MarketAxess Holdings Inc. MKTX reported mixed U.S. high-grade and U.S. high-yield volumes, partially offset by a better emerging market and expanded Eurobond volumes for the month of September.
Trading volume for the U.S. High Grade bonds was $96.73 billion, down 6.6% year over year. Trading volumes in other credit were $118.2 billion, up 15.2% year over year. Rates trading volume of $344.5 billion was up 35.2% year over year.
Total trading volume of $5.59 trillion was up 21.4%. Since MarketAxess’ primary revenue driver is commission on trading, an increase in the trading volumes will directly aid its top line.
The company’s bond trading business thrives when credit spread volatility increases. Last year, credit spread volatility was greater than this year and credit spreads in high-grade were also wider. Credit spread widening means more riskiness in the market, which is when bonds look more attractive. Last year, it also witnessed a huge debt issuance by the corporates. These factors led to higher bond trading, which in turn, aided volume, revenues and earnings growth of the company.
MarketAxess is credited with revolutionizing the traditional way of bond trading by bringing in automated trades. The bond trading market lagged other fellow equity currency and trading markets in adopting electronic trades. Even now, most of the trading for bonds is done and settled on phone calls.
The company’s founder Richard McVey spotted an opportunity earlier on to make bond markets efficient by automating the bond trading system. Via its automated trading platform, it allows bonds to be traded electronically. The company is the leading electronic trading network for the institutional market of the U.S. credit products. It is also rapidly expanding outside the United States and now has businesses in Europe, the U.K. as well as Singapore. It is also investing in the Asia-Pacific.
This global expansion provides the company with ample room to grow in the $100-trillion global fixed income market, which is still awaiting electronic transformation.
MarketAxess’ various acquisitions complemented organic growth. The buyout of Liquidity Edge provided MarketAxess with an attractive entry point to the U.S. bond Treasury market. The MuniBrokers acquisition expanded MarketAxess’ existing municipal bond trading solution for global institutional investors and dealer clients. The acquisition of the Regulatory Reporting Hub widened MarketAxess’ post-trade reporting, and pre-and post-trade data-service across a broader European client base, particularly in Germany, France as well as the Nordics.
The company’s solid growth in core products, superior financial model, large and increasing addressable market, significant operating leverage along with an expanded suite of electronic trading protocols poise it well for long-term growth.
Its long-term prospects look good with the right products in place to provide the much-needed solutions to the credit markets. However, a decline in trading volumes might put earnings under pressure, which in turn, might drag the stock.
Year to date, the stock has lost 24.4% against its industry’s growth of 14.8%. Other stocks in the same space, such as Tradeweb Markets (NASDAQ:TW) Inc. TW, CME Group Inc. (NASDAQ:CME) CME and Cboe Global Markets (NYSE:CBOE), Inc. CBOE have gained 31.5%, 8.9% and 29.7%, respectively, over the same time period.
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MarketAxess carries a Zacks Rank #4 (Sell) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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