ETFs and SMA accounts. Assets under management and SMA accounts by some estimates are expected to top $5 trillion. Other factors driving the explosion in tickets are the growth of portfolio trading and the increased usage of automation tools and fixed income. So the increase in automation is becoming more important to handle the increase in tickets in smaller-sized trades, but increasingly also for larger-sized trades. We recently profiled a very large investment manager on our platform who has invested in automation by targeting block-size trades for automated execution. In just 2 years, we trade $2 million and higher, they have gone from doing 14% of their volume and 54% of their tickets to 35% of their volume and 82% of their tickets today. On our platform, automation trade count and trade volumes are growing at a 3-year CAGR of 29% and 28%, respectively. On the dealer side, with the growth of dealer algos, execution quality and dealer responsiveness have improved with tighter bid ask spreads and higher RFQ response rates even for block trades. Dealer algos now contribute 88% of the responses and went up to 87% of trades in U.S. high grade, including 28% of the block trades. In summary, this year has been a tale of 2 very different market environments, and we believe that the protocols and workflow tools we are developing will help us grow through all market conditions. While we are pleased with the continued strong contribution from our new initiatives, we know that we have to deliver technology enhancements faster to drive revenue growth. While the time is taking to return to higher levels of growth has frustrated many of you, I assure you we are investing in the fixed income market of tomorrow while also addressing the competitive landscape of today. This is why we feel good about our positioning and our ability to return to higher levels of revenue growth in the coming quarters. Now let me turn the call over to Ilene to review our financial performance.

Thank you, Chris. Turning to our results. On Slide 11, we provide a summary of our third quarter financials. We delivered 1% revenue growth to $209 million which included a $1 million benefit from foreign currency fluctuations and diluted earnings per share of $1.84. Looking at our revenue lines in turn. Total commission revenue was flat compared to the prior year. Services revenue increased 9% to a record $29 million. Information Services revenue of $14 million increased 6% or 5% excluding the impact of currency fluctuations. Post-trade services revenue of $11 million increased 9% versus the prior year or 4% excluding the impact of currency fluctuations. Technology Services revenue of $4 million increased 20%, driven by higher license fees as well as connectivity fees from RFQ Hub. Total other income increased approximately $2 million driven by a tax credit and lower FX losses in the current quarter of approximately $4 million. This was partially offset by lower interest income and a $1 million negative swing in unrealized gains and losses on investments. The effective tax rate was 27.1%, up from 23% in the prior year, reflecting the increased accrual for the uncertain tax position reserve we established in the first quarter of this year. Slide 12 provides you with a quick summary of our KPIs. We continue to deliver strong growth across most of our KPIs, which reflects the progress we are making in our new initiatives. On Slide 13, we provide more detail on our commission revenue and our fee capture. Lower total credit commissions and lower total rates commissions revenue was mostly offset by higher other commission revenue which included the impact of RFQ-hub. Total credit commission revenue of $165 million was down 2% compared to the prior year. With strong 11% growth in emerging markets and 9% growth in Eurobond total commission revenue was more than offset by a 9% decline in U.S. high-grade and flat growth in U.S. high yield. The reduction in total credit fee capture year-over-year was principally due to protocol mix. On a sequential quarter basis, fee capture was slightly up due largely to duration in U.S. high grade. On Slide 14, we provide a summary of our operating expenses. Total expenses increased only 3%, which includes a $1 million negative impact from foreign currency fluctuations. The increase was driven principally by higher employee compensation and technology and communication costs as we continue to strike the right balance between investing to drive future growth and continuing to drive increased efficiency. Headcount was 896, up only 2% from 881 in both the prior year period and at the end of 2Q '25. We are reconfirming our full year 2025 expense guidance and expect to be at the low end of the previously stated expense range of $501 million to $521 million on an ex notable non-GAAP basis or on a GAAP basis, $505 million to $525 million. On Slide 15, we provide an update on our capital management and cash flow. Our balance sheet continues to be strong with cash, cash equivalents and corporate bonds and U.S. treasury investments totaling $631 million as of September 30. We generated $385 million in free cash flow over the trailing 12 months. We repurchased 595,000 shares year-to-date through October 2025 for a total of $120 million, including 239,000 shares repurchased during the third quarter at a cost of $45 million. As of October 31, 2025, $105 million remains on the Board's share repurchase authorization. Now let me turn the call back to Chris for his closing comments.

Thanks, Ilene. In summary, on Slide 16, we are continuing to innovate and execute with our technology modernization and we are focused on the delivery of new product enhancements and new protocols for the remainder of 2025. Our new strategic hires are already making a difference in our execution and we continue to show performance across our new initiatives for block trading, portfolio trading in the dealer-to-dealer business. Our revenue growth profile outside of U.S. credit is strong, and we are addressing our challenges in U.S. credit. And while we are pleased with the growth we are generating with our new initiatives, we are confident that we can execute faster to generate higher levels of growth. Now we would be happy to open the line for your questions.

[Operator Instructions] Your first question comes from Chris Allen with Citi.

Yes. Morning, everyone. Thanks for the question. Nice to see solid expense control this quarter. I have a bit of a 2-parter. One on the Mid-X U.S. launch, obviously, you see nice volumes to start. Can you talk about the pipeline to add additional dealers there? How it's interacting with PT, whether you see benefits there. And the second part, where you're seeing good uptake in new offerings like Mid-X you noted, your overall share gains have been elusive, which is leading to the investor frustration. Can you elaborate on your comments in terms of taking actions to deliver faster technology enhancements? How you're addressing competition, particularly if your legacy areas of shrink, which some are questioning whether there's been a degradation there, just so you're seeing uptick in new solutions, but overall share is moderated?

Great. Okay. Thanks, Chris. And yes, I'll try and get to all those parts of the 2-part question. First, on the recent launch of Mid-X which is our mid-market matching solution, really finally addressing that dealer-to-dealer market that has been growing over the last few years, now about 30% of the trace market is the dealer-to-dealer market. And we obviously have been engaged in dealer initiative business particularly using our dealer RFQ, which as you can see in the numbers and certainly in October, continues to grow. The dealer-initiated business in October was up 22%. And that's really without the full rollout of Mid-X, which only rolled out in late September and still early days. We are excited about those early days, though. As I mentioned in the opening comments, we're now seeing Mid-X run on a daily basis when it launched, it was running several times a week. So we have plans to increased the number of Mid-X sessions. We only run on a day today. But right now, we're on track to deliver around $2.7 billion in the month. That's the kind of run rate we're on. So we're pretty excited about that, just given it's so one session a day and off to a good start. The other important piece of that Mid-X solution is really our relationship with the dealer community who are a key ingredient to our ecosystem. And as you mentioned, it has a relationship to portfolio trading really, as dealers enter into portfolio positions, they obviously want to exit those positions in an efficient way. And certainly, the mid-market sessions that are out in the market have been very helpful to the dealer community for exiting that inventory. Unfortunately, they were priced at -- some of them were priced at quite a higher level. So part of our Mid-X offering is really to cater to the dealers' needs to get out of positions in an efficient way. And I think we've struck that balance. But again, it will lead to that lower fee per million for that Mid-X solution. So we do want to make sure people understand the connection to that volume being helpful for dealers as part of our broader partnership with the dealer community. On your second question and a very fair question around just our overall growth. The two areas, obviously, top line revenue in U.S. credit and our just overall growth of market share in U.S. credit really have been largely slower growth than we would like. And I think the way to think about what we've been doing in this area, we really made a decision, I should say, I made a decision to invest in our technology using what I call a portfolio approach. As opposed to investing in a few areas, one or two critical areas we invested in several critical areas that needed to be addressed. And first, there is the overall tech transformation that is underway here at MarketAxess. We've been investing heavily into that tech transformation. But at the same time, we had to address the competitive landscape that we sat in U.S. credit, in particular. And so we chose to make several investments not just our tech transformation, but you see us investing in portfolio trading, what we just talked about, the dealer-to-dealer business where we made sizable investments. We made investments in our algo suite or our automation suite. And we also made investments in block trading across our -- all of our products. And finally, with the recent news this week, we were also investing in our recent announcement around closing auction. So we made a decision to make a multitude of investments, all tech heavy investments to address each of those areas that needed either a competitive dynamic or it was part of our broader tech transformation that's underway. As for the tech transformation, EXPAREL has been a key ingredient to that tech transformation. So those are investments that are replacing existing UI technology with new modern technology. We've also leveraged our Pragma acquisition. And we're using that Pragma acquisition technology -- acquired technology for our automation suite, where our legacy automation suite is now migrating to the Pragma technology stack. And finally, you're seeing the first elements of the Pragma matching technology being delivered into the closing auctions. Now where those investments are working. Obviously, our portfolio trading numbers reflects a return on investment. Our dealer-initiated numbers also reflect a return on investment and automation continues to grow somewhere in 17% in Q3. So those are all up. However, both portfolio trading and dealer initiative comes in at that lower fee per million. So that revenue challenge doesn't overcome the other areas of our core business. and the growth in that core business. The core RFQ business, obviously, has been impacted by what we call the market environment. If you look at the low volatility, very tight spreads and that we haven't -- we've been seeing over the last few quarters, it presents challenges to the growth of that traditional all-to-all RFQ platform. And so we've seen that where we are competing with the phone and with chat and we're seeing a block market behavior going direct to dealer. So that's some of the overall environmental challenges. And obviously, while we've had block growth. It's been not big enough or not fast enough as we would desire. So we continue to make those investments in that box strategy. We are seeing success in our Eurobond and EM products where the block growth is growing. Where we sit today, I'd say we feel good about the momentum we're seeing in all those initiatives but we would expect to deliver higher market share growth in the quarters ahead, just given all the investments that we are making and where they are and just being rolled out to the market. So we feel pretty good that the investments we are making are yielding results in terms of volume, but we obviously want to have them yield results in terms of revenue. And look, we're not stopping that investment. We have releases going out this weekend that are targeting all of the areas I just talked about. And we have the closing auction that we just announced, which is going live this month as well. So a lot of areas of investment, some that were required for tech transformation, but most of them were required for the competitive landscape we sit in.

Your next question comes from Patrick Moley with Piper Sandler.

Yes. Wanted to ask about the closing auctions and the announcement that you made recently. Can you help us get a sense for just the size of that opportunity, what it could mean for data, what do you mean for your market share. And then how large a piece of the overall credit market do you think that, that sort of volume could become over time?

Thanks, Patrick. And obviously, a great question, just given how much time we've worked on the closing auction. So we're very excited to finally get that news out because it's been a sizable investment for us. It's been really an ongoing strategy over the last 4 years. We have some really great partners advising us on the project. BlackRock, State Street, Alliance and DWS have just been great partners, and there's actually more large investment managers beyond that list that we didn't disclose in the release. We've been working closely with the large investment banks and ETF market makers. They are very key ingredients obviously, the liquidity and a closing option like the one we're designed. We also have worked with the SEC, our closing auction requires filing with the SEC because it's part of our ATS. So lots of years of work and effort is finally coming to market. So we're super excited about that. First, let me tell you what it is not. The closing auction is not a mid match -- a mid-market matching session. The fixed income market has lots of mid-market matching sessions where you match buy and sell interest and just use a price at mid of the market. That's not what we've built. We've built a true option where buy and sell interest, find a clearing price and that clearing price ends up being where all the trades that are matched execute. So it's a very important difference to what is quite popular in the fixed income market. The other key ingredient to an auction is an all-to-all network that is sizable. So just given our position with our all-to-all network, we are able to allow any participant match with any other participants. So that's really a key ingredient in any auction and why we felt it was a unique position for us to be in to launch an auction of this size and this magnitude. The most important part of the strategy around this auction and where we spent the most time talking to our client partners, it's really designed to support the growing indexation of the fixed income market. If you look at our overall global market, it's a $150 trillion market. the largest asset class on the planet. 20% of that market is benchmarked to an index or held within an ETF benchmark to an index. So it's a very large portion, and that 20% continues to grow each year. Just within the fixed income ETF market, globally, that's now hit $2.7 trillion, and it continues to grow and is expected to grow over the next 5 years to somewhere close to $5 trillion. So it is designed to cater to that growing part of the fixed income market. Every index fund -- every index fund needs a closing price and every ETF needs a NAV to close its fund. And what's interesting about the indexes that those ETFs and index-based funds are benchmarked against they tend to have higher turnover than traditional equity indices. And we see that on every month end. The month end really, there's really more new issue in the bond market than there are IPOs in the equity markets globally. So you tend to have higher turnover of the index that all this money is benchmarked towards. And that's a really key ingredient. If you -- just to give you some stats, in U.S. investment-grade volumes, the last hour of the last day of the month, 25% of that day's volume is done in that last hour. So we're seeing aggregation of activity moving to closer to the close. On a normal trading day, we're now seeing almost 15% of total volume now within the last hour of the close as well. So there's been a trend line where much of the bond market is moving further and further closer to the closing time of the day. A key ingredient -- the other key ingredient other than an all-to-all network is price. The price that we are providing at the closing price has to be relevant to the index funds and the ETFs. So how do we make that relevant. You'll recall that we entered into a partnership with S&P for -- where we provide our CP+ data feed to S&P to help them input that into their evaluated pricing tool. And that's been a great partnership with S&P from just a pure data perspective. But the key ingredient is S&P also owns some very key indices, which are powered by that end-of-day price. And so one of those key indices is the iBoxx Index, which is what the HYG and LQD is based on the iShares to iShares ETFs, the two largest ETFs on the planet. So that's an important ingredient where our CP+ price is now being delivered to the S&P eval product to help support and evaluated closing price for some very key index funds, but certainly in key ETFs as well. As the closing price closing auction rolls out, we will be targeting the more liquid end of both the IG and high-yield market. and looking to form a closing price that powers our CP+ end-of-day price in those bonds. So the data piece, as you asked in your question, is a very critical ingredient to the success of the auction itself. So we're excited that we've been working on this for several years, and we are excited about all the partnerships that we've established and certainly, the S&P partnership is a key ingredient.

Your next question comes from Alex Kramm with UBS.

Just on the kind of laundry list of new initiatives and some of them that are running a little bit slower, maybe unpack U.S. block trading a little bit more. I know success outside of the U.S. so far, seems like U.S. block is still very early, but anything you can help us with in terms of timing of more dealer liquidity on those? And anything else where we could expect to see some uptake here?

Sure. Thanks, Alex. And certainly, we see the block market as the biggest opportunity in front of this company. It is really -- when you think about the overall global fixed income markets. Right now, the nonelectronic portion of that market globally is far greater than what is already electronics. So we see it's rare that you have a company that has a market opportunity that is bigger than the market it sits in today. So we're pretty excited about the block opportunity globally. But particularly here in the U.S. Overall, as you saw in some of our numbers, our block growth rates in Q3 across all the products was about 10%. But in October, we saw that jump to 21%. So we are seeing the block initiatives yield some results. I'd say in U.S., as you point out, it's not at the levels that we would want just to give you some stats in U.S. IG in October, we did see it jump to 30% growth. So our block activity in October is up. But as you can see in our share, it's up slightly. We'd like it to be up much further. I think the key ingredients are really still content. So we have made huge inroads in the content that we share with our clients, both in U.S. credit, but certainly in EM and Eurobonds where we have pretty robust content. We are also constantly delivering new features. So we're excited about new offerings rolling out just in another week that will help address some of the key ingredients to block solutions and block trading where we want our bank partners -- our large investment bank partners to be able to share their [ acts ] content directly with our clients. That's a key ingredient for the block market to take hold. So where we have content, we're seeing success. And now we're delivering with the rollout of EXPAREL in Europe, we're now delivering just a better workflow for that block trading content in Europe. Certainly, in the U.S., we're making regular changes to our block solution. So we're excited about the coming months and some of the changes that we're delivering.

Next question comes from Benjamin Budish with Barclays.

This is Chris O'Brien on for Ben. I wanted to ask a broader question about the environment. We're seeing continued lower credit spreads, lower volatility. Just curious how you're thinking about growing through this kind of environment if it were to persist? And is there anything that you could see that would maybe make a meaningful shift in the environment that we've been seeing over the last several months?

Sure. Great question. Certainly, over the last several years, we've seen generally lower volatility, tightening of spreads. And certainly, that has had an impact on some of our core offerings. We did see return to volatility in the second quarter. So we're happy and pleased with that second quarter spike of activity, but much of that was short-lived, and we can see how quickly volatility comes and goes in the marketplace. I'd say in the current month, we are seeing higher levels of volatility. Obviously, you're seeing VIX above 20%, and we're seeing spreads widen in the current environment. certainly, in November, the market is reflecting higher levels of volatility. TRACE in -- is up 46% in investment grade and it's up about 25% in high yield. So we're seeing in the current month activities that would suggest a little bit of unlocking to that lower spread and lower volatility. But as you point out, it's been -- if you look at the summer months, in the third quarter, there was very little spikes of volatility or volatility activity. So challenging environment. But certainly, both in October and now in November, we're seeing higher levels of volatility and a little bit of spread widening, which makes our all-to-all liquidity that much more attractive.

And then I would also just add, if you think about market expectations for Fed rate cuts this year, they remain sort of at the 2% to 3% with a possibility of a third cut in December, having declined a bit as we heard post Powell's remarks last week. But there's still a more likely than not probability of a December cut but perhaps with less conviction. Having said that, the curve is still trending towards a gentle steepening but the front end is being fairly anchored. The belly largely holding and the long end remaining sort of sticky. So in other words, if you think about short-term yields could fall when the Fed cuts and long-term yields not falling maybe as much and if such a scenario plays out, this should be positive for liquidity, secondary turnover or things like that. And you could see more willingness to buy longer-duration bonds. And I think, as you might have imagine, right, we saw just, for instance, in -- on our platform during the quarter, we saw that the weighted average years to maturity moved up to about 9.1 years. From the 8.5 year level we saw the prior quarter. And all of that said, as Chris just said, we are seeing some interesting movement in November. And even just in the first few days, we've seen weighted average years to maturity. And that was only the first 2 days. So you have to keep that in mind, but we did see weighted average years to maturity up to about 10 years, let's call it. So there are some other factors to keep in mind as well when you think about the macro environment.

Next question on comes from Michael Cyprys with Morgan Stanley.

Maybe just continuing with the last question, macro backdrop, clearly, moving your way in November as you just answered with the last question. But if that proves short-lived and macro backdrop returns to a bit more challenging backdrop like we've seen for some time. I guess, what's the scope to returning to higher levels of growth parts of the business do you see as perhaps the most meaningful contributor to that? I know you mentioned some tangible progress on new initiatives, some of which are lower fees. So just curious how you're thinking about that as you look out over the next 12 to 18 months?

Sure. Great question. As we mentioned in our opening remarks, a key ingredient to our strategy going forward is being what we call protocol agnostic. We need to deliver protocols that our clients choose at times of high volatility or at times of low volatility. So when I think about low vol environment, the things that tend to stand out in the market are portfolio trading, the dealer-to-dealer mid-market sessions, things like Mid-X, which we've just rolled out. And you see higher levels of block activity move into the market where spreads are stable and tight our investor clients tend to move back to going direct to dealers. They don't leverage that unique liquidity in the all-to-all marketplace that we run. So really, the key ingredient is providing those protocols seamlessly to our clients, but then using our unique proprietary market data to help them decide which protocol to choose from. It gets complicated to decide whether to do a portfolio trade or to do a list and just go out to all via RFQ. A lot of our data can help traders decide which protocol to use for any given environment. And that's kind of the key ingredient of the strategy going forward is that protocol agnostic approach where we can provide things like block trading tools directly to the client where that client can trade directly with a dealer that has an act or has content or more importantly, we can help that client select the dealer based on their activity in the market that we see. So all of the key initiatives, the block portfolio trading and the dealer-to-dealer initiative are really designed for lower vol environment, whereas our key liquidity solution, the all-to-all network is certainly robust in the volatility that we're seeing in today's week and the last couple of days.

Our next question comes from Simon Clinch with Rothschild.

Again, sort of thinking about the market environment. I was wondering, Chris, if you could give us some thoughts around the mix of volumes in credit and just the real reasons why and sustainability or the surge into the size of trades at the block end side and then the sort of shrinking of the size of trades to the other end. And I kind of -- and really, what we're seeing like month in month out seems to be a squeezing of that -- the dealer to client portion of the market. And I just wanted to get a sense of is that just a trend that's going to be going for you? Or do you think that is a cyclical element here versus -- but any thoughts that would be useful.

Sure. It's a great question because it's certainly the stats that we shared in our slides are unique, where you see the smaller trades get smaller and the larger trades get larger, that you don't see that too often across an evolving marketplace. With regard to the smaller trades getting smaller, we are absolutely well positioned to capture the efficiencies that are required to handle all of those trades and all of those trade sizes, that is clearly driven by one portfolio trading. Remember, portfolio trades are big notionally, but each of the line items are quite small. So part of the growth of that -- those tickets in the market that we shared is the growth of portfolio trading over the years. The other key ingredient to the growth of the smaller tickets is obviously the growth of SMA in the fixed income market. That's been a real driver of asset allocation among our biggest clients and will continue to be a driver as it collects more and more assets over time. And so those are certainly where we see the largest use of our automation tools are coming from clients with very large SMA, and we're happy to report that some of our biggest clients are continuing to invest in SMA either through acquisition or just overall investment in the SMA investment. So we're expecting the smaller tickets to grow as a percent of the overall trade market. we think we're well positioned. The other reason why we think they'll grow is larger trade sizes are going to be broken into smaller trades. We're already seeing that in our algo suite, where clients are taking advantage of our credit algos where they are able to trade large blocks of 20 in sizes of $1 million or $2 million at a time and that's yielding very good returns in terms of execution quality and reducing information leakage. So we have every expectation that the overall trade will see more tickets growing. With regards to the block market going through its growth where those tickets are getting larger. I think that is really when I look up and look at the trend line and the volatility in the market, we've really been at historically low vol and historically tight spreads over the last few years relative to prior market environments. And I think that has led to block side being a little bit more of an attractive tool in exchanging risk. Dealers are certainly willing to trade that block size and take that risk. And obviously, clients are looking to move a lot of volume at any size they can that's efficient. So I do think that we'll end up in a world where when vol returns to a more normal level, those larger blocks get broken up, but we will continue to see like any electronic transformation the tickets will explode. Large box will get broken into smaller sized tickets, and that will be the trend line going forward. For both, I think we've positioned ourselves to solve portfolio trading solve the small ticket automation growth. And obviously, we're trying to solve the block solution as well. Hopefully, that answers your question.

Your next question comes from Jeff Schmitt with William Blair.

So there have been a lot of growth in industry share portfolio trading through last year. It seems to have stalled out at around 11% or 12% of credit volumes. You've still been able to grow share nicely. But what do you think is driving that pause that protocol matured? Or do you think it can continue to grow?

It's a great question because we've been watching that share portfolio trading share. Remember, it's a sizable part of the market. It's a key tool for our investors. From a market opportunity, it's quite small from an overall revenue opportunity. But because it's a critical tool for our clients, we continue to invest in it. The -- we're seeing kind of an equilibrium, I call it, in the IG market from a portfolio trading standpoint. I know some people predicted it would go to 20%. But it's really, as you point out, has really flatlined anywhere from 10% to 12% of the overall market. However, that said, where we have seen growth is in the high-yield market. That market, even in November, is up closer to 15% of the overall market. whereas just a few years ago, it was closer to 5% and 6% of the overall market. So we are seeing a number of our clients using the high-yield portfolio trading tool as a way to access liquidity. What's interesting is, as you point out, in IT, the flatness of the growth that is not for lack of dealer liquidity. We have seen more and more dealers move into the dealers place -- space for providing liquidity on portfolio trades. So there is ample liquidity in that portfolio trading market to support a higher percentage of the market. I just think the market is quite comfortable at the levels that they're hitting, which is anywhere from that 10% to 12%. The only time that we see it spike up is when we see what we call a mega portfolio, something greater than $1 billion in a single portfolio. And we've seen those be anywhere from $1 million to $11 billion in size. And those are obviously rare and just come once in a while. But yes, I think -- I do think we've hit some level of equilibrium in IG, but we are seeing this -- the growth in high-yield our high-yield market share of the portfolio trading market share has grown dramatically. We've been quite proud. We obviously talked to the dealers a lot about how we're doing in that one asset class. And we're certainly in a what we call a leadership position in high-yield PT right now. So we're excited about the investment we've made there and the returns that we're seeing.

Your next question comes from Dan Fannon with Jefferies.

You have Rick Roy on for Dan today. But I'm sure you're going to be excited for a third follow-up to the macro environment. But just on that, we see duration and yield to maturity, at least measured on the bond index, creeping up month-to-month, your charge for that as well. I was hoping you could provide an updated outlook on maybe where you think the curve could land from that perspective and maybe the updated impacts to fee per million based on that? And then separately, with the expense control that you guys have demonstrated year-to-date and the reaffirmation of guidance today, I get to kind of an implied sequential increase in 4Q that seems a bit elevated relative to historical seasonal patterns. So if you're able to quantify which line items might be driving this increase? And if I'm so lucky to get a little bit of insight into 2026, that would be helpful as well.

Okay. Let's unpack your questions. And let me take them in turn. So if I start with the macro and the weighted average years to maturity, look, it's really -- I think I kind of laid out when I spoke before about what we're seeing in the environment in terms of the rate environment. and how things could play out in the scenarios depending on where we end up with a rate cut. And I did talk about how we're currently -- and remember, we're talking 4 trading days here. So we've got to understand that we've got to see where this lands. But we're seeing about 10 years weighted average to maturity on the platform. And in terms of yields, we actually saw yields out a little bit, although still in significantly from the prior year time period. So I think we're going to have to wait and see how that goes. I think you guys all remember the sensitivities at this point in terms of where high-grade duration helps us when it comes to yield if you're 100 basis points in, in terms of yield, we can see that adding, call it, $3 to $5 on the fee per million in high grade. And obviously, we've talked about this as well, but 1 year out on weighted average use to maturity can be worth about, let's call it, $15 more or less. And so those sensitivities still hold within a high grade. Obviously, there's lots of puts and takes, and we have to look all in at the credit fee per million and the different protocols and what's happening. But that kind of gives you a sense for how to think about the high-grade duration piece of this. And let me take your expense question. It's a good question. And I think that we, obviously, you heard me continue to guide to the low end of approximately $505 million to $525 million on a GAAP basis. And if you think about the progression of expenses, that, to your point, would imply a fourth quarter expense level of around, let's call it, $134 million with an incremental $10 million to $12 million flowing through the next quarter. And this $10 million to $12 million increase in the fourth quarter expense relative to Q3 is really driven by items such as depreciation, technology, the impact from hires as well as some timing-related expenses that haven't yet come through the P&L. But I think we need to take a step back and really look at the expenses for the year. And I'd remind you that we took management actions in the beginning of the year. Those were to drive productivity, and we really wanted to do that through the expense base in a sustainable way and those actions reduced our full year expenses by an expected $17 million. And those included things like vendor management, vendor consolidation, role eliminations and really better aligning our resources to the strategic initiatives that you heard Chris talk about earlier in this call. Now those actions that we took allowed us to self fund to the tune of about $16 million of those investments in our technology, our products, our key strategic hires that we've made throughout the year. And so that's really how I would think about overall how we continue to really manage a disciplined expense base. We're really being mindful of the environment that we're in and at the same time, self-funding are really important investments.

Your next question comes from Eli Abboud about with Bank of America.

I wanted to dig into your growth in Open Trading. It looks like Open Trading kicked up to 39% of your credit volume in October, which is the highest level since the regional bank crisis. Usually, I know this is a protocol that does well in the volatile backdrop, but volatility was up pretty modestly in October, certainly not on par with the levels during the regional bank crisis in April's tariff disputes. So what can you share to help us make sense of the stronger Open Trading adoption lately?

Yes. Great question. And obviously, Open Trading, certainly in lower vol environments have not had the level of penetration that we would prefer. And certainly, in October, we saw Open Trading move up just from September from 30% up to 34% and change. So while there was spikes of volatility, as you point out in October, it was quite muted across the months. And we -- I think one key ingredient that we've been adding to our Open Trading liquidity is new sources of liquidity. It's coming in two forms: One, we continue to add systematic hedge funds to the platform. They certainly enjoy the benefits of all to all where they can price other clients' bond requests on RFQ. And also, we've also seen a number of very large investment managers take advantage of all-to-all as well where they are providing responses to other investors request for price. And that's actually a fairly new phenomenon here. Usually, we try to provide things like our algo suite or our auto responder to traditional buy-side clients. But we've seen one or two buy-side clients make sizable investments in their own automation tools, and we're starting to see that behavior help support the liquidity even when there's lower volatility in our OT marketplace. We also saw in where we see higher penetration is in high yield. We also saw that tick up in October up as high as 43% of that market is our Open Trading liquidity source. So again, it's part of a longer investment of both helping large investment managers use tools to provide liquidity. And it's also the new entrants into the market that are creating unique liquidity opportunities that's increasing our overall Open Trading penetration.

Your next question comes from Patrick O'Shaughnessy with Raymond James.

So the electronification of high-yield corporate bond trading isn't as far along as investment grade, but it's also seeing share gains still out by you as well as other platforms. What are some of the unique challenges to growing electronic market share in high yield?

Great question. Obviously, the -- by nature of the high-yield market, one key ingredient is liquidity. Our clients come to us and talk about the challenges of liquidity and high yield. Obviously, when there is volatility, our high-yield our high-yield all-to-all provides that liquidity and certainly jumps in terms of market share. But really, the key complaint that we hear from clients in the high-yield market is just the lack of -- lack of liquidity, sorry, in that market. The other challenging in the high-yield market is information leakage. If you're in a position and you're looking to move that position, you want to be very careful how that information is shared to move that position. So picking the right bank or the right counterparty to seek that liquidity is a critical ingredient. So we spend a lot of time on the high-yield block trading solution and a high-yield dealer content to provide our clients with that unique information so they can actually reduce information leakage by increasing the likelihood of being filled when they reach out to a dealer. We also have developed an AI tool where we help with using AI to select dealers that are more likely to respond to your request for price. So those are key ingredients that we see being deployed in that market. The other unique fact that we're seeing play out this summer and continuing into November as the growth of portfolio trading in the high-yield market. That's a new fact, that we didn't see in prior years. We've also seen it play out in higher times of volatility. Normally, portfolio trading tends to move further down as a tool when there's high volatility uniquely high yield has recently been a tool that our clients are turning to even in heightened volatility as a way and a source to get liquidity. So I think the -- obviously, the ETF market and having a very liquid high-yield ETF market is supporting the liquidity that we're seeing in the portfolio market as well. But I would say that we are seeing growth in the E part of the high-yield market. It's coming in the form of that portfolio trading tools.

Your final question comes from the line of Simon Clinch with Rothschild.

Thanks for the follow-up. Chris, I was wondering if you could just talk a little bit about the competitive environment as well. You were just talking about portfolio trading. And we know that there's been more competition in that space, and that's kind of reduced the revenue pool in -- are we seeing any other sort of incremental changes elsewhere that would ultimately affect the overall revenue pools in other protocols or other parts of the market?

Obviously, if you look at our fee per million, it's largely been a result of the mix. The two areas where we run lower fee per million is obviously, as you mentioned, the portfolio trading area. And that's an area of growth for us. We actually came from behind and certainly are growing against a pretty fierce competition. And then certainly, the dealer-to-dealer space, which, as I mentioned earlier, is a very large part of the market, 30% of the market is dealer-to-dealer. And it's an area that we really underinvested in that one area and made a decision to support the dealer community with better tools for exiting inventory. And so our growth in the dealer-to-dealer segment of the market certainly comes at a lower fee per million, but it's all incremental revenue. The launch of our Mid-X matching solution is brand new. It's certainly early days, but that's at a lower fee per million, but it's all new revenue to the MarketAxess top line. So we're excited to see the early days of growth and a way to address the market as we proceed. When we look internationally, obviously, the EM market is quite exciting for us. We've seen sizable growth across LatAm and APAC, and we continue to see that growth. We've launched India just recently. So we're excited about adding additional products to that overall market. And we feel very good from a competitive standpoint in that market. We have certainly years of investment and many, many sales visits to grow that market and add clients to that market. And obviously, our all-to-all network is a sizable portion of that market close to 40% of the liquidity in that market. And we're seeing consistent quarter-over-quarter growth in the EM market. So we're quite pleased with the competitive landscape there. I'm also happy that we have a portfolio trading tool that is being adopted by clients in and we've launched a Mid-X for EM as well. So we've tried to address all the areas where we've seen competition move into the market, and we'll continue to do that as we invest in that EM business because it's a sizable business for us. It's -- if you look at the overall EM market, it's about the same size as U.S. credit. So it's a very exciting market to be certainly positioned where we are in that market.

There are no further questions at this time. I would now like to turn the call back over to Chris for any closing remarks.

Thanks, everybody, and we look forward to talking to you in the new year about our fourth quarter. Thanks.