TW - NASDAQ

Good morning, and welcome to Tradeweb's Second Quarter 2025 Earnings Conference Call. As a reminder, today's call is being recorded and will be available for playback. To begin, I'll turn the call over to Head of Treasury, FP&A and Investor Relations, Ashley Serrao. Please go ahead.

Thank you, and good morning. Joining me today for the call are our CEO, Billy Hult, who will review our business results and key growth initiatives and our CFO, Sara Furber, who will review our financial results. We intend to use the website as a means of disclosing material, nonpublic information and complying with our disclosure obligations under Regulation FD. 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. Statements related to, among other things, our guidance are forward-looking statements. 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, earnings presentation and periodic reports filed with the SEC. In addition, on today's call, we will reference certain non-GAAP measures as well as certain market industry data. Information regarding these non-GAAP measures, including reconciliations to GAAP measures is in our earnings release and earnings presentation. Information regarding market and industry data, including sources is in our earnings presentation. Now let me turn the call over to Billy.

Thanks, Ashley. Good morning, everyone, and thank you for joining our second quarter earnings call. We set a new high watermark for quarterly revenues once again surpassing the record we set in the first quarter 2025. This strong momentum propelled revenues to exceed $1 billion in the first half of the year and we expect 2025 to shape up to produce another year of double-digit revenue growth. From tariff wars to détentes, a rapidly evolving rates in equity market backdrop, a slowing housing market and stubbornly high inflation, global debate and strong client engagement was on display across our platform. We believe the movement from the phone to the keyboard as a one-way train. As we have seen in the past, extreme volatility creates temporary moments as we saw in April where our clients still can go back to the phone. Despite these moments, our electronic journey continued, and we achieved record volumes in many of our asset classes this quarter, which bodes well for future market share growth. Our clients are becoming increasingly sophisticated around the search for liquidity, and our dealer and nonbank liquidity providers continue to invest to provide 2-way markets even in the most volatile conditions. While bid-ask spreads widened, the liquidity crunch we experienced this quarter was only a fraction of what we witnessed in March 2020. Encouragingly, Unlike previous volatility periods, our clients leaned into newer innovations like AiEX and Portfolio Trading. Momentum builds momentum, and we continue to be laser focused on the areas we can control. Putting our clients first, investing in new solutions for paper and voice markets and strategically planting more flags across early-stage ventures. Diving into the second quarter, strong client activity and risk on environment drove 26.7% year-over-year revenue growth on a reported basis. Our international business continues to set new records with 41% revenue growth as our strategic initiatives in EM and APAC continued to pay off. We continue to balance investing for growth and profitability as adjusted EBITDA margins expanded by 70 basis points relative to the second quarter of 2024. Turning to Slide 5. Our rates business produced a record revenue quarter, driven by continued organic growth across swaps, global government bonds and mortgages. Record credit revenues were led by the strength across global corporate bonds, munis and credit derivatives. Money markets revenue growth was led by the addition of ICD and aided by record quarterly revenues across global repos. While the ICD business has continued to see strong new client growth in the first half of the year, the business was negatively impacted by the recent market volatility as some large clients drew down their money market fund balances during the quarter to tactically buy back shares in the market and increased spend ahead of the potentially higher global tariffs. Equities posted record results up 50% year-over-year, led by growth in our global ETF and equity derivatives business. Finally, market data revenues were driven by growth in our proprietary data products. Turning to Slide 6. I will provide a brief update on two of our focus areas: U.S. treasuries and ETFs, and then I will dig deeper into U.S. credit and global interest rate swaps. Starting with U.S. treasuries. The quarter started out with the U.S. treasury markets experiencing one of the most significant periods of volatility in years. 10-year U.S. treasury yields moved nearly 50 basis points between April 4 and April 11, the fourth largest 5-day move in yields since the financial crisis. All in, revenues were up 11% year- over-year with our institutional business climbing to new highs. Stepping back, we saw a tale of two cities unfold. Automation remain resilient while voice activity increased temporarily. Specifically, institutional U.S. treasury AiEX average daily trades were stable year-over-year. On the other hand, our second quarter market share of 22% declined year-over-year, driven by an industry-wide mix shift towards mainly voice-centric basis and swap spread trades. These are two areas of the market where we continue to invest and while behavior change takes time, we believe we are well positioned to build solutions to these complex workflows, particularly now with our connection to the futures market through R8fin. On a relative basis, we continue to exceed 50% market share in institutional U.S. treasuries versus our main electronic competitor in rates for the fifth consecutive quarter. Turning to our U.S. Treasury wholesale business. We delivered another record revenue quarter. This was driven by record adoption of our streaming protocol and growing adoption of our Sessions and R8fin solutions. Wholesale continues to be a strategic priority as we focus on expanding our network of liquidity providers and strengthening our liquidity pools and alignment with our multiprotocol platform strategy. In equities, our ETF business generated record revenues as market volatility drove frequent rebalancing and risk management and as we continue to deepen integration with our clients. Our efforts to broaden our equity presence beyond our flagship ETF franchise continue to pay off with record institutional equity derivatives revenue up 30% year-over-year. Looking ahead, we're continuing to make inroads by onboarding new clients and the pipeline remains strong as the benefits of our electronic solutions continue to resonate with a key differentiator being our AiEX solution. Despite the extreme volatility experienced during the quarter, our clients strongly relied on AiEX across ETFs and with average daily trades increasing over 125% year-over-year. Turning to Slide 7 for a closer look at credit. Double-digit revenue growth for the quarter was driven by strong double-digit revenue growth in both credit derivatives and municipal bonds. Global Corporate Credit delivered mid-single-digit revenue growth due to product and volume mix as retail corporate credit revenues were down 17% year-over-year, primarily reflecting the better relative yields our clients are getting across money markets and munis. Overall, automation continues to resonate with global credit AiEX average daily trades increasing over 15% year-over-year. We achieved a record block share in fully electronic U.S. investment grade and U.S. high-yield at 9% and 5%, respectively. This growth was driven by continued adoption of our portfolio trading, RFQ and sessions protocols. Our institutional U.S. credit business continued to scale with revenues up 15% year-over-year as clients leverage our diverse suite of trading solutions. Institutional RFQ average daily volume grew over 35% year-over-year, with strong double-digit growth in both IG and high yield. Our efforts to expand into RFQ are seeing early signs of success with our RFQ share of overall trace achieving a new quarterly record. Portfolio trading average daily volume also increased 15% year-over-year, with record volumes across high-yield and our second highest across IG. Portfolio trading has become a widely used reliable method for executing trades and managing risk, particularly during periods of market volatility. As the market continues to evolve, we expect adoption to expand as it further embeds itself as an essential part of credit traders toolkits. AllTrade had a strong quarter over $200 billion in volume with average daily volume up almost 10% year-over-year. Our all-to-all average value volume grew over 50% year-over-year, while our dealer RFQ average daily volume rose by nearly 20% year-over-year. The team remains focused on expanding our network and increasing the number of responders on the AllTrade platform. In the second quarter, we achieved record ETF market maker participation across our institutional credit business. Looking ahead, U.S. credit remains a key area of focus. We believe there is still a long runway for growth with plenty of opportunity to innovate alongside both buy-side and dealer clients. Despite the success to date, we believe we can continue to deepen our penetration across RFQ and further enhance our portfolio trading and session offerings. Core to our strategy is attacking more parts of the block market through our differentiated liquidity, proprietary data and unique liquidity pools, coupled with continued expansion of our product and sales teams. Beyond U.S. credit, we're continuing to prioritize our emerging markets credit expansion efforts. We continue to broaden out our liquidity provider set across key markets, work with our OMS partners on key integrations and expand the functionality around key differentiators, such as asset swaps. While still early in the journey, EM credit revenues grew nearly 40% year-over-year in the second quarter signaling strong momentum. Moving to Slide 8. Global swaps delivered record revenues driven by a combination of strong client engagement in response to a dynamic macro backdrop, a favorable mix shift towards risk trading and a 4% increase in weighted average duration. Altogether, global swaps revenues grew over 45% year-over-year. Our core risk market share, which excludes compression trading was a record, rising 240 basis points year-over-year. Total market share declined from 23.6% in the second quarter of '24 to 22.6% in the second quarter of '25, largely due to a significant reduction in U.S. and European client-related compression volumes which carry much lower fee rates. During the quarter, we achieved the highest share in our history across other G11 and our second highest share across EM denominated currencies. The second quarter highlighted the continued global expansion of our swaps business in terms of both geographic reach and broader client engagement. International swaps achieved record revenues growing over 55% year-over-year with record EM and APAC revenues. Our strong performance was supported by a 13% year-over-year increase in global active users. As our global footprint continues to expand, we're not just adding new clients, but enhancing the value of the platform for the broader client base with the average number of currencies traded per client, almost doubling over the past 5 years. Finally, we continue to make progress across emerging market swaps and our rapidly growing RFM protocol. Our second quarter EM swap revenue produced another strong growth quarter, and we believe there is still significant room to grow given the low levels of electronification. This quarter, we launched Malaysian swaps and executed the first click to trade in Brazilian swaps as we continue to broaden our offering. Our RFM protocol also saw average daily volume more than double year-over-year with adoption picking up. Looking ahead, we continue to believe the long-term growth potential for swaps remain significant. Recent market volatility and macro uncertainty have only reinforced the value of electronic trading and the strength of our network globally. With just 30% of the cleared swaps market currently electronified, there is substantial runway to digitize workflows alongside our clients. As the global swaps landscape grows, we are focused on continuing to lead with innovation across the cleared market and making inroads into the uncleared swaps market in partnership with our clients. And with that, let me turn it over to Sara to discuss our financials in more detail.

Thanks, Billy, and good morning. As I go through the numbers, all comparisons will be to the prior year period, unless otherwise noted. Slide 9 provides a summary of our quarterly earnings performance. As Billy recapped earlier, this quarter, we saw record revenues of $513 million that were up 26.7% year-on-year on a reported basis and 24.7% on a constant currency basis given the weakening dollar. We derived approximately 42% of our second quarter revenues from international clients and recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros. Our variable revenue increased by 30% and total trading revenues increased by 28%. Total fixed revenues related to our 4 major asset classes were up 25% on a reported basis and 23% on a constant currency basis. Rates fixed revenue growth was primarily driven by an increase in minimum fee floors for certain dealers and by the addition of dealers to our mortgage and U.S. government bond platforms. Credit fixed revenue growth was primarily driven by the previously disclosed introduction of minimum fee floors and the migration of certain dealers to subscription fees. Other revenues increased 32%, primarily driven by $1.8 million earned from our work with the Canton Network, where we are compensated in Canton coins. This line item will be variable quarter-to-quarter, reflecting fluctuations in the number of earned Canton Coins, Canton Coin prices and periodic tech enhancements for retail clients. This quarter's adjusted EBITDA margin of 54.2% increased by 83 basis points on a reported basis when compared to our 2024 full year margins. Moving on to fees per million on Slide 10 and a highlight of the key trends for the quarter. You can see Slide 16 of the earnings presentation for additional detail regarding our fee per million performance this quarter. For cash rate products, average fees per million were down 7%, primarily due to a mix shift away from retail within U.S. government bonds, which carries a comparatively higher fee per million as well as lower fee per million across mortgages and European government bonds. For long-tenor swaps, average fees per million were up 40%, primarily due to a decline in compression activity. For cash credit, average fees per million decreased 11% due to the migration of certain dealers from fully variable plans to fixed plans across the institutional and wholesale U.S. credit business and a mix shift away from retail within U.S. credit, which carries a higher fee per million. For cash equities, average fees per million increased 15% due to higher fee per million in U.S. ETFs and a mix shift towards EU ETFs, which carry a relatively higher fee per million. Recall in the U.S., we charge per share and not for notional value traded. Finally, within money markets, average fees per million increased 49%, primarily due to the inclusion of ICD and were partially offset by a mix shift away from retail CDs, which carry a comparatively higher fee per million. Slide 11 details our adjusted expenses. At a high level, the scalability and variable nature of our expense base allows us to continue to invest for growth and grow margins. We have maintained a consistent philosophy here. Adjusted expenses for the second quarter increased 24% on a reported and 22% on a constant currency basis. Given the strong environment to invest for long-term growth, during the second quarter, we continued investments in digital assets, consulting and client relationship development. Adjusted compensation costs grew 23% with the vast majority as a result of discretionary and performance-related compensation and a 20% increase in head count with more than 50% of the head count increase related to the addition of ICD. Technology and communication costs increased 25%, primarily due to our previously communicated investments in data strategy and infrastructure. Adjusted professional fees grew 6% mainly due to an increase in tech consultants as we augment our offshore technology operations and build incremental scalability. This was partially offset by lower legal fees. Adjusted general and administrative costs increased 55%, primarily due to unfavorable movements in FX. Unfavorable movements in FX resulted in a $2.2 million loss in the second quarter of '25 versus a $1.7 million gain in the second quarter of '24. Excluding FX, adjusted general and administrative costs grew 21%, mainly due to a pickup in travel and entertainment and marketing expenses. Slide 12 details capital management and our guidance. On our cash position and capital return policy. We ended the second quarter in a strong position with $1.6 billion in cash and cash equivalents and free cash flow reached approximately $952 million for the trailing 12 months. Our net interest income of $14.5 million decreased due to a combination of lower cash balances and interest yields. With this quarter's earnings, the Board declared a quarterly dividend of $0.12 per Class A and Class B shares, up 20% year-over-year. Turning to guidance for 2025. In light of the continued strong business momentum, we are increasing our adjusted expense guidance to $1 billion to $1.05 billion, and we are currently trending towards the midpoint of this range. Overall, we are seeing opportunity to invest for future growth and continue to accelerate investments in the second half of 2025 relative to the first half of the year. Specific areas of investment include U.S. and European credit, specified pools and mortgages, global repos and digital assets. Starting in the third quarter, in line with an acceleration in our data and infrastructure strategy, we expect an approximately $5 million increase in our non-comp expense run rate across tech and communications and professional fees. Lastly, primarily due to the move to our new New York City headquarters, which we expect in September, we estimate second half 2025 occupancy expenses to rise 40% year-over-year, including approximately $650,000 in duplicate rent-related expenses. All in, with these investments, we continue to expect our 2025 adjusted EBITDA margin to exceed 2024 levels, although expansion will be more modest than last year as we support our current and future organic growth. One final point. We continue to expect 2025 revenues generated under the master data agreement with LSEG to be approximately $90 million, up approximately 10% from 2024. Now I'll turn it back to Billy for concluding remarks.

Thanks, Sara. I'm extremely proud of the Tradeweb team that continues to push the boundaries on where electronic trading can go in the fixed income markets. As I mentioned at the outset of this call, we achieved over $1 billion in revenue in the first half of this year. And to put that in perspective, we produced $776 million in all of 2019, the year of our IPO. What was once thought of as headwinds to electronification are now turning into tailwinds for future growth. Better data, a growing set of execution tools, straight-through processing and post-trade solutions are providing our buy-side clients and dealers with more opportunities to trade on screen even during the most volatile of environments. We see significant opportunity to use technology and innovation to electronify more areas of the fixed income markets over the coming years, alongside our dealers and clients. We are also focused on new areas such as digital assets to further enhance our one-stop shop offering. With 2 important month-end trading days left in July, which tends to be one of our strongest revenue days. Overall, and average daily revenue growth are trending approximately 20% higher relative to July 2024. The diversity of our growth remains a theme as we are seeing double-digit volume growth across global swaps, mortgages, European government bonds, U.S. and European credit, munis, European ETFs and global repo. Our IG shares tracking above June levels, while our high-yield share is tracking in line with June levels. Finally, I would like to thank our clients for their business and partnership in the quarter and recognize my colleagues for their efforts that contributed to the record quarterly revenues and volumes at Tradeweb. With that, I will turn it back to Ashley for your questions.

Thanks Billy. [Operator Instructions] operator, you can now take our first question.

The first question comes from the line of Alex Kramm of UBS.

Yes. Just wanted to come back to the market share trends in U.S. treasuries. Billy, I think you proactively talked about this a little bit, and -- but those have been certainly looking lower in recent quarters. So can you just maybe unpack a little bit more? Is it just mix phone versus electronics, wholesale, institutional or are there some other underlying trends that you and we should be watching? And if so, what are you doing to recapture that share?

Alex, great question. Actually, before I get into the answer, Alex, let me just say one thing very quickly. You know us very well as being a very genuine and authentic company. That's what we strive to be. I want to say this just very quickly, what happened on Monday was obviously very devastating Monday evening in Midtown, and the company expresses its thoughts and prayers for everyone involved. We've always had a very historically strong relationship with Blackstone. A tragedy that occurred and so I just wanted to say very quickly in an authentic and genuine way how much we're thinking of everyone involved. And I'll segue Alex, to your excellent question. From my perspective, really, as I think about how you laid it out, the story of Tradeweb has been really about a story of expansion from one marketplace, way back when to now we're in 50 different markets. Our rates platform to kind of credit ETFs and EM. So I say this all the time, like ambitious companies are always looking for the next opportunity. But more importantly, I would say, ambitious companies can never take their eye off the ball. And so from my perspective, the ball has always really been kind of U.S. treasuries because I think we see it as probably the most fundamentally important market inside of the fixed income complex. But maybe more importantly, as that market that creates links for us to all of these spread-based products. So our leadership position there is exceptionally important. I also say all the time, and I want you to hear me on this, that from my perspective, really our biggest competition is really the phone. It's not Bloomberg, it's not CME. It's the phone. And so we kind of asked the question, but really, it's really about solving for the problem. It's kind of like why does phone-based trading still exist in 1995, like why does phone-based trading still exist in 2025 like it's 1995, right? Like past the Philly cheesesteaks at 10:00 in the morning kind of stuff, right? And so what we think about very clearly is sort of like two reasons really, right? Why does phone-based trading still exist in government bonds, like two reasons. Risk trades still tend to get done on the phone. And I think we're doing a lot to solve for that through micro protocols like request for market and also AiEX, which I think is really kind of getting after those big kind of block trades. And then maybe more importantly, I would say, complexity, a lot of times still gets done and transacted on the phone. So when we think about complexity, we think about kind of package trading, basis trades, swap spread trades, those kinds of trades. And without question, which I think goes to the sort of like the heart of your question now, it's like higher volatility led to a pickup in these pockets of those types of trades. And so this shift in composition created from my perspective, I would say, a temporary headwind around electronification which caused this decline of about 400 basis points year- over-year, and I think contributed to the decline in share that you alluded to. So on a micro protocol level, what we do is kind of roll up our sleeves, right? So we're rolling out U.S. dollar swaps and treasuries really like a multi-asset package trading protocol. We're making some changes to increments around swap spreads. I step back and I kind of say, for the most part, never satisfied. But for the most part, our treasury business is pretty much firing on all cylinders. We've gained about, I would say, 250 basis points versus Bloomberg. So on the electronics side, we've gained 250 basis points versus Bloomberg year-over-year. I think as we continue to be the leader around algo execution, continuing to grow across our wholesale business really by giving clients a full suite of protocols that meet them where they are. So if you take a step back, I do think it's really like a great time to be in the global rates business broadly, right? So let's keep those kind of parameters in mind. Debt levels continue to [ decline ], central banks continue to step back. There continues to be this kind of real debate around the shape and level of the yield curve. And importantly, and I say this, I think, very, very strongly. The banks are back. they're strong, they're active and they're very willing to -- and are warehousing risk. And so when you think about those dynamics, my instinct is, I think they play well to how Tradeweb manages market structure. I think it plays to our advantage on some level as that kind of "kind of trusted marketplace that we take very seriously". And so our job is always like, how do we help clients trade smarter, right? How do we make their workflow better? How do we try to do that consistently? And so my instinct is micro protocols like request for market, which mimic the cadence of voice behavior. I think it gives us credibility that we go after these kinds of voice trades the right way. It really is also from our perspective, why we acquired R8fin earlier this year. It brought listed futures into our world. It gave us a chance, I think, to partner more deeply with these relative value clients that can be voice- oriented to electronify a part of the market that still is kind of that kind of paper market. And it's another step towards building a more complete, more efficient experience for our clients. And so excited about the future. I say this like all the time, we try to stay humble and for sure, unsatisfied. So I appreciate your question. We're confident. I think we think the opportunity in front of us to keep solving for these issues are real. And we're always going to work on earning the trust of our buy side and dealer clients. I think that we've shown that we understand how to navigate behavior change. And I think in a positive way, I would say more and more we try to become that platform of choice. And I appreciate your question always Alex. It's good to hear your voice. Thank you.

The next question comes from the line of Craig Siegenthaler of Bank of America.

Our question is on pricing and credit. So we're curious what has been the initial client reaction to the new buy-side fees on high yield? And what are your thoughts on employing a similar strategy in investment-grade next?

Craig, good question. And so I think my instinct is sort of the heart of your question is really kind of speaks to, I think, from our perspective, really like how we try to build markets. And we try to build markets with innovation credibility. And then I described before, and you know this very well, this sort of relentless focus on really delivering value to our clients. So as I say that, when we introduced buy-side fees into high yield, to make an obvious point, it wasn't about just pushing through a change. right? It was really about recognizing kind of where the platform is today. And so I say this like pretty strongly, like we're not a niche player in high yield anymore, right? We're not a niche player in high yield. And so when I say that, what I mean is we've built scale, we've build trust, and I think clients understand the value that we're delivering, right? So we probably did what you expected us to do, which is we communicated early. We were transparent. And since the rollout, our institutional high-yield share has gone up. And so from my perspective as CEO, that's the market telling us at a minimum we got that positioning right. And a reminder, Craig, to your question, like this isn't -- as you know, this isn't new for us. So we've had buy-side fees in IG since 2016. I think the market expected this move in high yield as we grew. We know our competitors are there, too, but we believe we're leading the space because of the investments we've made across -- really across technology, protocols, and liquidity, which are really from our perspective, the three pillars of innovation. I think the second quarter numbers back that up. So record share in fully electronic block trading, 9%, as you know, in IG, 5% on high yield, 35% year-over-year growth in institutional RFQ average daily volume, record high-yield portfolio trading volumes. I'm giving a little shout out to the credit team, record high-yield portfolio trading volume, second highest IG quarter, ETF trade count was up 125% year-over-year, and our AiEX usage continues to grow up 15% in credit. So all of this is kind of good news. My instinct is a part of this really is our integration with Aladdin, which does continue to deepen the connectivity allows us really to embed Tradeweb directly into the client workflow, helping them access liquidity, automate execution, manage risk. My instinct is and our instinct is that kind of integration makes it easier for clients to scale with us, right? And that's why we're focused there. It makes it harder for them to leave us, harder for them to go anywhere else. So we want to be practical always, you know that. Pragmatic and practical. Yes, price matters, but the value you create on real efficiency, we do think matters more. And I say that, I think, very consistently. And my instinct is, clients are starting to respond to the quality really of what we built. So we're going to keep investing. Big picture credit still has a ton of runway. We're attacking more of the block market, enhancing RFQ, expanding portfolio trading continuing to, as I described before, I think, scale, AllTrade, broadening out our EM credit business and continuing to expand our sales and product teams to support it all, that's like a big piece of it. We don't know if we have the perfect answer as you know that. We've been doing this too long to know all of the stuff is not like straight line stuff, but our instinct is this is the recipe for how to grow and so that's how we're going to lead and that's how we want to stay in front of things. It's a great question. Thanks very much, Craig.

The next question comes from the line of Benjamin Budish of Barclays.

I wanted to ask about ICD. I mean my high-level question is about the progress in your cross-selling of additional products across that embedded customer base. But Billy, I was also wondering if you could maybe unpack some of your comments from your prepared remarks about volatility impacting balances in the quarter. Just anything you can share like anecdotally from what the company has seen in the past? How long does it typically take for balances to recover? How should we think about the next few months or quarters there?

Sure, Ben. It's Sara. Why don't I take a stab at that, and Billy can kind of chime in. Nice to hear from you. So I'll kind of take it in parts. Big picture. As we approach the 1-year mark for ICD, we remain really excited about the long-term opportunity with the company on two angles: one for future growth, and we'll talk about some of the cross-selling opportunities and also from an enhanced diversification aspect, which we're also focused on for the company. Big picture, client retention remains high. We've added 34 clients so far this year, and balances in revenue are up modestly over the 12 months. That said, what Billy highlighted in his prepared remarks, I can kind of pull back a little bit more on. In the second quarter, we did see some cash balance volatility around the prospects of tariffs. And so if you think about some of the large cap clients in the tech and energy space, what we saw were people taking advantage of some share price dislocations that we saw in the market at that time by increasing buybacks as well as what looks to be accelerated CapEx purchases versus maybe their historical patterns, which we think really is related to some of that speculation around how much things would cost later in the year. It looks very episodic. The wallet, the market share with those clients is unchanged and remains strong. So there's no actual change in our relationship. It's really just a function of what they're doing with their cash balances. I would say if you looked at it versus other years, like historically, the second quarter, you do see some dips maybe a little bit around taxes, but nothing as pronounced as we saw this year. And I would say from where they were in the April lows, we're seeing those balances slowly built back. So it's an AUM-based business, so the impact really is on the forward revenue, and you'll see us kind of climb out of it. I'd expect if the business follows the historical seasonality, I think the second half of the year typically ends up being a little bit stronger. But nothing structurally there. Ironically, I think the same sort of market environment that worked really well for our trading businesses is the one that creates a little bit of dislocation with the cash balances. So again, that portfolio effect -- some things go up when other things come down. But going back to the cross-sell and really the long-term durability and opportunity with ICD. There's two main areas we're focused on, and we've talked about this. The first is really expanding ICD's product reach by adding our products on to the portal so corporate treasurers can access them directly. We're pleased to announce at the end of this quarter, we completed the build and integration of T-bills that we've been talking about, and we have a growing pipeline of clients that are interested. And the next phase for us is really focused on changing client behavior, getting them used to accessing that product on the portal. We know well from our experience in electronifying markets that change doesn't happen overnight. Billy uses this phrase "its a marathon, not a sprint" but we remain confident in the value proposition, we're getting good feedback, and we believe that change will just happen over time. I'd say it's the first step over a longer horizon, we see the potential, as we've talked about earlier, when we did the acquisition to expand into other products. Longer-dated U.S. treasuries, international bonds, probably the next one is on the agenda. The second major aspect of cross-selling is really about expanding ICD's reach, their client reach and really leveraging our client network, especially in the financial institution space, our salespeople and regulatory infrastructure, especially internationally. And so we've already made strides and have some milestones there in terms of expanding the sales footprint. We have our first employee in Singapore. We've expanded the ICD presence in the Nordic and Western European countries, and we've leveraged our existing sales force in France to cover clients. We've also done a lot of work on the back end, which simplifies onboarding around consolidating regulatory venues in Europe and certain licenses we need in Asia, which we see as a big opportunity as well. So all in all, making progress on the cross-sell, step-by-step, recognizing the sales cycle takes time and changing behavior takes time and feel really confident about the underlying quality of the relationships and retention that ICD is seeing.

The next question comes from the line of Alex Blostein of Goldman Sachs.

I want to switch gears a little bit and maybe talk through some of the fee per million dynamics in the rates business, particularly related to swaps. You guys continue to see a pretty nice improvement there. It's been a driver of revenue growth for the company, of course, as well. I know it's tough to predict so maybe we can hold the mix dynamic constant, especially when it comes to compression trades. But I'm curious how you should think about -- how we should think about the outlook for fee per million and swaps over the next 1 to 2 years more from a structural perspective?

Sure. Thanks, Alex. Look, to answer your question really directly, from a structural aspect, we feel good that we can maintain or modestly grow the fee per million in swaps from the levels we're seeing now, absent changes in levels of compression and duration and business mix dynamics, which was sort of loaded in your question, I will say that compression has kind of trended down, which is a positive for fee per million lately. The reality is fee per million is an output, not an input. And so even though we're holding all those things constant, product mix will likely be the main driver over the next year or two, and we're seeing faster growth on a relative basis from some of the higher-priced products and protocols that we offer. So higher-priced emerging markets and RFM offerings, in particular, which we're bullish on and have talked about not only the growth rate but there's tons of room to run just in terms of electronification and ability to solve problems for clients. So I think that's one of the most strong tailwinds. As we grow, I think there are always natural offsets to fee per million. Dealers move from variable to fixed plans. Generally, as volumes increase, you see some reduction in fee per million. But net-net, we're constructive on where this plays out. I think the biggest thing that we try to do is be nimble and make sure that we are navigating how the movie plays out by balancing, getting the alignment right with both dealer clients and buy-side clients. The ability to grow our revenue line as they are getting better value proposition. That alignment is really what we're focused on, and that allows us to both grow our businesses. And then the only thing that I would add in swaps, which I think is also really interesting, not directly on fee per million more around absolute revenue is really we do see an opportunity in bilateral swaps to electronify that market. Now that's something that we do think takes time. It's likely neutral to fee per million. But again, we always talk about fee per million, but we're really focused on growing revenue. So I don't want to lose sight of the actual pie of having an opportunity to get a step function bigger too. So hopefully, that gives you a little bit more color. We feel good client engagement here. And overall, it's one of the opportunities for us where there's a lot of opportunity to electronify the market and deliver new solutions.

Yes. No, that's perfect. And we care about revenue, too. So that helps.

The next question comes from the line of Chris Allen of Citi.

In your prepared remarks, you noted that you're seeing higher levels of growth overseas in the U.S. I'm just wondering if you could dig in a little bit, maybe talk to where managers focus from a regional perspective, what are the best growth opportunities from a regional country perspective? And which asset classes or products?

It's a good question. It's not that like our international business doesn't get as much attention as it should, it's that we have to -- but I think we do have to keep telling that story consistently. So I appreciate the question because I think the instinct that Sara and I have is that, that business is really, really hitting its stride. I want to start by saying like Enrico Bruni, who's been here for an extremely long time, he co-runs the global markets business with Troy Dixon, they are in sync together, and we feel really strong about that, that management team and how that business continues to do. In a simple way, which is always kind of like good for me, our goal has always been pretty consistent globally, which is connect the top buy-side clients with the right dealers and try to do it really well. Hopefully faster, smarter, more efficient than the phone, right? Pretty simple stuff kind of, right? And in a good way, as the markets are more connected than ever in the second quarter, our international revenue was up over 40% year-over-year. It's not just kind of like one region, one product. It's really broad-based growth across rates, credit, ETFs and repo. So from my perspective, highlights European swaps kind of starting with that up 40%- plus. Emerging market swaps, which has been a big focus for the company, up 80%. APAC swaps doubled, European ETFs and EM credit, both showing like very strong strength there. And our instinct is European repo is moving in the right direction. So regionally, Europe was up 35%, Asia, up over 40%. And we are seeing something, I think, very important. Sara talks about cross-selling a lot. We're seeing a lot more engagement from North America and Asian clients trading international products. That's important. So that's up over 15%. In Europe, one of the things that's important, we're seeing strong traction with something we call AiSNAP. I'm wondering if there might be a better name for it, but it's our smart dealer selection tool. And so in June, over 10% of risk in GBP and European swaps used AiSNAP, lowers transaction costs, which is something very important. We are also expanding AiEX there. So specifically speaking, across European credit. Right now, it's handling about 1/4 of our volume. And that's that point that I was making before about helping clients trade bigger, faster and with less market impact, like really, really important principles that the European business has gotten right. So outside of Europe, I think where we're focused very specifically is Asia and Australia. So in Asia, we're expanding across swaps, ETFs and government bonds. We do think Japanese swaps market is, if not ripe for more electronification, we think it's really getting there, especially as the BOJ shift gears. And in Australia, as you know, we've been focused there. And so we're building momentum in swaps and bonds, really pushing deeper into multi-leg tregs -- multi-leg trades. And I think importantly, continuing to expand our hedge fund relationships there. On the emerging market side, we're focused on Lat Am and the Middle East. These are two regions where we see significantly long- term upside there. And Sara talked about ICD. We're also very focused on growing the ICD brand internationally, which gives us more ways to reach institutional clients. We say this all the time. I like this branding, meeting them where they are. That's important. And so the takeaway, I think we're making the right moves, really strong team there with the right tools, we're growing and feel very, very strong about how the international business is set up and very proud of the team there. It's a good question, and thanks a lot.

The next question comes from the line of Ken Worthington of JPMorgan.

I wanted to focus on digital. Given the passing of stablecoin legislation, how do you view stablecoins and tokenized money market funds impacting the short-term treasury market and Tradeweb more specifically, including ICD. There seems to be a lot of buzz in the rates world, so curious your thoughts there. And Billy, both you and Sara mentioned investing in digital markets multiple times throughout the call. I think you previously invested in Securitize and the Canton Network. Where are you investing now in the digital world?

Yes. It's a good question and as always like very timely. I think it's an important question. And so maybe for a second, I'll start, and Sara, you support as needed. My instinct is maybe slightly tongue in cheek, I'll say we're bullish on digital assets for sure, and we see stablecoins and tokenized money market funds as real game changers especially now, to your point, that the regulatory environment is improving dramatically there, right? And so just as a reminder, our platform already supports traditional money market funds. And so what we're really doing is we're exploring tokenized versions based on client demand. And from our perspective, what this does is gives us real flexibility to support innovation. I think very importantly, it gives us flexibility to support innovation without disrupting our core institutional relationships. And so what we are is focused on modernizing the structure really kind of through 3 tenants, 3 pillars, right? One is trusted shareable data to our smart contracts and three is tokenization with synchronized data. And so to your point, the regulatory tailwinds are real. The EU and these pilot regimes are, for sure, kind of paving the way. And in the U.S., the GENIUS Act, I think, gives institutions that kind of clear path to use stablecoins. And as you know well, I think the CLARITY Act to take that even further. So we're focused here, right? What we're doing is we're building this distributed interoperable fixed income ecosystem using permissionsed DLT, starting with post-trade settlement collateral workflows, especially in financing and issuance marketplaces. And so I'm getting a little kind of technical here, but I think it's important that you hear our language around this. The goal is really ultimately to be the go-to venue for ultimately secondary trading in digital fixed income. And the way you do that is by connecting pre-trade execution and settlement to enable capital efficiency, 24/7 trading, instant settlement and then reduced reconciliation. And I think we're kind of on the right track as we think about this. So Sara will talk about this also like very involved, as you know, with the Canton Network, think extremely highly of them. we're a validator and a super validator. We're also exploring a new app development where we can earn canton Coins as part of that work. We also know that this is not going to be a one network world. So we're spreading our wings a little bit. We co-led the digital asset Series C with our friend, Don Wilson, alongside major players in the space like Goldman and Citadel and DTCC. In Europe, we're doing things like building a new trading and settlement venue working very closely with Goldman Sachs' DAP and exploring the U.K.'s initiative for digital gilts. So stablecoins are exceptionally important as the cash lag in all of these DLT-based workflows. Crypto remains extremely interesting to us. Again, I say this all the time as an ambitious company, you're always looking for these new opportunities. I think the instinct is custody still needs to evolve there. At our core, Ken, and you know this in terms of how we operate, we're a technology partner. Digital assets to us are this like next step in helping our clients trade smarter and more efficiently. And so the instinct that we have here, and Sara is going to like pick up all of my rambling space is -- to expect to see more investments, more partnerships. And without question, we plan to stay really on the forefront of this extremely important evolution in our space.

No, I think you covered it quite well. If I were adding a little bit just in terms of two things to take away, I'd say we've been looking at the digital space for a long time. And so our strategy has been -- it's an incredibly decentralized space. It's a place where you can spend a lot of money that can be not productive. And so we've been really strategic about choosing the right partners and Billy mentioned DRW and Don Wilson, we also have investment in Securitize, which is with BlackRock. We've picked partners that we think help develop the marketplace because our track record and our belief is this is going to be something that requires participation across the board. It's not going to be a singular thing developed like in its loan channel. And so the partnerships and the investment strategy that we've had, we're at an inflection point now where people are coming to us as a leader in the space. And those partnerships and investments weren't just financial in nature. We have taken our own technology resources and really internalize the technology capability you need to build on [ DLT ]. And so when we talk about the Canton Network, Billy mentioned, we're a validator and super validator, which means we, from a technology perspective, are really in charge of overseeing those transactions and payments. So it's very different than being a financial investor. And so for us to take the leap as our markets evolve and become more digitally native or tokenized, we have that type of expertise as a result of these investments and the strategy embedded throughout our technology platform and capabilities across people. So I think that's maybe just one other layer that we think is really important as it relates to digital.

The next question comes from the line of Patrick Moley of Piper Sandler.

So Billy, you recently made some comments about potentially having an appetite to do some larger M&A. I was hoping you could just expand on those comments what that could mean? And just as we sit here today, what part of the business do you think could benefit the most from M&A? You talked about crypto there a little bit. Is Crypto an area where you think growing out of your digital asset presence through M&A makes sense?

Very good question, Patrick. So as I think about your question, let me start by saying it kind of this way for a quick second. When I stepped into the CEO role, about 2.5 years ago, sometimes it feels like 2.5 decades ago. I really want to very truthfully kind of work hard starting with Sara. And then also, as you know, very well, Patrick, I have -- I'm fortunate because I have a great Board. But really to sort of like prioritize this kind of like very clear strategic framework of -- for capital deployment and one that has to align tightly with our long-term vision and leverage our strengths. I also want to stay significantly collaborative and coordinated with David and LSEG's senior management team. So I think we've done that really well. So over the past 2 years, we've really executed on 3 very important acquisitions, Yieldbroker, R8fin and ICD. Each transaction from our perspective, was targeted additive. I think it did expand our capabilities across regional access, what we describe as workflow automation and then Sara talks a lot about institutional cash management, like 3 really important pieces of the businesses from our perspective. But in parallel, and I think this is a little bit about what you're describing. We also entered into these, what we described as like strategic partnerships with key market infrastructure players and innovators, right? And that's the kind of Goldman Sachs DAP, that is the kind of Don Wilson, the Canton network piece, Alphaledger, Sara mentioned BlackRock Securitize. And really what this does, as you know, very well is position Tradeweb at the center, hopefully, near the center of this kind of structural change in the digital ecosystem. This is, I think, like pretty ambitious stuff here. Importantly, and we're very, very focused on this. From an integration standpoint, Yieldbroker and R8fin now are fully absorbed into the business. And so -- and by the way, we do remain on track, and Sara talked about this, where we remain on track with ICD. I think from my perspective, very clearly, these integrations are -- and this is something I've really worked hard with my board on. These integrations are really kind of critical proof points. We don't just like acquire assets, we operationalize and scale them within the platform. And that, I think, is a very, very important comment, right? So from a financial standpoint, I believe we're operating from a position of strength. Sara talks about like strong free cash flow, the cash reserves, et cetera. And I think what this does, and we talked about the concept of really momentum building on momentum, I think it gives us real flexibility to be opportunistic while we always talk about very clearly maintaining discipline -- ambitious companies, right? So when we talk about bigger M&A, I think what it does is it really reflects my openness, the company's openness to be more transformative around opportunities. It's always going to be acquisitions that could expand our total addressable market. I talk a lot about the kind of network effects. And this could mean extending into new asset classes, I think geographies. We're going to stay very open-minded on this. I mentioned the concept of culture a ton. And as we look at this framework that I described, I think the culture of the company that we've identified or potentially identify is a high priority for us. I feel very, very strongly about the culture that lives and breathes inside of Tradeweb. And so that will always sort of be an important piece of information as Sara and I and the team address these kinds of things. I'm sure you have some way to help me out here.

Yes. No, I think you covered it. I'll just complement that by saying it's great to be in a position of strength which we feel like we are. And also, the reality is it makes the bar high, and we are really disciplined about it's fitting our strategic eye but also financial discipline just because we have $1.6 billion of cash on the balance sheet, it doesn't mean that we don't have the rigor around making sure the acquisitions are adding something from a revenue growth prospect. Billy talked about TAM and clearly, our goal is to have them be accretive within a couple of years. So I think the whole package works together, and we're certainly spending a lot of time on using our advantage to really capitalize on the opportunities we see.

The last question comes from the line of Dan Fannon of Jefferies.

So Billy, just in terms of regulatory reform, how should we think about the potential capital relief from SLR and other potential regulatory changes at the largest dealers and maybe what that means for velocity in the rates market, if any, change at all?

Sure. Maybe I'll chime in and then you wrap it up. I'll quote Billy so it feels like Billy's talking. And it's nice to hear from you, Dan. I would say big picture, it's a great time to be in these markets and in markets businesses. And Billy, I think you mentioned this earlier when we were answering questions, our bank partners have never been stronger, more flushed with cash and capital, and they are looking for ways to warehouse more risk and, in some cases, even enter new trading areas, which is good for our clients. And at a high level, SLR plays into that. We think changes with that ratio could be one of the most impactful to increase both the resilience and the liquidity of the treasury market specifically. It means the banks are going to have more capital available to hold U.S. treasuries. That in turn, facilitates more trading, potentially lowering yields and improving market depth and overall, we think that's a real positive. The SLR ratio, I think we talked about this last quarter, too. Not only does it reduce the required percentage of capital against their bank assets, but it's a risk-insensitive capital ratio, meaning all securities, corporate bonds, treasuries with different maturities, they all contribute equally to SLR exposure. So today, banks have to hold the same level of capital potentially for lower revenue margin business maybe in U.S. Treasuries market making as they would for higher revenue margin businesses like high-yield credit. And so generally, as that constraint is relaxed for banks that we're bumping up against that, we think that, in particular, allows them to really hold those larger treasury positions. I think from our business perspective, obviously, being a leading player in rates, that's a great thing. And also, I would expect it could lead to increased swaps activity. So there's a lot of different places we think this is a positive. SLR specifically, we saw impacts in COVID when the Fed exempted treasuries from SLR, and you saw in those cases, like very specifically SLR-constrained banks increase this treasury position. So I don't think this is totally theoretical. We have some empirical evidence around it. But all in all, I would say, look, whether it's regulatory change or just where the banks are positioned generally speaking, we think the rate environment is quite constructive, Billy you really talked about it in the beginning.

Yes. And It's spot on, if we're gonna say, Sara, like what's the environment that we like. We want the banks to be strong, we want the volatility in the marketplace to create high levels of profitability for their businesses. And we want the Citadels of the world to continue to move forward and keep everyone on their toes. And that becomes a great kind of recipe for the further and the next leg of electronification in our world. And that's how we kind of see things unfolding because as strong as the kind of banks are and as well as they've done, and as good as everyone feels about this kind of this movement to your question about kind of less regulation, the advancement of technology and the ambition that firms like Citadel bring to the equation are just straightforward and one way. And that has the added effect of really creating the level of awareness that you need for the further investments around technology growth. And that we see as a very, very important almost second part of your question. But as always, it's a great one, and thanks very much.

This does conclude the question-and-answer session. I'll now like to turn it back over to Billy for closing remarks.

Thank you all for joining us this morning. As always, if you have any follow-up questions, please feel free to reach out to Ashley, Sameer and the team. Have a great day. I know it's busy. Thanks all very much.

Thank you.

Bye-bye.