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47% GROWTH and 45% Net INCOME Margin Operates an Electronic Trading Platform for credit markets
Sales reached $ 184B in Q2 ’20
Now valued at $ 20B 
A company that originated at $JPM and #BearStearnsHere is an EASY thread
$MKTX MarketAxess was founded in 2000 by Richard McVey 
It began by trading investment-grade corporate bonds 
It also provided investors access to new issues and research
It began by trading investment-grade corporate bonds It also provided investors access to new issues and research
In 2001, it acquired Trading Edge Inc 
A company that enables investors to buy and sell bonds online 
Today, $MKTX operates an online trading platform
that enables institutional investors 
and broker-dealers to trade corporate bonds and other fixed-income instruments
A company that enables investors to buy and sell bonds online Today, $MKTX operates an online trading platform
that enables institutional investors and broker-dealers to trade corporate bonds and other fixed-income instruments
According to Bloomberg 
In 2018, it held around 85% of the electronic bond trading market 
Representing around 20% of all corporate bond trading volume in the USA 
So… The more electronic corporate bond trading
The better for $MKTX 
Yes!
In 2018, it held around 85% of the electronic bond trading market Representing around 20% of all corporate bond trading volume in the USA So… The more electronic corporate bond trading
The better for $MKTX Yes!
Ok 
What is electronic trading in fact 
Let’s look at electronic trading in the stock market Something you should be familiar with 
You want to buy some $AAPL stock? Well, open your trading app and pass the order 
What is electronic trading in fact Let’s look at electronic trading in the stock market
Something you should be familiar with You want to buy some $AAPL stock? Well, open your trading app and pass the order
Your trading app (bank, brokerage platform) acts as your “broker dealer” 
and transmits the order to the Stock Exchange on which your stock is listed
The exchange now tries to match your order with a counter-party It tries to find someone selling its $AAPL shares
If its finds a counter-party, the deal is done Else your shares wait until a counter-party emerges 
That’s EASY right? Yes!
The VAST majority of equities trading is done electronically
With #COVID 
The NYSE even went full-electronic https://www.cnbc.com/2020/03/18/nyse-to-temporarily-close-trading-floor-move-to-electronic-trading-because-of-coronavirus.html
So right now, electronic bond trading represents just 20 to 30% (depending on the months) of the total trading volumes
Why is that so One main factor can explain this
Why is that so
One main factor can explain this
Bonds comes in all shapes and forms They are more complex instruments than equities as their interest rate and maturity play a roleAt its peak, there were 8,800 equities listed in the U.S.
This pales in comparison with the 37K publicly traded bonds in 2012 
How could that reduce the appeal of electronic bond trading
There are plenty of bonds so there is a huge market right?
Well, this makes the market very fragmented, each bond is therefor NOT OFTEN EXCHANGED
There are plenty of bonds so there is a huge market right? Well, this makes the market very fragmented, each bond is therefor NOT OFTEN EXCHANGED
Here are some more facts
The average U.S. stock traded around 3,800 times a day on 2012
In comparison The 13 most liquid Investment Grade corporate bonds traded on average 85 times a day 
The average U.S. stock traded around 3,800 times a day on 2012
In comparison
The 13 most liquid Investment Grade corporate bonds traded on average 85 times a day
In 2012, 38% of the 37,000 eligible bonds did not even traded ONCE A DAY On top of that, the average trade size for the most liquid U.S. investment grade securities is 70 times that of the average U.S. stock tradeFrom
https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/financial%20services/latest%20thinking/corporate%20and%20investment%20banking/corporate_bond_e-trading_same_game_new_playing_field.pdf
You can see it, bonds cannot easily be traded through an electronic exchange
Well, you could say that broker dealer just have to put their bonds for sale on an electronic platform and wait some time
As in the end, someone will come and make a deal since each bond is traded on average 85 times a day 
for sale on an electronic platform and wait some time As in the end, someone will come and make a deal
since each bond is traded on average 85 times a day
Not really Let’s say that you are work at a pension fund and have to sell $ 2B worth of bonds
Of course, you cannot just place your sell-order and WAIT until someone fills It could take days 
You end up picking up the phone and find someone that buys these
Let’s say that you are work at a pension fund and have to sell $ 2B worth of bonds Of course, you cannot just place your sell-order and WAIT until someone fills
It could take days You end up picking up the phone and find someone that buys these
Greenwich says
“The total number of corporate bonds available to trade in the U.S. alone is so large, and most of those bonds so illiquid, that the chances of finding a “natural” other side of a trade at an exact moment in time are slim at best.” https://www.greenwich.com/blog/challenge-trading-corporate-bonds-electronically
“The total number of corporate bonds available to trade in the U.S. alone is so large, and most of those bonds so illiquid, that the chances of finding a “natural” other side of a trade at an exact moment in time are slim at best.” https://www.greenwich.com/blog/challenge-trading-corporate-bonds-electronically
Now, let’s say that you need to buy $ 2B worth of bonds
What do you do? You tell the whole market that you have $ 2B of cash and want to BUY a certain bond?
By disclosing this piece of information you would shoot yourself in the foot 
What do you do? You tell the whole market that you have $ 2B of cash and want to BUY a certain bond?
By disclosing this piece of information you would shoot yourself in the foot
Again, you prefer picking up the phone and disclose the information 
you want to the agents you want 
So… By now we are convinced that electronic trading doesn’t make sense for bonds Bonds come in all shapes and forms and the likelihood of finding a counterpart is small Disclosing information to relatively more illiquid markets might work against you
But wait… $MKTX is now a $ 20B company
And here are the monthly volumes traded on $MKTX
(from https://www.ft.com/content/67e48ae4-4fab-11e8-9471-a083af05aea7)
And here are the monthly volumes traded on $MKTX
(from https://www.ft.com/content/67e48ae4-4fab-11e8-9471-a083af05aea7)
Why is electronic bond trading taking off?
Before the 2008 crisis, it was relatively easier for banks to buy and sell massive amounts of debt
Due to regulations 
Banks cannot trade as heavily as they want and supply the liquidity the bond market needs
Before the 2008 crisis, it was relatively easier for banks to buy and sell massive amounts of debt Due to regulations Banks cannot trade as heavily as they want and supply the liquidity the bond market needs
Electronic trading provides a new outlet for buying and selling bonds Increasing liquidity Beginning of course with smaller chunks of debt but now evolving to larger, more important amounts
Volatility, liquidity events and a focus on rendering banks’ operations more efficient are increasing the appeal for electronic trading Electronic trading decreases cost and enables transactions to happen in a more quick and efficient way
“The feedback that we got from dealers was that they were not quoting on the phone. They couldn’t do that, they couldn’t keep up with that”
from https://www.reuters.com/article/us-health-coronavirus-bond-trading-insig-idUSKBN23T0MP
from https://www.reuters.com/article/us-health-coronavirus-bond-trading-insig-idUSKBN23T0MP
You want to read the full take? Here it is https://www.ft.com/content/67e48ae4-4fab-11e8-9471-a083af05aea7
https://www.ft.com/content/67e48ae4-4fab-11e8-9471-a083af05aea7
How does that translate for $MKTX
Over 144K trades completed using automated execution Up from 105K in Q2 ’19
83 firms used automated execution functionality in 2Q20 
Up from 55 in Q2 ’19
Approximately 3.5 million algo responses in 2Q20 Up 45% from Q2 ’19
Over 144K trades completed using automated execution Up from 105K in Q2 ’19 83 firms used automated execution functionality in 2Q20 Up from 55 in Q2 ’19 Approximately 3.5 million algo responses in 2Q20 Up 45% from Q2 ’19
Over 1,700 active firms and around 1,000 active firms trading 3 or more products
Approximately 1,200 active firms trading emerging markets an increase 12% from Q2 ’19 Over 870 active international client firms, up 11% from Q2 ’19
Financials check Sales grew by 47% YoY to $ 184m for the last quarter 
Operating margins stand at 56% Up from 50% in prev. years Income from operations stood at $104m up from a $ 61m a year earlier
Current assets of $ 675m and cur. liabilities of $ 91m
The numbers look stunning How does it compare to its competitors
$TW sales stand at $ 212m in Q2 ’20 Growing 11% YoY 
Versus 47% for $MKTX
Its Net Profit Margin stands at 14% Versus 45% for $MKTX
How does it compare to its competitors $TW sales stand at $ 212m in Q2 ’20
Growing 11% YoY Versus 47% for $MKTXIts Net Profit Margin stands at 14%
Versus 45% for $MKTX
THE BOTTOM LINE Electronic bond trading is gaining ground as it provides the liquidity the bonds market needs $MKTX is the market leader in this industry and growing at a faster rate than its peers all while being a profitable business scoring 45% Net Income Margins
$AKMA is on our watchlist To Be Reviewed SOON Please note that this is not a recommendation to buy - You are responsible for conducting your own research
Disclaimer - This is not investment advice in any form and investors are responsible for conducting their own research before investing.
Sources
✑ Investor presentation
✑ Company website
✑ Financial Times
✑ Reuters
✑ Greenwich
✑ McKinsey & Company
✑ WSJ
Sources
✑ Investor presentation
✑ Company website
✑ Financial Times
✑ Reuters
✑ Greenwich
✑ McKinsey & Company
✑ WSJ
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