[PART I — Financial Information](index=3&type=section&id=PART%20I%20%E2%80%94%20Financial%20Information) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements of MarketAxess Holdings Inc. for the quarter ended March 31, 2021, including the statements of financial condition, operations, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, regulatory capital, fair value measurements, acquisitions, and other financial details [Consolidated Statements of Financial Condition](index=3&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition) Fair Value of Assets and Liabilities (As of March 31, 2021) | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :----------------------------- | :------------------------------ | :-------------------- | :------- | | Total assets | $1,545,869 | $1,331,429 | $214,440 | 16.1% | | Total liabilities | $557,636 | $376,368 | $181,268 | 48.2% | | Total stockholders' equity | $988,233 | $955,061 | $33,172 | 3.5% | | Receivables from broker-dealers, clearing organizations and customers | $564,957 | $279,915 | $285,042 | 101.8% | | Payables to broker-dealers, clearing organizations and customers | $308,268 | $133,326 | $174,942 | 131.2% | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Total revenues | $195,464 | $168,978 | $26,486 | 15.7% | | Total expenses | $91,990 | $77,889 | $14,101 | 18.1% | | Operating income | $103,474 | $91,089 | $12,385 | 13.6% | | Net income | $80,457 | $74,816 | $5,641 | 7.5% | | Basic EPS | $2.15 | $2.01 | $0.14 | 7.0% | | Diluted EPS | $2.11 | $1.96 | $0.15 | 7.7% | | Cash dividends declared per common share | $0.66 | $0.60 | $0.06 | 10.0% | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Consolidated Statements of Comprehensive Income | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | Change (in thousands) | % Change | | :---------------------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Net income | $80,457 | $74,816 | $5,641 | 7.5% | | Net cumulative translation adjustment and foreign currency exchange hedge, net of tax | $(1,932) | $(3,859) | $1,927 | -49.9% | | Net unrealized (loss) on securities available-for-sale, net of tax | — | $(491) | $491 | -100.0% | | Comprehensive income | $78,525 | $70,466 | $8,059 | 11.4% | [Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Total stockholders' equity **increased from $955.1 million at January 1, 2021, to $988.2 million at March 31, 2021**, driven by **net income of $80.5 million**, **stock-based compensation of $7.4 million**, and **exercise of stock options of $244 thousand**, partially offset by **withholding tax payments of $(27.4) million**, **common stock repurchases of $(520) thousand**, and **cash dividends of $(25.1) million**[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Net cash (used in) provided by operating activities | $(23,159) | $120,369 | $(143,528) | -119.2% | | Net cash (used in) provided by investing activities | $(12,332) | $24,557 | $(36,889) | -150.2% | | Net cash (used in) financing activities | $(18,850) | $(49,822) | $30,972 | -62.2% | | Net (decrease) increase for the period | $(55,368) | $91,744 | $(147,112) | -160.4% | | Cash and cash equivalents including restricted cash, End of period | $552,682 | $365,997 | $186,685 | 51.0% | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. Organization and Principal Business Activity](index=8&type=section&id=1.%20Organization%20and%20Principal%20Business%20Activity) - MarketAxess operates leading electronic trading platforms for global fixed-income markets, serving **over 1,800 institutional investor and broker-dealer firms**. Key offerings include Open Trading® protocols for corporate bonds, Composite+™ pricing, auto-execution, connectivity solutions, and pre- and post-trade services like regulatory transaction reporting[20](index=20&type=chunk) [2. Significant Accounting Policies](index=8&type=section&id=2.%20Significant%20Accounting%20Policies) - The company's revenue streams include commissions, information services, post-trade services, and other revenues. Commission revenue is primarily from **variable transaction fees** (disclosed trading, Open Trading - matched principal, U.S. Treasuries - matched principal) and **distribution/unused minimum fees**[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) Commission Revenue by Fee Type (Three Months Ended March 31) | Commission Revenue by Fee Type | 2021 (in thousands) | 2020 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Variable transaction fees | $148,398 | $129,166 | $19,232 | 14.9% | | Distribution fees and unused minimum fees | $27,440 | $26,788 | $652 | 2.4% | | Total commissions | $175,838 | $155,954 | $19,884 | 12.7% | Information Services Revenue by Timing of Recognition (Three Months Ended March 31) | Information Services Revenue | 2021 (in thousands) | 2020 (in thousands) | Change (in thousands) | % Change | | :--------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Services transferred over time | $9,045 | $7,806 | $1,239 | 15.9% | | Services transferred at a point in time | $117 | $836 | $(719) | -86.0% | | Total information services revenues | $9,162 | $8,642 | $520 | 6.0% | Post-Trade Services Revenue by Timing of Recognition (Three Months Ended March 31) | Post-Trade Services Revenue | 2021 (in thousands) | 2020 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Services transferred over time | $10,020 | $4,150 | $5,870 | 141.4% | | Services transferred at a point in time | $241 | $3 | $238 | 7933.3% | | Total post-trade services revenues | $10,261 | $4,153 | $6,108 | 147.1% | [3. Regulatory Capital Requirements](index=13&type=section&id=3.%20Regulatory%20Capital%20Requirements) - As of March 31, 2021, the Company's regulated subsidiaries maintained **aggregate net capital and financial resources of $493.5 million in excess of the required levels of $31.1 million**, demonstrating strong compliance with regulatory requirements[44](index=44&type=chunk) - A U.S. broker-dealer subsidiary held **$50.1 million in a special reserve bank account** for customer benefit, as required by Rule 15c3-3[45](index=45&type=chunk) [4. Fair Value Measurements](index=13&type=section&id=4.%20Fair%20Value%20Measurements) Fair Value of Assets and Liabilities (As of March 31, 2021) | Category | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :------------------------ | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Money market funds | $11,327 | — | — | $11,327 | | Trading securities (Corporate debt) | — | $13,806 | — | $13,806 | | Mutual funds held in rabbi trust | — | $10,502 | — | $10,502 | | Foreign currency forward position | — | $(1,349) | — | $(1,349) | | Total | $11,327 | $22,959 | — | $34,286 | - The Company uses foreign currency forward contracts to hedge its net investment in U.K. subsidiaries, with a **notional value of $196.1 million** and a **fair value liability of $(1.3) million** as of March 31, 2021[52](index=52&type=chunk) [5. Receivables from and Payables to Broker-dealers, Clearing organizations and Customers](index=16&type=section&id=5.%20Receivables%20from%20and%20Payables%20to%20Broker-dealers,%20Clearing%20organizations%20and%20Customers) Receivables from Broker-dealers, Clearing Organizations and Customers (in thousands) | Category | March 31, 2021 | December 31, 2020 | | :------------------------------------------ | :------------- | :---------------- | | Securities failed-to-deliver - broker-dealers | $155,693 | $93,294 | | Securities failed-to-deliver - customers | $288,235 | $87,685 | | Deposits with clearing organizations and broker-dealers | $111,594 | $97,043 | | Other | $9,435 | $1,893 | | Total | $564,957 | $279,915 | Payables to Broker-dealers, Clearing Organizations and Customers (in thousands) | Category | March 31, 2021 | December 31, 2020 | | :------------------------------------------ | :------------- | :---------------- | | Securities failed-to-receive - broker-dealers | $156,322 | $70,917 | | Securities failed-to-receive - customers | $144,958 | $60,784 | | Other | $6,988 | $1,625 | | Total | $308,268 | $133,326 | [6. Acquisitions](index=16&type=section&id=6.%20Acquisitions) - On November 30, 2020, MarketAxess acquired Regulatory Services GmbH for **$22.5 million cash** and up to **$24.6 million in contingent consideration**, recording **$37.4 million in amortizable intangible assets**[54](index=54&type=chunk) - On April 9, 2021, the Company acquired MuniBrokers LLC for **$17.0 million cash** and up to **$25.0 million in contingent consideration**[55](index=55&type=chunk) [7. Goodwill and Intangible Assets](index=16&type=section&id=7.%20Goodwill%20and%20Intangible%20Assets) - Goodwill remained stable at **$147.4 million** as of March 31, 2021, and December 31, 2020[56](index=56&type=chunk) Amortizable Intangible Assets (in thousands) | Category | March 31, 2021 Net Carrying Amount | December 31, 2020 Net Carrying Amount | | :------------------------ | :--------------------------------- | :---------------------------------- | | Customer relationships | $90,918 | $95,327 | | Technology and other intangibles | $27 | $27 | | Total | $90,945 | $95,354 | - Amortization expense for identifiable intangible assets **increased significantly to $2.7 million** for the three months ended March 31, 2021, from **$0.7 million** in the prior year[56](index=56&type=chunk) [8. Income Taxes](index=17&type=section&id=8.%20Income%20Taxes) Provision for Income Taxes (Three Months Ended March 31) | Category | 2021 (in thousands) | 2020 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Total current provision | $20,753 | $14,123 | $6,630 | 46.9% | | Total deferred provision | $591 | $2,763 | $(2,172) | -78.6% | | Provision for income taxes | $21,344 | $16,886 | $4,458 | 26.4% | | Effective tax rate | 21.0% | 18.4% | 2.6 pp | 14.1% | - The Company recognized **excess tax benefits on share-based payments of $4.0 million** in Q1 2021, down from **$6.3 million** in Q1 2020[57](index=57&type=chunk) [9. Stock-Based Compensation Plans](index=17&type=section&id=9.%20Stock-Based%20Compensation%20Plans) Total Stock-Based Compensation Expense (Three Months Ended March 31) | Category | 2021 (in thousands) | 2020 (in thousands) | Change (in thousands) | % Change | | :------------------------ | :------------------ | :------------------ | :-------------------- | :------- | | Employees | $7,103 | $6,399 | $704 | 11.0% | | Non-employee directors | $321 | $278 | $43 | 15.5% | | Total stock-based compensation | $7,424 | $6,677 | $747 | 11.2% | - During Q1 2021, the Company granted **32,251 restricted stock/units**, **15,982 stock options**, and performance-based shares with an expected payout of **12,185 shares**[60](index=60&type=chunk) - As of March 31, 2021, total unrecognized compensation cost for non-vested awards was **$50.9 million**, expected to be recognized over a weighted-average period of **2.2 years**[61](index=61&type=chunk) [10. Earnings Per Share](index=18&type=section&id=10.%20Earnings%20Per%20Share) Earnings Per Share (Three Months Ended March 31) | Metric | 2021 (in thousands, except per share amounts) | 2020 (in thousands, except per share amounts) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Basic weighted average shares outstanding | 37,470 | 37,303 | | Dilutive effect of stock options and restricted stock | 685 | 772 | | Diluted weighted average shares outstanding | 38,155 | 38,075 | | Basic earnings per share | $2.15 | $2.01 | | Diluted earnings per share | $2.11 | $1.96 | [11. Credit Agreements and Short-term Financing](index=18&type=section&id=11.%20Credit%20Agreements%20and%20Short-term%20Financing) - The Company entered into a **new $500.0 million revolving credit facility** on November 13, 2020, maturing November 12, 2021, with **$499.0 million available borrowing capacity** as of March 31, 2021[64](index=64&type=chunk) - A U.S. broker-dealer subsidiary has an **uncommitted $200.0 million collateralized agreement** with its settlement bank, with no borrowings outstanding as of March 31, 2021[66](index=66&type=chunk) - A U.K. subsidiary utilized **$34.3 million in overnight bank overdrafts** as of March 31, 2021, incurring **$0.2 million in interest expense** during Q1 2021[67](index=67&type=chunk) [12. Leases](index=19&type=section&id=12.%20Leases) Lease Cost (Three Months Ended March 31) | Lease Cost Component | 2021 (in thousands) | 2020 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Operating lease cost | $3,323 | $3,449 | | Operating lease cost for subleased/assigned properties | $497 | $536 | | Variable lease costs | $6 | $16 | | Sublease income subleased/assigned properties | $(502) | $(536) | | Net lease cost | $3,324 | $3,465 | - As of March 31, 2021, the **weighted average remaining lease term was 12.0 years** with a **weighted average discount rate of 5.9%**. Total operating lease liabilities were **$92.75 million**[70](index=70&type=chunk) [13. Commitments and Contingencies](index=20&type=section&id=13.%20Commitments%20and%20Contingencies) - The Company is involved in various lawsuits, proceedings, and regulatory examinations in the normal course of business, but the **outcome is not expected to have a material adverse impact** on its financial position[71](index=71&type=chunk)[72](index=72&type=chunk) - The Company is exposed to credit risk from matched principal trading activities, but **recorded no liabilities or losses from counterparty failures** in Q1 2021 or Q1 2020[73](index=73&type=chunk) [14. Share Repurchase Program](index=20&type=section&id=14.%20Share%20Repurchase%20Program) - A **new $100.0 million share repurchase program** was authorized in January 2021, commencing April 1, 2021, replacing the expired program[75](index=75&type=chunk) - For the three months ended March 31, 2021, the Company repurchased **1,050 shares of common stock at a cost of $0.5 million** under the prior program[75](index=75&type=chunk) [15. Segment and Geographic Information](index=20&type=section&id=15.%20Segment%20and%20Geographic%20Information) - The Company operates as a **single business segment** due to the integrated nature of its products and services[76](index=76&type=chunk) Revenues by Geographic Area (Three Months Ended March 31) | Geographic Area | 2021 (in thousands) | 2020 (in thousands) | Change (in thousands) | % Change | | :---------------- | :------------------ | :------------------ | :-------------------- | :------- | | Americas | $160,119 | $142,637 | $17,482 | 12.3% | | Europe | $29,544 | $22,419 | $7,125 | 31.8% | | Asia | $5,801 | $3,922 | $1,879 | 47.9% | | Total | $195,464 | $168,978 | $26,486 | 15.7% | Long-Lived Assets by Geographic Area (As of) | Geographic Area | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :---------------- | :---------------------------- | :------------------------------- | | Americas | $70,812 | $68,707 | | Europe | $17,838 | $16,491 | | Asia | $5 | $6 | | Total | $88,655 | $85,204 | [16. Cash and Cash Equivalents and Restricted Cash](index=21&type=section&id=16.%20Cash%20and%20Cash%20Equivalents%20and%20Restricted%20Cash) Reconciliation of Cash and Cash Equivalents and Restricted Cash (in thousands) | Location | March 31, 2021 | December 31, 2020 | | :------------------------------------------------ | :------------- | :---------------- | | Cash and cash equivalents | $390,915 | $460,858 | | Cash segregated under federal regulations | $50,083 | $50,059 | | Deposits with clearing organizations and broker-dealers | $111,594 | $97,043 | | Other deposits | $90 | $90 | | Total | $552,682 | $608,050 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, highlighting key business activities, market factors, competitive landscape, regulatory environment, and technology trends. It includes a detailed analysis of revenues, expenses, and other financial metrics for the three months ended March 31, 2021, compared to the prior year, along with discussions on liquidity, capital resources, and non-GAAP financial measures [Forward-Looking Statements](index=22&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements based on management's current expectations and assumptions, which are subject to inherent uncertainties, risks, and changes in circumstances. The Company undertakes no obligation to revise or update these statements, except as required by law[82](index=82&type=chunk) [Executive Overview](index=22&type=section&id=Executive%20Overview) - MarketAxess operates leading electronic trading platforms for global fixed-income markets, offering expanded liquidity, improved execution, and cost savings to **over 1,800 institutional investor and broker-dealer firms**[83](index=83&type=chunk) - Key strategic objectives include **expanding the participant network**, **increasing secondary market liquidity through innovative technology like Open Trading and Live Markets**, **strengthening service and data offerings**, and **pursuing strategic alliances or acquisitions**[86](index=86&type=chunk)[92](index=92&type=chunk) [Critical Factors Affecting Our Industry and Our Company](index=23&type=section&id=Critical%20Factors%20Affecting%20Our%20Industry%20and%20Our%20Company) - Improving economic conditions in Q1 2021 led to lower volatility, tightening credit spreads, and a rising interest rate environment. U.S. high-grade corporate bond market volumes **increased 7.5%**, while U.S. high-yield corporate bond market volumes **decreased 5.5%** compared to Q1 2020[88](index=88&type=chunk) - The COVID-19 pandemic led to a global work-from-home mandate, with Open Trading liquidity proving essential. The Company maintained business continuity and expects sufficient liquidity for the next twelve months, having **increased its dividend for the 12th consecutive year**[89](index=89&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) - The electronic financial services industry is highly competitive, with competition based on liquidity, price improvement, transaction costs, and execution quality. Regulatory changes, including Brexit and SEC reviews of electronic trading platforms, may impact the business, potentially increasing compliance costs but also demand for electronic platforms[93](index=93&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) - Automated trading volumes **rose to $39.1 billion in Q1 2021, up 24.2% YoY**, with algorithmic responses **increasing 56.7%**, indicating continued demand for and growth in automated trading solutions[100](index=100&type=chunk) [Trends in Our Business](index=25&type=section&id=Trends%20in%20Our%20Business) - Revenue is primarily driven by **commissions from transactions**, influenced by factors such as participant numbers, price competitiveness, available markets, overall market activity, and commission levels[102](index=102&type=chunk)[107](index=107&type=chunk) - Commission revenue is calculated as a percentage of notional dollar volume, varying by bond type, size, yield, maturity, and client incentives. Open Trading commissions are earned through price differences in matched principal trades[103](index=103&type=chunk)[104](index=104&type=chunk) - Information services revenue comes from data licensing, professional services, and software licenses, recognized over time for subscriptions or at a point in time for one-off services. Post-trade services revenue is from regulatory reporting, trade publication, and matching, recognized as transactions are processed[109](index=109&type=chunk)[110](index=110&type=chunk) - Key expenses include employee compensation and benefits, depreciation and amortization, technology and communications, professional and consulting fees, occupancy, marketing and advertising, clearing costs, and general and administrative expenses[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Summary of Financial Results (Three Months Ended March 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | $ Change (in thousands) | % Change | | :------------------------ | :------------------ | :------------------ | :---------------------- | :------- | | Revenues | $195,464 | $168,978 | $26,486 | 15.7% | | Expenses | $91,990 | $77,889 | $14,101 | 18.1% | | Operating income | $103,474 | $91,089 | $12,385 | 13.6% | | Other income (expense) | $(1,673) | $613 | $(2,286) | N/M | | Income before income taxes | $101,801 | $91,702 | $10,099 | 11.0% | | Provision for income taxes | $21,344 | $16,886 | $4,458 | 26.4% | | Net income | $80,457 | $74,816 | $5,641 | 7.5% | | Diluted EPS | $2.11 | $1.96 | $0.15 | 7.7% | - Total revenues **increased by 15.7% to $195.5 million**, driven by a **12.7% increase in commissions** and a **147.1% increase in post-trade services**, partially offset by a **25.8% decrease in rates variable transaction fees**[128](index=128&type=chunk)[29](index=29&type=chunk) Trading Volume Data (Three Months Ended March 31) | Trading Volume Data | 2021 (in millions) | 2020 (in millions) | $ Change (in millions) | % Change | | :-------------------------- | :----------------- | :----------------- | :--------------------- | :------- | | Total U.S. high grade | $363,441 | $329,994 | $33,447 | 10.1% | | Other credit | $391,020 | $329,753 | $61,267 | 18.6% | | Total credit | $754,461 | $659,747 | $94,714 | 14.4% | | Rates | $1,120,868 | $1,444,878 | $(324,010) | -22.4% | - Total expenses **increased by 18.1% to $92.0 million**, primarily due to higher **employee compensation and benefits ($6.9 million)**, **depreciation and amortization ($3.7 million)**, **technology and communications ($1.9 million)**, and **professional and consulting fees ($4.0 million)**[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) - Other income (expense) shifted from a **$0.6 million income in Q1 2020 to a $(1.7) million expense in Q1 2021**, mainly due to a **$1.2 million decrease in investment income** and a **$0.9 million increase in other, net expenses** (including credit facility administration costs)[141](index=141&type=chunk)[142](index=142&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) - Cash and cash equivalents and investments totaled **$415.2 million** at March 31, 2021. The Company has a **$500.0 million revolving credit facility** with **$499.0 million available capacity** and a **$200.0 million uncommitted collateralized agreement**[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) - Net cash used in operating activities was **$(23.2) million in Q1 2021**, a significant decrease from **$120.4 million provided in Q1 2020**, primarily due to increased net receivables from broker-dealers and lower proceeds from trading investments[150](index=150&type=chunk) - The Company's subsidiaries maintained **aggregate net capital and financial resources $493.5 million in excess of required levels ($31.1 million)** as of March 31, 2021[155](index=155&type=chunk) - A **new $100.0 million share repurchase program** commenced April 1, 2021, and a **quarterly cash dividend of $0.66 per share** was approved for May 2021[159](index=159&type=chunk)[160](index=160&type=chunk) [Non-GAAP Financial Measures](index=35&type=section&id=Non-GAAP%20Financial%20Measures) Reconciliation of Net Income to EBITDA (Three Months Ended March 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Net income | $80,457 | $74,816 | | Add back: Interest expense | $191 | — | | Add back: Provision for income taxes | $21,344 | $16,886 | | Add back: Depreciation and amortization | $11,779 | $8,067 | | Earnings before interest, taxes, depreciation and amortization (EBITDA) | $113,771 | $99,769 | Reconciliation of Cash Flow from Operating Activities to Free Cash Flow (Three Months Ended March 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Net cash (used in) provided by operating activities | $(23,159) | $120,369 | | Exclude: Net change in trading investments | $(5,495) | $(56,394) | | Exclude: Net change in fail-to-deliver/receive from broker-dealers, clearing organizations and customers | $93,370 | — | | Less: Purchases of furniture, equipment and leasehold improvements | $(4,257) | $(4,291) | | Less: Capitalization of software development costs | $(8,075) | $(6,778) | | Free Cash Flow | $52,384 | $52,906 | [Effects of Inflation](index=35&type=section&id=Ef%20fects%20of%20Inflation) - The majority of the Company's assets are short-term and not significantly affected by inflation. However, inflation may increase expenses like employee compensation, office leasing, and communications, which may not be recoverable in service prices[164](index=164&type=chunk) [Contractual Obligations and Commitments](index=36&type=section&id=Contractual%20Obligations%20and%20Commitments) Contractual Obligations and Commitments (As of March 31, 2021, in thousands) | Obligation | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | | :------------------------ | :---- | :--------------- | :---------- | :---------- | :---------------- | | Operating leases | $131,664 | $9,177 | $21,143 | $22,249 | $79,095 | | Foreign currency forward contract | $197,434 | $197,434 | — | — | — | | Total | $329,098 | $206,611 | $21,143 | $22,249 | $79,095 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the Company's exposure to various market risks, including general market volatility, interest rate fluctuations, foreign currency exchange rate changes, derivative instruments, and credit risk from its trading activities [Market Risk](index=37&type=section&id=Market%20Risk) - The global financial services business is inherently risky and volatile, affected by national and international factors that can lead to reduced trading volume and revenues. As of March 31, 2021, the Company held **$13.8 million in corporate bonds** classified as trading securities, exposing it to potential substantial losses from adverse market movements[167](index=167&type=chunk)[168](index=168&type=chunk) [Interest Rate Risk](index=37&type=section&id=Interest%20Rate%20Risk) - With **$415.2 million in cash, cash equivalents, and investments**, a hypothetical **100 basis point decrease in interest rates** would reduce investment income by approximately **$4.1 million**. A similar change would impact the fair value of the trading securities portfolio by approximately **$0.1 million**[169](index=169&type=chunk)[170](index=170&type=chunk) [Foreign Currency Exchange Rate Risk](index=37&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) - Approximately **12.9% of revenue** and **27.3% of expenses** were non-U.S. dollar denominated in the past year, primarily British Pound Sterling. A hypothetical **10% increase or decrease in the U.S. dollar** against other currencies would impact revenue by approximately **$9.2 million** and operating expenses by approximately **$9.0 million**[173](index=173&type=chunk) [Derivative Risk](index=37&type=section&id=Derivative%20Risk) - The Company's derivative risk is limited to foreign currency forward contracts used to hedge exposure to U.S. dollar versus British Pound Sterling fluctuations, with a **notional value of $197.4 million** as of March 31, 2021[174](index=174&type=chunk) [Credit Risk](index=38&type=section&id=Credit%20Risk) - The Company is exposed to credit and performance risks as a matched principal trading counterparty, particularly with increasing Open Trading transactions. Policies and procedures are in place to manage this risk, but there's no assurance they will fully mitigate exposure[177](index=177&type=chunk)[178](index=178&type=chunk) - Cash and cash equivalents are concentrated at three major global banks, exposing the Company to credit risk related to these deposits[179](index=179&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the Company's disclosure controls and procedures and any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=38&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management, including the CEO and CFO, concluded that the Company's **disclosure controls and procedures were effective** as of March 31, 2021[180](index=180&type=chunk) [Changes in Internal Control over Financial Reporting](index=38&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There were **no changes in internal control over financial reporting** during the quarter ended March 31, 2021, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[181](index=181&type=chunk) [PART II — Other Information](index=39&type=section&id=PART%20II%20%E2%80%94%20Other%20Information) [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) This section addresses the Company's involvement in legal proceedings and regulatory examinations, assessing potential liabilities and contingencies - The Company is involved in various lawsuits, proceedings, and regulatory examinations in the normal course of business, but the **outcome is not expected to have a material adverse impact** on its financial position[184](index=184&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the Company's risk factors, noting any material changes from previous filings - There have been **no material changes in the Company's risk factors** from those disclosed in its most recent Form 10-K for the year ended December 31, 2020[185](index=185&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section provides information on any unregistered sales of equity securities and details of issuer purchases of equity securities, including share repurchase programs - There were **no unregistered sales of equity securities** during the period[186](index=186&type=chunk) Issuer Purchases of Equity Securities (Quarter Ended March 31, 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands) | | :----------------------------------- | :----------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------- | | January 1, 2021 - January 31, 2021 | 41,781 | $538.50 | — | $71,794 | | February 1, 2021 - February 28, 2021 | 10,686 | $552.60 | — | $71,794 | | March 1, 2021 - March 31, 2021 | 1,056 | $496.17 | 1,050 | $71,273 | | Total | 53,523 | $540.48 | 1,050 | | - A **new $100.0 million share repurchase program** was authorized in January 2021, commencing April 1, 2021[188](index=188&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms whether there have been any defaults upon senior securities - There were **no defaults upon senior securities**[189](index=189&type=chunk) [Item 4. Mine Safety Disclosures](index=40&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states the applicability of mine safety disclosures - Mine safety disclosures are **not applicable** to the Company[190](index=190&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) This section reports any other information not covered in previous items - No other information is reported in this section[191](index=191&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q report - The exhibits include certifications by the CEO and CFO (pursuant to Exchange Act Rule 13a-14(a) and 18 U.S.C. Section 1350) and Inline XBRL documents[192](index=192&type=chunk)

MarketAxess Holdings Inc. (NASDAQ:MKTX) Q1 2021 Earnings Conference Call April 22, 2021 10:00 AM ET Company Participants Dave Cresci - Investor Relations Manager Rick McVey - Chairman & Chief Executive Officer Chris Concannon - President & Chief Operating Officer Tony DeLise - Chief Financial Officer Conference Call Participants Rich Repetto - Piper Sandler Patrick O'Shaughnessy - Raymond James Dan Fannon - Jefferies Ari Ghosh - Credit Suisse Alex Blostein - Goldman Sachs Michael Cyprys - Morgan Stanley Br ...

[PART I](index=3&type=section&id=PART%20I) This section outlines MarketAxess' business, competitive strengths, strategies, and key markets, along with risk factors and corporate details [Business](index=3&type=section&id=Item%201.%20Business) MarketAxess operates electronic trading platforms for global fixed-income markets, offering diverse services and pursuing strategic growth [Overview](index=3&type=section&id=Overview) - MarketAxess operates electronic trading platforms for global fixed-income markets, providing liquidity, improved execution, and cost savings to over **1,800 institutional investor and broker-dealer firms**[13](index=13&type=chunk) - The company's Open Trading protocols, an all-to-all anonymous trading environment, accounted for **32.7% of all credit volume** on the platform in **2020**, up from **26.3% in 2019**[16](index=16&type=chunk) - MarketAxess offers various trading-related products and services, including Composite+™ pricing, auto-execution, connectivity solutions, and pre- and post-trade services like trade matching and regulatory reporting[13](index=13&type=chunk)[15](index=15&type=chunk)[19](index=19&type=chunk) [Industry Background](index=4&type=section&id=Industry%20Background) - The U.S. fixed-income market had approximately **$50.1 trillion outstanding** as of September 30, 2020, with U.S. corporate bonds at **$10.4 trillion** and U.S. government bonds at **$20.4 trillion**[21](index=21&type=chunk) - Traditional bond trading is manual and fragmented, lacking a central facility, leading to limited liquidity, price transparency, and high transaction costs. Electronic platforms like MarketAxess address these shortcomings[22](index=22&type=chunk) - Regulatory changes post-2008 (e.g., Dodd-Frank, Basel III, MiFID II) have driven demand for electronic trading to increase transparency and reduce systemic risk, benefiting platforms with all-to-all trading and reporting tools[25](index=25&type=chunk) [Our Competitive Strengths](index=5&type=section&id=Our%20Competitive%20Strengths) - MarketAxess boasts significant trading volumes with over **1,800 active institutional investor and broker-dealer clients**, including leading global fixed-income broker-dealers[26](index=26&type=chunk) Total Credit Trading Volume (2016-2020) | Year | Volume (trillions) | | :--- | :--- | | 2016 | $1.4 | | 2020 | $2.6 | - Open Trading is a key differentiator, expanding liquidity by allowing all participants to interact, leading to estimated transaction cost savings of **$673.7 million** for liquidity takers and **$398.8 million** for liquidity providers in **2020**[29](index=29&type=chunk)[30](index=30&type=chunk) - The company's robust, scalable proprietary technology supports the full trading cycle, including pre-trade data, execution, and post-trade reporting, designed for growth and efficiency[33](index=33&type=chunk)[34](index=34&type=chunk) [Our Strategy](index=8&type=section&id=Our%20Strategy) - MarketAxess aims to broaden its client base, with active participants increasing by approximately **80% since 2016**, and deepen market share with existing clients by expanding product offerings[39](index=39&type=chunk) - The company plans to enhance liquidity by leveraging its client network and Open Trading protocols, which facilitated **1.9 million trades in 2020**, representing **32.7% of total credit trading volume**[40](index=40&type=chunk) - Strategic initiatives include developing next-generation technologies like machine-learning-driven auto-execution and Composite+ pricing, expanding trade-related services (e.g., BondTicker®, Axess All®, LiquidityBridge®, Axess IQTM), and pursuing select acquisitions and alliances (e.g., LiquidityEdge, Deutsche Börse's regulatory reporting business, MuniBrokers)[41](index=41&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) [Our Key Trading Markets and Services](index=9&type=section&id=Our%20Key%20Trading%20Markets%20and%20Services) 2020 Trading Volume by Market | Market | 2020 Trading Volume | | :--- | :--- | | U.S. High-Grade Corporate Bond | $1.4 trillion | | U.S. Crossover and High-Yield Bond | $384.8 billion | | Emerging Markets Bond | $561.8 billion | | European Corporate Bond (Eurobond) | $299.9 billion | | U.S. Treasury | $3.9 trillion | | U.S. Municipal Bond | $14.0 billion | | U.S. Agency Bond | $49.4 billion | | Credit Derivative | $45.1 billion | - MarketAxess' U.S. high-grade corporate bond market share reached **21.6% in 2020**, with over **100 broker-dealers** and **1,200 institutional investor firms** using its platforms[18](index=18&type=chunk)[47](index=47&type=chunk) - The company expanded into the U.S. Treasury market in **2019** via the LiquidityEdge acquisition, offering custom liquidity pools and direct dealer streaming capabilities[58](index=58&type=chunk) [Execution Benefits for Clients](index=12&type=section&id=Execution%20Benefits%20for%20Clients) - MarketAxess offers Open Trading protocols for all key products, including Market List, Public Axes™, and Private Axes®, to enhance price discovery and minimize information leakage[67](index=67&type=chunk)[73](index=73&type=chunk) - The platforms provide transparent pricing through BondTicker® (real-time TRACE data, Composite+ pricing), liquidity analytics, and the ability to request executable bids/offers from multiple dealers[68](index=68&type=chunk) - Highly automated trading processes, including auto-execution and straight-through processing (STP), improve efficiency, reduce errors, and provide automated audit trails for compliance and best execution demonstration[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) [Post-Trade Reporting, Publishing and Matching Services](index=13&type=section&id=Post-Trade%20Reporting,%20Publishing%20and%20Matching%20Services) - MarketAxess provides regulatory reporting services in Europe as an Approved Publication Arrangement (APA) and Approved Reporting Mechanism (ARM) under MiFID II, serving approximately **900 post-trade clients**[76](index=76&type=chunk)[77](index=77&type=chunk)[79](index=79&type=chunk) - The company offers near real-time post-trade matching and exception management tools across various securities to mitigate operational risk and improve STP[78](index=78&type=chunk) - The acquisition of Deutsche Börse's regulatory reporting business is expected to expand services across a broader European client base, particularly in Germany, France, and the Nordics[79](index=79&type=chunk) [Information and Execution Management Services](index=13&type=section&id=Information%20and%20Execution%20Management%20Services) - MarketAxess offers real-time pre-trade data and analytics, including Composite+ pricing (for ~**30,000 bonds**), BondTicker® (TRACE data with MarketAxess insights), and Axess All® (intra-day trade tape for European fixed-income)[80](index=80&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) - Execution management services include LiquidityBridge® for dealers to manage liquidity across platforms and Axess IQTM for wealth management and private banking to improve liquidity discovery and execution efficiency[87](index=87&type=chunk) [Straight-Through Processing and APIs](index=14&type=section&id=Straight-Through%20Processing%20and%20APIs) - MarketAxess provides tools for straight-through processing (STP), including order upload, allocation tools, and pre/post-trade messaging, to automate the trade process and reduce manual intervention[88](index=88&type=chunk) - As of December 31, 2020, the company maintained over **1,700 STP connections**, and many clients utilize its Application Programming Interface (API) services for pre-trade, negotiation, and post-trade efficiency[88](index=88&type=chunk) [Sales and Marketing](index=14&type=section&id=Sales%20and%20Marketing) - MarketAxess employs direct and indirect sales and marketing strategies, with its sales force focusing on client acquisition, relationship management, and training[89](index=89&type=chunk) - Marketing efforts include advertising, direct marketing, digital/social media, industry conferences, and media engagement to enhance brand awareness and promote platforms and solutions[89](index=89&type=chunk) [Competition](index=15&type=section&id=Competition) - The company faces intense competition from traditional voice trading, other electronic trading platforms (e.g., Tradeweb, Bloomberg), exchanges (e.g., LSEG, ICE), market data vendors, and other regulatory mechanisms[90](index=90&type=chunk)[92](index=92&type=chunk) - Competition is based on factors such as network size, liquidity, price improvement, execution speed, compliance benefits, transaction costs, technology capabilities, and product range[92](index=92&type=chunk) - MarketAxess' competitive position is strengthened by client familiarity and integration with its platforms, including broker-dealer API investments and institutional investor system interfaces[93](index=93&type=chunk)[94](index=94&type=chunk) [Technology](index=16&type=section&id=Technology) - MarketAxess' electronic trading platforms are built on secure, scalable client-server architecture using distributed computing for speed, reliability, and fault tolerance, designed to handle significant volume growth[95](index=95&type=chunk) - The company prioritizes security, with measures including logical/physical access controls, firewall protection, embedded security processes, and a cybersecurity program based on the NIST Framework[98](index=98&type=chunk) [Intellectual Property](index=16&type=section&id=Intellectual%20Property) - MarketAxess protects its proprietary technology and intellectual property through copyright, **13 patents**, trade secret laws, written agreements (e.g., non-disclosure), and trademarks (e.g., MarketAxess®, Open Trading™, BondTicker®)[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk) - Factors like technological skills, new product development, frequent enhancements, and service reliability are crucial for maintaining market leadership[102](index=102&type=chunk) [Government Regulation](index=17&type=section&id=Government%20Regulation) - The securities industry is extensively regulated in the U.S. (SEC, FINRA, CFTC, MSRB) and internationally (FCA, DNB, AFM, SFC, MAS, ASIC, IIROC, CVM), covering all aspects of business operations[103](index=103&type=chunk)[104](index=104&type=chunk)[107](index=107&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[113](index=113&type=chunk) - Regulatory changes post-Brexit (e.g., MiFID II in Europe and the Dodd-Frank Act in the U.S.) impose increased compliance obligations and costs, but can also drive demand for electronic trading platforms[105](index=105&type=chunk)[106](index=106&type=chunk)[111](index=111&type=chunk)[116](index=116&type=chunk) - Brexit has led to the establishment of Dutch subsidiaries (MarketAxess NL B.V., Trax NL B.V.) to maintain regulated services in the EU via passporting rights, increasing operational complexity and costs[116](index=116&type=chunk)[117](index=117&type=chunk) [Human Capital Resources](index=20&type=section&id=Human%20Capital%20Resources) - As of December 31, 2020, MarketAxess had **606 employees** (**378 U.S., 228 non-U.S.**), an increase of **15.0% from 2019**, with no labor union representation and good employee relations[131](index=131&type=chunk) - The company successfully transitioned to a remote work environment during the COVID-19 pandemic, ensuring business continuity and client connectivity[132](index=132&type=chunk) - MarketAxess is committed to diversity, equity, and inclusion, with a U.S. workforce of approximately **72% men and 28% women**, and diverse racial/ethnic representation. Talent management focuses on attracting, developing, and retaining top talent through global talent reviews and training programs[133](index=133&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) [Company Information](index=21&type=section&id=Company%20Information) - MarketAxess Holdings Inc. was incorporated in Delaware in April 2000. Its website (www.marketaxess.com) provides SEC reports and corporate governance information[137](index=137&type=chunk) - MarketAxess operates electronic trading platforms for global fixed-income markets, serving over **1,800 institutional investor and broker-dealer firms**[13](index=13&type=chunk) - In **2020**, **92.1%** of MarketAxess' revenues were derived from commissions for transactions executed on its platforms[20](index=20&type=chunk) - The company's strategy focuses on broadening its client base, enhancing liquidity via Open Trading, developing innovative technologies, expanding data/analytical offerings, and pursuing strategic acquisitions[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from global economic volatility, intense competition, operational challenges, and evolving regulations [Risks Related to Global Economic and Market Conditions](index=22&type=section&id=Risks%20Related%20to%20Global%20Economic%20and%20Market%20Conditions) - Global economic, political, and market factors, such as interest rate volatility, economic conditions, and geopolitical events, can cause substantial declines in financial markets and reduce trading volume, negatively impacting MarketAxess' profitability[140](index=140&type=chunk)[141](index=141&type=chunk) - The COVID-19 pandemic has created significant market volatility and economic disruption, impacting client trading needs, increasing cybersecurity risks due to remote work, and posing long-term recessionary threats[143](index=143&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) - Brexit has introduced legal uncertainty, regulatory divergence, increased operational costs, and potential constraints on hiring skilled employees in the U.K. and E.U., materially impacting the business[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) [Risks Related to Operating in the Electronic Fixed-Income Trading Markets](index=23&type=section&id=Risks%20Related%20to%20Operating%20in%20the%20Electronic%20Fixed-Income%20Trading%20Markets) - Decreases in overall fixed-income trading volumes or MarketAxess' market share, especially during periods of high volatility when clients may revert to voice trading, would harm commission revenue and profitability[151](index=151&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - Failure to adapt to rapidly changing technologies, client demands, and industry standards, or if competitors introduce new functionality first, could render existing platforms obsolete and harm MarketAxess' competitive position[155](index=155&type=chunk)[156](index=156&type=chunk) - MarketAxess faces substantial competition from larger, more established entities across various segments, including other electronic platforms, exchanges, and market data vendors, which could reduce market share and financial performance[157](index=157&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk) [Risks Related to our Future Levels of Business, Profitability and Growth](index=25&type=section&id=Risks%20Related%20to%20our%20Future%20Levels%20of%20Business,%20Profitability%20and%20Growth) - Future growth and profitability are not assured, depending on expanding the network of market participants, increasing platform usage across products, and successfully diversifying revenue beyond U.S. high-grade corporate bonds (**48.7% of revenues**)[163](index=163&type=chunk)[164](index=164&type=chunk) - New fee plans may not increase transaction volumes or revenues, and changes in fee structures (e.g., basis points in yield, trade size, maturity) could cause average fees per million to fluctuate[165](index=165&type=chunk)[166](index=166&type=chunk) - Entering new markets (asset classes, products, geographies) involves risks such as established competitors, lack of brand recognition, substantial expenditures, and difficulties in adapting technology and managing expansion effectively[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk) [Risks Related to our Customer Concentration](index=27&type=section&id=Risks%20Related%20to%20our%20Customer%20Concentration) - MarketAxess is highly dependent on broker-dealer clients for liquidity, whose contractual obligations are non-exclusive and terminable. These clients may use competing platforms or reduce trading activity due to regulations like the Volcker Rule or industry consolidation[175](index=175&type=chunk)[176](index=176&type=chunk) - The loss of significant institutional investor clients or a reduction in their platform usage could materially harm the business, as a limited number of these clients account for a substantial portion of trading volume[178](index=178&type=chunk)[179](index=179&type=chunk) [Credit and Operational Risks](index=27&type=section&id=Credit%20and%20Operational%20Risks) - Acting as a matched principal intermediary in anonymous trading protocols exposes MarketAxess to credit and performance risks, including counterparty defaults due to bankruptcy, liquidity issues, or operational failures[180](index=180&type=chunk)[181](index=181&type=chunk) - Errors in matched principal transactions, such as miscommunications or system malfunctions, can lead to substantial liability, client dissatisfaction, and financial losses, which may not be covered by insurance[183](index=183&type=chunk)[184](index=184&type=chunk) - Self-clearing operations, initiated in Q3 2020 for U.S. bonds, expose the company to significant operational, liquidity, financing, and regulatory risks, including potential inefficiencies, technology issues, and increased expenses[185](index=185&type=chunk) [Technology, IT Systems and Cybersecurity Risks](index=28&type=section&id=Technology,%20IT%20Systems%20and%20Cybersecurity%20Risks) - Rapid market or technological changes could render MarketAxess' technology obsolete, decrease product attractiveness, and necessitate substantial resource investment to adapt to new technologies like internet, networking, cloud, or blockchain[186](index=186&type=chunk)[187](index=187&type=chunk) - Dependence on third-party suppliers for key products and services (e.g., data, clearing, technology) creates risks of service disruptions, increased costs, or inability to meet needs if providers fail or withdraw services[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) - Systems failures, interruptions, delays, or catastrophic events (e.g., cyber-attacks, natural disasters) could disrupt operations, harm reputation, lead to financial losses, and result in regulatory penalties, despite disaster recovery plans[196](index=196&type=chunk)[197](index=197&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - Design defects, errors, or failures in platforms, products, or services, including auto-execution technology and pricing algorithms, could result in market rejection, reputational damage, client loss, and increased costs[198](index=198&type=chunk)[199](index=199&type=chunk) [Intellectual Property Risks](index=32&type=section&id=Intellectual%20Property%20Risks) - Failure to effectively protect intellectual property rights (patents, copyrights, trademarks, trade secrets) could allow competitors to duplicate platforms or services, adversely affecting MarketAxess' competitive ability[205](index=205&type=chunk)[206](index=206&type=chunk) - Defending against intellectual property infringement claims can be expensive and disruptive, potentially requiring redesigns, royalty payments, or litigation, especially as the market grows and platform functionality overlaps[207](index=207&type=chunk)[208](index=208&type=chunk) [Risks Related to Possible Transactions or Investments](index=32&type=section&id=Risks%20Related%20to%20Possible%20Transactions%20or%20Investments) - Acquisitions (e.g., LiquidityEdge, Deutsche Börse's regulatory reporting business) and investments carry risks such as failure to integrate, overpayment, client confusion, diversion of management attention, and exposure to litigation[209](index=209&type=chunk)[210](index=210&type=chunk) - Consideration for acquisitions, including cash or stock, can impact financial results through substantial cash usage, stockholder dilution, debt incurrence, or large write-offs[211](index=211&type=chunk) - Strategic alliances, partnerships, or joint ventures also entail risks, including difficulties in business development, conflicts with partners, lack of control, and partners' financial instability[212](index=212&type=chunk) [Risks Related to Key Personnel and Employees](index=33&type=section&id=Risks%20Related%20to%20Key%20Personnel%20and%20Employees) - The company's success is highly dependent on its management team, particularly CEO Richard M. McVey. The loss of key personnel could hinder business plan implementation and effective operations[213](index=213&type=chunk) - Intense competition for highly skilled employees, especially software engineers, product managers, and senior sales executives, poses a risk to attracting and retaining the talent needed to support business growth[215](index=215&type=chunk)[216](index=216&type=chunk) [Regulatory and Legal Risks](index=34&type=section&id=Regulatory%20and%20Legal%20Risks) - MarketAxess operates in a highly regulated industry, subject to extensive governmental and self-regulatory oversight in the U.S. and internationally. Non-compliance can lead to censure, fines, business suspension, or revocation of licenses[217](index=217&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk) - Regulatory changes, new laws, or unfavorable interpretations (e.g., post-Brexit divergence) can increase compliance costs, restrict business activities, or require significant operational adjustments[224](index=224&type=chunk)[225](index=225&type=chunk) - The company faces ongoing exposure to significant costs and penalties from regulatory investigations and enforcement actions, which have increased in the financial services industry[226](index=226&type=chunk)[227](index=227&type=chunk) - The business is subject to litigation risks, including claims from dissatisfied clients regarding trade execution, system failures, or data protection, which could result in significant legal expenses and adverse financial impact[228](index=228&type=chunk) [Liquidity and Funding Risks](index=36&type=section&id=Liquidity%20and%20Funding%20Risks) - Future capital needs are uncertain, and the ability to obtain additional financing (equity or debt) on acceptable terms is not guaranteed. This could limit expansion, acquisition opportunities, and ability to meet self-clearing liquidity requirements[229](index=229&type=chunk)[231](index=231&type=chunk) - The company's credit agreement contains restrictive covenants (e.g., debt, liens, dividends, acquisitions) and financial covenants (leverage ratio, net capital, EBITDA) that could limit operating flexibility. A breach could lead to accelerated debt repayment[232](index=232&type=chunk)[233](index=233&type=chunk) - Global economic, political, and market factors, including the COVID-19 pandemic and Brexit, can significantly reduce demand for services and impact profitability due to reduced trading volumes and increased operational complexity[140](index=140&type=chunk)[143](index=143&type=chunk)[148](index=148&type=chunk) - The company operates in a highly competitive and rapidly evolving industry, facing competition from traditional trading methods, other electronic platforms, exchanges, and data vendors. Failure to adapt technology or attract clients in new markets could harm financial performance[155](index=155&type=chunk)[157](index=157&type=chunk)[167](index=167&type=chunk) - Key operational risks include dependence on broker-dealer and institutional investor clients for liquidity, credit and performance risks from matched principal transactions (especially with self-clearing), and technology failures, cyber-attacks, or data breaches[175](index=175&type=chunk)[178](index=178&type=chunk)[180](index=180&type=chunk)[185](index=185&type=chunk)[196](index=196&type=chunk)[200](index=200&type=chunk) - Regulatory and legal risks are substantial due to extensive government regulation, potential changes in laws (e.g., new U.S. administration, post-Brexit divergence), and exposure to litigation and penalties. Acquisitions and strategic alliances also carry integration and operational risks[209](index=209&type=chunk)[212](index=212&type=chunk)[217](index=217&type=chunk)[224](index=224&type=chunk)[226](index=226&type=chunk)[228](index=228&type=chunk) [Unresolved Staff Comments](index=37&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments [Properties](index=37&type=section&id=Item%202.%20Properties) MarketAxess leases its New York headquarters and global offices, totaling approximately 122,000 square feet - Corporate headquarters and principal U.S. office are located at 55 Hudson Yards, New York, New York, with a lease for approximately **83,000 square feet** expiring in August **2034**[237](index=237&type=chunk) - Additional office locations are leased in the U.S., United Kingdom, Brazil, the Netherlands, Hong Kong, and Singapore, totaling approximately **39,000 square feet**, with various lease expiration dates between January **2021** and January **2027**[237](index=237&type=chunk) [Legal Proceedings](index=37&type=section&id=Item%203.%20Legal%20Proceedings) The company is routinely involved in legal and regulatory proceedings, with no material adverse financial impact expected - MarketAxess and its subsidiaries are involved in routine lawsuits, proceedings, and regulatory examinations[238](index=238&type=chunk) - The outcome of current outstanding matters is not expected to have a material adverse impact on the company's financial position, though ultimate exposure is not precisely determinable[238](index=238&type=chunk) [Mine Safety Disclosures](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to MarketAxess Holdings Inc [PART II](index=38&type=section&id=PART%20II) This section covers MarketAxess' common stock, financial data, management's analysis, market risk, and financial statements [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=38&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) MarketAxess common stock trades on NASDAQ, with 38.0 million shares outstanding and a new $100 million share repurchase program - MarketAxess common stock trades on the NASDAQ Global Select Market under the symbol '**MKTX**'[242](index=242&type=chunk) - As of February 16, 2021, there were **15 holders of record** of common stock and **37,995,877 shares outstanding**[5](index=5&type=chunk)[244](index=244&type=chunk) Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 1, 2020 - October 31, 2020 | 2,289 | $485.60 | | November 1, 2020 - November 30, 2020 | 204 | $538.85 | | December 1, 2020 - December 31, 2020 | 14,182 | $555.52 | | **Total** | **16,675** | **$545.71** | - The Board of Directors authorized a new **$100.0 million share repurchase program** in January 2021, expected to commence in April 2021[248](index=248&type=chunk) [Selected Financial Data](index=40&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents selected consolidated financial data, including statements of operations and balance sheet data, highlighting growth Selected Statements of Operations Data (2016-2020) | Metric | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | 2016 (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Commissions | $634,445 | $463,856 | $390,834 | $355,282 | $332,307 | | Total revenues | $689,125 | $511,352 | $435,565 | $393,422 | $367,730 | | Total expenses | $314,397 | $260,470 | $222,981 | $193,807 | $177,745 | | Operating income | $374,728 | $250,882 | $212,584 | $199,615 | $189,985 | | Net income | $299,377 | $204,902 | $172,852 | $148,089 | $126,172 | | Diluted EPS | $7.85 | $5.40 | $4.57 | $3.89 | $3.34 | | Cash dividends declared per common share | $2.40 | $2.04 | $1.68 | $1.32 | $1.04 | Selected Balance Sheet Data (as of December 31, 2016-2020) | Metric | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | 2016 (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Cash, cash equivalents and investments | $488,969 | $500,601 | $486,427 | $406,535 | $362,647 | | Deposits with clearing organizations and broker-dealers | $97,043 | $4,130 | $1,137 | $1,176 | $1,117 | | Securities failed-to-deliver | $180,979 | — | — | — | — | | Total assets | $1,331,429 | $954,930 | $695,539 | $581,232 | $528,042 | | Securities failed-to-receive | $131,701 | — | — | — | — | | Total equity | $955,061 | $770,091 | $607,878 | $514,768 | $468,013 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MarketAxess achieved significant revenue and net income growth in 2020, driven by trading volumes and acquisitions, while maintaining strong liquidity [Executive Overview](index=42&type=section&id=Executive%20Overview) - MarketAxess operates leading electronic trading platforms for global fixed-income securities, offering expanded liquidity, improved execution, and cost savings to over **1,800 institutional investor and broker-dealer firms**[259](index=259&type=chunk) - The company's core offerings include patented trading technology, Open Trading™ protocols for all-to-all anonymous trading, Composite+™ pricing, auto-execution, and a range of pre- and post-trade services[259](index=259&type=chunk)[260](index=260&type=chunk) - Strategic objectives include client base expansion, enhancing liquidity through innovative technology like Open Trading, developing next-generation trading technologies, strengthening data and analytical offerings, and pursuing strategic acquisitions[262](index=262&type=chunk)[263](index=263&type=chunk) [Critical Factors Affecting Our Industry and Our Company](index=43&type=section&id=Critical%20Factors%20Affecting%20Our%20Industry%20and%20Our%20Company) - The global fixed-income industry is volatile, influenced by economic, political, and market factors. The COVID-19 pandemic caused significant turmoil in H1 2020, leading to increased credit spread volatility and record new bond issuance[264](index=264&type=chunk)[265](index=265&type=chunk) - MarketAxess successfully transitioned to a global work-from-home model during the pandemic, ensuring business continuity and client connectivity, with Open Trading liquidity proving essential[266](index=266&type=chunk) - The company faces intense competition from traditional trading methods and other electronic platforms, competing on liquidity, price improvement, transaction costs, and execution quality[272](index=272&type=chunk)[273](index=273&type=chunk) - The regulatory environment is extensive and evolving (e.g., new U.S. administration, Brexit), requiring significant compliance resources but also potentially increasing demand for electronic platforms that meet regulatory requirements[275](index=275&type=chunk)[276](index=276&type=chunk)[277](index=277&type=chunk) - MarketAxess converted to self-clearing for U.S. bond trades in August 2020, requiring segregation of funds in a special reserve bank account[278](index=278&type=chunk) [Trends in Our Business](index=45&type=section&id=Trends%20in%20Our%20Business) - Revenue is primarily from commissions, influenced by participant numbers, price response competitiveness, available markets, overall market activity, and commission levels[281](index=281&type=chunk) - Commissions are recognized on a trade date basis, calculated as a percentage of notional dollar volume, varying by bond type, size, yield, maturity, and client incentives. Open Trading commissions are earned through price differences in matched principal trades[282](index=282&type=chunk)[283](index=283&type=chunk) - Information services revenue increased by **$3.6 million in 2020** due to new data contracts, while post-trade services revenue grew by **$3.7 million** from additional regulatory transaction reporting and new SFTR services[313](index=313&type=chunk) [Expenses](index=46&type=section&id=Expenses) Expenses (2020 vs. 2019) | Expense Category | 2020 (in thousands) | 2019 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Employee compensation and benefits | $156,885 | $131,079 | $25,806 | 19.7% | | Depreciation and amortization | $35,996 | $26,857 | $9,139 | 34.0% | | Technology and communications | $34,092 | $26,792 | $7,300 | 27.2% | | Professional and consulting fees | $32,304 | $25,534 | $6,770 | 26.5% | | Occupancy | $13,425 | $11,639 | $1,786 | 15.3% | | Marketing and advertising | $7,940 | $11,559 | $(3,619) | (31.3)% | | Clearing costs | $21,058 | $11,314 | $9,744 | 86.1% | | General and administrative | $12,697 | $15,696 | $(2,999) | (19.1)% | | **Total expenses** | **$314,397** | **$260,470** | **$53,927** | **20.7%** | - Employee compensation and benefits increased by **$25.8 million** due to higher headcount (**606 in 2020 vs. 527 in 2019**) and incentive compensation[316](index=316&type=chunk) - Clearing costs surged by **$9.7 million**, driven by increased Open Trading matched principal credit transactions and U.S. Treasuries matched principal transactions, partially offset by self-clearing cost savings[321](index=321&type=chunk) - Marketing and advertising, and general and administrative expenses decreased due to reduced travel and entertainment activities as a result of the Pandemic[320](index=320&type=chunk)[322](index=322&type=chunk) [Other Income (Expense)](index=47&type=section&id=Other%20Income%20(Expense)) Other Income (Expense) (2020 vs. 2019) | Metric | 2020 (in thousands) | 2019 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Investment income | $2,446 | $8,063 | $(5,617) | (69.7)% | | Interest expense | $(1,142) | — | $(1,142) | — | | Other, net | $(1,673) | $(1,521) | $(152) | 10.0% | | **Total other income (expense)** | **$(369)** | **$6,542** | **$(6,911)** | **(105.6)%** | - Investment income decreased by **$5.6 million** due to lower investment balances (from LiquidityEdge acquisition and self-clearing requirements) and a decrease in interest rates[323](index=323&type=chunk) - Interest expense increased by **$1.1 million** due to short-term borrowing activity in **2020** to support self-clearing[324](index=324&type=chunk) [Provision for Income Taxes](index=52&type=section&id=Provision%20for%20Income%20Taxes) Provision for Income Taxes (2020 vs. 2019) | Metric | 2020 (in thousands) | 2019 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Provision for income taxes | $74,982 | $52,522 | $22,460 | 42.8% | | Effective tax rate | 20.0% | 20.4% | | | - The provision for income taxes included **$24.1 million** and **$10.6 million** of excess tax benefits from share-based compensation awards in **2020** and **2019**, respectively[325](index=325&type=chunk) [Quarterly Results of Operations](index=53&type=section&id=Quarterly%20Results%20of%20Operations) - Quarterly results vary due to market conditions, trading days, client usage, acquisitions, and expense fluctuations[327](index=327&type=chunk) Unaudited Consolidated Quarterly Income Statement Data (Q1 2019 - Q4 2020) | Metric (in thousands) | Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Commissions | $155,813 | $150,586 | $172,092 | $155,954 | $117,103 | $119,869 | $114,124 | $112,760 | | Total revenues | $171,346 | $164,006 | $184,795 | $168,978 | $129,774 | $131,597 | $125,490 | $124,491 | | Total expenses | $79,649 | $76,199 | $80,660 | $77,889 | $68,923 | $65,632 | $64,613 | $61,302 | | Operating income | $91,697 | $87,807 | $104,135 | $91,089 | $60,851 | $65,965 | $60,877 | $63,189 | | Net income | $72,931 | $67,776 | $83,854 | $74,816 | $50,273 | $54,002 | $48,105 | $52,522 | | Diluted EPS | $1.91 | $1.78 | $2.20 | $1.96 | $1.32 | $1.42 | $1.27 | $1.39 | Quarterly Trading Volume Data (Q1 2019 - Q4 2020) | Trading Volume (in millions) | Dec 31, 2020 | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total U.S. high-grade | $318,493 | $305,231 | $414,580 | $329,994 | $253,109 | $261,945 | $265,360 | $277,410 | | Other credit | $321,135 | $283,920 | $327,266 | $329,753 | $236,403 | $255,097 | $248,503 | $234,491 | | Total credit | $639,628 | $589,151 | $741,846 | $659,747 | $489,512 | $517,042 | $513,863 | $511,901 | | Rates | $826,276 | $760,676 | $955,594 | $1,444,878 | $620,437 | $11,661 | $13,174 | $14,276 | [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) - MarketAxess' funding requirements are met through cash on hand, internally generated funds, and short-term borrowings. Cash, cash equivalents, and investments totaled **$489.0 million** at December 31, 2020[332](index=332&type=chunk) - The company has a **$500.0 million revolving credit facility**, with **$499.0 million available** as of December 31, 2020, and a **$200.0 million uncommitted collateralized agreement** for self-clearing operations[333](index=333&type=chunk)[334](index=334&type=chunk) Cash Flows (2020 vs. 2019) | Cash Flow Category | 2020 (in thousands) | 2019 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $404,489 | $265,935 | $138,554 | 52.1% | | Net cash provided by (used in) investing activities | $68,867 | $(122,051) | $190,918 | (156.4)% | | Net cash (used in) financing activities | $(145,112) | $(118,100) | $(27,012) | 22.9% | | Net increase for the period | $333,797 | $26,795 | $307,002 | 1,145.7% | [Other Factors Influencing Liquidity and Capital Resources](index=56&type=section&id=Other%20Factors%20Influencing%20Liquidity%20and%20Capital%20Resources) - MarketAxess believes current resources are adequate for liquidity and capital needs for at least **12 months**, but future requirements depend on self-clearing operations, product development, and new business opportunities[341](index=341&type=chunk) - Regulated subsidiaries (U.S. broker-dealers, SEF, foreign entities) are subject to minimum net capital or financial resource requirements, with MarketAxess' subsidiaries exceeding these by **$435.4 million** as of December 31, 2020[342](index=342&type=chunk) - The company is exposed to credit risk in matched principal transactions, but recorded no liabilities or losses from counterparty failures in **2020**. It also has contractual obligations for operating leases and foreign currency forward contracts[344](index=344&type=chunk)[345](index=345&type=chunk)[353](index=353&type=chunk) - Recent acquisitions include Regulatory Services GmbH (Deutsche Börse's reporting business) in **2020** and an agreement to acquire MuniBrokers LLC in H1 **2021**[346](index=346&type=chunk) [Non-GAAP Financial Measures](index=56&type=section&id=Non-GAAP%20Financial%20Measures) - MarketAxess uses non-GAAP financial measures, EBITDA and Free Cash Flow (FCF), to provide additional insights into profitability, business trends, and cash available for dividends, stock repurchases, and working capital[348](index=348&type=chunk)[350](index=350&type=chunk) Reconciliation of Net Income to EBITDA (2020 vs. 2019) | Metric (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net income | $299,377 | $204,902 | | Add back: Interest expense | $1,142 | — | | Add back: Provision for income taxes | $74,982 | $52,522 | | Add back: Depreciation and amortization | $35,996 | $26,857 | | **EBITDA** | **$411,497** | **$284,281** | Reconciliation of Net Cash Provided by Operating Activities to FCF (2020 vs. 2019) | Metric (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $404,489 | $265,935 | | Exclude: Net change in trading investments | $(67,952) | $(4,045) | | Exclude: Net change in fail-to-deliver/receive | $49,278 | — | | Less: Purchases of furniture, equipment and leasehold improvements | $(15,010) | $(12,292) | | Less: Capitalization of software development costs | $(30,618) | $(22,408) | | **Free cash flow** | **$340,187** | **$227,190** | [Effects of Inflation](index=57&type=section&id=Effects%20of%20Inflation) - MarketAxess' short-term assets are not significantly affected by inflation, but rising inflation could impact expenses (e.g., employee compensation, office costs) which may not be recoverable in service prices[352](index=352&type=chunk) - Inflation leading to rising interest rates and adverse effects on securities markets could negatively impact the company's financial position and results[352](index=352&type=chunk) Financial Results (2020 vs. 2019) | Metric | 2020 (in thousands) | 2019 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $689,125 | $511,352 | $177,773 | 34.8% | | Expenses | $314,397 | $260,470 | $53,927 | 20.7% | | Operating income | $374,728 | $250,882 | $123,846 | 49.4% | | Net income | $299,377 | $204,902 | $94,475 | 46.1% | | Diluted EPS | $7.85 | $5.40 | $2.45 | 45.4% | - Commission revenues increased by **36.8% to $634.4 million in 2020**, driven by a **29.4% increase in total credit trading volume** and a significant increase in rates volume due to the LiquidityEdge acquisition[307](index=307&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk)[311](index=311&type=chunk) - Total expenses rose by **20.7% to $314.4 million**, primarily due to increases in employee compensation and benefits (**$25.8M**), depreciation and amortization (**$9.1M**), technology and communications (**$7.3M**), and clearing costs (**$9.7M**)[316](index=316&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk)[319](index=319&type=chunk)[321](index=321&type=chunk) - Net cash provided by operating activities increased by **52.1% to $404.5 million in 2020**, reflecting higher net income and sales of trading investments, partially offset by increased receivables from self-clearing[336](index=336&type=chunk)[337](index=337&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=59&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) MarketAxess faces market risks from interest rate and foreign currency fluctuations, and credit risk from matched principal transactions - MarketAxess is exposed to market risk from adverse changes in interest rates and foreign currency exchange rates, which can impact profitability and business[355](index=355&type=chunk) - A hypothetical **100 basis point decrease** in interest rates would reduce annual investment income by approximately **$4.8 million**, given **$489.0 million** in cash, cash equivalents, and investments as of December 31, 2020[358](index=358&type=chunk) - Approximately **10.8% of revenue** and **26.2% of expenses in 2020** were non-U.S. dollar denominated (primarily British Pound Sterling). A hypothetical **10% change** in the U.S. dollar against other currencies could impact revenue by **$7.5 million** and expenses by **$7.6 million**[362](index=362&type=chunk) - The company faces credit and performance risks as a matched principal trading counterparty, especially with increasing Open Trading transactions, and maintains policies to manage this risk, though no assurance of full mitigation[366](index=366&type=chunk)[367](index=367&type=chunk) [Financial Statements and Supplementary Data](index=61&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents MarketAxess' audited consolidated financial statements, including internal control reports and detailed notes - The section includes MarketAxess' audited consolidated financial statements for **2020, 2019, and 2018**, prepared in accordance with U.S. GAAP[380](index=380&type=chunk) - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2020, a conclusion affirmed by the independent registered public accounting firm[375](index=375&type=chunk)[381](index=381&type=chunk) - Key financial statements presented are the Consolidated Statements of Financial Condition, Operations, Comprehensive Income, Changes in Stockholders' Equity, and Cash Flows[371](index=371&type=chunk) - Notes to the financial statements provide details on significant accounting policies, regulatory capital requirements, fair value measurements, acquisitions (e.g., LiquidityEdge), goodwill and intangible assets, income taxes, stockholders' equity, stock-based compensation, credit agreements, leases, and commitments and contingencies[406](index=406&type=chunk)[442](index=442&type=chunk)[445](index=445&type=chunk)[453](index=453&type=chunk)[454](index=454&type=chunk)[458](index=458&type=chunk)[459](index=459&type=chunk)[462](index=462&type=chunk)[467](index=467&type=chunk)[471](index=471&type=chunk)[487](index=487&type=chunk)[490](index=490&type=chunk)[493](index=493&type=chunk)[496](index=496&type=chunk)[500](index=500&type=chunk)[504](index=504&type=chunk)[508](index=508&type=chunk)[510](index=510&type=chunk)[511](index=511&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=94&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in or disagreements with accountants on accounting and financial disclosure [Controls and Procedures](index=94&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material impact from the work-from-home shift - Management, including the CEO and CFO, concluded that MarketAxess' disclosure controls and procedures were effective as of December 31, 2020[520](index=520&type=chunk) - The rapid shift to a work-from-home environment in mid-March 2020 due to the pandemic did not materially affect internal control over financial reporting during the fourth quarter[521](index=521&type=chunk) - No other changes in internal control over financial reporting materially affected or are reasonably likely to materially affect the company's internal control over financial reporting during the quarter ended December 31, 2020[522](index=522&type=chunk) [Other Information](index=94&type=section&id=Item%209B.%20Other%20Information) There is no other information to report under this item [PART III](index=95&type=section&id=PART%20III) This section provides information on directors, executive compensation, security ownership, related transactions, and accounting fees [Directors, Executive Officers and Corporate Governance](index=95&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the **2021 Annual Meeting of Stockholders Proxy Statement**[527](index=527&type=chunk) - MarketAxess' Code of Conduct, applicable to directors and all employees, is available on its website[527](index=527&type=chunk) [Executive Compensation](index=95&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information is incorporated by reference from the company's Proxy Statement - Executive compensation information is incorporated by reference from the company's Proxy Statement[528](index=528&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=95&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference, detailing outstanding options and securities available for future issuance - Information on security ownership of certain beneficial owners and management is incorporated by reference from the Proxy Statement[529](index=529&type=chunk) Equity Compensation Plan Information (as of December 31, 2020) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 387,372 | $223.60 | 2,531,199 | [Certain Relationships and Related Transactions and Director Independence](index=96&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Information regarding certain relationships, related party transactions, and director independence is incorporated by reference from MarketAxess' definitive Proxy Statement - Information on certain relationships and related party transactions, and director independence is incorporated by reference from the company's Proxy Statement[531](index=531&type=chunk) [Principal Accounting Fees and Services](index=96&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information concerning principal accounting fees and services is incorporated by reference from MarketAxess' definitive Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the company's Proxy Statement[532](index=532&type=chunk) [PART IV](index=97&type=section&id=PART%20IV) This section lists all exhibits and financial statement schedules filed as part of the 10-K report [Exhibits and Financial Statement Schedules](index=97&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits and financial statement schedules filed as part of the 10-K report, detailing various agreements and plans - Financial statements are presented under Item 8 of this Annual Report on Form 10-K, with financial statement schedules omitted if not required or already included[534](index=534&type=chunk) - The exhibit listing includes key documents such as the Unit Purchase Agreement for LiquidityEdge, various equity incentive plans (e.g., 2020 Equity Incentive Plan), employment agreements for executives, and credit agreements[535](index=535&type=chunk)[536](index=536&type=chunk)[537](index=537&type=chunk)[538](index=538&type=chunk) [Form 10-K Summary](index=101&type=section&id=Item%2016.%20Form%2010-K%20Summary) This section indicates that there is no Form 10-K Summary provided

Financial Data and Key Metrics Changes - Revenue for Q4 2020 was $171 million, representing a 32% year-over-year increase, while EPS increased by 45% to $1.91 [6][7] - Operating income surged by 51% year-over-year, with an operating margin of 53.5% for the quarter and 54.4% for the full year 2020 [23][28] - Full year 2020 revenue growth was 35%, and EPS growth was 45%, reflecting strength across all core credit products [9][28] Business Line Data and Key Metrics Changes - High-grade market share reached a new high of 22.8%, while high-yield share increased to 17.1%, up from 10.6% [7][19] - Open Trading volume grew 63% to $218 billion in Q4 2020, with estimated transaction cost savings of $225 million for clients [7][11] - Total credit trading volume for 2020 was up 29% to $2.6 trillion, with Open Trading accounting for 33% of traded volume, up from 26% in 2019 [9][11] Market Data and Key Metrics Changes - High-grade credit spreads have recovered to pre-pandemic levels, with credit spread volatility declining over the last several quarters [10] - TRACE volume was up 9% year-over-year in Q4 2020, reflecting more normal new issue activity [10] - Estimated US TRACE market volumes in January 2021 are running more than 10% above January 2020 levels [21] Company Strategy and Development Direction - The company is focused on investing heavily to grow its portfolio of products, protocols, and clients to ensure long-term sustainable growth [33] - The acquisition of Deutsche Borse's Regulatory Reporting Hub is expected to enhance client penetration in Continental Europe and strengthen data capabilities [17][28] - The company aims to leverage automation and new trading technologies to differentiate its offerings in the Rates business and enhance trading efficiency [18][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth due to market share momentum and strong demand for electronic trading solutions [33] - The company anticipates a normalization of spending in 2021, with a focus on organic growth and investment in new protocols and geographic expansion [39] - Management highlighted the significant growth opportunities in the municipal bond and emerging markets, emphasizing the potential for increased electronic trading adoption [53][54] Other Important Information - The company approved an increase in its quarterly dividend to $0.66 per share, tripling the dividend level over the past five years [8][28] - Free cash flow reached a record $340 million in 2020, with cash and investments totaling $489 million as of December 31 [28] Q&A Session Summary Question: Expense outlook and areas of spending - Management indicated a 13% constant currency increase in expenses, driven primarily by headcount growth and investments in new protocols and product areas [38][39] Question: Self-clearing and its impact - Management clarified that self-clearing has been fully implemented in the US, with plans for European conversion by the end of Q1 2021, expecting significant long-term savings [44][46] Question: Uptake of integrated Rates trading capability - Management reported strong client interest in the new net hedging solution and integrated trading capabilities, with further enhancements planned for 2021 [48][49] Question: Strategy for Muni and EM markets - Management emphasized the growth potential in the municipal bond and emerging markets, highlighting the fragmented nature of these markets and the opportunity for electronic trading [53][54] Question: High-yield market electronic penetration - Management noted significant growth in high-yield electronic trading, driven by increased participation from hedge funds and alternative market makers [60][61] Question: Impact of new issuance on trading - Management acknowledged a potential headwind from reduced new issuance activity but remains optimistic about long-term market turnover and electronic trading growth [79][80] Question: Non-transactional revenue outlook - Management expects double-digit growth in information services and post-trade revenues, with a strong pipeline entering 2021 [84][85]

INVESTOR PRESENTATION 4th Quarter 2020 Forward Looking Statements This presentation may contain forward‐looking statements, including statements about the outlook and prospects for Company and industry growth, as well as statements about the Company's future financial and operating performance. These and other statements that relate to future results and events are based on MarketAxess' current expectations. The Company's actual results in future periods may differ materially from those currently expected o ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-34091 MARKETAXESS HOLDINGS INC. (Exact name of registrant as specified in its charter) Delaware 52-2230784 (State or other j ...

Financial Data and Key Metrics Changes - Revenue for Q3 2020 was $164 million, representing a 25% year-over-year increase [7] - Operating income increased by 33% to $88 million, with operating margins growing to 53.5% [7][22] - Diluted earnings per share rose 25% to $1.78 [7] - Trailing 12 months EPS growth was 37%, and revenue growth was 31%, indicating an acceleration in growth rates [8] Business Line Data and Key Metrics Changes - Open Trading volume increased by 41% year-over-year, contributing to estimated client transaction cost savings of over $250 million for the quarter [7][10] - U.S. high-grade volumes rose 17% year-over-year to $305 billion, with market share increasing by two percentage points to 22.2% [17] - U.S. high-yield volume surged by 46%, reaching a record market share of 16% [17] - Automated trading volumes rose to over $30 billion, up from $22.6 billion in Q3 2019, with auto-execution functionality used by 86 firms [14] Market Data and Key Metrics Changes - Credit market trading conditions were mixed, with credit spreads and volatility trending lower compared to earlier in the year [9] - New issue volume was 30% higher than Q3 last year, despite a substantial drop from Q2 [9] - Corporate debt outstanding increased by approximately 9% to $10.4 trillion [9] Company Strategy and Development Direction - The company is focused on driving innovation and expanding its global footprint, with new trading protocols and product areas being added to Open Trading [15][16] - Recent acquisitions, including MuniBrokers and Deutsche Borse Group's Regulatory Reporting Hub, aim to enhance trading, data, and post-trade services [16][17] - The company is investing in new rates trading capabilities and plans to launch a fully integrated streaming click-to-trade rates front end [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about ongoing business momentum and market share trends in core products [30] - The company anticipates that new products and trading protocols will expand and diversify revenue sources [30] - Management highlighted the positive trend in average years to maturity for high-grade volume, indicating growing client confidence [10] Other Important Information - The effective tax rate for Q3 was 23%, reflecting excess tax benefits related to share-based compensation [22] - The company expects full-year expenses to be near the upper end of the guidance range of approximately $314 million [26] - Cash and investments as of September 30 were $341 million, down from $536 million as of June 30 [27] Q&A Session Summary Question: On self-clearing and its impact on costs - Management indicated that self-clearing could reduce clearing costs by upwards of 30% per ticket, potentially lowering it to 6% or 7% of Open Trading revenue [34][35] Question: On fee per million sustainability - Management noted that various factors influence fees per million, and while current fee capture is strong, it is difficult to predict future trends [37][38] Question: On the regulatory reporting hub acquisition - The acquisition is expected to accelerate margin expansion in the post-trade business and add significant data capabilities [41][44] Question: On high-yield business sustainability - Management highlighted that transaction cost savings and new market participants are driving sustainable growth in the high-yield platform [46][48] Question: On the muni business and MuniBrokers acquisition - Muni revenue grew 37% year-over-year, driven by Open Trading, and the MuniBrokers acquisition is expected to enhance content and overall volumes [50][53] Question: On live markets and liquidity - Live markets are seen as both creating new liquidity and providing a more efficient trading method for already liquid bonds [64][65] Question: On block trade market share - Current market share for block trades is around 10.5%, with an increase in long-dated paper but a slight decline in short-dated paper [66][68]

※ Market Axess® | --- | --- | --- | |-----------------------------|-------|-------| | | | | | | | | | Q3 2020 Conference Call and | | | | Webcast | | | | October 27, 2020 | | | Forward Looking Statements This presentation may contain forward-looking statements, including statements about the outlook and prospects for Company and industry growth, as well as statements about the Company's future financial and operating performance. These and other statements that relate to future results and events are based ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-34091 MARKETAXESS HOLDINGS INC. (Exact name of registrant as specified in its charter) Delaware 52-2230784 (State or other jurisd ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-34091 MARKETAXESS HOLDINGS INC. (Exact name of registrant as specified in its charter) Delaware 52-2230784 (State or other juris ...