Tightening rules, primarily the Volcker Rule, Dodd-Frank Wall Road Reform and Shopper Safety Act and Basel II/III, have created an unprecedented catalyst for the growing adoption of digital buying and selling within the bond market.
MarketAxess (NASDAQ:MKTX) is an plain beneficiary from the pattern to this point, and it is without doubt one of the fastest-growing FinTech companies. As you possibly can see beneath, the annual free money stream almost quintupled over the previous decade, creating large worth.
New York-based MarketAxess operates a number one digital buying and selling platform for fixed-income market members to commerce company bonds and different forms of devices effectively. The at present $13 billion market-cap enterprise leverages scalable know-how so as to add to the effectivity, liquidity and transparency of bond buying and selling and, in return, costs commissions for executed trades and month-to-month distribution charges (89.7% of fiscal 2018 gross sales), each of that are excessive recurring as soon as the consumer will get on-board.
The lively person base, together with greater than 1,700 institutional traders and broker-dealer corporations, naturally builds an financial moat by way of a community impact, particularly within the classes of high-grade, high-yield and rising markets bonds. This issue, together with a first-entry benefit, has led to the market-leading standing of MarketAxess by way of the institutional buying and selling community for U.S. credit score merchandise.
Based on the chart beneath, MarketAxess earned an above-average return on belongings that’s larger than the like at its fundamental rival, Tradeweb Markets (NASDAQ:TW), and roughly consistent with OTC Markets Group (OTCM), the FinTech chief within the OTC market area. On the identical time, traders also needs to acknowledge the aggressive risk from FinTech giants Bloomberg and Refinitiv within the U.S. authorities debt area.
It’s price mentioning that the concept of MarketAxess was initially proposed by Richard McVey, the then head of North American fixed-income gross sales at JPMorgan (NYSE:JPM), to Lab Morgan, a know-how incubator-type of a program at JPMorgan, in 1999. One 12 months later, Mr. McVey launched MarketAxess as an unbiased enterprise with the capital raised from different market members, together with Bear Stearns. Quick ahead to right this moment and he’s nonetheless the corporate’s Chairman and CEO, with a 2.58% fairness stake.
In contrast with equities, the fixed-income area is comparatively proof against financial downturn. As described beneath, the gross sales and working revenue have been solely mildly impacted all through the 2008 monetary disaster.
The administration believes that the rapidly-increasing digital buying and selling market share continues to be in its early stage of penetration, making a long-term tailwind for the enterprise. As of fiscal 2018, it estimated a $71 billion common day by day quantity for the full addressable credit score market (together with $eight billion of U.S. high-yield, $21 billion of US high-grade, $20 billion of rising markets and $9 billion of Eurobonds), evaluating to the lower than $7 billion common day by day quantity dealt with by way of MarketAxess. Within the meantime, it seems to us that the corporate has a transparent progress technique, which focuses on growing penetration of current and new markets, funding in next-generation applied sciences and increasing internationally.
Disclosure: The point out of any safety on this article doesn’t represent an funding advice. Traders ought to at all times conduct cautious evaluation themselves or seek the advice of with their funding advisors earlier than appearing within the inventory market. We personal shares of OTC Markets Group.
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