Executive Summary / Key Takeaways

• Strategic Transformation Underway: MarketAxess ($MKTX) is actively transforming into a "protocol agnostic" platform, diversifying beyond traditional Request for Quote (RFQ) to capture broader fixed-income market opportunities through new solutions like portfolio trading, block trading, and dealer-initiated protocols.
• Technology as a Core Differentiator: The company's proprietary AI-driven technology, including CP+ and the Pragma-powered automation suite, provides significant execution benefits and is central to its competitive moat and future growth, notably with the recent launch of fixed income closing auctions.
• Mixed Recent Financials, Strong Underlying Momentum: While Q3 2025 revenue growth was modest at 1% due to U.S. credit headwinds and protocol mix-shift impacting fee capture, service revenues achieved a record $29 million, and new initiatives are demonstrating strong volume growth.
• Disciplined Investment for Future Growth: MarketAxess is committed to substantial technology investments and strategic hires, expecting to be at the low end of its 2025 expense guidance, reflecting a self-funding approach to drive market share gains and revenue expansion.
• Robust Capital Position and Shareholder Returns: A strong balance sheet with $631 million in cash and investments, healthy free cash flow generation, and ongoing share repurchases underscore the company's financial resilience and commitment to shareholder value.

Setting the Scene: A New Era for Fixed Income Trading

MarketAxess Holdings Inc. stands at the forefront of the electronic fixed-income trading landscape, operating a leading platform that connects institutional investors and broker-dealers across global markets. Since its incorporation in 2000, MarketAxess has been a pivotal force in modernizing bond trading, initially through its patented Request for Quote (RFQ) technology and the groundbreaking Open Trading protocols. These protocols facilitate anonymous, all-to-all trading in corporate bonds, fostering a diverse pool of liquidity. The company's overarching strategy is to evolve into a "protocol agnostic" platform, offering a comprehensive suite of execution tools tailored to diverse client needs and market conditions. This strategic pivot is crucial in an industry characterized by a large, growing addressable market that remains significantly less electronified than equities, particularly in larger block trades.

The fixed-income market, a colossal $150 trillion global asset class, is undergoing a profound transformation. Approximately 20% of this market is now benchmarked to an index or held within an ETF, a proportion that continues to expand annually. This trend, coupled with the proliferation of Separately Managed Accounts (SMAs) expected to top $5 trillion, is driving an explosion in ticket count and a corresponding demand for automation. MarketAxess's foundational strength lies in its proprietary technology, including its AI-driven CP+ real-time pricing engine and its robust automation suite. These technological differentiators are not merely features; they are the bedrock of its competitive advantage, enabling expanded liquidity, improved execution quality, and significant cost savings for clients.

Technological Edge and Innovation Driving Market Evolution

MarketAxess's core technology, particularly its AI-driven CP+ real-time pricing engine, serves as a critical data input and pricing source for numerous trading protocols and solutions, including Auto-X and portfolio trading. This proprietary technology offers tangible benefits by enabling clients to make faster, better-informed decisions on when and how to trade. The company's commitment to innovation is further evidenced by its strategic acquisition of Pragma, whose technology is now integral to enhancing the automation suite and powering new initiatives. Legacy automation systems are migrating to the Pragma technology stack, and the first elements of Pragma's matching technology are being delivered into new offerings like the recently announced closing auctions.

The impact of these technological advancements is quantifiable. On the MarketAxess platform, automation trade count and trade volumes are growing at a 3-year Compound Annual Growth Rate (CAGR) of 29% and 28%, respectively. Furthermore, dealer algorithms (algos) now contribute to 88% of responses and 87% of trades in U.S. high-grade bonds, including 28% of block trades, demonstrating the deep integration and effectiveness of these tools. The company's Targeted RFQ solution, which incorporates an AI-driven dealer selection tool, uses a machine learning model to predict which counterparties are most likely to provide competitive pricing for high-touch workflows, thereby increasing execution likelihood and reducing information leakage.

Recent technological developments underscore MarketAxess's forward-looking approach. The global Mid-X offering, a sessions-based mid-point matching tool for broker-dealers, has been expanded to emerging market bonds. Most notably, MarketAxess unveiled fixed income's first Opening and Closing Auctions in November 2025. This standardized, market-wide auction protocol is designed to improve price discovery and provide access to unique liquidity for trading U.S. credit. Unlike simple mid-market matching sessions, this is a "true auction where buy and sell interest, find a clearing price and that clearing price ends up being where all the trades that are matched execute." The success of these auctions is intrinsically linked to the company's all-to-all network and the relevance of its CP+ data, which is provided to S&P Global (SPGI) for their evaluated pricing tool, particularly for the iBoxx Index, a key benchmark for fixed income ETFs. These technological advancements are not just about efficiency; they are about expanding MarketAxess's competitive moat, enhancing financial performance through improved execution and data monetization, and solidifying its market positioning as a leader in the evolving fixed-income landscape.

Strategic Evolution and Market Capture

MarketAxess's history, marked by its incorporation in 2000 and the pioneering of Open Trading, provides the foundation for its current strategic evolution. The company's journey from a "build year" in 2024 to a "year of delivery and execution" in 2025 is characterized by a focused effort to expand its market share across three critical channels: client-initiated, portfolio trading, and dealer-initiated.

In the client-initiated channel, MarketAxess is making significant strides in block trading, which represents a substantial unelectronified segment of the market. Block trading ADV across U.S. credit, emerging markets, and Eurobonds grew 10% in Q3 2025 and accelerated to 21% in October. The Targeted RFQ workflow is key here, allowing clients to target a select group of dealers, thereby increasing execution likelihood and mitigating information leakage. Automation continues to be a strong growth driver, with record trade volumes and trade counts, and 249 active automation clients in Q1 2025. The company's Algo suite, now used by 80 clients, is expanding, with rates algos migrating to the Pragma platform in Q1 2025.

The portfolio trading channel has seen robust growth, with total portfolio trading ADV increasing 20% in Q3 2025 and 25% in October, including record U.S. high-yield ADV. Market share in U.S. credit portfolio trading increased 300 basis points in October. The X-Pro platform, which now handles 92% of portfolio trades, is integral to this success, offering enhanced workflow, pre-trade analytics, and optimization tools.

In the dealer-initiated channel, MarketAxess is gaining traction with an 18% increase in ADV in Q3 2025, rising to 22% in October. The new Mid-X solution for U.S. credit, launched in September 2025, has already seen over $1.3 billion in matching volumes in its initial 10 days of expansion. This complements the enhanced Mid-X protocol previously rolled out for emerging markets and Eurobonds. The company is also preparing for the full rollout of X-Pro for dealers in Q2 2025, aiming to further enhance dealer solutions.

Global expansion remains a key strategic pillar. MarketAxess's international credit products are experiencing double-digit growth, with emerging markets and Eurobond volumes increasing 14.1% and 16.2% respectively in Q3 2025. The company achieved a significant milestone in June 2025 by executing the first Indian Government Bond trade electronically for foreign portfolio investors. The acquisition of a controlling 90.3% stake in RFQ-hub Holdings LLC in May 2025 further diversifies MarketAxess's offerings into multi-asset trading, including ETFs and derivatives, leveraging its extensive client network for synergies. Additionally, the global launch of Axess IQ Connect in September 2025 provides a mobile fixed-income workflow solution for private banks and wealth managers, tapping into a growing market segment.

Financial Performance and Operational Strength

MarketAxess's financial performance in the first nine months of 2025 reflects a period of strategic investment and adaptation to evolving market dynamics. Total revenues for the nine months ended September 30, 2025, reached $636.86 million, an increase of 3.6% compared to the same period in 2024. However, net income available for common stockholders for this period decreased by 26.1% to $154.39 million, resulting in diluted EPS of $4.14, down 25.4% from $5.55 in the prior year. This decline was significantly impacted by a reserve for unrecognized tax benefits established in Q1 2025, which drove the effective tax rate for the nine months to 46.20% from 24.20% in 2024.

In the third quarter of 2025, total revenues were $208.82 million, a modest 1% increase year-over-year. This was influenced by "a return to more challenging market conditions and historic levels of new issue in September as well as continued revenue growth challenges in U.S. credit." Despite these headwinds, revenue growth outside of U.S. credit remained strong at 10%. Services revenue, encompassing information, post-trade, and technology services, achieved a record $29 million in Q3 2025, up 9% year-over-year. Information services revenue rose 6.4% to $13.79 million, while post-trade services increased 8.8% to $11.29 million, and technology services grew 19.8% to $3.57 million.

Commission revenue, the largest component, was flat year-over-year in Q3 2025 at $180.17 million. Credit variable transaction fees decreased 3% to $130.81 million in Q3 2025, primarily due to a 5.8% decline in the average variable transaction fee per million to $140.29, reflecting a protocol mix-shift towards increased portfolio trading. This mix-shift also contributed to a 7.5% decrease in the credit average variable transaction fee per million for the nine months ended September 30, 2025, to $139.12. Rates variable transaction fees also saw a 6.7% decrease in Q3 2025, but were up 20.1% for the nine-month period. Notably, "Other" variable transaction fees, which include contributions from the RFQ-hub acquisition, surged 76.9% in Q3 2025 to $8.59 million.

Operating expenses in Q3 2025 increased 3% to $123.24 million, driven by higher employee compensation and benefits (up $1.6 million due to headcount and salary costs), depreciation and amortization (up $0.9 million from software and intangibles), and technology and communications (up $1.4 million from cloud hosting and software services). For the nine months ended September 30, 2025, total expenses increased 4.9% to $371.03 million. The company's headcount stood at 896 in Q3 2025, a 2% increase from the prior year.

MarketAxess maintains a robust financial position, with cash and cash equivalents totaling $473.30 million and investments at fair value of $168.47 million as of September 30, 2025, bringing total liquid assets to $641.77 million.

The company generated $385 million in free cash flow over the trailing twelve months.

Liquidity is further bolstered by $749.9 million in available borrowing capacity under its Credit Agreement. Shareholder returns are a priority, with $120 million used for share repurchases during the nine months ended September 30, 2025, and $105 million remaining on the 2024 repurchase program. A quarterly cash dividend of $0.76 per share was approved in October 2025. This strong capital base provides the flexibility to continue strategic investments and pursue M&A opportunities, as management noted, "Our balance sheet is positioned certainly attractively to engage in M&A."

Outlook and Guidance for 2025

MarketAxess's outlook for 2025 is firmly rooted in its transition from a "build year" in 2024 to a "year of delivery and execution." Management anticipates that the significant investments in technology modernization and new protocols will translate into enhanced market share and revenue growth in the coming quarters.

For the full year 2025, MarketAxess expects total services revenue to grow in the mid-single digits. Total expenses are projected to be at the low end of the previously stated GAAP range of $505 million to $525 million. This implies an incremental increase of $10 million to $12 million in Q4 2025 expenses relative to Q3 2025, driven by depreciation, technology costs, the impact of new hires, and timing-related expenses. This guidance includes the full-year effect of 2024 hires, inflationary increases, and ongoing technology investments, as well as higher variable costs. Importantly, the company's disciplined cost management, including actions that reduced full-year expenses by an expected $17 million, allows it to "self-fund" these critical investments.

The effective tax rate for 2025 is expected to be in the range of 41% to 42% on a GAAP basis, or 26% to 27% excluding the notable reserve for uncertain tax positions established in Q1 2025. Capital expenditures are guided to be between $65 million and $70 million, with approximately 80% allocated to capitalized software development costs for new protocols and trading platform enhancements.

The RFQ-hub acquisition, completed in May 2025, is expected to contribute to revenue growth, with its 2024 revenue of $13 million projected to grow between 15% and 20% in 2025. Approximately $0.75 million of connectivity fees from RFQ-hub are expected to flow through technology services revenue, and incremental expenses related to its consolidation are estimated at $7 million to $9 million for 2025, with an additional $2 million in incremental depreciation.

Underpinning this outlook are several key assumptions: the successful and timely rollout of new products like the full high-touch block solution in U.S. credit (expected by early Q2 2025), the relaunch of Mid-X with Pragma technology (Q2 2025), and the expansion of X-Pro into Europe. Management also anticipates a return to higher levels of market volatility and a gentle steepening of the yield curve, which are generally favorable for liquidity and secondary turnover in fixed income. The company explicitly expects these initiatives to drive "higher market share growth in the quarters ahead."

Risks and Competitive Dynamics

MarketAxess operates within a highly competitive and inherently volatile global fixed-income securities industry. The company faces direct competition from established electronic trading platforms like Tradeweb Markets Inc. , Intercontinental Exchange (ICE), and Nasdaq, Inc. (NDAQ), as well as indirect competition from alternative trading systems, OTC networks, and emerging fintech solutions.

MarketAxess's competitive advantages stem from its strong network effects, proprietary technology (Open Trading, CP+), and deep regulatory expertise. Its specialized focus on fixed-income execution, particularly through its all-to-all anonymous trading environment, offers a unique value proposition that fosters inclusivity and efficiency. This specialization, combined with its operational resilience in fixed-income, allows MarketAxess to maintain comparable profitability and cash flow generation to its larger, more diversified rivals.

However, this specialization also presents vulnerabilities. The company's reliance on fixed-income markets exposes it to potential revenue and profitability impacts if fixed-income volumes decline, a risk that diversified competitors like Tradeweb are less susceptible to. While MarketAxess is making significant strides in technological innovation, particularly with AI-driven tools and the Pragma acquisition, it may lag some competitors in overall diversification and the speed of innovation in broader asset classes. For instance, while MarketAxess's platforms are tailored for bond trading, competitors like ICE and Nasdaq offer more integrated solutions across derivatives and equities, potentially capturing growth in adjacent markets more rapidly.

The growth of new protocols, such as portfolio trading and the dealer-to-dealer market, while strategically embraced by MarketAxess, often comes with lower fee capture rates, impacting overall revenue per million. This necessitates continuous volume growth and operational efficiency to offset potential revenue dilution. Furthermore, the "phone and chat" market remains a significant competitor for large block trades, a segment MarketAxess is actively targeting with its new high-touch block solutions.

Regulatory changes pose another layer of risk. The SEC's central clearing mandate for U.S. Treasury securities, effective December 31, 2026, could impact participants and platform usage. Diverging U.K. and E.U. financial regulations, exemplified by the E.U.'s Digital Operational Resilience Act (DORA), increase compliance costs and complexity. Cybersecurity threats are also a constant concern, requiring ongoing investment. Additionally, the company is currently undergoing tax examinations in New York State and City, with the ultimate financial impact yet to be determined. These factors highlight the need for MarketAxess to continuously adapt its technology, strategy, and operational framework to maintain its competitive edge and mitigate potential headwinds.

Conclusion

MarketAxess is undergoing a profound strategic transformation, shifting from a traditional RFQ-centric model to a "protocol agnostic" platform designed to thrive across all market conditions. This evolution, underpinned by significant investments in AI-driven technology, strategic acquisitions like Pragma and RFQ-hub, and a relentless focus on new protocols such as block trading, portfolio trading, and Mid-X, positions the company to unlock substantial growth opportunities in the vast fixed-income market. While recent financial performance has shown mixed results, particularly in U.S. credit where fee capture has been impacted by protocol mix-shift, the underlying momentum in volume growth across new initiatives and international markets is compelling.

The company's technological leadership, exemplified by its CP+ pricing engine, AI-driven dealer selection tools, and the innovative fixed income closing auctions, forms a robust competitive moat. These advancements enhance liquidity, improve execution quality, and address critical market inefficiencies like information leakage, directly contributing to MarketAxess's ability to capture market share. Despite facing a competitive landscape with diversified players like Tradeweb (TW), ICE, and Nasdaq, MarketAxess's deep specialization and operational efficiency in fixed income, coupled with its disciplined investment strategy, reinforce its long-term investment thesis. As MarketAxess continues its "year of delivery and execution" in 2025, investors should closely monitor the successful rollout and adoption of its new solutions, particularly in the block trading and dealer-initiated segments, as these are expected to be key drivers of sustained market share gains and revenue expansion.