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MarketAxess Holdings Inc. (NASDAQ:MKTX)

Q2 2010 Earnings Call

July 28, 2010 8:30 am ET

Executives

Dave Gretzky - Investor Relations Manger

Rick McVey - Chairman and Chief Executive Officer

Kelly Millet - President

Tony DeLise - Chief Financial Officer

Analysts

Hugh Miller – Sidoti

Chris Donat - Sandler O'Neill

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. Later we'll conduct a question-and-answer session. (Operator Instructions) As a remainder, this conference is being recorded Wednesday, July the 28, 2010.

I would now like to turn the call over to Dave Gretzky, Investor Relations Manger at MarketAxess. Please go ahead, sir.

Dave Gretzky

Good morning. And welcome to the MarketAxess second quarter 2010 conference call. On the call, Rick McVey, Chairman and Chief Executive Officer will review highlights for the quarter, Kelly Millet, President, 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 conditions may differ materially from what is indicated in those forward-looking statements.

For discussion of some of the risk 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, 2009. I'd 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.

Rick McVey

Good morning and thank you for joining us to discuss our second quarter 2010 results. We are pleased to report another set of strong quarterly results with record revenues of $35.3 million of 37% from a year-ago. And a record pre-tax income of $11.9 million, 107% above second quarter of 2009. The strong revenue growth combined with operating leverage lead to a marked improvement in operating margins to approximately 34%. EPS of $0.18 was more than double year-ago levels.

Variable transaction fees were the largest contributor to revenue growth and were up 53% driven by a combination of volume and fee per million growths. Fee capture remained strong reflecting additional contributions from our regional dealer fee plant. Total trading volume of $98 million was 47% above a year-ago.

Investor order fall in to this system was up 30% and we now have 80 market making dealers up from 60 one year ago.

Slide 4 displays the details on our financial strength. For the trailing 12 months ended June 30th 2010. EBITDA and free cash flow were both approximately $50 million in each case more than double the levels from one year ago. Trailing 12 months operating margin expanding to 32%. Our cash and securities balance at June month end was $188 billion or $4.75 per diluted shares. When assessing alternatives for deploying our capital we have four priorities. Our first priority is to grow the business by investing in both existing products and new product opportunities such as CDS. We continue to evaluate additive acquisitions in the e-trading market data or trading technologies states. We are returning capital through our shareholders through our regular quarterly cash dividend. The Board is approved our fourth quarterly dividend of $0.07 per share.

Finally, we recently announced the $30 million share repurchase program. The buyback was principally established to offset the increase in our diluted share accounts. The repurchase program started in July and it expected to be accretive.

Slide five provides an update on the current regulatory reform in our credit to flows swap platform. On July, 21, the financial regulatory reform bill was signed which contains two important mandates regarding electronic trading of OTC derivatives.

First, standardized swaps must be cleared by an approved clearing organization. And second, Clearable swaps must be traded on an exchange or swap execution facility. We believe that in regulations will create a stronger and sounder OTC derivatives market. The ultimate result is likely to be a larger OTC swap market with a broader set of industry participants. We intended to register and operate as a swap execution facility which will be regulated by the SEC and CFTC.

Although the room making process is expected to take approximately 12 to 18 months we are preparing now for transition to e-trading for standardized swaps. Based on data published by the DTC [ph] Trade ware house, we estimate that the total average daily trading volume in the client to deal our CDS market is approximately 50 to $60 billion including index and single main swaps. We currently expect the e-trading mandate to apply to 50 to 75% of the daily CDS volume.

We believe our improving credit trading technology and our large institutional credit-trading network are valuable assets in the CDS space. We are focused on this opportunity.

Now, let me turn the call over to Kelly for more detail regarding our second quarter business results.

Kelly Millet

Thank you, Rich. Slide six provides an update on market conditions. Through the second quarter credit market conditions weaken slightly demonstrated by an increase in credit spreads and credit spread volatility along with softer new issuance volume. High-grade credit spread as measured by the Credit Suisse Lucy Index end of the quarter at 158 basis points above treasury, an increase from 118 basis points at the end of the first quarter. And credit spread volatility with 6.5% at June on '10 up from 3.8% at the end of March.

Non-government guaranteed new issuance declined to 106 billion during the second quarter to the level since the fourth quarter of 2008. Taxable bond and corporate bond EPS inflows remain positive but have slowed. Slide seven summarizes the trading volume across our product categories. Overall, global volume was up 47% year-over-year in 98.3 billion. Despite more challenging market conditions during the second quarter where U.S. high grade head rates were down slightly, but in line with fourth quarter 2009 level. Market share grew to 8.1%. Year gone buyings declined 3% from the second quarter of 2009 and 20% from the first quarter of 2010. Europe continues to face a challenging market environment to principally due to sovereign debt concerns. We have seen a rapid increase in volatility and spread as measured by the Credit Suisse Liquid Eurobond index, and retail bonds outflows in the region.

The other product category volumes increased to 27.4 billion, up 74% from the second quarter of 2009, and 26% from the first quarter of this year. The increase was driven by another quarter of strong growth in agencies and emerging market volumes.

Slightly highlight the revenue drivers of the business. The increased volatility, slowdown in new issue and tax over bonds on inflows, led to a 10% decline in U.S. high grade trade, average daily buying compared to the first quarter of 2010. Available transaction fees work modestly from the first quarter of this year. And the decline in overall market trading activity was more than offset by the increase in U.S. high grade market share, and continue to recapture strength.

Variable fees per million of $175 remained flat in the second quarter, selecting the continued positive impact of the regional LOC plan. The 17.2 million in variable transaction fees accounted for 58% of total commission reflecting a healthy mix in our business and the inherent earnings leverage from a variable plan. Redistribution fees remain stable, and we expect them to be relatively unchanged in the second half of 2010.

Slide nine, highlights our improved clients in dealer participation. As Rick mentioned earlier, our total market making dealer count now stands at 80 dealers up from 60 a year ago. Importantly, new dealer activity helps to improve liquidity or a institutional client and enhance our variable feet for million capture.

Recent credit markets volatility again highlight the importance of the increasing participation of the new dealers. 14% of the volume and 21% of the trade counts were executed by new dealers in the second quarter. The new dealer activity by volume more than doubled from the year ago.

We are pleased with the overall inquiry count growth along with the increase in the number of investor firms that traded no the system across all products categories.

Slide 10, highlights our technology and information services Eurobond and other trading category. In record quarter, from Greenline Financial Technologies led to a 38% increase in technology and information services revenues versus the second quarter of last year. We are seeing attractive growth in software sales and maintenance as well as in professional services.

Sovereign-related event risk impacted European market conditions in the second quarter. Our Eurobond commission revenues were flat compared to the second quarter of 2009 and down 15% from the first quarter of 2010. We have taken steps to improve our competitive position in Europe including expanding the range of trading protocol hosting, including click-to-trade and by increasing free trade price transparency for our clients by better integrating market data into our system.

The European credit trading market is indeed different from the U.S. market, due a higher portion of trading volume that is composed of high tech account, retail oriented client. There are new trading protocol we have effectively expanded our addressable market and expect to be able to capture more of this volume over time.

Finally other commission increased 37% from the second quarter of last year. And other volumes were up 74% driven primarily by U.S. agencies and emerging markets.

Now let me turn the call over to Tony to discuss the financial results.

Tony DeLise

Thank you Kelly. Please turn to slide 11 for our earnings results. Our record revenue of $35.3 million increased 37% from a year-ago primarily driven by trading volume improvement. Total expenses were $23.5 million up 17% in the second quarter of 2009 largely due to higher employee compensation costs.

Income before taxes was a record $11.9 million up 107% from the second quarter of 2009. Incremental margin for the first half of 2010 versus the first half of last year was 63%. This means that $0.63 of additional revenue dollar fell to the pretax income line.

Our effective tax rate for the second quarter of 2010 was 39.5% and consistent with the rate we reported in the first quarter. We expect our full year tax rate to be in the range of 39% to 41% reflecting the benefits of the state tax modification that we discussed at year end. Our diluted earnings per share of $0.18 was the highest quarterly EPS we have generated as a public company.

On slide 12, we have laid out our commission revenue, trading volume and fee per million. Distribution fees of $12.3 million were up $1.7 million in the second quarter of 2009, due principally for the addition of several major dealers of the past year. Excluding any migration of a regional dealer up to the major plan we expect the distribution fees in the second half of the year will be consistent with the first half of the year.

Local fees per million were inline with the first quarter and up slightly from the second quarter of 2009. At a more detailed level the increase in U.S. high grade fee capture versus the first quarter of 2010 and then second quarter of 2009 was due largely to the higher commission rate under the regional dealer fee plan.

In connection with the trade launch, the Europe on fee plan was revised as a standard commission rate was established across most types of bond. Going forward, we expect the fee capture on European trading volume to be approximately $100 per million.

The other product category fee captured declined versus prior period, due to a larger percentage of volume and product that carry a lower fee per million principally agency bond.

Assuming agency bond volume growth continues, we would expect the fee capture in the other product category to trend downward.

Slide 13, provides you with the expense detail. Employee compensation and benefits increased by $2.3 million from the second quarter of 2009 as a result of higher incentive compensation which is tied to operating performance and an increase in employee headcount.

Employee headcount increased from 200 as of June 30, 2009 to 222 as of June 30, 2010. The majority of the new hired related to the expansion in our dealer and client networks and new initiatives. We expect to add additional resources in the second half of this year to support our TTM and other ongoing trading initiatives.

During our first quarter call, we indicated that our full year 2010 expenses are trending toward the higher end of our guidance range. Based on our updated plans, we are revising our expense guidance for full year 2010 to a range of 94 to $96 million.

On slide 14, we provide balance sheet information. Cash, cash equivalent and securities as of June 30, were 188 million or $4.75 per diluted share compared to $174 million at yearend 2009 and $145 million as of June 30, 2009. With the recent earnings performance we are quickly utilizing our U.S. federal tax loss carried forward.

The current level of earning, we would expect to be in a federal tax paying position during the second half of 2011. Total stockholders equity including the series B preferred stock with $260 million as of June 30, 2010 representing book value on a diluted basis of $6.59 per share. We continued to have no bank debt.

Now I will return the call back to Rick for some closing comments.

Rick McVey

Our strategy to expand our trading network and our product capabilities is paying off with record revenues, earnings and cash flow. We are pleased with our growth rates and continue to believe that our operating leverage will drive earnings growth. In addition to existing products, we are excited about the new opportunities emerging in the OGC derivative space. We are actively investing the benefits from the regulatory changes and we believe the opportunity is such that electronic trading in fixed income markets is getting larger.

I would now like to open the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions). The first question comes from the line of Hugh Miller with Sidoti. Please proceed.

Hugh Miller – Sidoti

Was wondering you guys mentioned just quickly about the sequential increase in the U.S. variable fee per million during the quarter. Was wondering if you can, may be touch on in a little bit more detail about kind of what's driving that.

Tony DeLise

There's three things that typically drive the U.S. high grade fee capture. It's the contribution from the dealers under the regional, participating under the regional program. It's also what duration and size mix, the size of trade over the platform also impacted fee capture. The third item is the contribution and the execution services debt. And I just mentioned those three, it's really in those three priorities that drove the fee capture, so most of what you saw both compared to the first quarter and compared to the second quarter of last year which driven by the increase in the regional dealer execution fees that are generated under that program.

Hugh Miller – Sidoti

Okay. And I guess concerning there were eight dealers that were added across the platform. Can you just talk about I guess the incremental benefit from them? Collectively what type of ability do you see in their collective – the ability to add liquidity to the platform I guess collectively from these newer dealers?

Kelly Millet

As we referenced, we went from 60 market making dealers to 80 in the current period. I think they have a benefit in the number of different ways. First the Tony's point obviously with 14% of the volume and 21% of the count being executed by that group, obviously, it add and supports the high fee capture. That can be what we have found as we've added these dealers is those dealers tend to have some specialization either by industry segment or specific relationships with specific clients or greater or more effect performance in certain bucket sizes specifically lower or smaller size trade. So it's really a combination of those three things that we believe make that program important to what we're doing and continue to support the modest growth in share that we saw in the second quarter as well as to continue strengthen in a fee capture.

Hugh Miller – Sidoti

And I guess considering some of the trends we been seeing here with a moderation of new asset flows into taxable funds and couple of months of year-on-year declines in trades volume inclusive of July here. But can you just talk about the company – the confidence level in the company's ability to grow market share to kind of offset some of these headwinds and what kind of you think has to happen in order to get back to may be a double-digit type market share in the U.S.?

Kelly Millet

I think you if look back historically if you recall that as we peaked our market share that was double-digit, a substantial portion of that nearly 3% of that was driven by the FRN business. And to this point there is less FRN business in the market place unless at risk FRN business. So to your point as we look at our fixed share at 8.1% or there about which is close to an all time high. We tackle this in a number of fairly straight forward ways. The first is to improve the size and quality of the network by adding dealers as we discussed by documenting and having a material number of new clients trading at least one actively on the systems. So it's connecting and obviously expanding that network.

In addition there is a lot of ongoing work from an FTP and kind of activity standpoint to ensure that we are more fully integrated in to the buy side or the management system and the straight through processing and efficiency benefits for both the buy side and sale side. And then obviously we look for ways to utilize technology especially in the smaller size trade to take advantage of less resistance in the smaller trade side. And there are a number of technology initiatives in place to make responses too, and hopefully the quality and quantitative response to claim increase in those smaller trade sizes more effectively.

Hugh Miller – Sidoti

Right. Great, color there. And just a question or two on Europe, I think you mentioned about the variable fee per million trending down, because of the focus on some of the retail trading of effect maybe going on there and I think you mentioned about $100 million in fee capture, do you anticipate that will be something that will drive quickly, you know to that level in 3Q or towards that level as you ramp-up activity on that type of trade?

Tony DeLise

On the fee capture in connection with the launch in early June we did an immediate change to the fee grade. So, you're going to see you know beginning with Q3 you should see that captured closer to $100 per million as we -- as we made that fee -- that fee change across most of the products and really we did it in conjunctions with both protocol. So both that quick to trade sort of indicative live market protocol as well as request for whole protocol you know both of those will have a similar or standard fee grade.

Hugh Miller – Sidoti

And then last question I had -- I guess looking at some of the volume in Europe, can you talk just about whether or not you think I realize if there is not a treasure reporting system to gages as much as you can do in the U.S., but can you talk about, I guess what you think whether or not a shift more towards telephone based trading given some of the malaise is going on there or just maybe a reduction in overall activity?

Kelly Millet

I mean these are conversion with my dealer colleague in London. There sort of collected view is that number one, overall trading volumes in Europe were depressed especially in the sort of peak of the recent sovereign debt prices through that period of sort of four to six week, and including an anticipation of the stress test results that are just down.

In addition, as I got a little bit more granular, they also said that the total volume of e-trading across a number of platforms was down as well. So to your point, now I would aggregate volume down but there was more of that volume being traded sort of more on an agency basis by phone. We would expect but again it's just a view that with the stabilization at least currently in sovereign debt spread as well as what appears to be a reasonable market acceptance of the European stress test results that European market conditions should stabilize. And then hopefully, if they do, we have the right tools as I said earlier to capture more of the investment of market in the European marketplace.

Operator

Your next question comes from the line of Chris Donat with Sandler O'Neill. Please proceed.

Chris Donat - Sandler O'Neill

Rick, to move on to the opportunity from the financial reform in the U.S. and I know it's early here. But it seems to be one unique opportunity you have really how you positioned yourself as with the buy side relationships, with the institutional batches and what the dealers. Can you give us some flavor of what kind of conversation do you having with people, as you position for being a flop execution facility both on the institutional side and the dealer side.

Rick McVey

Sure I'd be happy to, I think as you point out, it is early days. We have broad principles established so far in the Reform Bill and many unknown details to follow in the rule making process from the key regulators. So we do think it's probably 12 to 18 months before rules are finalized and implemented. And given the amount of uncertainty in the details, there's is not a lot of knowledge yet on exactly how this will play out in terms of clearable swaps and swap execution facilities in major market participants.

Having said that I think everyone realizes that there is likely to be a significant transition to e-trading for major market participants and financial institutions in standardized swaps. And as we look into the detail from DTCC in the CDS space, a significant portion of the CDS volume isn't what we consider to be standardized swaps, either the industries or the actively traded names. So I think institutional clients as well as dealers are starting to prepare for a fairly significant transformation in the CDS markets that will entail a significant increase to the amount of electronic trading activity.

Chris Donat - Sandler O'Neill

And just in the sense you can get a little deeper on what the institutions are looking for them from the market. If they are more interested in solutions that aren't through the traditional dealer relationships that they have, the voice-based ones in looking more electronically now, or they have been on hold for a bit, waiting for the regulation or sort of just uncertainty.

Kelly Millet

There has been a high degree in uncertainty obviously just into the fundamental things such as the definition of a clearable swap. And I think there is a lot of dialogue around, but no certain outcome about where one things such securities or CDS will trade. As you know the indices tend to be the more liquid larger size trades. There is some discussion within the dealer and (inaudible) community that question whether that can trade in a true and exchange model. Even with the liquidity there is some skepticism that there is not sufficient continuous liquidity for that to occur. The feedback that we have gotten from both (inaudible) by-side and it's very preliminary is that they could imagine a handful of different protocols. There could be something along the lines of a request for stream where people provide life crisis for a great re-period of time and then refresh. There could be a more traditional request for market whether you ask for a bid and an offer without disclosing the by-side size intent our market that has then from there launch in RFQ or simply launching our Q with a typical benefits of price discovery and all the inherent sneak through processing and efficiency most likely with shorter timers, or a shorter at risk periods versus the cash market. So our job is to ensure from both a sales perspective as well as from the technology perspective that we can deliver multiple protocols soon such that as the market evolves more towards an accepted standard of execution we are fully prepared to capture that business.

Chris Donat - Sandler O'Neill

Is that if I connect the dots here appropriately that part of the additional headcount resources and your spending for the remainder of this year?

Kelly Millet

Yeah. We, as Tony mentioned it's principally associated with the new initiatives it was notably CDS. Not surprisingly there is a significant portion of that in our technology world as we have a dedicated CDS technology group as well as some other elements of the CDS strategy from both – both from a regulatory marketing and sales perspective.

Operator

Your next question comes from the line of Howard Chen with Credit Suisse. Please proceed.

Howard Chen – Credit Suisse

One for Rick or Kelly to kick off, I guess back to broader financial service reform, Rick as you noted very early days but specifically like what are the key provisions you are going to watch during this room making process. And what should we be watching to guess just how big of a potential winner this can be for you?

Rick McVey

Great question, I think a numbers of pieces are important to determine the likely opportunity for MarketAxess in the E-trading space. One is which swaps well in fact be clearable, the clearable swaps are the ones that trigger the E-trading requirement. So there is detail to follow in terms of what percentage of the swap market ultimately will be clearable by one of the clearing organizations. Secondly I think there is important detail to follow on the exact principles around swap execution facilities. We are very confident that we will qualifies the swap execution facility, we don't know yet how broadly those rules will be written and how many other swap execution faculties are likely to be in the market. So, I think that's an important piece as well. We think that the definition around major market participants there are subject be trading mandates are more clear currently and the way we see that is most significant players in this CDS space are probably going to be in the major market participant category and they would be require to trade there swaps electronically.

So those are some of the areas that we're watching closely in terms of determining ultimately, what the e-trading opportunity looks like for us. I'd say also we remain confident that we will see on the back of standardization of swap contracts central clearing and more transparency a broader set of industry participants without the significant concerns about around bilateral credit risk, we think the OTC derivatives market will allow more market marker to participate actively in the market and we continue to believe that more institutional investors will utilize the OTC derivative market more actively. So, I think that the other important piece, how it is what ultimately, do the overall market volumes look like on the back of these changes, and in our view is currently that we will see growth there as well.

Howard Chen – Credit Suisse

Rick it feels like the company will continue to do this relatively de novo with what you've got and organic build out, but just you know thoughts on the acquisition landscape and do you think just now that we have the passage of legislation that could accelerate industry consolidation?

Rick McVey

I think as we pointed out several tax today we think our organic growth opportunity is growing, so that continues to occupy most of our time and attention is capitalizing on that larger addressable market. And as you know in the e-trading landscape there are just a not that many viable entities in the marketplace currently, so there are limited opportunities in the e-trading space for acquisitions although we continue to look at them. And it remains to be seen swap execution facilities will require. We think new staffs in order to manage the regulatory responsibilities that go with that and its certainly possible that you will see an increase in consolidation in order for companies to build the scale and critical mass to make it more cost effective to participate in the new regulatory regime.

Howard Chen – Credit Suisse

And then final from me, I know there is a few things going on in that other bucket. I mean Tony you touched how to think about the impact of agency growth on the revenue capture. But I guess just more broadly, just could we get a flavor for what's going on within the big buckets of other obviously U.S. agencies continuing to be good market share story but also kind of high yield in the EM business as well?

Tony DeLise

Yes. We don't breakout specific detail. But that being said, we have seen a good performance in our EM market. I think a lot of that is a function, as you know the market has been very robust. And a lot of trades in EM bucket now as investment grade, whether it is in Latin America, parts of Asia, as well as in parts of Europe. We like that business and we are continuing to push to grow that business not only outright in the U.S., but working with European customers in order to trade that emerging markets for us as well.

We are seeing signs of a more stable, high-yield environment, from the market making and risk taking stand point, and we are seeing some signs of improvement in our own activities there. And that's the real focus, in addition to a number of the other things that we addressed including U.S. market share, our trade and execution businesses, our information and technology businesses. But high yield has a very high fee capture and therefore, we are spending some special attention to address some of the specific issues being both dealer and client issues as well as modern technology issues to look to continue to accelerate that growth.

Ultimately if the fee capture is declining a bit, it's a function of the agency businesses doing well, slight takeaway from that situation strength, and a growing market and the increase in revenue, obviously, in that other category.

Operator

(Operator Instructions). Your next question comes from the line of Michael Wong with Morningstar. Please proceed.

Michael Wong – Morningstar

In terms of your swap execution facility, are you looking at any other swaps besides CDS? And will your swap execution facility have any type of hybrid broker component?

Kelly Millet

Two quick questions given that our primary focus is always been credit, CDS is the logical extension for us into the CDS space. Having said that, we would not exclude other types of our derivatives -- derivative contracts including the interest rates swap market but I think you should expect us to focus primarily on the CDS space.

Michael Wong – Morningstar

And I guess this wasn't touched upon, but were there any material impact this quarter due to changes in exchange rates?

Tony DeLise

On the FX impacted, really was not that significant in the second quarter either versus the first quarter of '09 more than second quarter of 2009. From a revenue standpoint, the foreign exchange impact was less than $200,000 and on the expense side, it was right around $100,000 so revenues were approximately $200,000 lower because of the strengthening of the dollar versus the pound, principally.

Michael Wong – Morningstar

And in terms of, can you just go into a little bit more of why you're making the European fee change?

Tony DeLise

Yeah. Sure.

Michael Wong – Morningstar

Is it a real competitive environment over there and you just need to be price more for the market?

Tony DeLise

Right. When we introduced the new clip to trade or what is a sort of live market hitter list on a dealer price tag, we assess the competitive environment for that's specific trading protocol. And it was the assessment that the approximate $100 per million was appropriate given that competitive environment. And obviously, we've been looking at our leading RFQ request for growth platforms, we did not want in a sense to have pricing arbitrage within our own system. But I will summarize my belief in Europe that a lot of the issues that we were faced were European based, market based. We do believe that we will see some stability going forward and we are very excited about expanding our trading protocols. Because as I said earlier we generally believe that the European market is different as large private banking institutions I think as you are aware in Switzerland, Germany, France, etcetera.

Our high volume sort of ticket oriented trading desk which don't in a sense lend themselves to the traditional request for protocol. So by introducing this new click-to-trade protocol we opened that addressable market which us significant in the European arena and we think we kind of capture that addressable market for that over time.

Michael Wong – Morningstar

And I guess my final question, can you just reconcile your revenue, sequential revenue increase versus the large fixed income revenue declines at some of the major i-banks and broker dealers. Is it just because you are a pure agency and may be didn't have some excess outside profits that is needed to be taken away. Or whether you believe they were taking losses on their inventory?

Rick McVey

Yeah I think if you look at our sequential increases its coming from a number of areas, it does reflect the opportunity that lies ahead for E-trading because even with leadership position in the electronic trading market in the U.S. for corporate bond trading we are still on the 8% of the overall market. So there is plenty of opportunity to grow share and perform well even an environment where the overall market may not be form --performing as well as it has in the recent past. But I think if you look across the board, we did very well in the number of categories. We have a small market share increased in the U.S high grade, Kelly and Tony, spoken about the fee capture increase as our newer regional dealers become more active on the system.

The other category is growing actively as we pointed out and the contribution is coming from our technology information service business is growing. So the nice part about our markets position right now is we have many, many ways go grow revenues and earnings in any market environment, I think you're seeing some of that coming through in the second quarter results.

Operator

We currently have no more questions in queue at this time. I'd like to turn the call over to Mr. Rick McVey for closing remarks.

Rick McVey

Thank you so much for joining us this morning and we look forward to talking to you next quarter.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.

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