Tradeweb Markets Inc

NASDAQ:TW

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, and welcome to Tradeweb’s Third Quarter 2019 Earnings Conference Call. As a reminder, today’s call is being recorded and will be available for playback.

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

[Ashley Serrao]

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

Our third quarter earnings release, accompanying presentation and October volumes report, are available on the Investor Relations portion of our website. I’d like to remind you that certain statements in this presentation to 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. 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.

On today’s call, we will reference certain non-GAAP measures, including free cash flow, adjusted EBIT, adjusted EBITDA, adjusted net income, adjusted expenses and certain measures presented on a constant currency basis. More information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures as applicable, are included in our earnings release and earnings presentation posted on our website and will be included in the Form 10-Q to be filed with the SEC.

To recap, this morning’s results were consistent with our recent earnings pre-announcement. Specifically, we reported GAAP earnings per diluted share of $0.20. Excluding certain non-cash stock-based compensation expense, acquisition and Refinitiv-related D&A and certain FX items and assuming an effective tax rate of 26.4%, we reported adjusted net income per diluted share of $0.27. 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, Chief Executive Officer]

Thanks, Ashley. Good morning, everyone and thank you for joining our third quarter earnings call. Turning to Slide 4, we reported record third quarter results and set multiple new volume records as the secular drivers of our business and various investments continue to fuel growth. Serial innovation has been a reoccurring theme at Tradeweb since our inception. We will continue to invest to drive growth and make it easier for our clients to enhance their workflows.

Specifically record gross revenues of $201 million during the third quarter were up 22% year-on-year on a reported basis and 23% on a constant currency basis, which is supported by strong growth, both domestically and internationally. We’re especially pleased by our international growth and see a lot of potential ahead in both Europe and Asia. This translated to improved profitability as our adjusted EBITDA margins expanded by over 600 basis points to 46.5% year-over-year and by a similar amount on a constant currency basis. As we look ahead, we continue to be laser-focused on balancing both investments to drive future revenue growth and margin expansion to create greater value for our shareholders.

Turning to Slide 5, you can see the diversity of our revenue growth with all of our asset classes recording double-digit top-line growth. That’s on both a reported and constant currency basis. Our data business reported 7% and 8% growth on reported and constant currency basis, respectively.

Moving on to Slide 6, let me provide a brief update on our four main growth areas; interest rate swaps, U.S. Treasuries, U.S. credit and global ETFs. Starting with our largest rates product by both volume and revenue, interest rate swaps, our total volumes were up over 100% year-on-year during the third quarter with swaps greater than one year in duration, growing by over 40%.

This is an exciting and fast-growing area at Tradeweb as we believe there is lots of room for electronification to grow global in Europe over the next few years and across emerging markets over the long run.

We’re very focused on driving electronification higher in this market by partnering with our clients to broaden our product set, enhance our features and functionality, and improve workflows.

Moving on to Treasuries, our volumes were up 25% year-on-year during the third quarter. We continue to take share here using a variety of trading protocols in both the institutional and wholesale sectors. Our share today stands at over 12% of the market. We had a new record for direct streams as we continue to leverage our proprietary technology to innovate and create new ways for customers to source liquidity.

We also partnered with ICE to introduce closing prices for U.S. Treasuries adding to our successful closing price initiative with FTSE for Gilt bonds in the UK. U.S. cash credit is another big focus for us. Our share for the third quarter and high grade and high yield increased to a record 12.5% and 4.1%, respectively. We are building on what we believe to be a next-generation credit marketplace powered by our integrated, multi-sector approach that is resonating with our clients.

Going forward, we will continue to invest aggressively to compete and differentiate our venue with our liquidity and ability to respond to client demands quickly. Billy will provide more color here momentarily.

Finally, within institutional ETFs, volumes were up 74%, due to a combination of organic growth efforts and broader market volatility. Going ahead, we remain well positioned to benefit from our continued growth of ETFs globally.

We recently announced our partnership with EuroCCP, which we believe will help reduce settlement risk for European ETFs, help our clients navigate new settlement disciplined rules, and make the product accessible to new customers. We expect this to go live in the coming months.

With that, I will turn it to Billy to give you some more color on a few of our growth initiatives and trading automation.

[Billy Hult, President]

Thank you, Lee. So moving to Slide 7, the increased adoption of automated trading solution AiEX continues. We have paired AiEX with our market-leading composite pricing benchmarks and evaluated pricing tools like AI Price and Credit, which prices over 18,000 bonds. Our volumes and client counts are up nicely, and it’s encouraging to note that there is plenty of room to grow even within our Top 100 and most sophisticated clients.

Moving to slide 8. Another key growth area for us is global interest rate swaps where our market share continues to increase and we believe our offering is resonating across currencies. It is important to note that ADV growth is not just confined to European currencies. We are seeing broad-based growth and we continue to invest in this platform.

We recently linked the interest rate swaps market to the government bond market, thereby, electronifying the complex and traditionally voice-traded asset swaps market. We also integrated interest rate swap collateral optimization analytics from OpenGamma and Cassini to help clients satisfy their margin and best ex-margin requirements in advance of upcoming uncleared margin rules.

Turning to credit, the message here is clear. Our strategy to build a differentiated credit platform is working. Our network is growing and we believe we have significant runway to add more clients as our market share grows across both high-grade and high-yield. Leading advances in technology and getting clients to form new habits on our platform has been our mantra across all of our products, and credit is obviously no different.

A few years ago, we innovated with net-spotting, and today, we are now the leading platform for portfolio trading. It’s encouraging to see clients increasingly turn to our platform to not just electronify processing their trades, but also electronically execute their trades using a variety of protocols spanning traditional RFQs to more recent innovations like streams, session trading and all-to-all. We are also encouraged by the fact that clients are increasingly using our platform to electronify transacting blocks. We believe this speaks volumes about the progress we are making in taking our platform to the next level.

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

[Bob Warshaw, Chief Financial Officer]

Thanks, Billy and good morning. 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 volumes of $815 billion, up 53%. As you can see the growth was broad-based. Our investments led to new ADV records in European government bonds, swaps, mortgages, Chinese bonds, credit derivatives and European ETFs.

Slide 10 provides a summary of our quarterly earnings performance. The strong volume growth, I just described, translated into gross revenues increasing by nearly 22% and by 23% on a constant currency basis. We derived 37% of our revenues from international customers, and approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros.

Trading revenue increased by 23% and 25% on a constant currency basis as well. Fixed revenues related to our four major asset classes, continue to grow as expected. We continue to expect a low-single digit growth rate going forward. Refinitiv market data grew by 6% primarily due to the renewed market data license agreement. Other information services, increased by 18% due to growth in our APA reporting business.

Adjusted EBITDA margin came in at 46.5% and expanded by nearly 700 basis points on a constant currency basis. The increased margin was a result of continuing to benefit from scale. All in, we reported adjusted net income per diluted share of $0.27.

Slide 11 lays out the trends in fees per million. In sum, our blended fee per million declined 11% [ph] year-over-year. Excluding lower fees per million short duration tenor swaps, our blended fee per million was actually stable year-over-year.

Let’s spend a minute reviewing the underlying trends by asset class. Starting with rates, average fees per million for rates decreased 9% due to volume of short duration tenor swaps. Excluding short duration tenor swaps, fee per million was up year-over-year primarily due to elevated mortgage activity and increase in duration in government bonds.

Continuing to credit, average fees per million for credit increased 18%. This was primarily driven by higher concentration of CDS activity, which carries a much lower fee per million and a decline in municipal trading volumes. Recall, first quarter and third quarter tend to see seasonally higher CDS activity through the timing of roll activity.

Continuing to equities, average fees per million increased 8%. There continued to be a slight up-trend due to the growth in institutional ETFs.

Finally, within money markets fee per million decreased 2%. Fee per million has been hovering in this range for a while and the quarterly decline was driven by mix shift within repo from wholesale to institutional.

Slide 12 details our expenses. At a high level, we continue to invest for growth. There has been no change to our philosophy here. Adjusted operating expenses, excluding non-cash stock-based compensation expense relating to the special option award, acquisition of Refinitiv-related D&A and certain FX-related gains and losses, grew at about 9% on both reported and – recall, approximately 15% of our expense base is denominated in currencies other than dollars, predominantly in sterling.

Compensation and benefits expense grew 12.4%, primarily due to performance-based compensation, as well as an increase in headcount to 926 employees from 896 a year ago. Adjusted non-comp expense grew 2% or 1% on a constant currency basis. Specifically, technology and communications – increased third-party fees associated with higher trading volumes.

Depreciation and amortization increased due to capital expenditures related mostly to cyber security investments. Professional fees decreased slightly as we incurred higher fees in 2018, associated with preliminary work for our initial public offering.

Slide 13 details capital management and our guidance. First, on our dividend policy and cash position. With this quarter’s earnings, the Board declared a quarterly dividend of $0.08 per Class A and Class B share. We ended the third quarter holding about $390 million of unrestricted cash and cash equivalents, and trailing 12 months free cash flow reached $257 million. We still expect to spend $42 million to $48 million on CapEx in 2019.

Turning to our revolver and interest income. Recall, in conjunction with the IPO, we installed a $500 million revolver that currently remains undrawn. Interest income remained relatively flat year-over-year as higher interest income was offset by fees incurred due to our revolving credit facility.

With respect to our other guidance. Of note, our adjusted operating expense guidance is unchanged. We continue to expect adjusted expenses to trend to lower end of our $460 million to $475 million range. For forecasting purposes, we are using assumed non-GAAP tax rate of 26.4% for the year.

Let me discuss our share count. We’ve updated our quarterly share count sensitivity for the balance of 2019 to help you calibrate your models for fluctuations in our share price.

And now, I’ll turn it back to Lee.

[Lee Olesky, Chief Executive Officer]

Thanks, Bob. We are pleased with the progress Tradeweb is making. Our results demonstrate that there is a lot of opportunity across our asset classes. We released October volumes this morning. Average daily volume of $705 billion increased year-on-year, despite tougher comparisons given the slower trading environment versus an exceptionally volatile period in October of 2018.

Of note, we’ve set new records for overall share in U.S. high-grade credit, exceeding 14% of the market for the first time. We also set records for electronic share in high-yield. Looking ahead, we are focused on capitalize growth opportunities across our business and continuing to strike the right balance between investing for the future and margin expansion.

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 effort that contributed to another record quarter for Tradeweb.

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

[Ashley Serrao]

Thanks, Lee. As a reminder, please limit yourself to one question only. Feel free to hop back into queue and ask additional questions at the end. Q&A will end at 9:30 Eastern time. Operator, you can now take our first question.

[Operator]

Thank you. [Operator Instruction] Our first question comes from the line of Ari Ghosh with Credit Suisse.

[Ari Ghosh, Credit Suisse]

Hey, everyone. So Lee, maybe you can take my first question. So given that it’s been a few months since the LSE announcement now, I was hoping you could update us on how the potential ownership change has impacted decision-making at Tradeweb. And then also if there are any restrictions or limitations with regard to capital deployment in future M&A, as a result of this change. Thanks.

[Lee Olesky, Chief Executive Officer]

So, how did the ownership change with LSE affect us? I think we’ve said this before, it’s business as usual for us at Tradeweb. We’re continuing to act in the best interest of Tradeweb and maximize value for all our shareholders. We have a history of partnering with the marketplace to improve outcomes for our customers, irrespective of our ownership. So LSE’s acquisition of Refinitiv doesn’t change that philosophy or at all change our strategy. Of course, our Board has a fiduciary responsibility to evaluate all avenues to maximize value irrespective of our ownership. In terms of any restrictions, there are no restrictions. I think that’s the easiest way to characterize things. We continue to operate.

[Ari Ghosh, Credit Suisse]

Appreciate the color. Thank you.

[Lee Olesky, Chief Executive Officer]

Sure, thanks.

[Operator]

Thank you. And our next question comes from the line of Richard Repetto with Sandler O’Neill.

[Richard Repetto, Sandler O’Neill]

Yes, good morning, Lee, Billy, and Robert. I guess, my question is on margin expansion. It, sort of, has played out pretty much as you planned or laid out that looks like revenue growth is overcoming expenses, and the margins through nine months have grown by 300 basis points.

But anyway, my question is, when you look at the comp ratio, that has come down more than sort of the non-comp ratio. And is that – is there anything more we should read into that, is that the scale? It seemed like you’re benefiting there on the comp basis. And then also, what would happen, Lee, if revenue slowed down, because you do – you are very conservative on the revenue guidance?

[Lee Olesky, Chief Executive Officer]

Sure. Good morning, Rich. Thanks for the question. Yes, we’ve had – we had a very strong obviously, first nine months, the last quarter in particular. And I think it’s a bit related to – the answer is really related to the business model that we have, right. We’re always investing for new opportunities. There is a cost associated with that, with respect to compensation and people in deployment of our assets around the world. But as our markets start to take off, we – the margins improve. And I think the revenue growth really here is the thing that’s driving the earnings growth most directly. But, Bob go ahead and add to that.

[Bob Warshaw, Chief Financial Officer]

I think the other thing I’d add to what Lee said is that besides that, we also have been pretty closely managing this year the increase in number of hires in employees.

And so, while we haven’t cost of any of our investment objectives, it’s been sort of active effort as years go on to make sure that we hire for purpose. And so we’ve only added, I think it’s 30 some people for the year at this point. And that’s sort of at 926, I think maybe 96 or some numbers like that. And that’s been a pretty core part of it as well.

And the only last to add is that we also are pretty closely looking at the third-party costs and how we – third parties. So we’ve been watching things like our clearing costs and making sure that we make adjustments where we can between the things, consolidating third parties and looking – continuing to examine what we might do internally or not which is being the most efficient as we can. And that’s been a part of this as well.

[Richard Repetto, Sandler O’Neill]

Okay, thank you.

[Operator]

Thank you. Our next question comes from the line of Ken Worthington with JPMorgan.

[Ken Worthington, JPMorgan]

Good morning. Can you talk about the U.S. rate environment and industry-wide activity levels, and how the impact, the pace at which you can further penetrate the swaps or the U.S. credit markets business? If the Fed is on hold for the next year, maybe what has a pause following rising rates meant for industry activity levels in the U.S. products in the past, and maybe how do you higher or lower activity levels help or hurt new traders willingness – systems or existing traders to use the systems more? Thanks.

[Lee Olesky, Chief Executive Officer]

Good morning, Ken. Thank you for the question. Yes, look trading levels, we’ve been doing this a while. Trading levels vary at different points in time and we witnessed that in the month of October, while we did have 20% year-on-year growth, it was less of a blazing month and produced a slower trading environment, really across a lot of platforms, not just Tradeweb. Having said that, we have this secular wind at our back in terms of the move towards more efficient interaction and automation in electronification, digitization, all of those themes.

Those are constants. We don’t see any of that changing to any great extent. In fact, if anything, they continue to accelerate. They accelerate for a number of reasons. One is the drive-by all market participants to reduce their costs and to create more profitable environments, and that immediately leads people to trying to undertake more digitization, more automation. It’s really true across the board. It’s not that different in credit. And to swaps, what we see in different segments of our business, different asset classes, if you will, is they do tend to have a slightly different trajectory, the swap market in particular, as a result of some regulatory changes, U.S. and Europe with MiFID II, have really been accelerating aggressively.

Now having said that, you’re still in the swaps market. Just as an example, roughly [indiscernible] of that market is electronic to-date. So we expect to continue to see more of that occur, more digitization to occur regardless of a slower or faster trading environment. And I would say anecdotally, it looks like November has picked up a little bit more steam than October.

October was slower really across the Board as a result of just the number of – we’re all pretty well aware of. But we try not to get too caught up on the day-to-day, week-to-week, even quarter-to-quarter volumes in the market. We’re much more focused on investing to move markets forward to digitize things, and most importantly, to respond to clients’ needs to further automate their processes, so they can have a more efficient – more efficient business.

[Ken Worthington, JPMorgan]

Great. Thank you very much.

[Lee Olesky, Chief Executive Officer]

Sure.

[Operator]

Thank you. Our next question comes from the line of Michael Carrier with Bank of America.

[Sameer Murukutla, Bank of America]

Hey, good morning. This is actually a Sameer Murukutla on for Michael. Thanks for taking my question. You continue to see healthy client growth across IRS and AiEX business. But can you give us more details on what kind of volumes you’re seeing from these new users? Maybe what products are growing faster or slower seeing on the adoption side? And then, I guess, when you look historically, what has been the usual timeline from client onboarding to where the client is fully transacting across the franchise?

[Lee Olesky, Chief Executive Officer]

Sorry, I didn’t hear the last part of what you were asking, Sameer.

[Sameer Murukutla, Bank of America]

Yes, just historically when – as you’ve on-boarded clients, but generally how long they’ve taken from when they first get on the product to where they’re fully transacting across the franchise?

[Lee Olesky, Chief Executive Officer]

Okay. Let me answer that one first, because it does – that’s a tough one, because it really does vary. It’s very dangerous to generalize, right. We have thousands of institutions that are connected to us around the world, and they come in a variety of shapes and sizes with different resources to invest in different components. And some are not as broad as others. Some are obviously doing everything and pushing aggressively to do things like AiEX, which just further automates the process.

You could see in our deck the pace of growth with respect to the AiEX trading activity. It’s been going on for several years. It just continues to ramp up in terms of the volumes that are being done, the percentages of trading activity and the number of clients that are using it. It tends to be the slightly more sophisticated clients that will move to these levels of automation first, those with more resources to focus on and those that are looking to save more costs, right. AiEX is in automation or further automation of the workflow.

And – so for AiEX really what we’ve done is we’ve given these clients that are very active in the markets a tool to eliminate the clicks. Billy is fond of saying, I think it’s a great way to think about it, which is when we first started doing this it was hard enough just to get people to click the mouse to do the RFQ and he had to make a few clicks, select dealers and click a few buttons and fill in the size. With automation now we’ve basically given clients rules-based algorithm where they’re programming across the characteristics that they care about to completely automate this process based on a number of different criteria that they can use.

I expect that will continue to grow in terms of the take-up, but also the sophistication that goes into these automated tools. It’s like everything else with – that we see with technology we sort of start in one place and we continue to invest and it leads to the next thing and the next thing. So we’re very, very pleased with the rise in our automated trading really across the globe. We’ve got very active AiEX activity in Europe, in credit markets, we’ve got it in rates markets and obviously in credit markets in the U.S. as well. We just expect that to continue over time and actually to become more sophisticated.

[Sameer Murukutla, Bank of America]

Thanks again.

[Operator]

Thank you. Our next question comes from the line of Alex Kramm with UBS.

[Alex Kramm, UBS]

Hey, good morning, everyone. Just wanted to shift to credit for a second. I mean the market share gains here in the third quarter, but also quarter-to-date in the 4th quarter continue to be really good in particular on the fully electronic side. I mean I know you have the slide on the institutional penetration, which you also just talked about. But can you also talk about some other areas in that business, like how much is the retail business contributing to that growth? And then anything on the dealer side you would point out? Are there still dealers that are maybe much less active than others or do you feel pretty good in terms of the participation there? So, any color would be helpful. Thanks.

[Lee Olesky, Chief Executive Officer]

Sure. Yes. When you look at October, we had significant outperformance in credit. The volume growth year-on-year was 36% in IG, 18% in high yield. Our market share for October was nearly 15% of the TRACE market, of which 6.7% was pure electronic activity, some great growth in high yield as well, up to 2.6% of that reported market. So we are making gains in credit. Our network is growing. I think our technology is resonating. It’s not just one thing now, right. So this is – we have a very complete focus on this market. It’s all to all. It’s the portfolio trading, which we were the first to introduce over a year ago.

We’re already on our second iteration of that. We just rolled it out in Europe. We still have meaningful traditional RFQ business. We have a suite business that’s growing very nicely. So we’re focused on building our franchise really in response to the market’s desire for competition. There isn’t one particular driver that we would highlight. We’re really doing everything you would expect us to do to continue to close the gap versus the incumbent and in some cases playing a leadership role in terms of innovating and introducing the next bit of functionality to the market, portfolio being a great example of that. But it’s really across the board.

I think the latest thing that we just rolled out is our income portfolio trading, which we believe will play a leadership role in bringing portfolio trading to the industry. But this is a very comprehensive approach that we have across all the client segments we have, the retail client segment, which is providing liquidity into the institutional space, the wholesale market which is taking price generation from other markets and setting a midpoint to allow for significant growth in the automation of that or electronification of that kind of session-based trading, it’s really across the board. It’s not any one particular thing or any one particular liquidity provider or group of liquidity providers.

[Alex Kramm, UBS]

All right. Helpful. Thank you.

[Lee Olesky, Chief Executive Officer]

Sure.

[Operator]

Thank you. Our next question comes from the line of Kyle Voigt with KBW.

[Kyle Voigt, KBW]

Hey, good morning. Thanks for taking my question. Maybe just a question for Billy. So MarketAxess is planning to launch its LiquidityEdge cash treasury offering into that D2C segment of the market in the first half of next year. Just wondering, is there anything unique about that offering or the protocol they offer that Tradeweb doesn’t offer to that segment today. Just trying to get a sense of any differentiation versus your offering ahead of that launch.

[Billy Hult, President]

Sure. That was just a good question. We’ve been talking on this call for a little bit about the fact that the government market in the [indiscernible] some very basic level. Obviously we look at this as sort of a validation of our strategy all along. The reality is we’ve done a tremendous amount of work behind the scenes to nail this workflow with our most important clients. We’re saving the money and we’re creating efficiency for them and we feel really good about what we’ve done in this space. I can’t exactly speak to sort of what their timing is and kind of what they may do. But we know that we are kind of leading around innovation and credit now and we think that this is a workflow that we have 100%

[Kyle Voigt, KBW]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Ken Hill with Rosenblatt. Your line is now open.

[Ken Hill, Rosenblatt]

Hey, good morning. So one area I wanted to dig in on the volume release this morning. You guys saw some nice growth month-over-month on European credit and in Chinese bonds. So kind of first hoping to get a broader understanding what you’re seeing in those markets currently versus the U.S. And then second, for China overall just really can you outline the strategy again and how you’re continuing to differentiate yourself there and maybe any barriers to entry for competitors? And then lastly, anything to keep in mind from a pricing perspective as those continue to increase at that kind of portion of your portfolio?

[Lee Olesky, Chief Executive Officer]

Sure. Well we – thanks for the question, Ken. We were the first to connect into China back in 2017. We – obviously it’s an appealing market. It’s a very large bond market. By our count, the third largest in the world with $13 trillion of debt outstanding. I always like to throw out the caution that we are still in the very, very early stages of the evolution of this market as more foreign institutions connect to Bond Connect, but also more importantly as they assess their decisions to invest in assets in Chinese debt.

So with that said though, we’re already profitable in China today. We’ve obviously seen very strong interest and momentum in recent months as the investor interest in China grows. We do take a long-term outlook with respect to our business and growth opportunities in particular. So we’ve invested with boots on the ground with people in Shanghai. We opened our office up there to capitalize on our first-mover advantage. Clearly the – in the recent term we’ve got index inclusion as a catalyst. This is happening in a phase-in approach and will continue.

But we just continue to invest over there. We rolled out streaming prices to enhance pre-trade transparency, we’ve integrated with the iDeal Messaging Tool developed by CFETS that’s very popular with the onshore dealers. We’re continuing to expand our network where we can into China, and the bigger opportunity will come when China liberalizes and allows more money to move offshore, that’s sort of referred to as southbound trading, but that’s a timeline that’s really entirely up to the government authorities. I think what we’re doing is making sure that we are incredibly well positioned to continue to just be a first mover in respect of these markets as they come online, as they digitize, and perhaps with China, the common is as they connect with the rest of the markets around the world and market participants in electronic trading.

[Ken Hill, Rosenblatt]

Thank you.

[Lee Olesky, Chief Executive Officer]

Sure.

[Operator]

Thank you. Our next question comes from the line of Ari Ghosh with Credit Suisse.

[Ari Ghosh, Credit Suisse]

Hi, there. Thanks for taking my follow-up. Just quick one on AiEX and the client growth ramp that you have on Slide 7. Is most of this growth primarily from U.S. clients or are you seeing greater adoption in overseas markets that’s well, either from Asian and European customers? Any color or stats here would be really helpful. Thanks.

[Billy Hult, President]

Yes, I think it’s a good question. I would say, it’s – this is – AiEX is again and Lee described as well, it’s just like lightbulb moment with our most sophisticated and most important clients, and it’s global and I think the most important thing when you think about AiEx is this is now a moment in the market where when markets get volatile, there was a point in time where maybe they would reverse from trading electronically on to the phone through innovation like AiEX. Now they are trading more electronically in the more volatile markets, and this is a trend that sort of touches across all the regions.

[Ari Ghosh, Credit Suisse]

Thanks again.

[Operator]

Thank you. Our next question comes from the line of Richard Repetto with Sandler O’Neill.

[Richard Repetto, Sandler O’Neill]

Hey, Lee, I got a follow-up question. Since this is the second round here, I’m not sure you’ll answer this, but I’ll still ask it. The – it’s on the secondary. You know the banks out of the, I think, it was 19 – or out of the secondary are $17.2 million or somewhere around there. The banks sold, we calculate $16.8 million, but they only sold about 60% of what they could have sold by our calculations or somewhere around there. And I guess, what did that tell to you? I know there’s a few that didn’t sell at all. And I guess my question is, what did it tell you? Was it an issue of just the size of the overall deal or any other takeaways from them not selling the full amount?

[Lee Olesky, Chief Executive Officer]

Thanks, Rich. Yes, that’s – that as you sort of prefaced – I think that’s a tough one for us to answer. You know we – I’d say the best answer is, it’s always, it’s nice to know that we have investors that have been with us for a very long time that continue to be with us. We had the secondary offering. It’s been a challenging market from what I see on my screens in the equity world with respect to IPOs this year, and secondary offerings and the end of lock-ups and that sort of thing.

So I do think we’re – as well as we have performed and we’re quite proud of the results that we’ve achieved for our investors from the IPO at 27% to whatever we’re going to open up at today, going through this secondary, where we sold another 17 million or so shares at $42. Every firm makes its own decision in terms of how they view their investments with respect to everything, let alone Tradeweb. So, it’s really hard to comment on why particular banks or do I think the numbers you have are correct, they are public – it’s public information. I think that roughly 60% is in the right ballpark. I don’t know, at the top of my head. That’s exactly right, but it’s in the right range. I know we sold 17 million – a little over 17 million shares.

So, it was an offering that occurred at a time of a modest to a decent amount of stress in the equity markets that went off quite well. We’re still only a few weeks out of it, and we like where we are, we like how the stock is trading, but everyone’s making their own decisions, speeds at new – the length of their investment, both old investors, new investors, it’s hard to really comment much more than that on it.

[Richard Repetto, Sandler O’Neill]

Got it. Thank you very much, Lee.

[Operator]

Thank you. Our next question comes from the line of Alex Kramm with UBS.

[Alex Kramm, UBS]

Hey, hello again. Just another follow-up on credits. Seems like I keep on reading or hearing more and more about the proprietary market making crowd, kind of evaluating credit more, so just wondering to what degree you are seeing those guys as well? I don’t know if it’s just conversations, or it’s actually did them showing up. If that does anything for the marketplace in your opinion, and maybe just in general, across your business, how much business you actually do with that part of the market or customer base? Thank you.

[Lee Olesky, Chief Executive Officer]

So, Alex, yes, it’s a great question. So obviously they are sort of fundamentally important clients in the treasury actives market, and so we identified the need to have them, the important clients of ours a bunch of years ago. And without question, they are going to play a rising role in a variety of markets. I think we can all kind of understand based on the nature of how credits trades, they’re going to have an influence in terms of the direction of market structure and credit going forward. We feel really good about our connectivity with these types of clients.

And our overall relationship with them over the years has developed and grown, and we think they’re going to play an important role with us going forward.

[Alex Kramm, UBS]

Okay. And then secondarily, since we’re just in follow-up mode here, maybe just on the October volume release. I think Lee made this comment that October felt a little slower, but when I looked at the release this morning, in terms of the volume, I know they have a decent amount but it seems like the mix shift seems to be pretty positive too. So anything that maybe getting wrong here, why this may have not been a pretty solid revenue month actually, and maybe how you think about the remainder of the quarter? Thank you.

[Lee Olesky, Chief Executive Officer]

Yes, I think you’re right in assessing what the volumes were relative to mix and how it impacts us. I think that’s a correct assessment. My comments on the slower trading environment before were general comments, right, plus the fact see the –we’re up 20% plus, but $700 billion versus $800 billion, so we’ve clearly gone down a little bit from where the third quarter out to where we are in October, that’s a macro thing that’s happening across all markets really with the Fed and Brexit and a number of things that have just slowed volatility and as a result, brought volumes down.

I think for us, as I said before, we’re kind of in it, we know we’re going to have times when there is a macro environment changes, there’s less trading and then it swings back and there is more trading. What we’re focused on though is, innovating, rolling our new products and I think probably the most interesting thing about October is, yes, it was a slower trade environment volumes, but looking at our market share, right. So not only the year-on-year growth, which is great – that’s kind of a more reasonable measure versus month-to-month. So the year-on-year growth was great, but we’re also gaining market share, almost across the board.

So look, it was a strong month for us from a revenue standpoint. It’s a good month for us from a revenue standpoint, it was a slower month in terms of the trading environment holistically, and you see that in our volumes and I’m sure as you look at the competitive landscape among other exchanges and platforms, our relative performance actually was I think quite good relative to everyone else and relative to the market. So we’re pleased. We’re pleased with it. We’re just making the observation. Yes, it was a slower market in October.

[Alex Kramm, UBS]

Fair enough. Thank you.

[Lee Olesky, Chief Executive Officer]

Yes.

[Operator]

Thank you. Your next question comes from the line of Michael Carrier with Bank of America.

[Sameer Murukutla, Bank of America]

Hey, this is Sameer again. Thanks for taking the follow-up. A question related to M&A. I think you’ve closed around five transactions since 2008. I think CodeStreet being the most recent. So when you just look at the current state of the franchise, can you just give us more details on any products of the protocol workflow distribution gaps that you think could be enhanced via M&A?

[Lee Olesky, Chief Executive Officer]

Sure. Thanks, Michael. Yes, look with M&A. We have a very active team in our business development group that’s based in our offices around the world that are constantly reviewing options for us with the management team around the world and it’s a place where we are staying sharp. And as we are in a business that is such a growth business what I like to say is rather than tell you what our next great idea is which we’re not going to do, look at what we’ve done historically. We focus on expanding into different regions. We focus on tackling different segments of the market that will expand our network, right, so network expansion, a big part of the strategy that we’ve had at Tradeweb for these 20 odd years that we’ve been doing this.

If there is some technology – CodeStreet was a technology play, if there is some technology out there that might fit in to our overall workflow and assist our clients always with an eye toward how does this solve a client’s problem, we’ll move, we will pounce on those things. But we’re constantly assessing market opportunities for non-organic growth M&A.

[Sameer Murukutla, Bank of America]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Richard Repetto with Sandler O’Neill.

[Richard Repetto, Sandler O’Neill]

I guess I could keep asking questions here, Lee. So...

[Lee Olesky, Chief Executive Officer]

Yes, [indiscernible].

[Richard Repetto, Sandler O’Neill]

So I hope it doesn’t come out from a future quarters here. But anyway, one for – one on – well to do with portfolio trading and Bill you mentioned it. And I know you’re excited about it and it’s sort of like the new movement and the new phase of electronics in the credit market. So could you expand on why you think it’s so important? What will sort of spurt on? And also ICE’s ETF, but I know ETFs certainly could add to portfolio trading as well. What’s your views on the ETF hub and will you connect to it eventually or do you view it as a competitor?

[Billy Hult, President]

So good questions, Rich, on sort of portfolio trading. Let’s think about it this way for one second, which is for a long time with the most important buyside clients there has been a sort of fundamental problem or an issue around how they would send out the offer lists in the credit market. And when Lee and I would go to visit those clients, they would express that to us, a frustration around the fact that on the other side of those trades the dealers would tend to pick and choose which items they wanted to respond to.

So one of the innovations that came out of that fundamental reality was something that we could describe around the move toward all to all trading and the need for more liquidity in the marketplace. This is almost like think about portfolio trading is almost like a 2.0 innovation in credit around solving for that need, okay, because now obviously the list is being priced as one, okay.

So as we’ve kind of gone out there and kind of led the way around portfolio trading I come back to this reality that we have solved an inefficiency in the market and the buyside is feeling the benefits of how we’ve kind of worked out this workflow in a kind of complicated and an important way. So it’s really kind of fundamentally resonated with the most important clients and credit. I think that’s why you’re hearing so much about it.

[Richard Repetto, Sandler O’Neill]

Any comments on the ICE’s ETF hub?

[Lee Olesky, Chief Executive Officer]

Yes, not a lot at this stage. We’re not currently engaged there. We’re keeping an eye on it. It’s a new tool that I think will help in the create or redeem space. With respect to confirmation, it’s something we’ll have to look at. We don’t see it as a direct competitive issue today but we obviously have our eye on it. The ETF space is one where we’ve been leading innovation in terms of the RFQ block capacity that we introduced two years ago. First in Europe and now we have in the U.S.

The role of ETFs and how it’s linking into portfolio trading in the credit markets is I think quite an interesting evolution that we have going on and fundamentally, it’s a market that’s growing. So we are laser focused on where we can add value. It’s always where can we step in and provide some technology into our network that solves for some of our clients’ problems that is something that we can get paid for.

[Richard Repetto, Sandler O’Neill]

Thank you.

[Operator]

Thank you. And I’m showing no further questions at this time. I will now turn the call back over to Head of U.S. Corporate Development and Investor Relations, Ashley Serrao for closing remarks.

[Ashley Serrao]

Thank you all for dialing in today. We appreciate the time. Feel free to follow up with either Bob or myself later on with questions. Thanks.

[Lee Olesky, Chief Executive Officer]

Thanks everyone.

[Bob Warshaw, Chief Financial Officer]

Thank you.

[Operator]

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating, and you may now disconnect.