Alex Blostein: Hey everybody, good morning and thanks for taking the question. I had a bit of a market structure question for you guys. So as you look at the accelerating shift from active bond mutual funds into ETFs which again continues to accelerate here, even year-to-date, I think over 70% flows into fixed income are going ETFs. How do you think that impacts turnover rates for the credit markets? And the reason why I ask is, naturally that creates secondary degree of liquidity in the kind of the ETF wrapper, but I wonder if that also impacts positively or negatively turnover in the underlying bonds, especially when the flows are so concentrated with the handful of players, particularly with BlackRock?
Chris Gerosa: Great question Alex and we obviously are well positioned as we think about inflows into the fixed income market, as you point out we’re seeing inflows into the ETF fixed income market in particular. We’re also seeing inflows into SMA products as well across the fixed income landscape. Both of those inflows, both ETFs and SMA products leave us well positioned for 2023 as we see continued attractiveness in the fixed income products as investment vehicles. In particular around ETF inflows it’s a wonderful situation for us, given our position with ETF market makers. Some of the largest ETF market makers are very strong clients of MarketAxess and in particular play a major role in our Open Trading offering. So we feel like we’re well positioned to take advantage of inflows into the fixed income ETF market.
It also justifies our investment in RFQ-hub that we were talking earlier and the attractiveness of having an ETF execution solution as a part of our overall offering. But again, turning to the SMA opportunity, these are — SMAs are growing. We saw growth in 2022, despite some of the challenges in the fixed income market and as we go into 2023, we’d expect the SMA account to grow as well. Those deliver very small tickets in terms of the workflow that comes through institutional clients and that heightens the demand for our automation solution. So we’re excited about the overall market environment in fixed income as an investment vehicle and the growth in AUM back into fixed income are coming into those two main products, where we think we’re well positioned.
Richard McVey: And Alex, I’ll just add onto that too, is that while standalone the turnover of an ETF portfolio is likely to be lower than an actively managed portfolio, that’s only really part of the story because the ETF share liquidity is adding to the overall liquidity of the fixed income market and giving dealers and investors another way to transfer risk quickly. So I view it as very positive for overall liquidity and activity because of that tool as a way to quickly transfer risk. And don’t forget, there are a whole group of industry participants that are now actively trading the shares versus the underlying bonds, which is additive to velocity. So I think you have to take a holistic view as how that, how the growth in ETFs is adding to the fixed income ecosystem in order to get a valid outlook in terms of what it means for velocity.
Alex Blostein: Yes, that will make sense. My second question was just a quick follow up, I think to the last question around the fee capture, right? So I think I heard you guys say that you continue to see positive trends in fee capture into January. Could you dissect that a bit between IG and the rest of the business? So in other words, like is this a function of a mix where maybe high-yield is quite active and that’s what’s driving your comments around positive fee capture, or you’re actually starting to see an improvement in the underlying IG capture rate as well?
Chris Gerosa: Yes, no, I think it’s the latter. It’s really the high-grade fee capture is directly impacted by the market conditions. And when we talk about the developments were going back to October when Rick pointed out that the Corporate Bond Index duration was a low, and we’ve seen a strong recovery going through November and December. And I sized up the math of a year-over-year comparison. But when you look at the bond yield movement and years to maturity so far in January that we put on a chart relative to December, the high-grade fee capture was more or less at the same level. We saw the exit rate as of December.
Alex Blostein: Great, thanks so much.
Operator: The next question is from Dan Fannon with Jefferies. Your line is open.
Daniel Fannon: Thank you. Good morning. I wanted to followup on just the non-transactional revenue, just thinking about 2023 and what, as you think about info services and post-trade, what are the kind of good growth rates or appropriate growth rates to think about for the next 12 months or beyond?
Richard McVey: Yes, Dan great question. I’m glad you asked it, because we mentioned in our prepared remarks that some of the data contracts that we signed were towards the back end of Q4. And I mentioned in the last call that our target was to hit an FX adjusted growth rate of 10%. We fell just short of that, and a lot of that was due to the timing of when we signed those contracts. But the good news for the 2023 outlook, we think that the growth rates will be in the 10% to 12% range for information services on a constant currency basis and we hope to do better than that. And with respect to the post-trade, that continues to be a mid-single-digit growth rate. We’re not expecting any significant upside, as you’ve seen in the past due to the acquisition of Reg Reporting Hub.
Chris Gerosa: And I’ll just add, we’ll continue to see demand for our CP+ products particularly across high-grade, high-yield and now EM where CP+ provides a level of transparency that is hard to achieve with any other product out there on the market. We’re also excitingly rolling out CP+ for treasuries and my personal favorite CP+ for munis, a market that needs more real-time transparency and we’re excited for those two products to be out in the market during 2023, so some exciting new products, where we’re seeing a lot of the growth of our market data revenue in the suite of CP+ products.
Daniel Fannon: Great, that’s helpful. And then just on the expense guidance in the context of what you guys are characterizing as certainly an improving environment from a revenue perspective. So the midpoint at 10% maybe dissect that a little bit in terms of where those incremental dollars are going and if we’re going to, if revenues come in, maybe above what your base case is, is that just flow through to compensation or are there other areas where you would spend more if the environment is constructive from a revenue perspective?
Chris Concannon: Yes. So operating expenses, we’ve always talked about the fixed variable mix being 16% to 17% variable and what contributes to variable expense? It’s really three line items. It’s our cash incentive bonus pool. We have some treasury licensing fees that are directly pegged to the treasury business, and we have our self-clearing line item. And I’m happy to say that we’ve employed a very disciplined approach with the challenging operating environment in 2022. We’re continuing to manage that disciplined approach in 2023, and we’ve had some success with lowering some variable fees directly correlated to the clearing business. So I think as you see the Open Trading business grow, we’re going to see operating leverage come through on that line item.
So just to help size up the math, on 16% to 17% of that total operating expense base is variable with the balance being fixed. And to the question on which line items are that 10% being attributed to compensation is going to be the biggest uplift year-over-year, which is around, mid-teens growth rate then you have your T&E resuming to more normalized levels, which is about a mid-teens growth rate. On the page, we put directly what the depreciation and amortization is 10% of $40 million is $4 million. And in the balance stand across it is 1% to 2% across all the other line items on the income statement, with the exception of clearing that will be pegged to our growth in Open Trading. I hope it helps you dissect, where you need to allocate that $40 million across the income statement.
