MarketAxess(MKTX) - 2022 Q4 - Annual Report

Revenue and Trading Volume - In 2022, 89.3% of MarketAxess's revenues were derived from commissions for transactions executed on its platforms[14] - Total credit trading volume increased from approximately $1.7 trillion in 2018 to $2.9 trillion in 2022, with estimated market shares for U.S. high-grade and high-yield corporate bonds rising to 21.3% and 17.9%, respectively[18] - The average daily trading volume for Composite Corporate Bonds on MarketAxess platforms was approximately $9.4 billion in 2022, representing just 19.9% of the estimated addressable market of $47.5 billion[28] - For the year ended December 31, 2022, the average daily trading volume for U.S. high-grade bonds was $25.7 billion, an increase of 8.9% from $23.6 billion in 2021[35] - The average daily trading volume for emerging market debt was $20.8 billion, a slight increase of 2.0% from $20.4 billion in 2021[35] - MarketAxess executed approximately $939.6 billion in credit trading volume using Open Trading in 2022, which accounted for 35.9% of total eligible credit trading volume on its platforms[30] - MarketAxess executed $63.3 billion in corporate and municipal green bond trading volume globally in 2022, marking a 24.0% increase from 2021[72] Open Trading and Price Improvement - Open Trading generated an estimated $945.3 million in price improvement for clients in 2022, with $653.2 million from liquidity taker price improvement and $292.1 million from liquidity provider price improvement[20] - Approximately 35.9% of all eligible credit volume on the MarketAxess platform was executed via Open Trading protocols in 2022[45] - The company reported that Open Trading generated approximately $945.3 million of price improvement for clients in 2022[61] Client and Market Expansion - Revenues from international clients grew from 15.7% of total revenue in 2018 to 19.6% in 2022, with over 1,000 active international client firms[31] - The average daily trading volume in the EMEA, Latin America, and APAC regions on MarketAxess platforms increased from $1.8 billion in 2018 to $3.7 billion in 2022[31] - The company plans to leverage its Open Trading functionality to capture additional market share across core credit markets[39] Technology and Innovation - The company delivered approximately 710 unique new business and technical features to clients during the year ended December 31, 2022[26] - The proprietary pricing algorithm Composite+ generates near real-time prices for approximately 33,000 corporate and sovereign bonds, enhancing trading outcomes[58] - The technology team delivered approximately 710 unique new business and technical features to clients during the year ended December 31, 2022[65] - The company utilizes cloud technology to improve development velocity and enhance its technology platform, ensuring scalability and resiliency[65] Regulatory Environment and Compliance - The company is regulated by multiple authorities globally, including the FCA in the U.K. and ESMA in the E.U., which oversee its operations[90] - The MiFID II and MiFIR regulations introduced significant changes aimed at enhancing market transparency and efficiency, impacting the company's operations[95] - The SEC proposed rules to expand Regulation ATS and amend the definition of an "exchange" to include Communication Protocol Systems, affecting the company's trading protocols[89] - The company is subject to risks related to compliance with extensive regulations, which may affect trading volumes and increase operational costs[140] - Compliance with evolving data privacy regulations, such as GDPR, is critical, with potential penalties for non-compliance that could adversely affect the company's reputation and business[189] Competition and Market Risks - The company faces intense competition in the electronic fixed-income trading markets, which could reduce market share and harm financial performance[78] - The company competes with various electronic trading platforms, including Tradeweb and Bloomberg, in both credit and municipal markets[14] - The company faces substantial competition in the electronic financial services market, with competitors potentially offering lower costs and a wider range of trading solutions[143] - The company has experienced significant declines in trading volumes in the financial markets, which may continue to impact revenues and profitability during periods of low volatility or low trading volume[130] Workforce and Employee Engagement - As of December 31, 2022, MarketAxess had 744 employees, with a 10.1% increase in workforce compared to the previous year[110] - The global workforce composition was approximately 72.3% men and 27.7% women, with U.S. employees being 29.9% Asian, 5.2% Black or African American, and 7.6% Hispanic or Latinx[112] - MarketAxess increased its investment in employee learning and development in 2022, offering customized management training and leadership programs[116] - The overall employee engagement rate was measured at 81%, consistent with global averages for financial services[117] Financial Performance and Future Outlook - The company has experienced significant growth in trading volumes, revenues, and profitability in recent years, but future growth rates cannot be assured[149] - The introduction of new fee plans may not result in increased transaction volumes or revenues, and could potentially lead to reduced business from clients[150] - The company has experienced significant decreases in overall market volumes in the fixed-income markets, which could harm its business and profitability[138] Acquisitions and Investments - The company has made acquisitions in the past, including LiquidityEdge in 2019, Deutsche Börse's regulatory reporting business in 2020, and MuniBrokers in 2021[194] - The company announced a significant minority investment in RFQ-hub in 2022 to enhance its capabilities[197] Operational Risks - The company is exposed to operational risks due to self-clearing of bond transactions, which may lead to inefficiencies and increased expenses[167] - The integrity and capacity of the company's electronic trading platforms are essential for providing reliable service to clients, with potential disruptions leading to a material adverse effect on business[177] - The company faces risks from systems failures, cyber-attacks, and operational disruptions that could harm its reputation and lead to financial losses[185]