Tradeweb Markets Inc

NASDAQ:TW

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, and welcome to Tradeweb's First Quarter 2021 Earnings Conference Call. As a reminder, today's call is being recorded and will be available for playback.

To begin, I'll turn the call over to Head of U.S. Corporate Development and Investor Relations, Ashley Serrao. Please go ahead.

[Ashley Serrao, executive]

Thank you, and good morning. Joining me today for the call are our CEO, Lee Olesky, who will review the highlights of the quarter and provide a business update; our President, Billy Hult, who will dive a little deeper into some of the growth initiatives; and Bob Warshaw, our CFO, who will review our financial results.

Our first quarter earnings release, prepared remarks and accompanying presentation are available on the Investor Relations portion of our website. I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements related to, among other things, our guidance, including full year 2021 guidance and the COVID-19 pandemic, the potential impacts of which are inherently uncertain, are forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our earnings release and periodic reports filed with the SEC.

In addition, on today's call, we will reference certain non-GAAP measures. Information regarding these non-GAAP measures, including reconciliations to GAAP measures, are in our posted earnings release and presentation. Lastly, we provide certain market and industry data, which is based on management's estimates and various industry sources. Please see our posted earnings presentation for more details.

To recap, this morning, we reported GAAP earnings per diluted share of $0.33, excluding certain noncash stock-based compensation expense, acquisition-related transaction costs, acquisition and Refinitiv-related D&A and certain FX items and assuming an effective tax rate of 22%, we reported adjusted net income per diluted share of $0.43. Please see the earnings release and the Form 10-Q to be filed with the SEC for additional information regarding the presentation of our historical results.

Now let me turn the call over to Lee.

[Lee Olesky, executive]

Thanks, Ashley. Good morning, everyone, and thank you for joining our first quarter earnings call. For more than 20 years, Tradeweb has been driving and responding to changes in electronic OTC trading across rates, credit, equities and money markets. We've done this by harnessing the creativity of our people, redefining the limits of our technology and collaborating with our customers to solve trading challenges that have only become more complex over time. As a result, we've developed a broad and global network that continues to grow and be central to our connect-the-dots strategy of linking our markets with the goal of ultimately increasing efficiency for our customers.

The word unprecedented has been used numerous times to describe the year that unfolded in 2020. Not for a lack of imagination, but because it genuinely captures a period of great change that made everyone reevaluate, and in many cases, reinvent the way we think and operate. At Tradeweb, our response was once again partially shaped by our people and technology as our team migrated to a virtual world that largely persists even today. Our response was also driven by the diversity of our network that allowed us to listen to and collaborate with our clients across the spectrum. We believe the value of a multi-asset class, multisector, multi-protocol and global network has never been greater.

Historically, exogenous changes, like the acceptance of the Internet or the waves of regulation in the financial markets that have been unfolding globally, have all proven to be catalysts for digitization. We believe the behavioral changes induced by the pandemic have accelerated the trajectory of electronification and digitization, which continue to be multiyear secular trends in the making.

It was only back in March 2020 when Tradeweb posted its first $1 trillion average day volume month in an environment that we can say was extremely volatile across all asset classes.

Fast forward 12 months, and we've started 2021 by posting 3 consecutive record months of average daily volume in excess of $1 trillion in an environment where volatility is still relatively subdued. This is a testament to the growing adoption of our electronic solutions and trading more generally by our clients.

Turning to Slide 4. The acceleration of digitization I just described, it was on display as we reported another record quarter with volumes climbing to new highs across many of our products. Specifically, record gross revenues of $273 million during the first quarter of '21 were up 16.5% year-on-year on a reported basis, and 13.9% on a constant currency basis. The revenue growth and the resulting scale translated into improved profitability year-on-year as our first quarter adjusted EBITDA margin expanded by 97 basis points to a record 52%.

Turning to Slide 5. This quarter was marked by strong performance across many of our asset classes, with credit leading the way, accounting for more than 50% of our revenue growth. Specifically, credit posted another record quarter with revenues growing 37.8% year-over-year as the business set new quarterly records for U.S. electronic investment-grade and high-yield trading. Rates revenues increased 13.4% as cash rates posted its highest revenue and volume quarter, driven by record central bank issuance, which continues to fuel global government bond trading, and the low interest rate environment, which drove record mortgage revenues. Swap revenues hit a new record, driven by continued market share gains. Equities fell by 2.9% as decline in our more volatility-sensitive wholesale ETF business more than offset institutional growth and our efforts to diversify beyond ETFs. Money market revenues were down 3.5% as continued strong rate headwinds in the retail sector more than offset the organic growth in institutional repo. Finally, market data was up 7.6%, driven by growth in both our Refinitiv redistribution license and proprietary data products.

Moving on to Slide 6. Let me provide a brief update on our 4 main focus areas: global interest rate swaps, U.S. Treasuries, U.S. credit and global ETFs.

Starting with interest rate swaps, which is our largest and fastest-growing rate product, a more challenging macro background relative to last year was more than offset by our organic growth efforts. We continue to attract new clients and deepen our client wallet share by driving higher engagement and introducing new products and protocols. This led to overall swaps volume growing by 15%. As a result, swaps market share increased to a record 11.8% as measured by Clarus.

We believe we continued to gain meaningful share versus our closest competitor, Bloomberg, in both the U.S. and Europe. Longer term, we remain excited by the multiyear opportunity here as the rate cycle improves and the market continues to electronify. Billy will give you an update on our strategy in a few minutes.

Moving on to U.S. Treasuries, another rates product that continues to set records. Our volumes increased by 23% year-on-year, led by both the institutional and wholesale business pushing market share to a record 15.3% of the U.S. Treasury market. The backdrop of heavy issuance continues to support the institutional channel, whereas the return of debate surrounding the trajectory of interest rates was particularly beneficial to the wholesale channel relative to the fourth quarter.

Focusing on what we can control, institutional share gains have been driven by existing clients doing more business, competitive share gains versus Bloomberg and further inroads into the T-bill market, capitalizing on the recent wave of short-dated issuance. Looking ahead, we are also investing in driving the adoption of early-stage streaming protocols like Tradeweb Plus. Volumes here rose substantially versus last year.

Our wholesale U.S. Treasury offering, which today is centered on disclosed streams and session trading, posted another record quarter. Following a string of new client wins, we have now become a leading streaming venue as our efforts to lead with proprietary technology and really understand what our clients want pays off. While streams continue to see rapid adoption, we believe the central limit order book, or CLOB, will remain an important protocol. In response to client demand for more protocol choice and the competition in the CLOB arena, we announced the acquisition of NASDAQ's U.S. Fixed Income Platform, which we expect to close later this quarter. As a result, our clients will have the ability to complement their streaming activity with a liquid CLOB. We will also be able to lower their connectivity costs and enhance our U.S. Treasury data offering with the depth of book data. As a reminder, we believe we can improve EBITDA margins to Tradeweb's adjusted EBITDA margin or higher, exiting the first year of a 2-year integration period while being immediately accretive to adjusted earnings on closing.

Looking ahead, we believe the mix of our organic and inorganic growth initiatives and the growing pool of U.S. Treasury outstanding, courtesy of the Fed's ever-expanding deficit, bodes well for earnings power as we continue to emerge from this pandemic into an increasingly higher and more volatile interest rate environment.

Shifting to credit. This was another great quarter as our business continues to surge ahead, generating more than $74 million in revenues to start the year. As I wrote in my recent shareholder letter, It's amazing to see us hit the 10% electronic share milestone consistently in investment-grade credit 6 years into our journey. And now it's encouraging to see the progress being made in high yield as well. Our differentiated approach, where we not only continue to redefine institutional electronic trading with innovations like portfolio trading, AllTrade and net spotting but also focus on the entire credit market with other innovations like session trading and ReMatch, is resonating strongly with clients. Looking ahead, we continue to see a lot of opportunity in credit as our platform continues to scale and as the retail business recovers. Billy will give you an update on our strategy momentarily.

Finally, within equities, institutional ETFs produced a record quarter with average daily volume up 13% year-on-year as new client wins more than offset the substantial pullback in U.S. and European ETF industry activity. During the quarter, equity ETFs comprised 63% of our global volume with fixed income contributing 30%. Fundamentally, we continue to add new clients globally and remain excited about the prospects for the business.

Our other initiatives to expand beyond our flagship ETF franchise are also bearing fruit with momentum continuing in equity options, converts and ADRs. Looking ahead, we believe we remain well positioned to benefit from the continued growth in ETFs globally with our newer product additions, expanding client footprint and further AiEX product enhancements. And together with portfolio trading, index CVS and most recently, total return swaps, our passive trading electronic solution set allows clients to take macro views in an efficient manner across asset classes and products.

With that, I'm going to turn it over to Billy.

[William Hult, executive]

Thanks, Lee. Turning to Slide 7 for a closer look at credit. We produced another record-breaking quarter, driven primarily by a continued rapid growth of our U.S. institutional corporate credit trading business. Clients are voting for the liquidity and innovation we have brought to the market by increasing their trading on Tradeweb.

While the past few quarters has been about the rapid progress we have made in IG, the tide is now turning in high yield, where we also had a record quarter. Our fast-growing wholesale and retail middle market businesses were also important contributors. Recall, middle market is an important business where institutional traders trade in smaller sizes. Conditions in our core retail business have improved slightly with the recent steepening of the yield curve. However, they still remain challenged relative to the first quarter 2020 as financial advisers remain reluctant to add lower-yielding municipal and corporate bonds to their clients' portfolios.

Looking back, when we set out to bring meaningful competition to the U.S. corporate credit market, we had a clear strategy centered around creating a powerful feedback loop, led by sterile innovation, converging different sectors in the credit market and creating novel electronic and digital solutions for our clients.

We believe our strategy is resonating loudly with clients as our market share continues to set new records. While we are pleased with the progress made so far, we strongly believe we have the potential to do even better. We believe our technological innovation is permanently influencing client trading behavior. The latest example being portfolio trading, a light bulb solution which continues to attract more clients globally. Tradeweb facilitated a record $70 billion in portfolio trades in the first quarter 2021 with average daily volume up more than 150% year-over-year, highlighted by record activity both in the U.S. and internationally.

In the U.S., we estimate that the industry portfolio trading now regularly comprises 4% to 5% of TRACE versus 2% at the beginning of 2019. The numbers show portfolio trading has quickly become the next big protocol in credit after RFQ and all-to-all. Clients are increasingly turning to portfolio trading to discover prices for bonds with low liquidity scores and move large amounts of risk and take advantage of hit rates and quote rates in excess of 90%. The certainty and speed of execution has been game-changing.

Behaviorally, clients are increasingly putting dealers in competition, our in-comp portfolio trading volumes have tripled from the last year. Moreover, the size of their trades is growing with a number of line items increasing to record levels.

The demand continues to surge, and we will soon be rolling out our next generation of portfolio trading. AllTrade, the broadest suite of anonymous protocols in the market today connecting liquidity between our 3 client sectors, also hit a new record. Clients trade -- traded over $82 billion, an increase of nearly 100% year-over-year as our investments to grow our all-to-all network, integrate AiEX and improve responding functionality continues to pay off.

Session trading, another key AllTrade protocol, also hit a new record. Our newest innovation ReMatch, which enables unmatched inquiries at the end of a wholesale session to be matched by our institutional all-to-all platform as well as by offsetting retail liquidity, is still early in its rollout, but the progress has been encouraging.

Our advanced net spotting offering saw another record quarter with over $117 billion in volume, up 73% year-over-year. We rolled out our multiclient net spotting offering in the first quarter, which we believe generally advances our existing offering and are onboarding a strong pipeline of clients.

Clients will now be able to net their hedging activity not only across dealers, but also across other clients at the same time, enhancing savings, trading and operational efficiency. This is the fourth iteration of our net spotting offering, and we believe that further extends our lead against competitors today with basic spotting functionality.

Turning to the rest of our credit business. We believe one of our strategic advantages lies in the diversity of our product set. We achieved record revenues across European credit, China bonds and institutional munis.

Our CDS business posted its second strongest quarter on record, though volumes fell 35% year-over-year as volatility subsided from the extraordinary levels that we saw last year. We remain focused on driving our share higher by expanding our product set with strong growth in our EM sovereign and single-name CDS. We also recently expanded our product offering with a first-ever electronic market iBox total return swap trade. This is just another example of us collaborating with our clients to bring needed efficiency and transparency to the fixed income ecosystem.

In sum, we believe our credit business has tremendous room for growth and we have an exciting road map to lead the innovation across the credit markets. We are arming traders across the marketplace with a variety of protocols to intelligently find liquidity and optimize their execution objectives.

Moving on to swaps. The multiyear growth story continued with the record first quarter results. Variable revenues grew by 30%, driven by market share climbing to a record 11.8% from about 7% last year. This is a remarkable accomplishment by the team at Tradeweb in light of the first quarter last year when volatility back then couldn't have been more supportive. The success in swaps is another example of the nonstop innovation that has become a hallmark of our culture.

The low interest rate and volatility environment pressured industry volumes in the quarter, which were down 29% year-over-year. The lower industry volumes were primarily driven by a decline in lower fee per million overnight index swaps, OIS. However, client debate has returned regarding inflation expectations and the shape of the yield curve, which has injected life into volumes relative to the fourth quarter of 2020.

Over the last few calls, we have talked about focusing on things in our control, specifically driving market share higher by innovating to expand across products, protocols and geographies. Our record market share was driven by gains within core IRS, our main market of focus, and FRAs, where our combined share across core IRS and FRAs rose to 12% from 6.9%. We continue to innovate by responding to structural changes in the swaps market, be it the growth of EM swaps clearing or the transition to alternative reference rates and introducing new products and protocols. In fact, in the first quarter, we saw record EM and RFM activity, the first electronic cross-currency swap executed at LCH swap agent and the first automated euro swap versus bond futures trade. And last week, we added Brazilian IRS as we continue to attack the growing EM opportunity.

Looking ahead, recall the swaps market was the last big rates market after the government bonds and TBA markets started to go electronic in a meaningful way. And that only happened a few years ago at a time when the corporate credit market was well and truly on its way to being more electronic. Since then, the market has quickly electronified to approximately 25% today. This still remains a considerable amount of business done via voice, and that's our opportunity. Innovating to digitize manual flow while the global fixed income markets and broader swap market continues to grow.

Finally, we continue to invest in our leading automated trading capability, AiEX. Adoption continues to increase as clients get increasingly comfortable with low to no touch trading. The number of AiEX trades grew by 56% year-over-year in the first quarter with record usage across rates, credit and equities. Clients love the data-driven intelligence that AiEX is able to provide, especially when it comes to counterparty selection. Post trade, they can use it as a series of metrics to assess the performance of their key counterparties and continue to fine tune their trading strategies. This is really resonating with clients. And as clients become more comfortable with automation, we believe they will increasingly automate more of their trades and focus on more complex trades and managing client relationships.

And with that, let me turn it over to Bob to discuss our financials in more detail.

[Robert Warshaw, executive]

Thanks, Billy, and good morning. As I go through the numbers, all comparisons will be to the prior year period, unless otherwise noted.

Let me begin with an overview of our volumes on Slide 9. We reported record quarterly average daily volume in excess of $1 trillion, up 18%, both including and excluding short-tenor swaps. Among the 20 product categories that we publicly disclosed in our monthly activity report, 13 hit quarterly records, while another 5 achieved their second highest quarterly ADV. Areas of notable growth include U.S. and European government bonds, mortgages, U.S. and European corporate credit, Chinese bonds, European ETFs and institutional repo.

Slide 10 provides a summary of our quarterly earnings performance. The record first quarter volumes translated into gross revenues increasing by 16.5% on reported and 13.9% on a constant currency basis.

We derived approximately 39% of our revenues from international customers. And recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros.

Our variable revenues increased by 21.6%, and our total trading revenue increased by 17.3%. Total fixed revenues related to our 4 major asset classes continued to grow, up 6.9% and 3.6% on a constant currency basis. Credit fixed revenue growth was primarily driven by the addition of new dealers in U.S. credit and additional clients in Chinese bonds.

Equities fixed revenue growth was driven by the addition of new dealers and the impact of FX. Other trading revenues were up 19.8%, primarily driven by periodic revenues tied to technology enhancements performed for our retail clients.

Market data increased by 7.6% due to growth in Refinitiv-proprietary data products. Adjusted EBITDA margin came in at a record of 52% and expanded nicely by 97 basis points relative to first quarter 2020 as we continue to benefit from scale. All-in, we reported adjusted net income per diluted share of $0.43.

Moving on to fees per million, Slide 11. The trends I'm about to describe are driven by a mix of various products within our 4 asset classes. In sum, our blended fee per million increased 5%, primarily as a result of stronger growth in higher fee per million greater than 1-year swaps, credit and institutional ETFs. Excluding lower fee per million short-tenor swaps and futures, our blended fee per million was up 4%.

Let's review the underlying trends by asset class. Starting with rates. Average fees per million for rates was up 7% overall. For cash rates products, which include government bonds and TBAs, fees win was flat as growth in longer-dated, the higher fee per million U.S. treasuries was offset by growth in institutional mortgages, which carry a lower fee per million.

For long tenor swaps, fee per million was up 14%, primarily due to growth in international clients, emerging market swaps and RFM. In other rate services, which includes rates futures and short-tenor swaps, average fee per million increased 59% due to growth in frauds, which carry a higher fee per million than overnight index swaps.

Continuing to credit. Average fees per million for credit increased 74%. As higher fee per million cash credit projects, such as U.S. and European corporate bonds, saw record volumes, while lower fee per million CDS activity declined compared to a very volatile first quarter in 2020.

Drilling down on cash credit, average fee per million increased 2% due to stronger growth in U.S. high grade and U.S. high yield, both of which carry a higher fee per million than overall cash credit. Looking at the credit derivatives, electronically processed U.S. cash credit category, fee per million increased 2%, driven by growth in the U.S. high-grade electronic processed volume, which carries a higher fee per million than the credit derivatives average.

Continuing with equities. Average fee per million for equities was up 4% overall. For cash equities, average fee per million decreased by 1% due to a decline in fee per million within U.S. ETFs. This was driven by rising asset values in fleeting notional traded. Recall, in the U.S., we charge per trade and not for notional value traded. Equity derivatives' average fee per million increased 4% due to growth in European convertibles, which carry a higher fee per million than the equity derivatives average.

Finally, within money markets, fee per million decreased 30%. This was primarily driven by growth in institutional repo, which reached record levels and continues to grow. Institutional repo carries a lower fee per million than other mining market products. Retail money markets activity remained pressured by the low interest rate environment.

Slide 12 details our expenses. At a high level, we continue to invest for growth. There has been no change for our philosophy here. Adjusted expenses for first quarter decreased 13.4% and 8.8% on a constant currency basis. Recall, approximately 15% of our expense base is denominated in currencies other than dollars, predominantly in sterling.

First quarter 2021 adjusted operating expenses were higher as compared to first quarter 2020 due to increased employee compensation, technology and communication, G&A and professional fees, which were partially offset by lower G&A. Compensation costs increased 11.7% due to higher headcount as well as higher performance-related compensation and payroll-related taxes. Adjusted noncomp expense increased 17% on a reported basis, primarily due to technology and communications and unfavorable movements in FX.

Adjusted noncomp expense, on a constant currency basis, increased at 0.5%. Specifically, technology and communication costs increased primarily due to higher clearing and bid fees as a result of higher AllTrade volumes in credit and streaming U.S. Treasury values, which continue to grow.

In addition, this quarter also saw the continued impact of our previously communicated investments in data strategy and infrastructure. Adjusted general and administrative increased primarily due to unfavorable movements in FX, which resulted in a $1.5 million realized loss in first quarter 2021 versus a $2.3 million realized gain in first quarter 2020. Recall, we adjust out unrealized FX hedging gains or losses and the impact of FX on our cash balances. G&A on a constant currency basis decreased 23.4%, even less travel and entertainment expense.

Professional fees increased 15.3% due to increased consulting fees related to our investment in data strategy and infrastructure technology.

Slide 13 details capital management and our guidance. First, on our cash position and capital return policy. We ended first quarter in a strong position, holding $809 million in cash and cash equivalents, and free cash flow reached $473 million for the trailing 12 months. We have access to a $500 million revolver that remains undrawn as of quarter end.

CapEx and capitalized software development for the quarter was $12.6 million, an increase of 51% year-over-year primarily due to timing of investment spend. We continue to expect capital expenditures and capitalized software to be in the range of $45 million to $50 million for the full year.

Within the quarter's earnings, the Board declared a quarterly dividend of $0.08 per Class A and Class B share. We did not repurchase any shares in the quarter because of the lag between approval and final implementation. We expect to plan to begin in the second quarter.

As a reminder, we authorized a $150 million share repurchase program which we plan to use primarily to us annual equity grants. Turning to other guidance items for 2021. We expect adjusted expenses to trend in the higher half of our previous $530 million to $560 million range for 2021. We continue to believe we can drive operating margin expansion compared to 2020 at either end of this range. For forecasting purposes, we continue to use an assumed non-GAAP tax rate of 22% for the year.

Finally, on Slide 14, we have updated our quarterly share count sensitivity for 2021 to help you calibrate your models for fluctuations in our share price.

Now I'll turn it back to Lee for concluding remarks.

[Lee Olesky, executive]

Thanks, Bob. The operating environment still remains subdued, especially across retail, yet organic market share gains and volume increases continue to drive growth. We believe the multiyear secular trends powering electronification and automation remain intact. The regional product and asset class diversity of our revenues was on full display with another strong quarter for credit, rates and institutional equities. While money markets have multiple growth levers despite the noted macro challenges, our network continues to deepen as we innovate and connect the dots between different asset classes, sectors, protocols, regions, and customers. We believe it is this diversity that positions us well to both participate in and lead the next generation of progress.

In addition to organic growth and our previously announced NASDAQ fixed income acquisition, we continue to spend time evaluating potential M&A opportunities that we believe would further augment our network, given our cash position.

With a couple of important month-end trading days left in April, momentum from the first quarter has continued with overall revenues and volumes up double digits relative to April 2020. We are seeing strong revenue growth across global interest rate swaps and corporate credit. Both electronic investment-grade and high-yield credit market shares are running higher than the last quarter with notable strength across portfolio trading and AllTrade.

Before I conclude, I would like to welcome Murray Roos and Von Hughes to our Board of Directors. We are excited to leverage their voices and experience as operators and strategists, and we believe they will be immensely helpful to the Board and our management team.

I'd like to conclude my remarks by thanking our clients for their business and partnership in the quarter, and I want to thank my colleagues for their efforts that contributed to the record quarterly revenues and volumes at Tradeweb.

With that, I'll turn it back to Ashley for your questions.

[Ashley Serrao, executive]

Thanks, Lee. [Operator Instructions] Q&A will end at 10:30 a.m. Eastern Time.

Operator, you can now take our first question.

[Operator]

And our first question comes from Chris Harris from Wells Fargo.

[Christopher Harris, analyst]

So another quarter of obviously very solid growth for Tradeweb. What do you think the normalized level of growth of this business is, putting aside macro factors like interest rates? And related to that, can you give us an update on where you think we might be maybe in terms of an inning with respect to the digitization of the fixed income market?

[Lee Olesky, executive]

Okay. I'll take that one. Thanks, Chris, for the question. It's a good one. I think, look, when you think about -- when I think about responding to this, really, the best answer is to look at the history of our double-digit revenue growth on average that we've delivered for many, many years across different cycles as a real indicator of where we're headed.

The reality is that the secular drivers powering the growth are intact across all of our asset class. The most important thing, though, for us will be continuing our culture of innovation and creativity, where we unearth the new opportunities working with our customers around the world. That's really critical.

It's the network that we've built over the last 20 years that allows us to drive and respond to changes to really drive growth and respond to changes in client behavior by providing them with better tools than they currently have to improve their workflow and reduce their cost. So the acceleration in the digitization of the financial markets is happening right before our eyes. I mean this year was quite extraordinary. We had a record-breaking first quarter in an environment where volatility was relatively more subdued than last year's first quarter. So this is a function of our innovation and our execution that allows us to get these market share gains, but also a broader increase in electronification.

Now if you look at the -- just the U.S. IG sector, that's up over 600 basis points in electronic activity from the first quarter of last year. High yields, even more, 700 or so basis points of growth. And swaps, electronification is 200, 300 basis points of growth from the first quarter. So we believe these trends suggest the behavior is changing and perhaps accelerating a bit. We've been on the forefront of this behavioral change. The success of our innovations has allowed us to account for from more than half of the incremental percentages that have gone electronic. In IG, in the swaps market, the electronic pie is growing.

We firmly believe this is a multiyear trend. We still have as one of our main competitors is the phone. So there's so many parts of our business that are primed for more innovation and more advances in technology that will lead to more electronic execution. If you look at just some of our recent current innovations, streaming protocols and treasuries, RFMs and IRS, the great success that we've had with portfolio trading, we were on the cutting edge with that, the first ones out with that. Net spotting, we've got ReMatch in credit, things we're doing in repo with RFQ solutions and equities. So we believe the world is -- the new world is going to be a more flexible work environment with employees working from home and satellite offices. That's going to amplify the importance of technology and efficiency. And we kind of feel like this is a new era. It's a real changing point.

So lots of opportunities. Salesforce is very engaged. We're ramping up our marketing expenditure to further that, to broaden the network, and we're real excited about the opportunities ahead of us.

So in innings. So I don't know; the innings are different depending on where you are in the world and what the asset class is. So certain rates products are further along. But even perhaps the furthest along, the treasury market in the D2C space is only at the fourth inning, maybe going into the fifth inning. IG and credit, 37% electronics. So I don't know, that's third or fourth inning. Swaps is even earlier, right? IRS is only 25% electronics. So that's, I don't know, second inning, third inning. So it really depends on where you are in the world and in the asset class.

[Operator]

And our next question comes from Ari Ghosh from Credit Suisse.

[Arinash Ghosh, analyst]

So maybe one for Billy on the mortgage business. So the mortgage business has done really well in a low rate environment, setting new records last year, but volumes have been a bit more muted recently, growing around 5% in 1Q and lagging growth in other products. So maybe just how should we think about the impact of rising yields on Tradeweb's mortgage business?

[William Hult, executive]

Sure. Good question. I'm going to sort of date myself with this and kind of make Lee chuckle at the same time. I think it was like the second or third business that Tradeweb got into like way back when. And we've been an industry leader in the mortgage space from a very early on moment and have had very strong market share and a really strong brand attached to that business. So a lot of good stuff has always happened with us in the mortgage business in general.

It was a really good quarter for us, Ari. A record quarter for us, really strong things happening with our new initiatives around specified pool trading. So lots of good kind of highlights for us. What I would highlight around just the first quarter was really strong activity, specifically around convexity trading in the market. There was kind of good mortgage volatility happening. I always ask myself when I think about how a business is going to perform in different settings. It's a little bit to Lee's point, where are you with your network, right? It's not just about like do we have all of the customers on? Do we have the right customers on? Do we have the right users on right? The mortgage market is interesting and unique because in different settings, different types of companies will do the bulk of the volume. So very low rate volumes typically come from mortgage originators. You guys know that well.

In a higher yield environment, you get different types of customers that tend to enter the fray, right? There's delta hedging, there's relative value trades, the asset managers can get more active. So at the end of the day around things that we can control, we have this wonderful network in mortgages. We feel really confident that business will perform in a variety of different settings.

And the other thing I would just add is there's a low rate environment. And there's a rising moment in a low rate environment, but that's a long way from a high rate environment. So we always have to keep where we are in the yield curve kind of in perspective. And thank you for your question, Ari.

[Operator]

Our next question comes from Rich Repetto from Piper Sandler.

[Richard Repetto, analyst]

Thanks for the baseball analogies. I want to know whether Billy is the starter, the long reliever, the closer, all this. I think he's all of them.

[Lee Olesky, executive]

You can tell us after.

[Richard Repetto, analyst]

Anyway, my question, like you've highlighted over all these calls on an ongoing basis the different electronic and digitization efforts you're making whether it's portfolio trading or even passive investing sort of the last time -- last quarter. This quarter, at least this all-to-all AllTrade was a bit, at least a little bit new to me. And I guess the question is, your AllTrade or all-to-all trading, it seems like it has more -- there's a couple of different platforms in it. It's not just the all-to-all, the session-based and ReMatch as well. So I guess 2 questions on the all-to-all. Do you have enough liquidity at this point, say, in credit, if there was something like we had last year, that now it would hold up pretty much in any market environment?

And then the second is related still to all-to-all is it doesn't appear like you're taking share of all-to-all from other -- from your peer, if I have it correct, is whether you're just bringing more customers into this automated trading environment.

[Lee Olesky, executive]

Yes. So let me just start off by saying Billy is an amazing athlete; he can play any position. So I wouldn't even keep him at pitcher. We could put him on third base if we need to. I'll kick it off and Billy, feel free to jump in.

Yes. Look, what we've been doing in this whole sort of connect the dots strategy and linking in different customer segments of the market with lots of different technology tools is going to continue to really serve us well as it responds to customer demand. So whether or not there's a -- and I guess there always will be another crisis, but in response to is there enough liquidity, I think what we're really starting to see here is -- well, a, the answer is yes to that in terms of the scope of our network and the different tools we're bringing to bear; but b, look at the functionality, right? So we're attracting more and more customers, particularly when we're talking about credit and all-to-all as a result of the different tools we're offering. So whether it's portfolio trading or linking what we're doing in session-based trading into RFQ or what we did previously with retail into responding to institutional. Now we've got wholesale retail institutional all somewhat linked together with different waterfalls. We think that these advances will assist in any sort of time of stress with respect to liquidity. So it's going to all be about the innovation of these tools and stitching them together nicely.

And then at the same time, kind of having this very broad expansive network, that is a very efficient tool for customers at an attractive price. I mean that's what we're doing. We're in a battle to attract the clients to use our system to search for liquidity. And that's going to be a bit of an arms race in terms of the kind of technology you can bring to bear and apply into the market as you're responding to customer needs. So I think we're very well positioned for that. And really, the proof is in the kind of -- proof's in the pudding, right? Look at the numbers across the board over the last several years since we've been public. And if you wanted to, you could go back a lot further and see that we just continue to grow. So we're very positive about being able to handle different situations.

I mean the situation we dealt with in March last year, and not just us, the whole market, was so unprecedented and just to really a great extent with the help of the Fed, obviously, big help of the Fed, things kind of performed quite well. It was challenging in those first couple of months, but we're very pleased with how we've kind of been riding out the storm and in fact, really just accelerating things.

[Operator]

Our next question comes from Alex Blostein from Goldman Sachs.

[Alexander Blostein, analyst]

I was hoping to spend a couple more minutes on credit as well and definitely encouraging to hear your comments around market share and IG high-yield up from -- in April from the last quarter from first quarter. It sounds like portfolio trading continues to be a good contributor to that growth. So I was hoping to dig into that a little bit more. Obviously, we've seen industry-wide momentum in portfolio training growing. But can you spend a minute on sort of differentiated features of your offering relative to the competition? It seems like it's getting a little bit more momentum versus what we've seen from others.

And then any sense in terms of the revenue contribution from portfolio trading that you could help us with as well?

[William Hult, executive]

Alex, it's Billy. Yes, so I would -- listen, I would -- not to be a technocrat, I would just slightly change the word from good to great, right? Portfolio trading is becoming fundamentally important to the market. And the reality is, particularly -- and you guys can understand this really well, particularly in the environment that we are in, what do customers care about? They care about saving money and they care about saving time. They care about efficiency. And I think in just a very, very specific way, portfolio trading has absolutely resonated with clients' workflow, kind of period.

Instead of sort of going through the actual sort of workflow and kind of highlighting like what we do differently because obviously, we're sort of protective of how we build out our functionality, I would say like it's complex. It's a complex workflow, but the end result is simplified to the customer. And I think that's one of the most important kind of principles around it.

And I would also highlight something that Lee just mentioned, which was we were sort of like first around this. And I think that gave us a sort of inherent advantage around it. And we paid very specific attention to it very early on and the moment has kind of arrived in a significant way around portfolio trading.

[Lee Olesky, executive]

Yes. And I would just -- I mean Billy just nailed it, but I would just really emphasize the last point, which is, most of the time, our innovations are iterative, right? So just about everything we've done from the very beginning, you redo, you improve, you improve. So being first is super important. And then being able to deliver on the technology enhancements, and portfolio is just a great example of that. We've done it in a lot of other places, but portfolio is a great example. It's a multiyear effort already.

We're on our, I don't know, umpteenth version of this that we're putting out. And as Billy said, this is complex. So we are constantly improving it and making it more user-friendly. I remember when we first started off, it was like, "Okay, let's have 100 bonds in the list for the portfolio trade," then it was 200, then it was 5 -- I don't even know what number we're up to right now, but that just continues to grow. And that's complex stuff to make sure you're getting that right and tweaking it and enhancing the functionality is really super important.

[Robert Warshaw, executive]

And Lee, I'd just add one other thing, which is in portfolio trading, one of the big changes we've seen over the last 2 years is how much of it now is in comp, 2/3 of it is now in comp, starting from 2 years ago, 13%. So that's incredibly important because it means there's a lot more price discovery going on and it's being used for that purpose. And as a matter of sort of side helped us the income trade portfolio have slightly higher fee per million. So it's sort of all good in terms of how it's being used and its impact on revenues and on what clients are able to do.

[Operator]

Our next question comes from Alex Kramm from UBS.

[Alex Kramm, analyst]

Just actually staying on the topic of credit and maybe turning the question around a little bit. Clearly, you've made having a lot of traction, and that's exciting. But maybe you can help us talk about where you're not gaining traction? Or where there's still the largest area of untapped opportunities? Maybe that's certain clients, certain regions, certain types of trades, so -- and then, of course, related to that, is there something missing that you're doing? Is it just about sales efforts? Or is there anything else that you see in the marketplace that somebody else is doing that, it actually would make sense to maybe inorganically add to the war chest?

[Lee Olesky, executive]

We're competing in credit. We talked about this a lot, the market really wants competition. And I think we're showing you guys through our market share gains that we're a real force and we're competing in credit. When you compete, there's never an area where you don't have anything else to work on, right? So we're always kind of trying to figure out what our soft spots are and how we can improve.

I think I would probably highlight maybe high yield as an area where we've made a lot of improvements, and we've had some very recent success, but we feel like we can get even stronger in high yield. And obviously, one of the big areas that we're always kind of after are the block trades, right? And I think one of the -- a little bit back to Alex's point or Alex's question, I think one of the real kind of important realities around portfolio trading is it's become a real kind of risk transfer mechanism now.

And so I think the thing that we talk about a lot is how are we going after these block trades and how are we getting sort of more voice business coming our way. And that is our kind of singular focus OEs around credit.

[Operator]

Our next question comes from Ken Worthington from JPMorgan.

[Kenneth Worthington, analyst]

So emerging markets, I think, continues to be a priority for you. Can you talk about the success -- building on the success you've had in China. Can you talk about moving the ball forward to grow emerging market trading? Maybe what is resonating most with clients? And actually, how big EM is relative to the broader business at this point?

[Lee Olesky, executive]

Thanks for that, Ken. Look, just to hit on China for a second. We obviously see that as a very large opportunity, and we've been making investment there. We've announced some hires that we made. We hired James Sun, who runs the business out of Shanghai. We've made some minority investments in the data company Sun's co, and we continue to see really great growth coming out of China.

The emerging markets side of things has been -- we started kind of where -- with our strength in the derivatives area. So you see us reporting on new types of trades that we're instituting and we are investing in the space. You've got the China side. You've got the derivative side. You've got the cash side, which is an opening for us, which we're studying and putting more time and energy into. So we see a lot of opportunity in EM, but you'll see us coming at it with our strengths, which is tapping into the network, doing some clever things on the technology, strength in derivatives, geographic diversity that we have. I think we're pretty unique. We were the first firm actually into China, allowing access into the domestic market there. That was, I don't know, 3 years or so ago already at least. And we've had steady growth coming out of that.

So exciting area. I think it's a great question, Ken, in an area that you'll be hearing more from us about in the future.

[Operator]

Our next question comes from Michael Cyprys from Morgan Stanley.

[Michael Cyprys, analyst]

Just be curious to hear your outlook on the muni market. Just how you're thinking about the opportunity set there? Any new protocols that you think can make sense? And as we look at your meeting mark business, I think retail business is bigger for you in munis than institutional, if I'm right. So I guess just any color on the channels would be helpful. And how you're navigating bringing the different liquidity pools together from the retail and institutional side that have different needs.

[William Hult, executive]

Yes. So the muni market is really kind of -- it's still in kind of April 2021. It's still just really kind of a little bit of old school, kind of old school market, right? And so we feel like we're in a really good position around munis because obviously, the role that munis play in our retail business, we have a wholesale muni business. And there has been, to your question, a lot more kind of conversation and engagement around, is this the right time around a real kind of institutional muni platform? That feels a lot like how we've electronified other markets.

And so what we are going to do is we're going to do kind of, I think, something that we've historically done well, which is collaborate with the community and figure out whether or not this is the right moment to really kind of go after this space in a strong way.

There are some absolutely interesting signs kind of pointing in that direction now. And we are kind of, again, kind of sitting back a little bit. The fact that we have the muni business on the retail side, the fact that we're in the wholesale business in munis kind of gives us a little bit of this kind of edge that we always look for. And the next step is going to be this real engagement and collaboration with the external community, which is kind of always our kind of lead point as we kind of push these different business developments forward.

[Operator]

Our next question comes from Dan Fannon from Jefferies.

[Daniel Fannon, analyst]

My question is on the fixed revenues. They continue to grow and you talk about new kind of customer adds across a host of your businesses. So just trying to get a sense of the outlook as we think about this year, the trajectory of growth and kind of the fixed revenue, how we should think about that?

[Robert Warshaw, executive]

Let me -- there's several components to it, so let me talk about the components, and it really comes in 2 parts. One is fixed revenues associated with our trading businesses. And in that particular area, we sort of see a big kind of consistent growth year-over-year, which has been lower single digits. And we expect that to continue, and that comes from adding new dealers, in some cases, new products, sometimes changing slightly the way the mix between fixed and variable works for certain clients as they have choices to make related to that as they can determine some of their minimums. So that's the trading side of it.

The other piece of it is our information services is a big part. And there, we expect the growth to be more in the mid-single digits in -- at least in the short term, and that's related to continuing to add new product to also some are adding customers to IT reporting in Europe, and also the Refinitiv contract that we have, so really all the parts kind of contribute to that piece of it.

And I think a key other thing to think about when you're thinking about these things is, particularly for the growth in our information services, we are investing in that area and all of that investment is included in our projections on expenses. So it's all sort of part of how we're operating the business at this point, and that's important because we are focusing in that area. So it's those 2 pieces and somewhat consistent with what you've been seeing in both cases.

[Operator]

Our next question comes from Kyle Voigt from KBW.

[Kyle Voigt, analyst]

You mentioned in the prepared remarks about gaining share versus Bloomberg. I think it was related to IRS specifically. If we look at that market, your market share gains from 7.2% to 11.8% year-on-year. Could you help us frame what proportion of that you think is related to market share shifts versus Bloomberg relative to just electronification of voice brokerage?

And then secondly, do you think you're seeing any benefit from the trading fee changes more broadly that were proposed at Bloomberg?

[Lee Olesky, executive]

Yes. Let me take a crack at that, Kyle. Thanks for the question. I think, just context, IRS, holistically, we put at about 25% electronic these days. So let's just say, first quarter of '21. If we go back to first quarter of '20, we had it at about 20%, so pretty significant percentage growth, 500 basis points. So we've had meaningful growth there. And you can look at our numbers, and we think we're picking up the majority of that movement that's coming more electronic, so that's always a -- that's a big component depending on where the asset classes and the life cycle of electronification, so we're picking up a lot there.

We're also -- this is a tough one to nail down because it's not all publicly disclosed stuff, but we do think we're picking up market share as we have pointed out in our recorded comments and historically. I don't know what the exact number is, but we're gaining there. I wouldn't -- it's hard to comment on whether that's the talk of pricing at our competitor. I think it's always down to liquidity, first and foremost, functionality, responsiveness. The clients come to our system because of our interface, because the main desire is to find the best possible price. And I think we've been leading the way with respect to that in the swap space, in addition to innovation, I don't -- I wouldn't say it's a fee-based thing per se. But costs are critical, Billy said this before. It's all about efficiency, time efficiency. First and foremost, liquidity, time, efficiency and cost, reducing costs. So those are big, big issues across our customer base that we're very mindful of. And I think it's -- we've played well to that, as you can see from the results that we had in the first quarter.

[Operator]

Our next question comes from Brian Bedell from Deutsche Bank.

[Brian Bedell, analyst]

Just a real quick one. A lot of these have been asked and answered on credit, but if you can just talk about the net spotting contribution to 4Q and then 1Q. I know that the shares were flat overall in credit 4Q to 1Q, and there's a lot of different dynamics going on underneath that. You talked about portfolio trading and all trading. But so maybe just talk about the net spotting contribution from 4Q into 1Q? And then, into April, as you mentioned, the share improves in credit in April versus 1Q. So is net spotting a major force behind that? And do you expect that to improve, given your -- I think the way you mentioned the next generation of that is being rolled out.

[Lee Olesky, executive]

Yes, it's critical, right? Because it absolutely kind of channels into exactly what we were talking about before, which is like save me time, save me money. And it absolutely accomplishes both of those things. We get asked a lot like where is your kind of competitive moat around this, and we feel really strongly about it. Obviously, we feel like the workflow just absolutely sinks in with the biggest participants in the market. And we feel like our rates franchise, obviously, is the kind of engine around the pricing that gives so much comfort and credibility to what we've done. So we feel as kind of confident about this functionality as we did when we first started talking about it with you guys a year ago or 18 months ago, really.

It is an absolutely fundamentally important and critical component to the biggest kind of credit consumers in the marketplace. And that's a strong statement, and it makes us feel like we've accomplished something significant.

[Operator]

And our next question comes from Sean Horgan from Rosenblatt Securities.

[Sean Horgan, analyst]

I just had one more on the market data side of things. Can you give us an update on market data solutions? Where are you seeing traction versus a year ago? And I think you already touched on growth. So anything more there would be great.

[Lee Olesky, executive]

Sean, I'll take a stab at that. I think everyone is getting worn out. Thanks for the question. Yes. Look, market data is a combination for us of growth that we've got with our redistribution agreement with Refinitiv and our own focus on things that we're doing from a proprietary standpoint that we're delivering out to the market. It's an area of real opportunity. We think, especially in light of the work-from-home environment, data just becomes that much more essential, but also just the way the electronification of the market is going. So we've started this journey with market data thinking about how can we enhance the experience for our clients in terms of execution. So we've got focuses on the AI pricing, so we're driving prices now in tens of thousands of different bonds across the spectrum, obviously, in credit and other areas now that we're looking at and actually implementing on. So we think we have opportunity there. We're focusing on closing prices. So we've got a number of initiatives where we've launched closing prices in partnership with different firms and ourselves to establish that closing price. There's so much activity that occurs on the closing, and that's just increasing.

So look, overall, it's a big area of focus. We've invested and recruited some tremendous talent in both the data science side, the tech side and also on the product leadership side. We've got new leadership in place there now for a little over a year. Although I'm reminded that's one of the people who's probably only spent about a month actually in the office.

So it's amazing what we've been able to accomplish in this remote kind of setting. Yes, it's an exciting area. And I think one where we expect to have continued growth along those 2 lines that I mentioned.

[Operator]

And that does conclude the question-and-answer session for today's conference. I'd now like to turn the call back over to Lee Olesky for any closing remarks.

[Lee Olesky, executive]

Thank you. Let me just say quickly. Thanks, everyone, for joining us this morning. We started '21 on a very strong note. We remain excited about the rest of the year and tackling the multiyear opportunities in front of us. And obviously, if you have any follow-up questions, please feel free to reach out to Ashley or anyone on the team. So thanks a lot for joining us, and we look forward to talking to you next quarter. Thanks.

[William Hult, executive]

Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect. Everyone, have a wonderful day.