MarketAxess Holdings Inc. operates one of the leading platforms for the electronic trading of corporate bonds and certain other types of fixed-income securities serving as an electronic platform through which active institutional investor clients can access the liquidity provided by our broker-dealer clients. MarketAxess\' multi-dealer trading platform allows our institutional investor clients to simultaneously request competitive executable bids or offers from multiple broker-dealers and to execute trades with the broker-dealer of their choice. MarketAxess offers our clients the ability to trade U.S. high-grade corporate bonds European high-grade corporate bonds credit default swaps agencies high-yield and emerging markets bonds. MarketAxess also provides data and analytical tools that help our clients make trading decisions and we facilitate the trading process by electronically communicating order information between trading counterparties. MarketAxess Holdings Inc. has a market cap of $335.8 million; its shares were traded at around $10.59 with a P/E ratio of 42.3 and P/S ratio of 3.7.
Highlight of Business Operations:The U.S. and European credit markets have been through a period of significant turmoil since the third quarter of 2007, especially in short-term funding and floating rate note instruments. A widespread retrenchment in the credit markets resulted in increased credit spreads and significantly higher credit spread volatility across a wide range of asset classes. Credit yield spreads in U.S. corporate bonds, as measured by the Credit Suisse Liquid U.S. Corporate Index (LUCI), increased from 1.0% over U.S Treasuries in June 2007 to a peak of 5.4% in December 2008. Credit spread volatility in U.S. corporate bonds, as measured by the LUCI Index, increased from 0.7% in June 2007 to a peak of 13.2% in January 2009. The credit markets demonstrated significant improvement through the first half of 2009, with net inflows to taxable bond funds and corporate and international bond exchange-traded funds, and an increase in the volume of new issues of high-grade corporate bonds compared to the second half of 2008. Credit yield spreads in U.S. corporate bonds declined to 2.5% over U.S. Treasuries as of June 30, 2009. The average daily trading volume of U.S. high-grade corporate bonds for the quarter ended June 30, 2009, as measured by TRACE, was $12.8 billion, compared to $10.6 billion in the quarter ended March 31, 2009 and $8.0 billion in the quarter ended December 31, 2008. However, the increased demand for corporate bonds during the quarter ended June 30, 2009, combined with primary dealer inventory of corporate bonds (with more than one year to maturity) that was approximately 65% below third quarter 2007 levels, resulted in a scarcity in certain bond issues and difficulty for investors in executing their purchases of these bonds.
For volume reporting purposes, transactions in foreign currencies are converted to U.S. dollars at average monthly rates. Prior to September 1, 2008, no fees were charged on U.S. high-grade single-dealer inquiries. Such single-dealer inquiry trading volume amounted to $2.5 billion and $4.9 for the three and six months ended June 30, 2008, respectively. Effective September 1, 2008, single-dealer inquiry trades are charged commissions in accordance with the U.S. high-grade corporate bond fee plan. Credit default swap trading volume data are included in Other. Trading volume data related to DealerAxess® bond trading between broker-dealer clients are included in either U.S. high-grade or Other trading volumes, as appropriate.
Total revenues increased by $0.2 million or 0.8% to $25.8 million for the three months ended June 30, 2009, from $25.6 million for the three months ended June 30, 2008. This increase in total revenues was primarily due to an increase in U.S. high-grade and other commissions of $2.1 million, offset by declines in technology products and services revenues of $0.6 million, investment income of $0.5 million and Eurobond commissions of $0.4 million. A 21.1% change in the average exchange rate of the Pound Sterling compared to the U.S. dollar from the three months ended June 30, 2008 to the three months ended June 30, 2009 had the effect of reducing European revenues by $1.3 million.
Total expenses decreased by $0.8 million or 3.7% to $20.1 million for the three months ended June 30, 2009, from $20.9 million for the three months ended June 30, 2008. The decrease was primarily due to a decline in professional and consulting expenses of $0.9 million, offset by higher employee compensation and benefits of $0.3 million. The change in the foreign currency rates had the effect of reducing European expenses by $0.8 million.
Income before taxes increased by $1.0 million or 20.5% to $5.7 million for the three months ended June 30, 2009, from $4.8 million for the three months ended June 30, 2008. Net income increased by $0.3 million or 11.9% to $3.1 million for the three months ended June 30, 2009, from $2.8 million for three months ended June 30, 2008.
Commissions. Total commissions increased by $1.7 million or 8.4% to $21.8 million for the three months ended June 30, 2009, from $20.1 million for the three months ended June 30, 2008. The following table shows the extent to which the increase in commissions for the three months ended June 30, 2009 was attributable to changes in transaction volumes, transaction fees per million and monthly distribution fees:
Read the The complete ReportMKTX is in the portfolios of John Keeley of Keeley Fund Management, PRIMECAP Management.