Daniel Fannon: Yes, that’s helpful. Thank you.
Operator: The next question is from Michael Cyprys with Morgan Stanley. Your line is open.
Michael Cyprys:
BestEx: And then just more broadly on the regulatory backdrop, what are some of the key regulations, proposals perhaps that are maybe on the horizon that you guys are tracking and that could be impactful for your business? I know in the past we’ve talked about all-to-all trading and rates as well as potential treasury clearing.
Chris Concannon: Sure, thanks Michael. And I would say nothing meaningful in terms of what has come out from the SEC so far. I think I’m right in saying that a lot of the best execution revisions were focused on dealer obligations as fiduciary and agency trading. So not quite as relevant around the world of fixed income, but we do expect something much more material at some point during 2023, which is what I would view as long overdue revisions to the fixed income electronic trading and ATS rules, and something that I was directly involved in promoting and supporting as part of FIMSAC at the SEC when the industry participants were helping the commission think through that. So what I’m looking forward to is really a level playing field with standardized e-trading rules across the ATS community.
The staff continues to do their work on that. So we’re not exactly sure what the timing will be but, I would expect that those fixed income ATS rules will be out sometime during calendar year 2023.
Michael Cyprys: Great, thanks. And just a followup question, just curious, your latest thoughts on M&A here just given the rising cash balance, where that might be most additive to the platform and how you think about enhancing connectivity to clients including retail clients, now that fixed income and particular retail fixed income is becoming more in vogue.
Chris Gerosa: So we obviously look at the coming 2023 as an opportunity given the re-pricing of many financial assets a number of small companies. When we look at the marketplace, there is what I call scarcity of assets. So we’re really talking about an M&A strategy that involves much smaller size bolt-on type of product offerings. The FinTech space has clearly been repriced. So there’s an opportunity and there are a number of FinTech providers in the market that will start facing capital challenges in the year ahead. So with a very strong balance sheet, we feel well positioned to take advantage of a re-priced market with a number of FinTech players that may be in need of capital. So excited about what’s ahead, but again, there’s nothing material out there given the scarcity of assets that we look at.
Michael Cyprys: Great, thank you.
Operator: The next question is from Brian Bedell with Deutsche Bank. Your line is open.
Brian Bedell: Great, thanks. Good morning, folks. Just why don’t you to ask about execution quality and the price improvement that you’re getting for your clients in particularly regards to portfolio trading versus some of your more, legacy protocols like list trading. I guess first of all, to what extent do you think the price improvement is better in some of the other protocols outside of portfolio trading and that will limit PTs share or is that not really an issue and the clients are more focused on getting the trade execution done?
Richard McVey: So it’s a great question, Brian. I view portfolio trading as really a demand for liquidity and capital because these are very sizable trades that our clients are in need of, so they’re demanding higher levels of capital commitment from our dealer partners. And so I do think that portfolio trading done in comp or in dealer competition, which is what our electronic solution offers our clients does result in a better execution quality across the full portfolio. We also rolled out analytics and will continue to roll out analytics that help our clients judge how portfolios are being priced relative to either an individual or a list trade, however you want to call it. So we think clients are being given all the proper tools to evaluate portfolio trading as a large block trade or as an individual or list trade, where they get the participation of additional market participants.
So right now, portfolio trading, we see it, it has grown. It has grown over the last couple of years. We do see that growth rate flattening at some point depending on market dynamics. More importantly, what we’re seeing in the first quarter is obviously smaller trade sizes. So the demand for more trading activity at smaller size is probably going to be a theme that we see in 2023, and that’s where many of the other list trading and other alternative protocols that we offer come into demand. So while we do see strength in portfolio trading as inflows come in, many times our clients are using the portfolio trade as a way to get instant exposure, and they pay for that capital utilization from very large dealers.
Brian Bedell: Great. That’s great color. And, and then just, can you give?
Chris Concannon: If I could just add, we’re one, we’re really pleased with the growth in PT we’ve seen on MarketAxess and the ability to give clients their choice depending on the, the risk that they’re trying to move. I will say, and we previewed this a year ago that as volatility has picked up, don’t forget the dealer side, it’s become much more difficult to manage the risk of large portfolios from the dealer side and I think there have been two outcomes of that in 2022. One is that the growth rate of portfolio trading volume has slowed dramatically. And if you look at the last 12 months, it’s been right around 5.5% of secondary TRACE volume over the last year. And it’s been even slower than that in high yield, where the liquidity challenges are more severe.
So the growth rates of PT volume are down, but also, we see greater concentration in terms of the dealers that are printing portfolio traits than we did a year ago. And I think that’s just it, the level of sophistication that’s required to manage that risk is way up because of volatility. So all those factors weigh in terms of the quality of the pricing that comes through in PT, and as a result of client behavior on where they think they’re going to get best execution.
Brian Bedell: That’s very interesting. Thanks for that color. And then just one follow up on the ETF substitution, a number of questions were asked on that. Obviously definitely improves velocity, but how do you think about the nature of the client base that’s using that in terms of, I guess, revenue capture? So the punch line of the question is, does the greater velocity more than offset any diminution of revenue capture or is the revenue capture pretty similar to your overall fixed income trading in investment grid?
