For MarketAxess, portfolio trading buoys flat revenue in Q3

MarketAxess said in July that it would set its sights on proprietary data and automation to bring more clients to its platforms and offset losses caused by low volatility, and during its Q3 earnings call on October 25, the fixed-income trading giant reported record levels of volume and traders using its platforms.

“Our current franchise has never been stronger with a record number of over 2,000 active clients across 67 countries,” CEO Chris Concannon said during the call, though revenue was flat for the quarter—$172.28 million compared to $172.11 in Q3 2022.

MarketAxess currently has 2,093 active client firms, a record number of users by 6%. It also reported record numbers for US credit client firms, international firms, and firms trading three or more products, as well as record data revenue, up 22%, or 17% excluding impact of foreign currency fluctuations.

During Q3, MarketAxess also closed its $129 million acquisition of multi-asset algorithmic trading provider Pragma. After that deal was announced on August 7, 2023, Gareth Coltman, global head of automation at MarketAxess, told WatersTechnology that the plan for Pragma was “to build on what we’ve already started with Adaptive Auto-X, which is to develop more sophisticated, higher velocity automation tools to our platform.”

As one executive at a vendor with experience in algorithmic fixed-income trading told WatersTechnology, MarketAxess’ largest and most advanced clients likely already use algorithms in their fixed-income operations. But for smaller or less sophisticated asset managers, dealers, and banks, the ability to quickly design an algorithm to match their needs “could be helpful or even key to attracting new customers and keeping the existing customers engaged on the platform.” 

On the call, Concannon emphasized that Pragma will help MarketAxess to grow its algo suite of services.

“[G]iven the excitement that we see from our clients around Adaptive Auto-X, and then given some of the excitement from our clients on unique order types that we’ve been rolling out in our rates platform, we do anticipate higher levels of demand for both automation and algo solutions in both credit and rates growing in the years ahead. So we’re excited to have [that] kind of technology, that kind of expertise in-house.”

Though revenue was flat, MarketAxess saw higher expenses, principally driven by a 17% increase in headcount, mainly in technology and sales roles. Additionally, technology and communications expenses increased $1.2 million due to increased software-as-a-service capabilities, cloud hosting, and datacenter hosting expenses.

Proprietary datasets, such as Matchability, Tradability, Liquidity Score, and Like Bonds underpin some of MarketAxess’s latest offerings, which executives on the call said will be re-invested in, and integrated into the company’s various platforms and protocols, which include X-Pro, Adaptive Auto-X, and Open Trading.

Technology and data played a key role in the earnings call, with a heavy emphasis on continued investment into new datasets electronic trading protocols. A report from the Securities Industry and Financial Markets Association (Sifma) and consultancy Greenwich Associates earlier this year found that while 40% of corporate bonds are traded electronically today, as little as 10% of municipal bonds do the same.

The continued rollout of X-Pro, MarketAxess’s portfolio trading platform, was a high point: Concannon said more clients are leveraging the platform’s enhanced functionality and tradability data, a proprietary dataset. He added that the platform is part of MarketAxess’s strategic solution to its US high-grade market share challenges, and the company is working on its integration with Open Trading, a global all-to-all electronic marketplace.

“In low-volatility market environments, protocols like portfolio trading become more prevalent, with portfolio trading rising to 7% of Trace during the quarter,” Concannon said. “Activity on dealer-centric protocols also increases in low-volatility markets, and we are continuing to focus on growing our Mid-X and Dealer-RFQ protocols.”