Dave Cresci - IR Rick McVey - Chairman & CEO Tony DeLise - CFO.

Jillian Miller - BMO Capital Markets Hugh Miller - Sidoti Ashley Serrao - Credit Suisse Mike Adams - Sandler O'Neill & Partners Niamh Alexander - KBW Patrick O'Shaughnessy - Raymond James.

Ladies and gentlemen thank you for standing by. (Operator Instructions). As a reminder, this conference is being recorded April 23, 2014. I would now like to turn the call over to Dave Cresci, Investor Relations Manager at MarketAxess. Please go ahead, sir..

Good morning and welcome to the MarketAxess First Quarter 2014 Conference Call. For the call, Rick McVey, Chairman and Chief Executive Officer, will review the highlights for the quarter and will provide an update on trends in our businesses and then, Tony DeLise, Chief Financial Officer, will review the financial results.

Before I turn the call over to Rick, 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, 2013.

I would also direct you to read the forward-looking disclaimers 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 Rick..

Good morning. Thank you for joining us to discuss our first quarter 2014 results. We announced earlier today a solid first quarter with revenues of $63 million up 18% and pretax income of 28 million up 12% year-over-year. Diluted EPS was $0.46 compared to $0.41 in the first quarter of 2013.

Our growth was driven by continued momentum in trading volumes with record average daily volumes for both U.S. high grade and other credit products and an increase in U.S. high grade estimated market share to 13.4% compared to 12.3% a year ago. Volumes from European clients were up 36% during the quarter.

We continued to invest actively in strategic initiatives that are designed to increase client participation on our trading network and develop new sources of liquidity for credit markets. Based on the first quarter results our Board has approved a $0.16 regular quarterly dividend. Slide 4, provides an update on market conditions.

We were able to grow market share across products inspite of the challenging conditions in current secondary markets. During the first quarter investor demand for corporate bonds led to near record U.S. high grade new issuance. Strong demand is also reflected by the decline in credit spreads and yields during the quarter.

Credit spreads are now back to pre-crisis lows. Credit spread volatility is also running at close to its lowest level of the past three years, investor demand for corporate bonds is currently focused on a new issue market.

Secondary inventory of high grade and high yield corporate bonds among primary dealers currently represents approximately one day of secondary trading activity. Strong demand and limited secondary supply drives investor focus to new issues.

This challenging market dynamic in the short term is also reflected in our hit rates, investor orders to sell bonds on MarketAxess currently resulted in trade 85% of the time but orders to buy bonds result in a trade just over 50% of the time. Lower overall hit rates versus the year ago period held back our market share gains.

We believe the long term outlook for the secondary market is much more promising. High grade corporate debt outstanding is up over 60% since 2008. When market conditions have shifted in the recent past as they did last spring we have seen higher secondary turnover and higher electronic market share.

Slide 5, provides information on our progress and open trading. We continue to focus on developing new open trading solutions to help dealers and investors operate effectively in the new credit market characterized by limited balance sheet capacity.

This quarter we completed an important technology loop allowing dealers to be full participants in market list with the ability to both send and respond to inquiries. We have also delivered functionality that allows dealers and investors to trade with more than one counter-party or inquiry.

RFQ add-ons allowed system participants to access liquidity in smaller trade sizes to work a transaction up to a larger size. Indications of interest have also been consolidated in a one page in order to more readily identify trade matching opportunities between dealers and investors.

Orders available in our market list open order book continue to grow and system participation and trading volume in the order book reached a new record in the first quarter.

Our open trading strategy is focused on providing a wide menu of valuable technology solutions to dealer, investor, clients to expand their range of potential counter-parties to improve secondary market liquidity and turnover. The wide range of trading solutions led to a record quarter in active investor firms trading on MarketAxess.

Our volume growth this quarter was led by handful of strategically important large investors that have increased their engagement with the trading system. On the dealer side 8 of the Top 10 new issue underwriters were also Top 10 dealers on MarketAxess in Q1 we had 90 dealers in total making markets on the system.

Slide 6, provides an update on Europe, we continue to make progress executing our European strategy to deliver a comprehensive offering for trade execution, data and post-trade services. We have improved the functionality on our platform and expanded our trading protocols to offer dealers and investors greater choice in how they trade.

This led to a 36% increase in trading volume from European clients including an 80% increase in emerging market volume compared to the first quarter of last year. On the post-trade side we saw an 80% increase in regulatory transaction reporting activity and we’re seeing growing demand for additional post-trade services including trade matching.

Momentum continues in sales of our existing data products and we’re excited about development of new value added products in the coming quarters. Our European client revenue now accounts for 20% of total company revenue and we remain optimistic about the synergies between the trading, post-trade and data businesses.

Our technology platform migration for the post-trade services is on track and we continue to anticipate that Xtrakter will be accretive to earnings in the second half of this year. Now I would like to hand the call over to Tony for additional details on our volumes and financial results..

Thank you Rick. Please turn to slide 7 for a summary of our trading volume across product categories. Our overall global trading volumes were up 17% year-over-year to $187 billion, during a period when combined high grade and high yield trades volume was roughly flat. U.S.

high grade volumes were $119 billion for the quarter up 18% from one year on a combination of the 110 basis point increase in estimated market share and a modest increase in high grade trades volume. Year-over-year market share gains were tempered by the decline in the offer side hit rate.

Volumes in the other credit category were up 20% compared to the first quarter of 2013. Eurobonds, high yields and emerging market volumes were each up more than 17%. Investor order flow in the other category increased 32% year-over-year.

Similar to high grade trading we experienced a challenging hit rate environment for high yield bonds in the first quarter of 2014. The CFTC made available for trade, mandate was effective for CDS indices at the end of February. Our CDS index volumes were up almost 200% sequentially to $19 billion and down 37% in the first quarter of 2013.

Slide 8 displays the quarterly earnings performance. Revenues of $63.4 million were up 18% from a year ago principally due to a 10% increase in trading commissions and the inclusion of a full quarter of Xtrakter results in 2014.

Total expenses were $35.7 million up 23% in the first quarter of 2013, the expense increase also reflects the inclusion of a full quarter of Xtrakter expenses in 2014. On a pro forma basis assuming the Xtrakter results were consolidated for the entire first quarter of 2013 the total year-over-year expense increase would have been closer to 9%.

Our diluted EPS was $0.46 compared to $0.41 one year ago. The effective tax rate was 37% for the first quarter. The full year 2014 effective tax rate is currently projected at the low end of the 2014 guidance range of 37% to 40%. On slide 9, we have laid out our commission revenues trading volumes and fees per million.

The 10% year-over-year improvement in variable transaction fees was due to the 17% increase in trading volume offset by a 6% decline in overall fees per million. U.S. high grade fees per million were $167 in the first quarter compared to $184 in the fourth quarter of 2013.

The combination of almost a one year decline in average years of maturity and a shift to larger trade sizes where we earned less under our tiered fee plan caused the decline. Post-crisis the average years for maturity of high grade bonds traded on our platform has ranged from a high approaching 10 years to a low of approximately 7.5 years.

We dipped below eight years to maturity in the first quarter but we’re still within the post-crisis range. Realizing that there are many factors impacting high grade fee capture, in the near term we don’t foresee any significant change in absolute yield or the yield curve environment.

Fees per million in the other credit category were $301 in the first quarter down from $321 in the fourth quarter of 2013. The sequential change in fee capture and other credit was largely attributable to a trading shift amongst product categories.

A 40% sequential growth in comparatively lower margin Eurobonds exceeded the growth in emerging markets and high yield trading volumes. Distribution fees was 16.2 million during the first quarter and consistent with the fourth quarter level. The year-over-year increase was principally due to several dealer migrations to the major U.S.

high grade dealer plan in the second half of 2013. We currently aren’t tracking any dealer movements between our high grade fee plans. Slide 10 provides you with the expense detail. First quarter 2014 expenses of $35.7 million was flat versus the fourth quarter of 2013.

The $1.8 million sequential increase in compensation and benefits was attributable to the seasonal nature of certain employee taxes and benefits, higher incentive compensation and an increase in head count. The level of professional and consulting fees tends to vary quarter-to-quarter.

The $1 million sequential decline is due to lower technology and non-technology consulting cost and lower legal fees. A $900,000 decline in occupancy cost accounted for the majority of the sequential reduction in all other expenses.

The fourth quarter occupancy costs reflected actions taken to consolidate office space in London, including a sublease loss and duplicate rent. Full year expenses are projected to be within our $150 million to $157 million guidance range but likely tracking at the lower end of that range.

We haven't deviated from our year-end 2014 head count target but the timing of new hire on-boarding has extended out. We also recently made a decision to consolidate data centers which will result in savings and technology and communication cost and equipment spend versus our original 2014 budget.

On slide 11, we provide balance sheet information, cash and securities available for sale as of March 31 were $194 million compared to $200 million at year-end 2013. During the first quarter we paid out our year-end employee cash bonuses of roughly $22 million, a quarterly cash dividend of $6 million and capital expenditures of $4 million.

We also initiated repurchases under our $35 million share buyback program in March. During the quarter we repurchased 54,000 shares at a total cost of approximately $3.4 million. There was no change in our capital structure during the quarter, we had no bank debt outstanding and didn’t borrow against our revolving credit facility.

Now let me turn the call back to Rick for some closing comments..

Thanks Tony. The foundation of the MarketAxess business continued to get stronger in the first quarter inspite of the current market environment headwinds. In addition to the record quarter and average daily volumes trade on this system we see optimistic signs that we’re developing valuable tools for the credit market of the future.

Regulatory changes continue to drive the shift in credit market structure. Our growth in Europe during the quarter builds our confidence that we can grow our opportunity set and improve returns for our shareholders in the region. Now I would be happy to open the line for your questions..

(Operator Instructions). Our first question will be coming from the line of Jillian Miller from BMO Capital Markets. Your line is open..

If I annualize the current expense run rate -- I'm coming in even well below the low end of your guidance range and it you didn't change guidance but maybe if you could just walk us through how we get from here to that $150 million for the year.

I don't know if it is all related to the hiring that you mentioned later in the year?.

We did not put out any freshened up guidance and you’re right, in the prepared remarks we said we’re trending towards the lower end of that guidance range and you’re also right that we have to ramp up expenses from the first quarter level if it gets that $150 million or so and the two or three biggest expense changes would be around salaries and which is predicated on the hiring plan and as I mentioned we haven't deviated from the plan we set out several months ago which would have a hiring from this point forward, it could be an additional 10% increase in head count.

We haven't deviated from that but realized the risk and variability in there. The other big variable quite frankly is around incentive compensation and that’s tied to operating performance so there isn't variability there.

And the third piece of it which we do expect to ramp up is around depreciation and amortization and at year-end we had given some guidance, specific guidance on that where we were trending, we thought the range was between 18 million and 20 million.

First quarter we were at 4 million, we think it is going to ramp up from that level and that one I feel more certain around the depreciation and amortization ramp up and probably more variability in the salaries line and the incentive compensation line..

Remember too Jillian the first quarter only has approximately 1 month of Xtrakter expenses from the prior year period so we obviously are running at a different run-rate starting the year on Xtrakter expenses too. .

Okay. And then on the all-to-all trading you guys put some impressive stats in there with respect to the use of market lists. And I was just hoping you might be able to give us an idea for what the actual open trading volume is.

Like is it representing 1% of high-grade volume now for you guys, is it 3%, is that 5%? It is hard for me to gauge from the use of market lists what that's actually translating to in volume?.

We have another sequential growth in open trading volume.

We also as I mentioned before are pleased with what we’re seeing and the growing participation in terms of clients and dealers active in our open trading protocols, there is not a significant change in the percentage of volume coming from open trading so we are still running kind of between that 1% and 2% of volume level..

And then just one other thing from me. On the high-grade C-rate, you mentioned that it had compressed for two reasons, the duration, which I am assuming is just related to a flatter yield curve. But then also the larger trade sizes and I guess this kind of goes also to the increase in the percentage of block trades that we have seen.

I'm not sure what is driving that, I mean maybe it is just a fluke and it should shift back to the more normal rate I guess or is something going on that I am kind of missing there?.

I think there are a couple of things. I mentioned in my prepared remarks that we have seen really good progress during the quarter with some of our large focus accounts that we felt could have been using the system more actively and obviously those are the accounts that drive a significant percentage of the block trades in the secondary market.

So I think that’s one piece of it, the second thing is we do often times see uptick’s in the percentage of block trades taking place in periods when the new issue calendar is very active and during the first quarter you can see that trend in both our data as well as the trades data..

Thank you. Our next question will be coming from the line of Hugh Miller from Sidoti. Your line is open..

So I guess in following up on the last question about some of the variable fee pricing, can you give us a little bit of color on as we take a look at the delta difference for U.S.

high grade, how much of it is coming from duration versus trade size?.

Sure, Hugh. Listen, first off, there is lots of items that impact that the fee capture and it's not only duration which is around years of maturity and yield but trade size even the dealer mix between the dealers on the all variable plan and on the distribution fee plan.

So there are lots of factors in there but for the period from the fourth quarter to the first quarter that’s $14, that’s delta there, $17 delta was about evenly split between duration and that was mainly around the years of maturity and then the shift to the larger trade cycles..

Okay. I guess as we look at block trading, it did uptick from what I'm seeing here about 43% of TRACE in the first quarter from 41% and change in the fourth quarter of last year.

But is that what is really driving that on your platform with the uptick in size or is there something else that is going on with just a mix of client business or just people -- anything in particular that you are seeing that could be driving the size change?.

I would just reiterate the point I made earlier, a lot of the volume growth in the first quarter was driven by five of our Tier 1 focused accounts that are getting a lot more active on the system and on average their trade size is larger than the overall investor group trading on MarketAxess..

Okay, that is helpful.

And then as we think about kind of the competitive environment within CDS index trading now that it has been live for a couple of months now and how competitive that environment has been, are you starting to change your strategy at all or your thoughts about ongoing investment for that product and how you are going to position the company?.

No, not really I think it has been a challenging start to the SEF mandate for all of us, the trading volumes in the industry going through SEF’s that are smaller than everyone anticipated and the current feed capture is significantly lower.

So I don’t think you find anyone that would say that they are having a great time with the early days of SEF trading. Having said that it's far too early to know how this will shape up over the medium to long term.

Beginning with exactly where the CFTC will go with their rules because we have a new Chairman and two new Commissioners is coming on board later in the second quarter.

So we have been in this transition period with the regulatory which means that many SEFs are operating with different versions of the SEF rules right now and we need to see how that shakes out. I think when you look at it, we’re estimating that only 20% or 30% of the total index volume is being reported through SEFs right now.

So there is more to come in terms of this SEF space, in terms of total market volume. In terms of how various competitor is shake out and exactly what the CFTC does in terms of enforcing the rules with the new commission in place.

So as a result of all that uncertainty in the investments that we have made that we continue to feel good about, we continue to invest and focus on and CDS is one of our product areas..

And then as we think about your commentary around share repurchase in the quarter, kind of implying average pricing is somewhere in the low $60 area, are you guys more inclined now to be more active with share repurchase given kind of some of the recent pressure on the stock or your thoughts around that?.

On the share repurchases we had about this at year-end. We have put in place a $35 million repurchase plan.

We know what the purpose was, was to offset the dilution from share grants and we really viewed the program we had in front of us more as a maintenance program and we have setup a 10b5-1, we’re in the market every day, we’re buying against that plan.

We certainly have the capacity to act, if the opportunity presents itself you know we got a healthy cash position. Strong free cash flow generation, we got lots of borrowing capacity.

If the opportunity presents itself, since the Board will be thoughtful around it and they will act accordingly but right now we’re acting on the program in front of us which again is more of a maintenance program..

Okay, yes, certainly understood. Can you provide any color on kind of the rationale for some of the hiring delays, is it just a function of finding the right people or changes in kind of the operating conditions that are causing you to hold off on making the hire or any insight there would be helpful..

Yes it was more of the former. As it's always the case with hiring plans you got an aggressive outlook and you like to get those positions still as soon as possible. But in some of the markets we’re in, it has taken a little bit longer to get the position filled.

So there are some business dependent positions but most of any sort of delays here hiring is just finding the right people and getting them situated in the position..

And as Tony mentioned earlier we’re finding some additional expense synergies with Xtrakter and that’s an important part of the guidance that Tony provided earlier on the run-rate for expenses as well. .

And then the last question I had was just with regards to kind of market share for April. As we take a look at TRACE volume, it does appear that because it is likely the holiday timing that TRACE volume has been bit pressured year-over-year in April.

But was wondering if you could provide us with some commentary around what you are seeing for share through the month as we see it now?.

Sure. Happy to do so. I think this month we have six full trading days remaining in the month following the holiday week last week but what we see so far it was very similar in April to the first quarter in all respects.

TRACE volumes, market share, product mix et cetera there are not any significant changes in the first three weeks of the second quarter versus the first..

Thank you. Our next question will be coming from the line of Ashley Serrao from Credit Suisse. Your line is open..

I just wanted to clarify the high-grade pricing dynamics this quarter.

So on the fixed side, is the message here that this quarter is idiosyncratic and trends should pick up from here? Like asked another way, has the shift to large grade sizes from strategic clients and just a general shortening of duration continued into Q2?.

So Rick just mentioned about the conditions in April being comparable for the first quarter. That is across trade size and product mix and dealer mix on high grade.

So you can infer from that sort of comparability to the first quarter that so far in April and granted we’re less than one month into the quarter right now, we’re not seeing much difference in terms of fee capture..

And then on the noncommissioned side, you had decent growth this quarter so I just wanted to get some more color there, is this mainly due to more clients, launch of new products and could you actually parse out the contribution of Xtrakter in terms of revenues and expenses for us?.

Yes, so on the Xtrakter side the revenue run-rate has picked on Xtrakter so when we turn the calendar into 2014 the revenue run-rate is up about 10% versus 2013 so the revenue run-rate has picked up and for the first quarter most of the delta, if you look at the earnings release there is a little more granularity in there, most of the delta in the information and post-trade services, it all came from Xtrakter and you do on a comparable basis for the first quarter of last year revenues were up about 4.4 million all of that was related to Xtrakter..

Thank you. Our next question will be coming from the line of Mike Adams from Sandler O'Neill. Your line is open..

So a question on the fee capture focusing more on the other product category, I think Tony, in your prepared remarks you mentioned like a 40% increase in the Eurobond volume.

Now do you think that is connected to like gaining traction with Xtrakter so is that mix toward Eurobond volume, do you think that could increase as Xtrakter really takes hold here?.

First thing I will talk about influences other credit category. From a fee capture standpoints and other credit it is dependent on the mix between EM, high-yield and Eurobonds and even to get more granular within emerging markets it depends on whether it's corporates versus sovereign.

In high-yield, it depends on whether a bond trades on spreads or price, there are lots of influencing items in there. In this case when you look at it sequentially it really was because Eurobonds did outperform, we think some of that is around what we’re doing around data.

Some of it's around what we’re doing around testing some new trading protocols as well. I don’t think we have seen the full effect of Xtrakter and embedding the trade, the data into our trading platform. I think a lot of that as Rick had mentioned a lot of that is underway right now and we probably haven't seen a big benefit of that today. .

Got it.

And what was the percentage of high-yield EM volume of the other category?.

It was almost identical to the first quarter of last year, it was right around 82% and that’s why the fee capture, if you look at the fee capture year-over-year in that other credit category did not vary widely. If you look at the mix it was about the same..

And then maybe sticking with Xtrakter in Europe, I know one key date past sometime in February in terms of some of the trade reporting requirements in Europe. First, was that a revenue event for you? I know you are connected to CME's trade reporting facility.

I am just curious if there is any discussions to maybe connect to ICE or DTCC or any other of the facilities that are available?.

I think you’re referring specifically to the swap reporting requirement and we’re providing that service but it's a tiny part of what we do overall with regulatory transaction reporting and tracks. So that in itself not material.

The MiFID II bond transparency requirements we believe are still on track to take hold around the end of next year and we do see the markets preparing for those changes and part of our work on data is working with the market participants in Europe to begin building some new data products in anticipation of the MiFID II required dates in year and half or two years.

So we think they are both discreet data revenue opportunities that will emerge over the second half of this year and we also think we will see improvements in the value that investors and dealers see in our trading system because of the integration of data and trading on the MarketAxess Europe system..

And then one last one from me. Since the last earnings call that you hosted, we have seen a few small M&A deals and the acquirers were not traditional competitors of yours. There were a couple of exchange operators and more of an equity focused block trading platform.

So maybe these smaller platforms weren't a major competitive threat in the past but as part of a bigger organization with greater financial resources and maybe it adds credibility.

Do you expect any sort of change in the competitive dynamics and in your ability to maintain your dominant market share?.

We are not at all surprised as we said in the past I think the widely shared view is that electronic trading in credit will be much bigger over the next 3 to 5 years than it is today, so it's not at all surprising that many participants are looking for entry points into credit. The key theme is you point out that these deals were really small.

These were relatively early stage companies and we’re a small company ourselves but when we compare the breadth of our network, the investments that we’re making and the system, the employee base it's very, very different and then the companies that were involved in M&A space and it's always the key for us is not this standstill and I think inspite of the lead that we have in U.S.

electronic credit trading we’re still investing more by far than anyone else in new technology solutions to address the regulatory changes in the market.

So our view is as long as we keep our investment budget healthy and we’re investing in the right solutions for our clients we have every reason to believe that we can maintain our leadership position..

Thank you. Our next question will be coming from the line of Niamh Alexander from KBW. Your line is open..

If I could just focus on a few industry questions, the company specific have been asked and answered. Rick, do you think we are going to get towards maybe some streaming prices in some of the more liquid bonds like we have had such huge volume of issuance in the last few years and some very, very big deals from some single companies.

Are you starting to see kind of much more frequent trading in some of the bigger not more frequency trading but much more big -- much more frequent pricing and demand maybe getting towards CLOB [ph] type activity in some of the products?.

Gradually Niamh. We obviously are streaming, quotes are very common in the CDS index space where the markets are very liquid and trade on spread and very stable in this kind of environment. We see dealers developing streaming capabilities in bonds but using them primarily as indications for their clients now.

You know really what investors continue to find is that they do get better pricing through competitive RFQ protocols currently than they do from streaming quotes. So the fragmentation in the market, the lack of continuous trading continues to be an obstacle for true streaming technology to work in the bond market in a fully live and executable way..

If I could just go back to the company specific on the SEF because you have been investing in this -- I would say one of the more thought leaders in kind of how to structure these, working with the regulators for several years now and the SEFs have rolled out for indices, but we still haven't gotten the rules for the single name products from the SEC.

And given how it is shaking out in the index, it seems like Bloomberg especially is running was some very, very low pricing.

Is there a point where the benefits just don't outweigh the costs or it looks like the benefits don't outweigh the costs or do you think it is something that you cannot [technical difficulty]?.

Well I think that I made the point earlier that it's far too early to know. The cost for all SEFs are high which is why I don’t think the current dynamic can support 21 SEFs. So, I do think you’re going to see fair fewer SEFs in the industry over the next year.

But we have got a lot to learn about volume going through SEFs in the aggregate, trading protocols that will be permissible by the commission longer term. Client and dealer demand for different protocols, so yes in the very short term Niamh, our costs are clearly greater than our revenues.

I would guess that that’s the case for all 21 SEFs including the leader that you mentioned. So that’s not likely to persist but it's way too early, we think to make any final determinations of where we think we will be in the CDS SEF space..

Rick. Just lastly on Xtrakter, I guess it is Company specific, but the market data tape, you already said we expect Xtrakter to be accretive in the second half of this year and it looks like you are kind of coming in better than expected on the cost. But can you give me a little bit more specific information.

You were working with some of the big dealers on kind of rolling out a more limited data tape. The rules may not require people to have a tape or whatnot until the end of next year but once it becomes available, I think it is hard not to have it.

So this is something that you think you could actually start rolling out and have an effect in the second half of this year?.

We will definitely have new data products out during the course of this year and the starting point in Europe as well because there hasn’t been a lot of transparency in the European market and there is a subset of the transactional data that’s not terribly controversial around more liquid bonds that trade very frequently where dealers and investors would agree that it's likely that data is positive for the market and doesn’t cause any great anxiety in terms of going deeper into less liquid bonds.

So we’re working on those solutions and we’re working with our dealer, investor, clients on rules around trade transparency and we’re excited about what we can do to lead that charge..

Thank you. Our next question will be coming from the line of Patrick O'Shaughnessy from Raymond James. Your line is open..

So my first question is just kind of dwell a little bit deeper on the offer wanted hit rates issue. If we look at slide four, I think it is the chart on the lower left where you look at dealer corporate bond balance sheets.

It looks like those balance sheets have been roughly flat for the last few quarters and yet over that period, we have seen that deterioration in your offer wanted hit rates.

So is there something else going on with dealers besides balance sheet constraints that is pressuring those hit rates?.

I would point less to the dealer side and more to investor demand. I think when you look at the combination of the new issue activity and the fact that those order books are consistently oversubscribed and the significant compression and credit spread is taking place.

Really what’s happening is that investor demand is far greater than the existing level of supply even inspite of the very high levels of new issuance..

I was looking at industry wide volumes, can you just update us what is your view on trading velocity, what sort of dynamics do you see that are out there that might increase corporate bond trading velocity over the next three years?.

It's a variety of factors there but we have to believe that a market that’s now 60% larger in debt outstanding is going to lead to greater secondary activity.

When the market conditions are more favorable but the same slide that you’re referring to when credit spreads have returned to all time historical lows and volatility is generally low it does not lead to a lot of secondary trading turnover and I think that the conditions that we saw last spring were credit spreads started to widen and volatility was greater so there were more trading opportunities in the market, were a precursor to what we will see at some point in the future.

When we get higher spreads and higher spreads volatility turnover of what is now a much larger base of corporate debt, we believe will be higher and I think that’s also why it's critical that the industry continues to develop new sources of liquidity because the model that we think is likely to work in that environment in the future is not the same one that has worked in the past given the balance sheet constraints that the large dealers are now faced with..

Thank you. Our next question will be coming from the line of Michael Wong from Morningstar Equity Research. Your line is open..

So primary dealer holdings picked up over the last year but are still down significantly from their peak.

So are the large dealers as active on the platform as they used to be despite the lower inventory or balance sheet compared to few [ph] prices?.

Yes the short answer is yes. If you look at the high grade high yield inventory it's roughly flat, so that’s not really where the growth in primary yield holdings is coming from.

Actually the split between major dealers and dealers that are on the high -- the all variable plan has been fairly steady over the last few quarters a little over 70% of the trades with the major dealer fee plan.

But within the story of dealers within our major dealer plan we see very good signs with some of the largest underwriters and largest secondary trading firms are increasing their market share on MarketAxess. So we believe that that is also a very healthy trend and a very healthy signs for the future..

I was just wondering if you could quantify the current drag on earnings from operating just currently unprofitable SEFs?.

We did provide some color in the 10-K that was filed in early March around the financial resource requirement for the SEF itself and the way that CFTC rules work you have to maintain on a forward-looking basis, you’ve to maintain 12 months of operating expenses in terms of your financial resources.

If you look in the 10-K you will see some disclosure which says that our financial resource requirement is approximately $6 million and what that tells you is that’s about the operating run-rate and from a revenue standpoint while we did start charging our participants in March it's just not a significant amount in terms of the revenue numbers.

So think about that $6 million as a nut, you tax effect that and you can figure out it's more than few pennies per share. .

Thank you. Our next question will be coming from the line of Mike Adams from Sandler O'Neill. Your line is open..

Actually my follow-up was answered. I couldn't figure out how to remove myself from the queue. Thanks..

Thank you. (Operator Instructions). Our next question will be coming from the line of Jillian Miller from BMO Capital Markets..

I know that the CDS revenue isn't material for now but I am just curious where it is showing up in the income statement if it does become hopefully more material over time?.

Jillian it's a very small amount for the first quarter, if it does become material we will have to sort of debate internally where we’re going to set it up. We may end up breaking it out separately into a separate category only because the volumes and fee capture would probably distort any of the existing category.

So if it does become something material you will probably see it separately..

Thank you. And at this time I’m not showing any further questions. I would now like to turn the call back over to Rick McVey..

Thank you for joining us this morning and we look forward to catching up with you next quarter..

Ladies and gentlemen thank you for participating in today’s conference call. This does conclude the program and you may all disconnect. Everyone have a great day..