MARKETAXESS HOLDINGS INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

Forward-Looking Statements

This report incorporates sure “forward-looking statements” throughout the that means of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
could also be recognized by phrases corresponding to “expects,” “intends,” “anticipates,” “plans,”
“believes,” “seeks,” “estimates,” “will,” or phrases of comparable that means and
embody, however will not be restricted to, statements relating to the outlook for our future
enterprise and monetary efficiency. Forward-looking statements are based mostly on
administration’s present expectations and assumptions, that are topic to inherent
uncertainties, dangers and modifications in circumstances which are troublesome to foretell.
It is routine for our inside projections and expectations to alter because the
12 months or every quarter within the 12 months progresses, and subsequently it must be clearly
understood that the inner projections and beliefs upon which we base our
expectations might change previous to the tip of every quarter or the 12 months. Although
these expectations might change, we undertake no obligation to revise or replace
any forward-looking statements contained on this report, besides to the extent
required by relevant regulation. Our firm coverage is mostly to offer our
expectations solely as soon as per quarter, and to not replace that info till the
subsequent quarter. Actual future occasions or outcomes might differ, maybe materially
from these contained within the projections or forward-looking statements. Factors
that might trigger or contribute to such variations embody these mentioned beneath
and elsewhere on this report, significantly within the part captioned Part II,
Item 1A, “Risk Factors,” and in our Form 10-Okay for the 12 months ended December 31,
2021, together with in Part I, Item 1A, “Risk Factors” and Part II, Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”

Executive Overview

MarketAxess operates main digital buying and selling platforms delivering higher
buying and selling effectivity, a diversified pool of liquidity and important price financial savings
to our shoppers throughout the worldwide fixed-income markets. Over 1,900 institutional
investor and broker-dealer companies are energetic customers of our patented buying and selling
know-how to effectively commerce U.S. high-grade bonds, U.S. high-yield bonds,
rising market debt, Eurobonds, municipal bonds, U.S. authorities bonds and
different fixed-income securities. Our award-winning Open Trading market is
extensively considered the popular all-to-all buying and selling resolution within the world
credit score markets, creating a singular liquidity pool for a broad vary of credit score
market individuals. Drawing on a various set of buying and selling protocols, together with
request-for-quote, stay order books, sessions-based buying and selling and portfolio
buying and selling options, in addition to our deep information and analytical sources, we imagine
that we join essentially the most strong community of individuals by means of a complicated full
buying and selling lifecycle resolution that additionally consists of automated buying and selling options,
clever information merchandise and a variety of post-trade companies.

We function in a big and quickly rising market that gives us with a
important alternative for future progress. Many of our largest present product
areas, and areas of future progress, have comparatively low ranges of buying and selling
electronification, which additional will increase the scale of our addressable market.
Our platforms’ modern know-how options are designed to capitalize on
this addressable market by rising the quantity of potential buying and selling
counterparties and offering our shoppers with a menu of options to handle the
full lifecycle of fixed-income buying and selling. We supply Open Trading for many of our
merchandise and buying and selling protocols, permitting our complete world community to work together
in a single massive pool of buying and selling liquidity. We imagine that Open Trading drives
significant transaction price financial savings to our shoppers and reduces danger in
fixed-income markets by creating a worldwide, diversified pool of liquidity.
Institutional buyers may ship buying and selling inquiries on to their
conventional broker-dealer counterparties by means of a disclosed RFQ, whereas
concurrently accessing further counterparties by means of our nameless Open
Trading resolution. We additionally present a quantity of built-in and actionable information
choices, together with Composite+ and Axess All actual time pricing, to help
shoppers with buying and selling selections and transaction price evaluation. We have a variety of
post-trade companies, together with straight by means of processing, commerce matching,
commerce publication, regulatory transaction reporting and market and reference
information throughout fixed-income and different merchandise.

We derive income from commissions for trades executed on our platforms,
info companies, post-trade companies and different revenues. Our bills
consist of worker compensation and advantages, depreciation and amortization,
know-how and communication bills, skilled and consulting charges,
occupancy, advertising and promoting, clearing prices and basic and
administrative bills.

Our goal is to offer the main world digital buying and selling platforms for
fixed-income securities, connecting broker-dealers and institutional buyers
extra simply and effectively, whereas providing a broad array of buying and selling info
and know-how companies to market individuals throughout the buying and selling cycle. The key
parts of our technique are mentioned in Part 1, Item 1. “Business – Our
Strategy” of our Form 10-Okay for the 12 months ended December 31, 2021.

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Critical Factors Affecting Our Industry and Our Company

Economic, Political and Market Factors

The world fixed-income securities {industry} is dangerous and risky and is
immediately affected by a quantity of financial, political and market elements that will
end in declining buying and selling quantity. These elements may have a cloth adversarial
impact on our enterprise, monetary situation and outcomes of operations. These
elements embody, amongst others, credit score market situations, the present curiosity
fee atmosphere, together with the volatility of rates of interest and buyers’
forecasts of future rates of interest, financial and political situations within the
United States, Europe and elsewhere, and the consolidation or contraction of our
broker-dealer and institutional investor shoppers.

We skilled enhancing working situations within the second quarter of 2022
in comparison with the second quarter of 2021, with credit score spreads widening, elevated
volatility and larger U.S high-grade market volumes. In the three months ended
June 30, 2022, market volumes in U.S. high-grade company bonds as reported by
FINRA’s Trade Reporting and Compliance Engine (“TRACE”) elevated 5.1% in contrast
to the three months ended June 30, 2021. Although our buying and selling volumes elevated
throughout the three months ended June 30, 2022 as a consequence of larger market volumes and
will increase in our estimated market share, a major rise in company bond
yields throughout the three months ended June 30, 2022 contributed to an lower in
the length of the bonds traded on our platforms, which had a unfavorable impact
on our common variable transaction payment per million.

In February 2022, following Russia’s invasion of Ukraine, the U.S., the U.Okay.,
and the European Union, amongst others, have adopted sanctions that, in numerous
methods, prohibit transactions with quite a few Russian entities, together with main
Russian banks, and people; restrict transactions in Russian sovereign debt;
and constrain funding, commerce and financing to, from or in sure areas of
Ukraine. We didn’t incur any materials losses on trades that have been unsettled at
the time sanctions have been imposed. To the extent the sanctions are additional
expanded or the continued conflict, sanctions, or geopolitical tensions and volatility
have additional adversarial results on the worldwide economic system and markets or the
individuals on our platforms, our monetary place and outcomes of operations
could also be adversely affected.

During the primary half of 2022, the COVID-19 pandemic (the “Pandemic”) continued
to have an effect on how we handle our enterprise. Most of our staff have
transitioned to a hybrid employment mannequin with an emphasis on security and
worker wellbeing. We proceed to watch the influence of the Pandemic on our
communities, together with the unfold of any variants, and we stay assured that
we may proceed to take care of enterprise continuity and serve our shoppers if a
return to an all-virtual atmosphere turns into mandatory to advertise worker and
public security.

There has been elevated demand for inexperienced bonds and different securities linked to
environmental, social and governance elements within the mounted earnings markets in
which we function. Based on the curiosity we’re receiving from buyers, we
anticipate such elevated demand to proceed.

Because the bulk of our belongings are short-term in nature, they aren’t
considerably affected by inflation. However, the speed of inflation might have an effect on
our bills, corresponding to worker compensation and communications bills, which
might not be readily recoverable within the costs of our companies. To the extent
inflation continues to end in rising rates of interest and has different adversarial
results on the securities markets, it could adversely have an effect on our monetary
place and outcomes of operations.

We anticipate that present money and funding balances, together with money
flows which are generated from operations and the flexibility to borrow below our
2021 Credit Agreement, shall be ample to satisfy our liquidity wants and
deliberate capital expenditure necessities for at the least the subsequent twelve months. We
ended the quarter with a powerful stability sheet, no borrowings below our 2021
Credit Agreement and with capital considerably in extra of our regulatory
necessities.

Competitive Landscape

The world fixed-income securities {industry} usually, and the digital
monetary companies markets by which we have interaction specifically, are extremely
aggressive, and we anticipate competitors to accentuate sooner or later. Sources of
competitors for us will proceed to incorporate, amongst others, bond buying and selling
carried out immediately between broker-dealers and their institutional investor
shoppers over the phone or electronically and different multi-dealer or
all-to-all buying and selling platforms. Competitors, together with firms by which some of
our broker-dealer shoppers have invested, have developed or acquired digital
buying and selling platforms or have introduced their intention to discover the event
of digital platforms or info networks that will compete with us.

We primarily compete on the idea of our consumer community, the liquidity offered
by our vendor, and, to a rising extent, institutional investor shoppers, the
complete transaction prices related to our companies, the breadth of merchandise,
protocols and companies provided, in addition to the standard, reliability, safety
and ease of use of our platforms. We imagine that our potential to develop volumes
and revenues will largely rely on our efficiency with respect to those
elements.

Our aggressive place can be enhanced by the distinctive liquidity offered by
our Open Trading functionalities and the familiarity and integration of our
broker-dealer and institutional investor shoppers with our digital buying and selling
platforms and different methods. We have targeted on the distinctive points of the credit score
markets we serve within the growth of our platforms, working carefully with our
shoppers to offer a system that’s suited to their wants.
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Regulatory Environment

Our enterprise is topic to in depth laws within the United States and
internationally, which can expose us to important regulatory danger and trigger
further authorized prices to make sure compliance. The present authorized framework that
governs the monetary markets is periodically reviewed and amended, leading to
the enactment and enforcement of new legal guidelines and laws that apply to our
enterprise. For instance, the SEC lately proposed guidelines that may develop
Regulation ATS and Regulation SCI to different buying and selling methods (ATS) that
commerce authorities securities and amend the SEC rule relating to the definition of
an “trade” to incorporate Communication Protocol Systems, corresponding to our RFQ
protocols. In reference to these proposed guidelines, we anticipate that we are going to have
to function all of our buying and selling protocols in compliance with Regulation ATS. The
fixed-income {industry} has additionally been grappling with find out how to adjust to Rule
15c2-11 (“Publication or submission of quotations with out specified
info”) of the Exchange Act, which had not beforehand been utilized to debt
securities. The influence of any of these reform efforts on us and our operations
stays unsure.

As a outcome of the U.Okay.’s departure from the European Union (“Brexit”), we
obtained authorizations from the AFM for our subsidiaries within the Netherlands in
2019. We now present regulated companies to our shoppers throughout the E.U. in
reliance on the cross-border companies passport held by our Dutch subsidiaries.
Brexit has led to an ongoing divergence between the U.Okay. and E.U. monetary
laws, which has made it tougher and expensive to adjust to the
in depth authorities regulation to which we’re topic. The price and complexity
of working throughout more and more divergent regulatory regimes has elevated and
is prone to proceed to extend sooner or later.

Compliance with laws might require us to dedicate further monetary and
operational sources, which can adversely have an effect on our profitability. However, we
imagine new laws may enhance demand for our platforms and we
imagine we’re properly positioned to learn from these regulatory modifications that
trigger market individuals to hunt digital buying and selling platforms that meet the
numerous regulatory necessities and assist them adjust to their regulatory
obligations.

For additional description of the laws which govern our enterprise, see Part1,
Item 1. “Business – Government Regulation” of our Form 10-Okay for the 12 months ended
December 31, 2021.

Technology Environment

We should proceed to reinforce and enhance our digital buying and selling platforms. The
digital monetary companies {industry} is characterised by more and more advanced
methods and infrastructures and new enterprise fashions. Our future success will
rely on our potential to reinforce our present merchandise and companies, develop
and/or license new merchandise and applied sciences that tackle the more and more
refined and various wants of our present and potential broker-dealer and
institutional investor shoppers and reply to technological advances and
rising {industry} and regulatory requirements and practices on an economical and
well timed foundation. We plan to proceed to give attention to know-how infrastructure
initiatives and regularly enhance our platforms to additional improve our main
market place. We anticipate that our agile software program growth processes will
assist us proceed to be a market chief in creating the know-how options
for our shoppers’ buying and selling wants.

As the general share of digital buying and selling grows in world credit score merchandise, we
are experiencing continued demand for, and progress in, our automated buying and selling
options. Automated buying and selling volumes rose to $57.6 billion within the second quarter
of 2022, up 39.0% from $41.5 billion within the second quarter of 2021. In addition,
the use of vendor algorithms is continuous to develop on our platforms, with
roughly 5.7 million algorithmic responses within the second quarter of 2022,
up 22.8% from the identical interval final 12 months.

We expertise cyber-attacks and tried information safety breaches. Cybersecurity
incidents may influence income and working earnings and enhance prices. We
subsequently proceed to make investments in our cybersecurity infrastructure and
coaching of staff, which can end in elevated prices, to strengthen our
cybersecurity measures.

See additionally Part 1, Item 1A. – “Risk Factors, Technology, IT Systems and
Cybersecurity Risks” of our Form 10-Okay for the 12 months ended December 31, 2021.

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Trends in Our Business

The majority of our income is derived from commissions for transactions
executed on our platforms between and amongst our institutional investor and
broker-dealer shoppers and month-to-month distribution charges. We imagine that there are
5 key variables that influence the notional worth of such transactions on our
platforms and the quantity of commissions and distribution charges earned by us:

• the quantity of individuals on our platforms and their willingness to

use our platforms as a substitute of opponents’ platforms or execution
strategies;
• the frequency and competitiveness of the value responses by
individuals on our platforms;
• the quantity of markets which are accessible for our shoppers to commerce on
our platforms;
• the general stage of exercise in these markets; and
• the length of the bonds buying and selling on our platforms and the extent of

commissions that we gather for trades executed by means of the platforms.

We imagine that general company bond market buying and selling quantity is affected by
numerous elements together with absolutely the ranges of rates of interest, the course
of rate of interest actions, the extent of new points of company bonds and the
volatility of company bond spreads versus U.S. Treasury securities. Because a
important share of our income is tied on to the amount of
securities traded on our platforms, it’s probably {that a} basic decline in
buying and selling volumes, regardless of the trigger of such decline, would scale back our
revenues and have a major unfavorable influence on profitability.

As additional described below “- Critical Factors Affecting our Industry and our
Company – Economic, Political and Market Factors” and “- Results of Operations –
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021,”
our buying and selling volumes elevated and our common variable transaction payment per
million decreased in comparison with the three months ended June 30, 2021.

Commission Revenue

Commissions are acknowledged on a commerce date foundation, are usually calculated as a
share of the notional greenback quantity of bonds traded on our platforms and
fluctuate based mostly on the kind, dimension, yield and maturity of the bond traded, in addition to
particular person consumer incentives. Bonds which are extra actively traded or which have
shorter maturities are usually charged decrease commissions, whereas bonds which are
much less actively traded or which have longer maturities usually command larger
commissions.

For Open Trading trades that we execute between and amongst institutional investor
and broker-dealer shoppers on a matched principal foundation by serving as
counterparty to each the customer and the vendor, we earn our fee by means of
the distinction in worth between the 2 trades. For the bulk of U.S.
Treasury matched principal trades, commissions are invoiced and recorded on a
month-to-month foundation.

U.S. High-Grade Corporate Bond Commissions. Our U.S. high-grade company bond
payment plans usually incorporate variable transaction charges and mounted distribution
charges billed to our broker-dealer shoppers on a month-to-month foundation. Certain
broker-dealers take part in payment packages that don’t comprise month-to-month
distribution charges and as a substitute incorporate further per transaction execution
charges and minimal month-to-month payment commitments. Under these payment plans, we
electronically add the transaction payment to the unfold quoted by the broker-dealer
consumer. The U.S. high-grade transaction payment is mostly designated in foundation
factors in yield and, consequently, is topic to fluctuation relying on the
length of the bond traded. The common U.S. high-grade charges per million might
fluctuate sooner or later as a consequence of modifications in yield, years-to-maturity and nominal dimension
of bonds traded on our platforms. Distribution charges embody any unused month-to-month
payment commitments below our variable payment plans.

Other Credit Commissions. Other credit score consists of Eurobonds, rising markets
bonds, high-yield bonds, municipal bonds and leveraged loans. Commissions for
different credit score merchandise usually fluctuate based mostly on the kind of the instrument traded
utilizing normal payment schedules. Our high-yield payment plan construction is just like
our U.S. high-grade payment plans. Certain sellers take part in a high-yield payment
plan that comes with a variable transaction payment and mounted distribution payment,
whereas different sellers take part in a plan that doesn’t comprise month-to-month
distribution charges and as a substitute incorporates further per transaction execution
charges and minimal month-to-month payment commitments. Other credit score distribution charges embody
subscription revenues related to the MuniBrokers platform. The common
different credit score charges per million might fluctuate sooner or later as a consequence of modifications in product
combine or buying and selling protocols.

Rates Commissions. Rates consists of U.S. Treasury, U.S. company and European
authorities bonds. Commissions for charges merchandise usually fluctuate based mostly on the
kind of the instrument traded. U.S. Treasury payment plans are sometimes quantity
tiered and can fluctuate based mostly on the buying and selling protocol. The common charges payment per
million might fluctuate sooner or later as a consequence of modifications in product combine or buying and selling
protocols.

We anticipate that common charges per million might change sooner or later.
Consequently, previous developments in commissions will not be essentially indicative of
future commissions.

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Information Services

We generate income from information licensed to our broker-dealer shoppers,
institutional investor shoppers and data-only subscribers; skilled and
consulting companies; know-how software program licenses; and upkeep and assist
companies. These revenues are both for subscription-based companies transferred
over time, and could also be web of volume-based reductions, or one-time companies.
Revenues for companies transferred over time are acknowledged ratably over the
contract interval whereas revenues for companies transferred at a cut-off date are
acknowledged within the interval the companies are offered. Customers are usually
billed month-to-month, quarterly, or yearly; revenues billed prematurely are deferred
and acknowledged ratably over the contract interval.

Post-trade Services

We generate income from regulatory transaction reporting, commerce publication and
commerce matching companies. Customers are usually billed within the present month or
month-to-month in arrears and income is acknowledged within the interval that the transactions
are processed. Revenues billed prematurely are deferred and acknowledged ratably
over the contract interval. We additionally generate one-time implementation charges for
onboarding shoppers that are invoiced and acknowledged within the interval the
implementation is full.

Other Revenue

Other income consists of income generated from telecommunications line fees to
broker-dealer shoppers.

Expenses

In the conventional course of enterprise, we incur the next bills:

Employee Compensation and Benefits. Employee compensation and advantages is our
most vital expense and consists of worker salaries, stock-based
compensation prices, different incentive compensation, worker advantages and payroll
taxes.

Depreciation and Amortization. We depreciate our pc {hardware} and associated
software program, workplace {hardware} and furnishings and fixtures and amortize our
capitalized software program growth prices on a straight-line foundation over three to
seven years. We amortize leasehold enhancements on a straight-line foundation over
the lesser of the life of the advance or the remaining time period of the lease.
Intangible belongings with particular lives, together with bought applied sciences,
buyer relationships and different intangible belongings, are amortized over their
estimated helpful lives, which vary from one to fifteen years, utilizing both a
straight-line or accelerated amortization methodology based mostly on the sample of
financial profit that we anticipate to appreciate from such belongings. Intangible belongings
are assessed for impairment when occasions or circumstances point out a doable
impairment.

Technology and Communications. Technology and communications expense consists
primarily of prices referring to upkeep on software program and {hardware}, our
inside community connections, information heart internet hosting prices, information feeds offered by
outdoors distributors and U.S. treasuries know-how platform licensing charges. The
majority of our broker-dealer shoppers have devoted high-speed communication
strains to our community with a purpose to present quick information switch. We cost our
broker-dealer shoppers a month-to-month payment for these connections, which is recovered
in opposition to the related bills we incur.

Professional and Consulting Fees. Professional and consulting charges consist
primarily of accounting charges, authorized charges and charges paid to info know-how
and different consultants for companies offered for the upkeep of our buying and selling
platforms, info and post-trade companies merchandise and different companies.

Occupancy. Occupancy prices consist primarily of workplace and gear lease,
utilities and industrial lease tax.

Marketing and Advertising. Marketing and promoting expense consists primarily
of print and different promoting bills we incur to advertise our merchandise and
companies. This expense additionally consists of prices related to attending or
exhibiting at industry-sponsored seminars, conferences and conventions, and
journey and leisure bills incurred by our gross sales pressure to advertise our
buying and selling platforms, info companies and post-trade companies.

Clearing Costs. Clearing prices consist of charges that we’re charged by
third-party clearing brokers and depositories for the clearing and settlement of
matched principal trades, regulatory reporting charges and variable transaction
charges assessed by the supplier of our third-party center workplace system.

General and Administrative. General and administrative expense consists
primarily of basic journey and leisure, board of administrators’ bills,
charitable contributions, provision for uncertain accounts and numerous state
franchise and U.Okay. value-added taxes.

Expenses might develop sooner or later, notably in worker compensation and advantages
as we enhance headcount to assist funding in new merchandise, operational
assist and geographic growth, depreciation and amortization as a consequence of elevated
funding in new merchandise and enhancements to our buying and selling platforms, and
know-how and communication prices. Expenses may develop as a consequence of acquisitions.
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Other Income (Expense)

Investment Income. Investment earnings consists of curiosity earnings earned on our
money and investments.

Interest Expense. Interest expense consists of financing fees incurred on
short-term borrowings.

Equity in Earnings of Unconsolidated Affiliate. Equity in earnings of
unconsolidated affiliate represents the proportionate share of our fairness methodology
investee’s web earnings.

Other, Net. Other, web consists of unrealized beneficial properties or losses on buying and selling
safety investments, realized beneficial properties or losses on investments, international forex
transaction beneficial properties or losses, funding advisory charges, credit score facility
administrative charges, beneficial properties or losses on revaluations of contingent consideration
payable and different miscellaneous revenues and bills.

Critical Accounting Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of
Operations discusses our Consolidated Financial Statements, which have been
ready in accordance with GAAP. The preparation of these monetary statements
requires administration to make estimates and assumptions that have an effect on the reported
quantities of belongings and liabilities and the reported quantities of earnings and
bills throughout the reporting intervals. We base our estimates and judgments on
historic expertise and on numerous different elements that we imagine are
affordable below the circumstances. Actual outcomes might differ from these
estimates below various assumptions or situations. Critical accounting estimates
for us embody stock-based compensation and contingent consideration payable.

Stock-based compensation

We keep the 2020 Plan which supplies for the grant of inventory choices, inventory
appreciation rights, restricted inventory, efficiency shares, efficiency models,
restricted inventory models, efficiency inventory models, or different stock-based awards as
incentives and rewards to encourage staff, consultants and non-employee
administrators. We make crucial accounting estimates associated to efficiency shares
and efficiency inventory models granted below the 2020 Plan.

In 2020, annual efficiency share awards (“PSAs”), and in 2021 and 2022,
efficiency inventory models (along with the PSAs, “efficiency fairness awards”)
have been granted to the manager officers and sure senior managers. Each
efficiency fairness award is earned or forfeited based mostly on our stage of
achievement of sure predetermined metrics, together with pre-tax adjusted
working earnings and market share for the 2020 and 2021 awards, and pre-tax
adjusted working earnings, U.S. credit score market share, and income progress
excluding U.S. credit score for the 2022 awards. The vested share pay-out ranges from
zero to 150% for the awards granted in 2020, and zero to 200%, for the awards
granted in 2021 and 2022, of the efficiency fairness award goal. The quantity of
efficiency fairness awards that vest, if any, shall be decided by the extent of
achievement of the efficiency metrics throughout the three-year efficiency
intervals, as licensed by the Board following the conclusion of the efficiency
interval. In addition, individuals should present continued service by means of the
vesting date (topic, to demise, incapacity and, within the case of the awards
granted in 2021 and 2022, certified retirement exceptions). Compensation expense
for efficiency fairness awards is measured utilizing the honest worth of our inventory at
the grant date and estimates of future efficiency and precise share payouts.
Each interval, we make estimates of the present anticipated share payouts and regulate
the life-to-date compensation expense acknowledged for the reason that grant date. As of
June 30, 2022, a ten% change within the anticipated closing share payouts would enhance
or lower the life-to-date compensation expense by $1.6 million. The estimated
closing share payouts for the 2020 and 2021 awards as of June 30, 2022 decreased
3.7% in comparison with December 31, 2021.

Contingent consideration payable

In reference to our acquisitions of MuniBrokers and Regulatory Reporting Hub,
we acknowledged contingent consideration payables of as much as $49.6 million with
cost dates starting from 18-24 months from the acquisition dates. These
contingent consideration payables are categorised as Level 3 liabilities within the
honest worth hierarchy and are valued utilizing unobservable inputs and estimates of
numerous elements, together with consumer retention charges, digital order movement ranges,
future license charges we earn and low cost charges. Changes in these estimates or
the ultimate figures on the cost dates may have an effect on the contingent
consideration payable liabilities we document on our stability sheet. As of June 30,
2022, a ten% change within the projected annual subscription and license charges would
not have a cloth influence on the anticipated contingent consideration payable.
Refer to Note 4 to the Consolidated Financial Statements for extra info
associated to the modifications in contingent consideration payable throughout the six months
ended June 30, 2022.

Recent Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements for a dialogue of latest
accounting pronouncements.

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Segment Results

We function digital platforms for the buying and selling of fixed-income securities and
present associated information, analytics, compliance instruments and post-trade companies. We
contemplate our operations to represent a single enterprise phase as a result of of the
extremely built-in nature of these product and companies, the monetary markets in
which we compete and our worldwide enterprise actions. We imagine that outcomes
by geographic area or consumer sector will not be essentially significant in
understanding our enterprise. See Note 15 to the Consolidated Financial Statements
for sure geographic details about our enterprise required by GAAP.

Results of Operations

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The following desk summarizes our monetary outcomes for the three months ended
June 30, 2022 and 2021.

Three Months Ended June 30,
$ %
2022 2021 Change Change
($ in 1000’s, besides per share quantities)
Revenues $ 182,229 $ 176,334 $ 5,895 3.3 %
Expenses 97,441 89,157 8,284 9.3
Operating earnings 84,788 87,177 (2,389 ) (2.7 )
Other earnings (expense) 4,790 (1,124 ) 5,914 NM
Income earlier than earnings taxes 89,578 86,053 3,525 4.1
Provision for earnings taxes 22,656 18,765 3,891 20.7
Net earnings $ 66,922 $ 67,288 $
(366 ) (0.5 ) %

Net earnings per widespread share – Diluted $ 1.78 $ 1.77 $ 0.01 0.6 %

Changes within the common international forex trade charges of the British pound
sterling and the Euro in comparison with the U.S. greenback had the impact of reducing
revenues and bills by $3.1 million and $2.7 million, respectively, for the
three months ended June 30, 2022.

Revenues

Our revenues for the three months ended June 30, 2022 and 2021, and the
ensuing greenback and share modifications, have been as follows:

Three Months Ended June 30,
2022 2021
($ in 1000’s)
% of % of $ %
Revenues Revenues Change Change
Commissions $ 163,463 89.7 % $ 156,431 88.7 % $ 7,032 4.5 %
Information companies 9,396 5.2 9,844 5.6 (448 ) (4.6 )
Post-trade companies 9,144 5.0 9,848 5.6 (704 ) (7.1 )
Other 226 0.1 211 0.1
15 7.1
Total revenues $ 182,229 100.0 % $ 176,334 100.0 % $ 5,895 3.3 %

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Commissions. Our fee revenues for the three months ended June 30, 2022
and 2021, and the ensuing greenback and share modifications, have been as follows:

Three Months Ended June 30,
$ %
2022 2021 Change Change
($ in 1000’s)
Variable transaction charges
U.S. high-grade $ 51,576 $ 56,413 $ (4,837 ) (8.6 ) %
Other credit score 74,226 67,074 7,152 10.7
Total credit score 125,802 123,487 2,315 1.9
Rates 6,020 3,612 2,408 66.7

Total variable transaction charges 131,822 127,099 4,723

3.7
Distribution charges
U.S. high-grade 23,496 21,373 2,123 9.9
Other credit score 8,096 7,895 201 2.5
Total credit score 31,592 29,268 2,324 7.9
Rates 49 64 (15 ) (23.4 )
Total distribution charges 31,641 29,332 2,309 7.9
Total commissions $ 163,463 $ 156,431 $ 7,032 4.5 %

U.S. high-grade variable transaction charges decreased $4.8 million pushed by a
17.7% lower in common variable transaction payment per million, partially offset
by an 11.0% enhance in buying and selling quantity. Other credit score variable transaction charges
elevated $7.2 million as a consequence of a 15.8% enhance in buying and selling quantity, which was
partially offset by a 4.4% lower in common variable transaction payment per
million. Open Trading credit score quantity totaled $231.0 billion throughout the three
months ended June 30, 2022, up 6.8%, and represented 31.5% and 31.3% of variable
transaction charges for the three months ended June 30, 2022 and 2021,
respectively. The 66.7% enhance in variable transaction charges for charges was
primarily attributable to larger U.S. Treasury buying and selling quantity.

U.S. high-grade distribution charges elevated $2.1 million primarily as a consequence of sure
sellers shifting to larger mounted payment plans and a rise in unused month-to-month
minimal dedication charges.

Our buying and selling volumes for the three months ended June 30, 2022 and 2021 have been as
follows:

Three Months Ended June 30,
$ %
2022 2021 Change Change
($ in thousands and thousands)
Trading quantity information
U.S. high-grade – mounted fee $ 350,296 $ 312,858 $ 37,438 12.0 %
U.S. high-grade – floating fee 9,489 11,153 (1,664 ) (14.9 )
Total U.S. excessive grade 359,785 324,011 35,774 11.0
Other credit score 399,209 344,865 54,344 15.8
Total credit score $ 758,994 $ 668,876 $ 90,118 13.5 %

Rates 1,431,595 888,267 543,328 61.2 %

Number of U.S. Trading Days 62 63
Number of U.Okay. Trading Days 60 61

For quantity reporting functions, transactions in foreign exchange are transformed
to U.S. {dollars} at common month-to-month charges. The 11.0% enhance in our U.S.
high-grade quantity was principally as a consequence of will increase in general market quantity and
our estimated market share. Estimated U.S. high-grade TRACE quantity elevated by
5.1% to $1.6 trillion for the three months ended June 30, 2022. Our estimated
market share of complete U.S. high-grade company bond quantity elevated to 22.3%
for the three months ended June 30, 2022 from 21.1% for the three months ended
June 30, 2021.

30

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Other credit score volumes elevated by 15.8% as a consequence of will increase of 19.6% in high-yield
bond quantity, 11.5% in rising markets bond quantity and 278.2% in municipal bonds
quantity. The will increase in high-yield and rising markets bond quantity have been as a consequence of
will increase in our estimated market share, whereas the rise in municipal bonds
quantity displays the inclusion of MuniBrokers variable subscription associated
buying and selling quantity within the second quarter of 2022. Estimated U.S. high-yield,
rising markets and Eurobond market volumes decreased by 1.2%, 11.5% and 22.1%,
respectively, in comparison with the three months ended June 30, 2021. Rates buying and selling
quantity elevated 61.2% primarily as a consequence of will increase in U.S. treasuries
dealer-to-dealer estimated common day by day buying and selling quantity and our estimated market
share.

Our common variable transaction payment per million for the three months ended June
30, 2022 and 2021 was as follows:

Three Months Ended June 30,
2022 2021 $ Change % Change
Average variable transaction
payment per million
U.S. high-grade – mounted fee $ 145.93 $ 179.02 $ (33.09 ) (18.5 ) %
U.S. high-grade – floating fee 48.15 36.40 11.75 32.3
Total U.S. high-grade 143.35 174.11 (30.76 ) (17.7 )
Other credit score 185.93 194.49 (8.56 ) (4.4 )
Total credit score 165.75 184.62 (18.87 ) (10.2 )

Rates 4.21 4.07 0.14 3.4

Total U.S. high-grade common variable transaction payment per million decreased
17.7% to $143.35 per million for the three months ended June 30, 2022 as a consequence of a
lower within the length of bonds traded on our platforms. Other credit score common
variable transaction payment per million decreased 4.4% to $185.93 per million for
the three months ended June 30, 2022 primarily as a consequence of a bigger share of
buying and selling quantity in rising market bonds that command decrease charges per million and
vendor migration to fixed-distribution payment plans that present for decrease
transaction charges.

Information Services. Information companies income decreased $0.4 million for
the three months ended June 30, 2022 primarily because of the unfavorable influence of
international trade of $0.6 million partially offset by web new information contract
income of $0.2 million.

Post-Trade Services. Post-trade companies income decreased $0.7 million for the
three months ended June 30, 2022 principally because of the unfavorable influence of
international trade of $1.1 million partially offset by web new contract income of
$0.4 million, which incorporates the influence of deliberate buyer attrition in
reference to the Regulatory Reporting Hub integration.

31
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Expenses

The following desk summarizes our bills for the three months ended June 30,
2022 and 2021.

Three Months Ended June 30,
$ %
2022 2021 Change Change
($ in 1000’s)
Expenses

Employee compensation and advantages $ 45,435 $ 40,732 $ 4,703

11.5 %
Depreciation and amortization 15,240 13,097 2,143 16.4
Technology and communications 12,490 10,544 1,946 18.5
Professional and consulting charges 8,920 10,704 (1,784 ) (16.7 )
Occupancy 3,700 3,300 400 12.1
Marketing and promoting 2,949 3,128 (179 ) (5.7 )
Clearing prices 4,263 4,372 (109 ) (2.5 )
General and administrative 4,444 3,280 1,164 35.5
Total bills $ 97,441 $ 89,157 $ 8,284 9.3 %

Employee compensation and advantages elevated by $4.7 million, primarily as a consequence of
larger salaries, taxes and advantages of $3.5 million on larger worker
headcount, larger inventory­based mostly compensation of $0.9 million and worker
incentive compensation of $0.3 million, which is impacted by working
efficiency.

Depreciation and amortization elevated by $2.1 million primarily as a consequence of larger
amortization of software program growth prices of $1.8 million and amortization of
acquired intangibles expense of $0.6 million, offset by a lower in
depreciation of software program licenses and workplace gear of $0.3 million. For the
three months ended June 30, 2022 and 2021, $1.3 million and $5.6 million,
respectively, of gear purchases and leasehold enhancements and $9.1 million
and $8.4 million, respectively, of software program growth prices have been capitalized.

Technology and communications bills elevated by $1.9 million primarily due
to larger software program subscription prices of $1.2 million and larger cloud internet hosting
prices of $0.6 million.

Professional and consulting charges decreased $1.8 million as a consequence of decrease
acquisition-related consulting and authorized bills of $0.7 million, decrease IT and
different consulting prices of $0.7 million and decrease self-clearing consulting charges
of $0.3 million.

General and administrative bills elevated $1.2 million primarily as a consequence of
larger journey and leisure prices of $0.5 million, larger regulatory charges of
$0.3 million, larger director inventory compensation expense of $0.2 million and
larger office-related administration prices of $0.2 million.

32
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Other Income (Expense)

Our different earnings (expense) for the three months ended June 30, 2022 and 2021,
and the ensuing greenback and share modifications, have been as follows:

Three Months Ended June 30,
$ %
2022 2021 Change Change
($ in 1000’s)
Investment earnings $ 254 $ 107 $ 147 137.4 %
Interest expense (337 ) (171 ) (166 ) 97.1
Equity in earnings of
unconsolidated affiliate 191 – 191 NM
Other, web 4,682 (1,060 ) 5,742 NM

Total different earnings (expense) $ 4,790 $ (1,124 ) $ 5,914

(526.2 ) %

Equity in earnings of unconsolidated affiliate represents the proportionate
share of web earnings of our fairness methodology investee.

Other, web elevated by $5.7 million as a consequence of larger international trade beneficial properties.

Provision for Income Taxes

The provision for earnings taxes and efficient tax fee for the three months ended
June 30, 2022 and 2021 have been as follows:

Three Months Ended June 30,
$ %
2022 2021 Change Change
($ in 1000’s)

Provision for earnings taxes $ 22,656 $ 18,765 $ 3,891 20.7 %

Effective tax fee 25.3 % 21.8 %

The provision for earnings taxes mirrored $0.1 million of extra tax detriments
and $5.6 million of extra tax advantages associated to share-based compensation
awards that vested or have been exercised throughout the three months ended June 30, 2022
and 2021, respectively. Our consolidated efficient tax fee can fluctuate from interval
to interval relying on the geographic combine of our earnings, modifications in tax
laws and tax charges and the quantity and timing of extra tax advantages
associated to share-based funds, amongst different elements.

33
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Results of Operations

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The following desk summarizes our monetary outcomes for the six months ended
June 30, 2022 and 2021.

Six Months Ended June 30,
$ %
2022 2021 Change Change
($ in 1000’s, besides per share quantities)

Revenues $ 368,286 $ 371,798 $ (3,512 ) (0.9 ) %
Expenses 195,394 181,147 14,247 7.9
Operating earnings 172,892 190,651 (17,759 ) (9.3 )
Other earnings (expense) 7,105 (2,797 ) 9,902 (354.0 )
Income earlier than earnings taxes 179,997 187,854 (7,857 ) (4.2 )
Provision for earnings taxes 48,306 40,109 8,197 20.4
Net earnings $ 131,691 $ 147,745 $
(16,054 ) (10.9 ) %

Net earnings per widespread share – Diluted $ 3.49 $ 3.87 $ (0.38 ) (9.8 ) %

Changes within the common international forex trade charges of the British pound
sterling and the Euro in comparison with the U.S. greenback had the impact of reducing
revenues and bills by $4.1 million and $3.7 million, respectively, for the
six months ended June 30, 2022.

Revenues

Our revenues for the six months ended June 30, 2022 and 2021, and the ensuing
greenback and share modifications, have been as follows:

Six Months Ended June 30,
2022 2021
($ in 1000’s)
% of % of $ %
Revenues Revenues Change Change
Commissions $ 329,576 89.5 % $ 332,269 89.4 % $ (2,693 ) (0.8 ) %
Information companies 19,205 5.2 19,006 5.1 199 1.0
Post-trade companies 19,056 5.2 20,109 5.4 (1,053 ) (5.2 )
Other 449 0.1 414 0.1
35 8.5
Total revenues $ 368,286 100.0 % $ 371,798 100.0 % $ (3,512 ) (0.9 ) %

Commissions. Our fee revenues for the six months ended June 30, 2022 and
2021, and the ensuing greenback and share modifications, have been as follows:

Six Months Ended June 30,
$ %
2022 2021 Change Change
($ in 1000’s)
Variable transaction charges
U.S. high-grade $ 104,454 $ 121,769 $ (17,315 ) (14.2 ) %
Other credit score 150,030 145,973 4,057 2.8
Total credit score 254,484 267,742 (13,258 ) (5.0 )
Rates 12,211 7,755 4,456 57.5

Total variable transaction charges 266,695 275,497 (8,802 )

(3.2 )
Distribution charges
U.S. high-grade 46,522 42,343 4,179 9.9
Other credit score 16,248 14,299 1,949 13.6
Total credit score 62,770 56,642 6,128 10.8
Rates 111 130 (19 ) (14.6 )
Total distribution charges 62,881 56,772 6,109 10.8
Total commissions $ 329,576 $ 332,269 $ (2,693 ) (0.8 ) %

34

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U.S. high-grade variable transaction charges decreased $17.3 million pushed by a
16.0% lower in common variable transaction payment per million, partially offset
by a 2.1% enhance in buying and selling quantity. Other credit score variable transaction charges
elevated $4.1 million pushed by a 9.1% enhance in buying and selling quantity which was
partially offset by a 5.8% lower within the common variable transaction payment per
million. Open Trading credit score quantity totaled $462.5 billion throughout the six months
ended June 30, 2022, flat in comparison with the six months ended June 30, 2021, and
represented 31.6% and 31.1% of variable transaction charges for the six months
ended June 30, 2022 and 2021, respectively. The 57.5% enhance in variable
transaction charges for charges was primarily attributable to larger U.S. Treasury
buying and selling quantity.

U.S. high-grade distribution charges elevated $4.2 million primarily as a consequence of sure
sellers shifting to larger mounted payment plans and a rise in unused month-to-month
minimal dedication charges. Other credit score distribution charges elevated $1.9 million
primarily because of the migration of sure sellers from all-variable payment plans to
plans that incorporate a month-to-month distribution payment.

Our buying and selling volumes for the six months ended June 30, 2022 and 2021 have been as
follows:

Six Months Ended June 30,
$ %
2022 2021 Change Change
($ in thousands and thousands)
Trading quantity information
U.S. high-grade – mounted fee $ 680,854 $ 662,673 $ 18,181 2.7 %
U.S. high-grade – floating fee 21,024 24,779 (3,755 ) (15.2 )
Total U.S. excessive grade 701,878 687,452 14,426 2.1
Other credit score 802,927 735,885 67,042 9.1
Total credit score $ 1,504,805 $ 1,423,337 $ 81,468 5.7 %

Rates 3,012,829 2,009,135 1,003,694 50.0

Number of U.S. Trading Days 124 124
Number of U.Okay. Trading Days 123 124

For quantity reporting functions, transactions in foreign exchange are transformed
to U.S. {dollars} at common month-to-month charges. The 2.1% enhance in our U.S.
high-grade quantity was principally as a consequence of a rise in our estimated market
share. Estimated U.S. high-grade TRACE quantity decreased by 1.4% to $3.3 trillion
for the six months ended June 30, 2022. Our estimated market share of complete U.S.
high-grade company bond quantity elevated to 21.5% for the six months ended
June 30, 2022 from 20.8% for the six months ended June 30, 2021.

Other credit score volumes elevated by 9.1% as a consequence of will increase in rising markets bond
quantity of 9.0%, high-yield bond quantity of 3.3% and 245.1% in municipal bonds
quantity. The will increase in rising markets bond quantity and high-yield bond quantity
have been as a consequence of will increase in our estimated market share, whereas the rise in
municipal bond quantity displays the inclusion of MuniBrokers variable
subscription associated buying and selling quantity starting within the first quarter of 2022.
Estimated rising markets, U.S. high-yield and Eurobond market volumes
decreased by 8.6%, 4.7% and 16.1%, respectively, in comparison with the six months
ended June 30, 2021. Rates buying and selling quantity elevated 50.0% primarily as a consequence of
will increase in U.S. treasuries dealer-to-dealer estimated common day by day buying and selling
quantity and our estimated market share.

Our common variable transaction payment per million for the six months ended June
30, 2022 and 2021 was as follows:

Six Months Ended June 30,
2022 2021 $ Change % Change
Average variable transaction
payment per million
U.S. high-grade – mounted fee $ 151.87 $ 182.21 $ (30.34 ) (16.7 ) %
U.S. high-grade – floating fee 50.12 41.19 8.93 21.7
Total U.S. high-grade 148.82 177.13 (28.31 ) (16.0 )
Other credit score 186.85 198.36 (11.51 ) (5.8 )
Total credit score 169.11 188.11 (18.99 ) (10.1 )

Rates 4.05 3.86 0.19 4.9

35

——————————————————————————–

Total U.S. high-grade common variable transaction payment per million decreased
16.0% to $148.82 per million for the six months ended June 30, 2022 as a consequence of a
lower within the length of bonds traded on our platforms. Other credit score common
variable transaction payment per million decreased 5.8% to $186.85 per million for
the six months ended June 30, 2022 primarily as a consequence of a bigger share of buying and selling
quantity in rising market bonds that command decrease charges per million and vendor
migration to fixed-distribution payment plans that present for decrease transaction
charges.

Information Services. Information companies income elevated $0.2 million for
the six months ended June 30, 2022 primarily as a consequence of web new information contract income
of $0.9 million partially offset by the unfavorable influence of international trade of
$0.7 million.

Post-Trade Services. Post-trade companies income decreased $1.1 million for the
six months ended June 30, 2022 principally because of the unfavorable influence of international
trade of $1.4 million partially offset by web new contract income of $0.3
million, which incorporates the influence of deliberate buyer attrition in connection
with the Regulatory Reporting Hub integration.

Expenses

The following desk summarizes our bills for the six months ended June 30,
2022 and 2021.

Six Months Ended June 30,
$ %
2022 2021 Change Change
($ in 1000’s)
Expenses

Employee compensation and advantages $ 93,191 $ 88,820 $ 4,371

4.9 %
Depreciation and amortization 30,414 24,876 5,538 22.3
Technology and communications 24,682 20,580 4,102 19.9

Professional and consulting charges 18,541 20,344 (1,803 )

(8.9 )
Occupancy 7,087 6,617 470 7.1
Marketing and promoting 4,738 4,332 406 9.4
Clearing prices 8,838 9,066 (228 ) (2.5 )
General and administrative 7,903 6,512 1,391 21.4
Total bills $ 195,394 $ 181,147 $ 14,247 7.9 %

Employee compensation and advantages elevated by $4.4 million, primarily as a consequence of
larger salaries, taxes and advantages of $4.8 million on larger worker headcount
and larger stock-based compensation of $0.7 million, offset by decrease worker
incentive compensation of $0.9 million, which is impacted by working
efficiency.

Depreciation and amortization elevated by $5.5 million primarily as a consequence of larger
amortization of acquired intangibles expense of $2.0 million and amortization of
software program growth prices of $3.6 million. For the six months ended June 30,
2022 and 2021, $2.7 million and $9.8 million, respectively, of gear
purchases and leasehold enhancements and $18.6 million and $16.5 million,
respectively, of software program growth prices have been capitalized.

Technology and communications bills elevated by $4.1 million primarily due
to larger software program subscription prices of $2.4 million, larger cloud internet hosting
prices of $1.1 million and larger market information prices of $0.6 million.

Professional and consulting charges decreased $1.8 million as a consequence of decrease
acquisition-related consulting and authorized bills of $1.1 million and decrease
self-clearing consulting charges of $0.6 million.

General and administrative bills elevated $1.4 million primarily as a consequence of
larger journey and leisure prices of $0.6 million, larger regulatory charges of
$0.4 million and larger office-related administrative prices of $0.3 million.

36
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Other Income (Expense)

Our different earnings (expense) for the six months ended June 30, 2022 and 2021, and
the ensuing greenback and share modifications, have been as follows:

Six Months Ended June 30,
$ %
2022 2021 Change Change
($ in 1000’s)
Investment earnings $ 313 $ 214 $ 99 46.3 %
Interest expense (510 ) (362 ) (148 ) 40.9
Equity in earnings of
unconsolidated affiliate 191 – 191 NM
Other, web 7,111 (2,649 ) 9,760 NM
Total different earnings (expense) $ 7,105 $ (2,797 ) $ 9,902 (354.0 ) %

Equity in earnings of unconsolidated affiliate represents the proportionate
share of web earnings of our fairness methodology investee.

Other, web elevated by $9.7 million primarily as a consequence of a acquire of $1.6 million on
the revaluation of contingent consideration payable and larger international trade
beneficial properties of $8.3 million.

Provision for Income Taxes

The provision for earnings taxes and efficient tax fee for the six months ended
June 30, 2022 and 2021 have been as follows:

Six Months Ended June 30,
$ %
2022 2021 Change Change
($ in 1000’s)

Provision for earnings taxes $ 48,306 $ 40,109 $ 8,197 20.4 %

Effective tax fee 26.8 % 21.4 %

The provision for earnings taxes mirrored lower than $0.1 million in extra tax
detriments and $9.7 million of extra tax advantages associated to share-based
compensation awards that vested or have been exercised throughout the six months ended
June 30, 2022 and 2021, respectively. The provision for earnings taxes for the six
months ended June 30, 2022 additionally mirrored $3.2 million of expense associated to a
settlement with the New York State tax authorities to resolve the 2010 to 2014
audits. Our consolidated efficient tax fee can fluctuate from interval to interval
relying on the geographic combine of our earnings, modifications in tax laws and
tax charges and the quantity and timing of extra tax advantages associated to
share-based funds, amongst different elements.

Liquidity and Capital Resources

During the six months ended June 30, 2022, we now have met our funding necessities
by means of money readily available, internally generated funds and short-term borrowings. Cash
and money equivalents and investments totaled $324.8 million as of June 30, 2022.
Our investments are usually invested in U.S. treasury securities. We restrict the
quantities that may be invested in any single issuer and put money into short- to
intermediate-term devices whose honest values are much less delicate to curiosity
fee modifications.

In October 2021, we entered into the 2021 Credit Agreement offered by a
syndicate of lenders and JPMorgan Chase Bank, N.A., as administrative agent,
that gives combination commitments totaling $500.0 million, consisting of a
revolving credit score facility and a $5.0 million letter of credit score sub-limit for
standby letters of credit score. The 2021 Credit Agreement changed the 2020 Credit
Agreement and will mature on October 15, 2024, with our choice to request as much as
two further 364-day extensions on the discretion of every lender and topic
to customary situations. As of June 30, 2022, we had no borrowings or letters of
credit score excellent and $500.0 million in accessible borrowing capability below the
2021 Credit Agreement. The 2021 Credit Agreement requires that we fulfill
sure covenants, which embody a leverage ratio. We have been in compliance with
all relevant covenants at June 30, 2022. See Note 11 to the Consolidated
Financial Statements for a dialogue of the 2021 Credit Agreement.

In reference to its self-clearing operations, our U.S. broker-dealer
subsidiary entered into an settlement (the “Collateralized Agreement”) with its
settlement financial institution to offer loans as much as an combination of $200.0 million on an
uncommitted foundation. Borrowings below the Collateralized Agreement are
collateralized by securities pledged by the U.S. broker-dealer subsidiary to the
settlement financial institution, topic to relevant haircuts and focus limits. As of
June 30, 2022, the U.S. broker-dealer subsidiary had no borrowings excellent
and $200.0 million in accessible borrowing capability below the Collateralized
Agreement. See Note 11 to the Consolidated Financial Statements for a dialogue
of the Collateralized Agreement.
37
——————————————————————————–

Under preparations with their settlement banks, sure of our U.S. and U.Okay.
working subsidiaries might obtain in a single day financing within the kind of financial institution
overdrafts. As of June 30, 2022, we had no overdrafts payable excellent.

As a outcome of our self-clearing and settlement actions, we’re required to
finance sure transactions, keep deposits with numerous clearing
organizations and clearing broker-dealers and keep a particular reserve financial institution
account for the profit of prospects pursuant to Rule 15c3-3 of the Exchange
Act. As of June 30, 2022, the combination quantity of the positions financed,
deposits and buyer reserve balances related to our self-clearing and
settlement actions was $294.2 million. These necessities can fluctuate based mostly
on buying and selling exercise, market volatility or different elements which can influence our
liquidity or require us to make use of our capital sources.

Our money flows have been as follows:

Six Months Ended June 30,
$ %
2022 2021 Change Change
($ in 1000’s)
Net money offered by working
actions $ 69,907 $ 73,567 $ (3,660 ) (5.0 ) %
Net money (utilized in) investing
actions (55,642 ) (43,346 ) (12,296 ) 28.4
Net money (utilized in) financing
actions (187,048 ) (92,765 ) (94,283 ) 101.6
Effect of trade fee modifications on
money and money equivalents (23,894 ) (263 ) (23,631 ) NM
Net lower for the interval $ (196,677 ) $ (62,807 ) $ (133,870 ) 213.1 %

The $3.7 million lower in web money flows from working actions was
primarily as a consequence of decrease web earnings of $16.1 million and a rise within the change
in accounts receivable of $16.3 million, offset by a rise within the change in
web receivables from broker-dealers, clearing organizations and prospects
related to our clearing actions of $22.3 million, larger depreciation
and amortization of $5.5 million and larger stock-based compensation expense of
$1.0 million.

The $12.3 million enhance in web money utilized in investing actions was
primarily as a consequence of a rise in money used for an fairness methodology funding of
$34.4 million and a rise in capitalization of software program prices of $2.1
million, offset by a lower in money used for acquisitions of $17.1 and decrease
purchases of furnishings, gear and leasehold enhancements of $7.1 million.

The $94.3 million enhance in web money utilized in financing actions was
principally as a consequence of a rise in repurchases of widespread inventory of $73.6 million,
a rise of $26.2 million in funds of contingent consideration associated to
acquisitions, decrease workouts of inventory choices of $4.5 million, a rise in
money dividends of $3.3 million and decrease proceeds from short-term borrowings of
$1.0 million, offset by a lower in withholding tax funds on restricted
inventory vesting and inventory possibility workouts of $14.3 million.

The $23.6 million change within the impact of trade fee modifications on money and money
equivalents was pushed by a better cumulative translation adjustment because of the
strengthening U.S. greenback.

Past developments of money flows will not be essentially indicative of future money movement
ranges. A lower in money flows might have a cloth adversarial impact on our
liquidity, enterprise and monetary situation.

Other Factors Influencing Liquidity and Capital Resources

We imagine that our present sources are enough to satisfy our liquidity wants
and necessities, together with commitments for capital expenditures, within the
short-term (throughout the subsequent 12 months). However, our future liquidity and
capital necessities will rely on a quantity of elements, together with liquidity
necessities related to our self-clearing operations and bills
related to product growth and growth and new enterprise alternatives
which are supposed to additional diversify our income stream. We may purchase
or put money into applied sciences, enterprise ventures or merchandise which are complementary
to our enterprise. In the occasion we require any further financing, it should take
the shape of fairness or debt financing. Any further fairness choices might outcome
in dilution to our stockholders. Any debt financings, if accessible in any respect, might
contain restrictive covenants with respect to dividends, issuances of further
capital and different monetary and operational issues associated to our enterprise. In
addition, within the long-term (past 12 months), we imagine our liquidity wants
and necessities shall be affected by the elements mentioned above.

Certain of our U.S. subsidiaries are registered as a broker-dealer or a SEF and
subsequently are topic to the relevant guidelines and laws of the SEC, FINRA
and the CFTC. These guidelines comprise minimal web capital necessities, as outlined
within the relevant laws, and additionally might require {that a} important half of
the registrants’ belongings be stored in comparatively liquid kind. Certain of our
international subsidiaries are regulated by the FCA within the U.Okay. or different international
regulators and should keep monetary sources, as outlined within the relevant
laws, in extra of the relevant monetary sources requirement. As of
June 30, 2022, every of our subsidiaries which are topic to those laws
had web capital or monetary sources in extra of their minimal necessities.
As of June 30, 2022, our subsidiaries maintained combination web capital and
monetary sources that have been $477.8 million in extra of the required ranges of
$21.7 million.
38
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Each of our U.S. and international regulated subsidiaries are topic to native
laws which usually prohibit compensation of borrowings from our
associates, paying money dividends, making loans to our associates or in any other case
getting into into transactions that end in a major discount in regulatory
web capital or monetary sources with out prior notification to or approval
from such regulated entity’s principal regulator. As of June 30, 2022, the
quantity of unrestricted money held by our non-U.S. subsidiaries was $142.9
million.

We execute bond transactions between our institutional investor and
broker-dealer shoppers on a matched principal foundation by serving as counterparty to
each the customer and the vendor in trades. Our U.S. broker-dealer subsidiary
operates below a self-clearing mannequin for the settlement of such transactions.
Our subsidiaries additionally settle their transactions by means of third-party clearing
brokers or settlement brokers. Settlement sometimes happens inside one to 2
buying and selling days after the commerce date. Cash settlement of the transaction happens
upon receipt or supply of the underlying instrument that was traded. Under
each the self-clearing and the third-party clearing fashions, we could also be uncovered to
credit score danger within the occasion a counterparty doesn’t fulfill its obligation to
full a transaction or if there may be an error in executing a matched principal
transaction. Pursuant to the phrases of the securities clearing agreements, every
third-party clearing dealer has the correct to cost us for any losses they
endure ensuing from a counterparty’s failure on any of our trades. We didn’t
document any liabilities or losses with regard to counterparty failures for the
six months ended June 30, 2022 and 2021. Substantially all of our open
securities failed-to-deliver and securities failed-to-receive transactions as of
June 30, 2022 have subsequently settled on the contractual quantities.

In the conventional course of enterprise, we enter into contracts that comprise a spread
of representations, warranties and indemnification provisions. Our most
publicity from any claims below these preparations is unknown, as this is able to
contain claims that haven’t but occurred. However, based mostly on previous expertise, we
anticipate the danger of materials loss to be distant.

We have working leases for company workplaces with preliminary lease phrases ranging
from one 12 months to fifteen years. We have complete future contractual lease funds on
these leases of $118.0 million, with $11.0 million due throughout the subsequent 12 months
and $107.0 million due past 12 months.

In January 2021, our Board approved a brand new share repurchase program for as much as
$100.0 million that commenced in April 2021 and was exhausted in January 2022.
In January 2022, our Board approved a brand new share repurchase program for as much as
$150.0 million that commenced in March 2022. Shares repurchased below every
program shall be held in treasury for future use.

In July 2022, our Board of Directors authorized a quarterly money dividend of $0.70
per share payable on August 17, 2022 to stockholders of document as of the shut
of enterprise on August 3, 2022. Any future declaration and cost of dividends
shall be on the sole discretion of our Board of Directors. Our Board of Directors
might take into consideration such issues as basic enterprise situations, our monetary
outcomes, capital necessities, contractual obligations, authorized, and regulatory
restrictions on the cost of dividends to our stockholders or by our
subsidiaries to their respective guardian entities, and any such different elements as
the Board of Directors might deem related.

On April 9, 2021 we acquired MuniBrokers. The buy worth consisted of $17.1
million in money paid at closing and as much as $25.0 million in contingent
consideration payable in money inside roughly two years of the closing. In
May 2022, we made a cost of $8.3 million to settle the primary earn-out interval
consideration. As of June 30, 2022, the remaining excellent contingent
consideration payable was $12.1 million.

Non-GAAP Financial Measures

In addition to reporting monetary ends in accordance with GAAP, we use
sure non-GAAP monetary measures: earnings earlier than curiosity, taxes,
depreciation and amortization (“EBITDA”), EBITDA margin and free money movement. We
outline EBITDA margin as EBITDA divided by revenues. We outline free money movement as
money movement from working actions excluding the web change in buying and selling
investments and web change in securities failed-to-deliver and securities
failed-to-receive from broker-dealers, clearing organizations and prospects,
much less expenditures for furnishings, gear and leasehold enhancements and
capitalized software program growth prices. We imagine these non-GAAP monetary
measures, when considered with the corresponding GAAP monetary
measures, are vital in understanding our working outcomes. EBITDA, EBITDA
margin and free money movement will not be measures of monetary efficiency or liquidity
below GAAP and subsequently shouldn’t be thought of an alternative choice to web earnings
or money movement from working actions as an indicator of working efficiency
or liquidity. We imagine that EBITDA, EBITDA margin and free money movement present
helpful further info regarding profitability of our operations and
enterprise developments and the money movement accessible to pay dividends, repurchase inventory
and meet working capital necessities.

39
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The desk set forth beneath presents a reconciliation of our web earnings to EBITDA
and EBITDA margin:

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
($ in 1000’s)
Net earnings $ 66,922 $ 67,288 $ 131,691 $ 147,745
Add again:
Interest expense 337 171 510 362
Provision for earnings taxes 22,656 18,765 48,306 40,109
Depreciation and amortization 15,240 13,097 30,414 24,876
EBITDA $ 105,155 $ 99,321 $ 210,921 $ 213,092

EBITDA margin 57.7 % 56.3 % 57.3 % 57.3 %

The desk set forth beneath presents a reconciliation of our money movement from
working actions to free money movement:

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
($ in

1000’s)

Net money offered by working
actions $ 93,637 $ 96,726 $ 69,907 $ 73,567
Exclude: Net change in buying and selling
investments – 11,064 – 5,569
Exclude: Net change in
fail-to-deliver/obtain from
broker-dealers, clearing organizations
and prospects (20,376 ) (26,596 ) 48,166 66,774
Less: Purchases of furnishings,
gear and leasehold enhancements (1,285 ) (5,552 ) (2,681 ) (9,809 )
Less: Capitalization of software program
growth prices (9,136 ) (8,384 ) (18,561 ) (16,459 )
Free Cash Flow $ 62,840 $ 67,258 $ 96,831 $ 119,642

40

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