Apr 24, 2013
Executives
Dave Cresci – Investor Relations Richard M. McVey – Chief Executive Officer and Chairman of the Board Antonio L.
DeLise – Chief Financial Officer
Analysts
Michael Adams – Sandler O'Neill & Partners Jillian Miller – BMO Capital Markets Niamh Alexander – KBW Patrick O'Shaughnessy – Raymond James & Associates Inc Hugh Miller – Sidoti Howard Chen – Credit Suisse Michael Wong – Morningstar
Operator
Ladies and gentlemen, thank you for standing by. At this time all participants are in a listen-only mode, we will conduct a question-and-answer session.
(Operator Instructions) As a reminder, this conference is being recorded April 24, 2013. And now, I would like to turn the call over to Dave Cresci, Investor Relations Manager at MarketAxess.
Go ahead, please, sir.
Dave Cresci
Good morning, and welcome to the MarketAxess First Quarter 2013 Conference Call. For the call Rick McVey, Chairman and Chief Executive Officer will review the highlights for the quarter and will provide an update on trends in our businesses, and then Tony DeLise, Chief Financial Officer, will review the financial results.
Before I turn the call over to Rick, let me remind you that today’s call may include forward-looking statements. These statements represent the company’s belief regarding future events that by their nature are uncertain.
The company’s actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For discussion of some of the risks and factors that could affect the company’s future results, please see the description of risk factors in our Annual Report on Form 10-K for the year ended December 31, 2012.
I would also direct you to read the forward-looking disclaimers in our quarterly earnings release, which was issued earlier this morning and is now available on our website. Now, let me turn the call over to Rick.
Richard M. McVey
Good morning, and thank you for joining us for our first quarter 2013 earnings call. This morning, we reported our first quarter financial results, with another solid quarter in which we achieved record revenues, pre-tax income and EBITDA.
Revenues for the quarter were $55.6 million, up 9.5% from $50.7 million a year ago. The main driver of revenue growth was an increase in variable transaction fees, which were up 12.5% to a record $32.5 million from $28.8 million in the prior year.
Pre-tax income was up 6.9% to $24.3 million. Our board has approved a regular quarterly dividend of $0.13.
The annualized dividend payout ratio is approximately 30% of trailing 12 month EPS and free cash flow. Our estimated high-grade market share was 12.3% up from a 11.4% last year.
In addition, we continue to see growth in our emerging markets and high-yield products with combined volumes up 36% year-over-year also a record. Last night we announced a strategic alliance with BlackRock to create a unified electronic trading solution.
Our goal is to reduce fragmentation and improve liquidity in the credit markets by providing a wide range of electronic trading solutions to a vast network of dealer and investor market participants, in Europe we finalized our acquisition of Xtrakter during the quarter and we’ve begun the process of integrating the two firms, we continue to see ample opportunities in data trading and post-trade services with the combined capabilities of MarketAxess and Xtrakter. Slide 4, provides an update on market conditions, Q1 TRACE volume show their normal seasonal pattern with market volumes very similar to one year ago, and up about 20% from Q4 2012, we believe that the growing phase of corporate debt outstanding will create more secondary trading opportunities in the future, flows in the taxable bond funds remain strong at $55 billion during the first quarter, primary dealer holdings of corporate debt for market making were up slightly during the quarter, but remain more than 75% below peak levels, reflecting balance sheet constraints.
Slide 5, provides an update on our Open Trading Initiatives, as mentioned previously we have announced a strategic alliance with BlackRock to create a consolidated electronic marketplace for credit trading, the alliance will facilitate seamless trade flow between users of BlackRock, Aladdin Enterprise Investment System, and the MarketAxess Trading Community. BlackRock will take an active role in promoting and marketing the MarketAxess’ open trading solutions in order to improve liquidity in credit markets.
We made good progress with our open trading initiatives in Q1. 59% of all high grade inquires on the system will placed into the Market Lists open order book, while still a small percentage of overall trades, completed client to client trades increased 62% from the fourth quarter.
To complement these developments on our corporate bond platform we also launched a central limit order book for trading of single name credit default swaps with a major swap dealer yesterday. This capability is an addition to the multi dealer RFQ and streaming protocols we already have live for CDS on this system.
Our quarterly CDS volumes have been growing in a sequential rate of 64% since the first quarter of 2012. In spite of ongoing delays in the finalization of SEF rules we are moving forward with our CDS electronic trading capabilities.
Slide 6 highlights estimated market volumes and revenue sensitivity in our core products. We believe that the electronic share of credit trading is still in early stages, while we believe we represent the vast majority of electronic trading in the U.S.
corporate bond market we currently represent about 12.3% of the total secondary volume. Our estimated market share of emerging markets and high yield trading is around 5%.
Market demand for new electronic trading solutions is running high and most industry analyst projected significant increase in the electronic share over the next three to five years. Variable transaction revenues are the most important driver of long-term revenue growth.
As you can see in the bar chart we continue to benefit from strong growth in total variable transaction revenues. Transaction fee growth represents the combination of market share gains in high-grade, high-yield and EM and higher fee capture.
Q1 average daily variable transaction fees were up 16% year-over-year and reached a new record of $540,000. Based on our current fee capture and current secondary market volumes we estimated 1% market share gain in U.S.
high-grade drives approximately $5 million in additional annual revenue, both our high-yield and EM products have similar revenue sensitivity for a 1% increase in market share. Now, let me turn the call over to Tony for additional detail on our volumes and financial results.
Antonio L. DeLise
Thank you, Rick. Please turn to slide 7 for a summary of trading volume across our product categories.
We have created two new volume buckets that are intended to help clarify volumes trends by grouping together instruments with similar liquidity characteristics and fee capture. The other credit category now includes high-yield, emerging markets, Eurobonds and structured products and the new liquid products category include U.S.
agencies and European government bonds. We will continue to report high-grade separately.
Our overall global trading volumes were up 2% year-over-year to a record $160.4 billion. U.S.
high-grade volumes were record $101.2 billion for the quarter up 3% year-over-year, TRACE volumes were down 4% from the previous year. Volumes in the other credit category were up 19%, compared to the first quarter of 2012, all of this growth came from high-yield and emerging market volumes which were up a combined 36% year-over-year.
Liquid product volumes were down 30% year-over-year over 90% of these volumes were attributable to U.S. agency bonds.
Our agency volume decline is consistent with the 30% drop in reported agency volumes on trades. With five important trading days still remaining in April we currently expect April high-grade and high yield market share to be above the first quarter levels.
Slide 8 displays our quarterly earnings performance. Revenues of $55.6 million were up 10% from a year ago, driven principally by a 13% increase in variable transaction fees and the inclusion of the Xtrakter results since the February 28 acquisition date.
Xtrakter revenues are reflected in the information and post-trade services revenue line. Total expenses were $31.2 million, up 12% from the first quarter of 2012.
Excluding Xtrakter operating expenses and transaction related costs, total expenses were up less than 1% year-over-year. The first quarter 2013 income tax provision includes a benefit for certain 2012 tax credits enacted into law in January of this year amounting to approximately $400,000 or $0.01 per diluted share.
Excluding this item, our effective tax rate for the first quarter was approximately 38.4%. Our diluted EPS was $0.41 on 37.7 million diluted shares.
On slide 9 we have laid out our commission revenue trading volumes and fees per million. To facilitate the transition to the new volume reporting buckets, we have posted a file on our website summarizing quarterly commissions volumes and fees per million under both the new and old formats for the past nine quarters.
The U.S. high-grade fees per million were $191 in the first quarter, consistent with both the prior year levels, and the fourth quarter, we have experienced a decline in the years-to-maturity of bonds traded on our platform over the past six quarters, but fee capture continues to benefit from the low yield environment, fees per million in the other credit category were $296 in the first quarter of 2013 up from $269 a year ago and from $291 in the fourth quarter.
Higher fee capture emerging market and high yield volume accounted for the year-over-year increase and represented 82% of the other credit category volume in the first quarter compared to 72% one year ago, distribution fees were $14.7 million during the first quarter of 2013 down 8% from the first quarter of 2012. We currently expect that second quarter 2013 distribution fees will be consistent with the first quarter level.
Slide 10, provides you with the expense detail, the 12% increase in total expenses from a year-ago were almost entirely attributable to the Xtrakter acquisition. In the first quarter, Xtrakter operating expenses were $1.7 million and investment banking and other transaction related costs were $1.4 million.
The year-over-year increase in depreciation and amortization reflects a significant capitalized software development and equipment spending in the past several years, together with the amortization of the Xtrakter intangible assets. The year-over-year and sequential increase in professional and consulting fees is largely attributable to the Xtrakter transaction costs.
On slide 11, we provide balance sheet information. Cash, cash equivalent and securities available for sale as of March 31 were $143 million, compared to $180 million at year end 2012.
During the first quarter we expended approximately $37 million to acquire Xtrakter and paid out our year-end employee cash bonuses of roughly $19 million. There was no change in our capital structure during the quarter, we have no bank debt outstanding and didn’t borrow against our revolving credit facility.
On slide 12, we’ve summarized our updated 2013 expense capital, expenditure and income tax rate guidance. With the inclusion of the Xtrakter results effective March 1, we now expect the total 2013 expenses will be in the range of $137 million to $143 million.
Xtrakter operating expenses for 2013 are projected to be approximately $20 million inclusive of depreciation and amortization expense of approximately $3 million. We expected roughly 55% of the extractor operating expenses were relates to compensation and benefits expense.
Capital expenditures include computer software and equipment, capitalized software development costs and data center build-out costs. As communicated on previous calls, we’ll be making a significant technology investment in the Xtrakter business over the next several years.
We now expect the total capital expenditures will be between $15 million and $18 million in 2013. We continue to believe that the effective tax rate for the full year 2013 will be between 38% and 40%, among other items the mix of U.S.
and foreign source income could cause variations in the effective tax rate. Now let me turn the call back to Rick for some closing comments.
Richard M. McVey
Thanks, Tony. We are pleased with the record first quarter results and the continued momentum in our high-grade emerging markets and high-yield products.
Our strategic alliance with BlackRock represents a major step forward for our open trading initiatives and for the development of new electronic liquidity solutions in credit. We are also happy with the progress to date integrating the Xtrakter business, and repositioning our European operations for growth.
The CDS market continues to embrace electronic trading solutions in spite of the ongoing regulatory delays. Now, I would be happy to open the line for your questions
Operator
(Operator Instructions) First question comes from the line of Mike Adams from Sandler O'Neill.
Michael Adams – Sandler O'Neill & Partners
Good morning, Rick. Good morning, Tony.
Congrats on a solid quarter
Antonio L. DeLise
Thank you, Mike.
Richard M. McVey
Thank you.
Michael Adams – Sandler O'Neill & Partners
So first, I just wanted to start by touching on the announcement from last night the alliance with BlackRock, can you give us any sense for what the activity levels have been like on Aladdin in terms of transactions and value traded? What kind of client overlap are we talking about, are there really any unique customers connected to Aladdin that aren’t on your platform right now?
Antonio L. DeLise
We really don’t have any detailed information on the trading volumes on ATN. What BlackRock has been very consistent in saying is that they had two primary goals with ATN; one was to improve liquidity in credit markets with the benefit of all market participants, and the other was to improve the Aladdin value proposition, and we have been working closely with BlackRock and Aladdin consistently over the life of the company and we’ve been talking with them over last year about different ways that we could help them with those objectives, and at this point we’re very pleased that they’ve just decided that the best way for them to facilitate those goals is to combine their work with MarketAxess.
With respect to the clients of Aladdin you are right, the majority of the Aladdin clients are MarketAxess users today. However, the work that we contemplate involves much deeper integration between the Aladdin enterprise investment system and the MarketAxess trading system and to the extent that we can both make it easier or more efficient for those clients to transact on the platform.
We think the likely-hood is that we will find any increase in the order matching opportunities and acceleration of adoption rates. And it’s a very powerful community.
There’s about $14 trillion in assets in total in the Aladdin client base and the BlackRock estimates are that that client base represents something around 30% of the publicly traded corporate debt activity in the U.S. market.
So it’s a very powerful community and we’re very pleased to be working with them and that the integration work is already underway.
Michael Adams – Sandler O'Neill & Partners
Got you thanks Rick. And then maybe this is one for Tony, but on the distribution fees, you saw an uptick in the other credit line this quarter for time we’ve seen that in a while, is this something that’s related somehow to Xtrakter or maybe you’re adding some new deal or do you mind giving a little bit of color there?
Unidentified Company Representative
Yeah sure Mike. The uptick I say was pretty modest, so it’s up a couple of hundred thousand dollars and you’ll recall in Europe we did adjust the distribution fee plan back in March of last year and we hadn’t had any dealer movement since that time and really the only change from the fourth quarter in that category, we do have some programs for emerging markets and high yield where some dealers are subject to what the minimum fees each month and some of that residual has now fallen into that bucket.
But really nothing to speak of there and just, the expectation going forward is that the distribution fees in the second quarter will be consistent with the first quarter, we are not tracking any movements in dealers migrating from one plan, say the variable plan to the fixed plan either in the U.S. so far in Europe, so, you can’t always cautious around those dealer movements as dealers respond to market conditions and the regulatory environment, but right now, we’re just not tracking anything significant.
Michael Adams – Sandler O'Neill & Partners
Okay, thanks. And last one from me, I don’t believe you bought back any stock in the quarter, would that, is that entirely related to the Xtrakter acquisition that closed or if it’s something to do with, getting what the stock is trading now like near at all time highs maybe just a less attractive use of capital, do you mind this comment like what maybe we could expect next couple of quarters?
Antonio L. DeLise
Yeah, sure. So Mike, you are right, in the first quarter we did not repurchase any shares and you recall we had a pretty active repurchase program or repurchase activity in 2012 we repurchased over 2.5 million shares last year, $75 million in change was expended last year, those repurchases were accretive to earnings, at this time we got a small program remaining under an existing authorized program, but we’re going to be opportunistic in how we use that going forward
Michael Adams – Sandler O'Neill & Partners
Okay, thanks. That’s all from me.
Operator
Our next question comes from Jillian Miller from BMO Capital Markets.
Jillian Miller – BMO Capital Markets
Thanks, guys. I was just wondering on the BlackRock, I guess, agreement, can you give us an (inaudible) how that works from a financial perspective.
I guess, some kind of revenue share, I guess, I am not entirely clear how you get compensated for it.
Unidentified Company Representative
Yeah, there is no revenue share involved with the agreement with BlackRock. It’s really about the integration and the seamless workflow between the two platforms and a commitment to work together to bring industry participants together to promote open trading solutions.
And our model, Jillian, hasn’t changed. As we mentioned in the prepared remarks, the majority of our revenue comes from commission revenue and there will be transaction fees for open trading just like we do have it today in our core business for RFQ client to dealer trading.
So there is really no change in the economic model here.
Jillian Miller – BMO Capital Markets
Okay. So as this BlackRock problem grows, it’s a same thing as if your own client to client business within MarketAxess were growing from a P&L perspective?
Unidentified Company Representative
Yeah, that’s the case. We may try different models around fees to incent volume whether that’s with BlackRock or Laden or other active clients in an attempt to accelerate the adoption rates, but you are correct, the basic fee plans will be the same.
Jillian Miller – BMO Capital Markets
Okay, great. Thanks.
Then on the agency and high yield, I think last quarter you guys mentioned that a lot of the growth is coming from clients that are already active in your high-grade products, so they are simply expanding the breadth of the products that they trade on your system? And I was hoping maybe you can give us an idea for penetration there, we are talking 25% of your current high-grade users are also using high yield emerging markets which is higher and what where can that figure go longer term?
Unidentified Company Representative
Yeah, I don’t think that we have a specific overlapped numbers prepared today but we’re happy to come back to you and rest of the analysts with those kind of stats in the future, but there’s no question that most of the volume that we are enjoying in the growth of high yield in EM is coming from existing high-grade clients that have just gotten more comfortable trading even less liquid products electronically. But there is still a base of clients that are still primarily in high-grade where there is remaining opportunity to continue to cross sell them and to get them involved in more product areas.
Unidentified Company Representative
And Jillian, I haven’t [stretched up] the statistics, but the last year when we looked at this, we had more than 400 unique clients trading both emerging markets and high-yield products and that’s something less than we had in the high-grade product area, but it’s needless to say that there’s a fair amount of overlap and we think we’ve reached the fair amount of critical mass outside of high-grade now in emerging markets and high-yield
Jillian Miller – BMO Capital Markets
Okay, thanks. Then well, I am not sure how much the supplies (inaudible) operation by (inaudible) so the collateral requirements for single-name clearing from the buy side for CDS has been set kind of surprisingly high, I guess, by the SEC and some of the clearing houses, it doesn’t make a whole lot of sense even after clearing given these developments and I know this was one of the areas where you guys had seen a competitive advantage for yourself in a single name.
So, I just wondering if those margin issues and everything that’s going on with the SEC between the SEC and IS, has an impact on your platform or whether this is something that you don’t really see playing into longer-term growth prospects for your swap execution facility?
Unidentified Company Representative
Yeah, we may not be your best source on the collateral requirements in the impact on single name trading, but what we can say is that we certainly are hearing anecdotally that the margin requirements for bank owned FCMs, which the SEC has temporarily established we understand it twice the level of the clearing house margin requirements has slow the transition clearing of single names into the clearing houses. And if you look at the DTCC data Julian index volume seem to be holding up reasonably well, but single name volumes have been declining.
And it looks last link are down somewhere around 25% from where they were a year or to ago. So there has been some impact there it’s very difficult to estimate what portion of that is coming from some of the [introduction] around the margin requirements in central clearing, and what might be attributable to the lack of volatility in some of those names in fewer trading opportunities in the short-term because of that the lack of the volatility in the interest rate environment.
Jillian Miller – BMO Capital Markets
Okay, got it. And then just one final one from me, I was wondering if the BGC sale of (inaudible) and kind of the multiple they are able to garner that electronic trading platform has led you guys to kind of rethink any of your opportunities and you’re kind of potential and acquisition target are you still kind of feeling like MarketAxess has a really strong growth potential to standalone and your primary focus is on kind of remain in that way.
Unidentified Company Representative
As you’ve today, we couldn’t be anymore excited about what we have going on organically. And the breadth of support that we have in the market with investors and dealers, and it’s an exciting time for the company to see the adoption rates accelerating in U.S.
cash credit products to see the industry moving forward to electronic trading in CDS and to have really exciting new capabilities in Europe that we think will be part of the MarketAxess turnaround story there. So our focus continues to be on building our business organically.
Jillian Miller – BMO Capital Markets
Okay, thank you.
Operator
Our next question comes from the line of Niamh Alexander from KBW.
Niamh Alexander – KBW
Hi, thanks for taking my question.
Unidentified Company Representative
Hi, Niamh.
Niamh Alexander – KBW
Hi. And congrats on the BlackRock Solution, I mean, I think we all we’ve got a shock when we saw the stock come down so much and some it supported because these are liquidity in this business is just challenging.
And so clearly BlackRock Solution is changing its strategy a little bit to work with (inaudible) I think it’s a really it really commence the platform. On this (inaudible) I mean we have seen some pressure lines and even I talks a bit about competitor independent venue or maybe broke about getting some heightened market share around certain events and corporate events in the markets, is that something that you can compete with if they have a different model, more like a central limit order book, is that something how is your development of the central limit order book going thinking about rolling it soon?
Unidentified Company Representative
No, we’ve said in the past, we’re not at all surprise to see the increase in electronic trading in the credit space with such products vacation at the electronic share will be significantly higher in the future, its no surprise that the new competition is popping up, we are still not backed where we were, when we started when there is 60 platforms in the market that we are seeing some new venues and not at all surprising that dealers and investors are testing different protocols and trying to find liquidity solutions in a variety of different forms. I think ultimately, we still feel great about our competitive position and our strategy we think is the right one longer term, the independence of the platform allows us to work with all dealers and investors.
Nothing that we’re doing excludes anyone from participating in any of our protocols. And, we have a wide menu of trading options.
So, we are leveraging what we’ve done well over the last thirteen years in building the largest client, the dealer electronic trading network primarily in our core RFQ or auction protocol by building on top of that efficient new trading solutions that will allow new counterparties to trade with one another and create alternative sources of liquidity, so when you look across the range from RFQ to the success that we are already having in Market Lists we had client access live which allows passive indications of interest to rest in the system and as we announced yesterday, we’ve got our first launch of central limit order book capability in the CDS single name market. So we feel great about the network, we feel great about the trading protocols and we remain confident in our competitive position.
Niamh Alexander – KBW
Okay, fair enough. And on the Xtrakter deal, it’s just closed, how [we] think about where most of the revenue will fall, is it more like the information services and less in the transaction side and then you already fewer weeks into it really, but I guess couple of months nearly, but what surprise you so far positively and negatively, it sounds like there is a bit of investing to do, you kind of recognize that before you bought it anyway, but you know what’s your initial thoughts with those.
Antonio L. DeLise
Niam, it is Tony. On the extractor side, first thing I’d say is that there is probably aren’t any real surprises, we did a fair amount of diligence around the before the acquisition, it seems to be well received by clients and by our buy-side clients also.
So, there haven’t been really many surprises there. In terms of revenue expectations, this will be more, more near-term.
We had talked a little bit on the fourth quarter call about a typical revenue run rate for extractor, it’s around $2 million per month, it’s all going to fall for 2013 likely also fall in that information and post trade services line. So that’s where the revenues will fall.
Going forward though there is certainly an expectation that revenue synergies around new data products around additional trade matching opportunities, as the regulatory environment changes in Europe there is additional opportunities on the data side. So, we certainly expect to drive revenues forward in 2014 and beyond.
But again for 2013 sort of a stable revenue run rate all falling in that information of post trade services line.
Niamh Alexander – KBW
And it’s going to be a nice boost to that business just because there have been some market share losses, would you say the management in the European team are kind of lot more upbeat now with kind of more after the work
Antonio L. DeLise
Yeah not, Niam if we look at how our employees have responded, this is collectively both here in the U.S. and in London and with the extractor team it’s nothing but positive vibes coming out of the acquisition.
We plan on combining the group in London, where we will be moving physical states within the next four or five months combining one group in London will be combining and we will had a single data offering globally so there is, the fair amount of activity to what to get the two groups working together, and when we talk about Europe going forward it’s not while we’ll have different brands, it’s really not going to be talking about two different businesses, it will be one customer facing business in London.
Niamh Alexander – KBW
Okay, fair enough. And then just lastly, I guess, I asked for the cash earlier, but have you think about your appetite you said focus on organic growth, but I still think there will be some really need to the retail, then you said would fit very well with your business and you have the cash I mean, help me think about your appetite to meet some acquisitions, some additional acquisitions if the right opportunity comes along and is there anything you’ve seen recently that you can’t really talk specifically to, but maybe get a sense of activity now versus your goal?
Unidentified Company Representative
Yeah, I think that we’re really encouraged with the early signs with extractor and if we do find other acquisitions that fit with our core strategy as well as that one does, that are something that we would be very interested in and we have lots of capacity, we have excess capital on the balance sheet and no debt and public currency as well. So, it’s really all about sticking with our core strategy around building great solutions for electronic trading in the fixed income markets and that could include anything from data to other complementary e-trading venues to post trade services.
Niamh Alexander – KBW
Okay, fair enough. I’ll get back in the line.
Thanks so much.
Operator
Our next question comes from Patrick O'Shaughnessy from Raymond James.
Patrick O'Shaughnessy – Raymond James & Associates Inc
Hey, good morning guys.
Unidentified Company Representative
Good morning.
Unidentified Company Representative
Hi, Patrick.
Patrick O'Shaughnessy – Raymond James & Associates Inc
So, my first question, we’ve talked in the past about your addressable market in the high-grade space and as probably roughly 20% in the market, right. So you subtract that the block trades, subtract that from the dealer-to-dealer trades, and what you left was around 50%.
How do you think about the addressable market in the high-yield and the emerging market space?
Richard M. McVey
I, we do a similar exercise there Patrick and where we really found that we’ve had success in high-yield is similar in that, it tends to be the smaller flow trade sizes, but it also tends to be in the higher credit quality, high-yield credits and issuers. And so, we don’t get to 50% of that market, when we look at it on that basis, we probably get to something that’s more like 25% or 30% of the market, but it’s a still a material step above where we are currently and lots of run way in front of us.
In emerging markets it’s a little bit harder to be scientific, because we don’t have the benefits today of a TRACE state, but about half of the market is EM sovereigns where you would expect the market share to be higher and the other half is EM corporates. And I think, if you take a blended average of EM you probably come up somewhere in the same ballpark as you do for a high-grade corporates.
Patrick O'Shaughnessy – Raymond James & Associates Inc
Got you, understood. Thank you for that.
Second question, a kind of on the same theme so our high-yield emerging market have been kind of to really good growth source for you in the last year or so. And what’s your reclassification today, I guess I am little bit surprised, because previously you kind of been somewhat masking the performance of those two groups with their AMC business, now you pulling out agency, but you are combining them with Eurobond business had not doing, entirely well.
So, why not just more explicitly breakout what you think your market share is, what you think your revenue is from those products and help investors better understand the trends there?
Antonio L. DeLise
Sure. Patrick it’s a bit of balancing act.
So we know there is a desire from the analyst and investor community from, for more granularity on the volumes and then our side, quite frankly we’re tying a limit information flow in some ways just for competitive reasons. And what happen to that in the prior volumes category to look at the all other bucket, they came a catch out for every product outside of Eurobonds and high-grade.
And if you look back over time you look at the fluctuations in volumes and fee captured in that other category it was not easy to predict what was going on there. We have, as we mentioned in the prepared remarks we re-grouped the volumes now to products with light liquidity characteristics and similar fee capture, we think it’s going to eliminate some of the variability in fee capture going forward.
We also think it does, it’s a better grouping and scales a little bit better we can envision for example, when we starting reporting CDS index it would fall on to that liquid products category. So, we’re trying to balance these different constituencies and Patrick, we provided a fair amount of information, we’re on the call we provided information on how much emerging market and high-yield volume we’re doing, we’ve got a little more scientific on size of market I know we’re not getting all the way there, but I think we provided the tools to the track market share by product.
If you make some of these assumptions and you look at that pie-chart on average daily volume, we’re giving you the information high-yield in the EM volumes. So, I don’t think it’s any less than what we’re providing and for us it’s a little better grouping.
Antonio L. DeLise
And just one follow on comment to that too Patrick, we have lot of the peer group that we can identify that’s involved in fixed income e-trading and our current view is that we’re leading the league in transparency and public information. If you disagree with that there is anything that you see out there that establishes best practices in a way better than we are, we’d love to know about it, but we think we’re more transparent than our competitors.
Patrick O'Shaughnessy – Raymond James & Associates Inc
I probably agree with that, certainly the exchanges provide a lot of product level detail, but compared to most of the other firms more in the same space, that your ten franchise is probably best in class, but it tells you better. Last question from me so, I think my take way on your partnership with BlackRock it seems like the biggest advantage to you is kind of distribution it gets you on there, front end Aladdin system makes it easier for their clients to trade on your platform.
My question would be does that point out some sort of distribution flaws with your existing solution, is there something about how people currently trade on MarketAxess that, it’s a little bit tougher than it should be and so, Aladdin can result some of that, but maybe there is additional (inaudible) choppier?
Richard M. McVey
We have been the leader in innovation around workflow and ease of execution for credit for the last 13 years, but we can always get better and every quarter we’re working on enhancements front to back Patrick to make it easier for our clients to execute and easier for them to identify trading opportunities and trade matches. And I think working closely with Aladdin, we both believe that we can make it even easier for our combined clients, I quite honestly, I think that’s part of the value here the other is getting the support in market influence from BlackRock and Aladdin community, really behind our open trading initiatives and reducing the fragmentation that has been out there that is working against everyone’s objective to really create a more liquid market.
And we couldn’t be more pleased to be working with BlackRock to really consolidate the attention around the market access solutions and really increase the efficiency and liquidity around the overall market.
Patrick O'Shaughnessy – Raymond James & Associates Inc
All right, gotcha, thank you very much.
Operator
Our next question comes from Hugh Miller from Sidoti.
Hugh Miller – Sidoti
Hi, good morning
Unidentified Company Representative
Hello, Hugh
Unidentified Company Representative
Good morning, Hugh
Hugh Miller – Sidoti
Just had a couple of question that weren’t addressed, one of which is you gave us some detail on your expectations for market share for April, as I am taking a look at the trends for U.S. high grade, I mean it seems like we’re seeing some good growth in average daily volume up in the high single-digits year-over-year.
I was wondering if could just talk about you know is that, is there anything you’re seeing that or is that just more of the function of the lack of holidays falling in April are relative to prior years?
Unidentified Company Representative
Yeah, my personal view here and I don’t know if you’ve been seeing it in the other market structure companies that you follow. But I definitely think that there is a there has been a small impact from the early holiday schedule this year versus most years, where April is the holiday month.
And if you look we do have more trading days now in April then we normally do and we are few less days in the first quarter. So, I do think that what has happened is a little bit of the normal March volume has shifted into April, where the second half of March in particular was slightly weaker than normal, but I would expect that what we’re seeing in the trace numbers reflects that has shifted into April.
Hugh Miller – Sidoti
And you know Rick I believe you participated in a panel, a CDS panel last week and if just, if you could provide us some inside into you know the kind of core takeaways you had from that and any update you know as you are feeling for index and single-name time horizon for regulatory changes.
Unidentified Company Representative
Yeah, happy to do both, the panel last week in DC was actually an SEC fixed income roundtable that was focused on bonds. So there were 4 panels down there during the day, two on the municipal bond market and two on the corporate bond market.
And I was pleased to be invited to participate in the corporate bond panels, but from our perspective, in early days, the SEC is seeking industry input on many of the same issues that we saw emerge from Dodd-Frank for swaps with respect to looking at transparency, competition, liquidity, turnover, electronic trading trends in the bond markets in order for them to think about policy that might be beneficial to all market participants. With respect to other question on CDS, I think we and others have been frustrated with the pace, and we don’t have any reason to believe that the finalization of the rules is (inaudible) there seems to be an impasse on some fairly important differences in the final rule set, and we do not have anything to share with you today in terms of any expected dates from either the CFTC or the SEC.
Hugh Miller – Sidoti
Okay. Okay, and the last question I had was with regards to kind of the dynamics of the U.S.
high-grade market and obviously there is tons of addressable room for market share growth, but I was wondering, your view point as you view the next couple of years here ahead. Is it kind of similar to your past view about grinding it out and seeing that kind of 100 to 200 or so basis point increase in market share or due foresee kind of the potential for the acceleration in that market share growth opportunity.
Unidentified Company Representative
We’ve always suggested that history is probably the right proxy for trying to estimate adoption rates and share gains in the future. The wild card here really is the introduction of new and exciting trading protocols that are giving clients and dealers different ways to engage electronically to complete both corporate bond and CDS trades.
And that makes it more difficult to project the adoption rates and the share gains going-forward, but we are encouraged with some of the early take up signs and clearly if we can get multiple trading protocols and client communities contributing the share growth there is the possibility that we will see improved share gains in the future.
Hugh Miller – Sidoti
Okay, appreciate the insight, very helpful thanks.
Operator
Our next question comes from the line of Howard Chen from Credit Suisse.
Howard Chen – Credit Suisse
Hi, Good morning.
Unidentified Company Representative
Hello, Howard.
Howard Chen – Credit Suisse
Congrats on the quarter.
Unidentified Company Representative
Thank you.
Howard Chen – Credit Suisse
Rich, a follow up on the BlackRock Aladdin announcement, just at a high-level what specifically does this partnership provide you with that you didn’t have before?
Richard M. McVey
I think we both feel that this is a consolidation of efforts and BlackRock has been an early adaptor of electronic trading here and in other asset classes they have been a thought leader, they clearly felt a year-ago that the investment was well worth it, with their Aladdin client community attached some new matching protocols and learn from the experience and the biggest thing is we’re now taking everything that they’ve learned and the support that they have from their Aladdin clients and consolidating that with everything that we do. So, again it’s reducing the fragmentation that’s been out there and we think that the best thing is it’s going to increase the market focus and attention on one set of solutions and we’re fortunate that those are here at MarketAxess.
Howard Chen – Credit Suisse
Understood, thanks. And then apologies if I miss this in the prepared remarks, but how was the dealer hit rate balance pressing this quarter and I guess that’s it.
Antonio L. DeLise
Yeah, so you know Howard, on the hit rates, yeah, they were slightly better in the first quarter, so if we look back over the prior four quarters in 2012 those hit rates for high-grade, we’re in the upper 60s ranging from 67% to 68%. First quarter we had a pretty good balance in the order book, so pretty good balance between bids and offers and that hit rate was up to around 73% and if you look at that market share increase year-over-year 11.4% Q1 of 2012, 12.3% Q1 of 2013 virtually all of that increase came from that higher hit rate.
Howard Chen – Credit Suisse
Great thanks. And then my final question follow-up on the CDS opportunity I agree with you Rick, it’s really early days, but one drum beat that appears to be growing a bit as the potential futurization of credit trading products, so wanted to get your latest views on that as either a source of opportunity or concern?
Richard M. McVey
Yeah, we’re – we think that there is a place in the credit market for our CDS futures and unlike some of our competitors we’re actually big fans of expanding the market through our liquid futures instrument and our view is that the future's markets could provide a highly liquid way for new participants to trade credit at the top of the funnel which will benefit all parts of the credit market with more liquidity flowing through the single name market and even the corporate bond market. So we are not threatened by it, as you know we feel that our technology and network advantages are going to come through most clearly in the single name market and to the extend that we can build liquidity in another way through new participants that trade credit futures we think that’s a good thing for the overall market.
Howard Chen – Credit Suisse
Great, thanks for the taking the questions.
Operator
(Operator Instructions). The next question comes from the line of Michael Wong, Morningstar.
Michael Wong – Morningstar
Good morning.
Unidentified Company Representative
Hello Michael.
Unidentified Company Representative
Hello Michael
Michael Wong – Morningstar
Can you talk at the proposed European EM financial transaction tax affect the securities traded on your platform, and how your platform might fair compared to competitors if the transaction tax comes fast?
Unidentified Company Representative
Yeah, some of the proposed transaction taxes in various asset classes including bonds appear to be (inaudible) that ultimately if they were past in their current form we think would have a negative effect on overall market turnaround in the region. And as you can see Michael as on a relative basis today Euro bond trading is a smaller part of our business, and so the impact for us in the aggregate is not likely in the current position to be that significant, we clearly are in the process of investing more heavily in Europe to build a larger electronic trading business and at the margin, we would prefer not to see these transaction taxes go into place.
Michael Wong – Morningstar
Okay. Have you found any changes in the market now that the broker-dealers are growing their balance sheet a bit such as like does it take away volume from your platform or maybe did it contribute to the higher hit rate in the first quarter?
Richard M. McVey
Yeah, the dealer balance sheet did bounce back a little bit and as Tony mentioned, our hit rates are up a little bit. We still think that there is a liquidity challenge in the market overall.
If you look at the amount of corporate debt outstanding in the U.S. market, it’s up about 50% since 2008.
So there has been a huge increase in debt outstanding and a fairly significant overall decline in dealer balance sheets for market making, and that really calls out for new electronic solutions that are going to promote alternative sources of liquidity. And the other real win here is that when we look longer term, it appears that the long-term turnover rate of corporate debt is somewhere around 0.95 to 1 time per year.
The turnover rate right now is the below 2008 turnover, it’s somewhere around 0.72 or 0.73. So if we are successful developing these new solutions to get turnover backup to the normal long-term averages, then TRACE volume overall would be significantly higher than it is currently.
Michael Wong – Morningstar
Okay. Really quick question; is $15 million to $18 million CapEx pretty good for the next several years or would you have a peak uptick building up the swap execution facility?
Unidentified Company Representative
Michael, I think that’s $15 million to $18 million. We typically don’t provide guidance beyond the current year, but just in the context of what’s going on this year, we do have one very big item identified.
We’re building out another data center here in the U.S. it’s a replacement to our primary production data center, the [all in] cost is around $4 million we would not expect that to recur, so all things being equal without giving a specific guidance in longer term there is this one item in 2013 which I would call non-recurring.
Michael Wong – Morningstar
Okay thank you.
Unidentified Company Representative
Thanks Michael.
Operator
We currently have no further questions in the queue. At this time I’d like to turn the call back to Rick McVey for closing remarks.
Richard M. McVey
Thanks for joining us this morning, and we look forward to talking to you again in next quarter.
Operator
Thank you for your participation in today’s conference, this concludes the presentation. You may now disconnect.
Good day.