McVey Threw a Vicious 1–2 about Volumes and Fee Models at the 2019 GS Financial Services Conference.

Note this is part of the migration of posts from the SoggyBlog to Medium. The SoggyBlog will no longer be active as of the end of September.

Original Post Date on Soggy Blog December 19, 2019

Rick did roll at the Goldman Sachs US Financial Services Conference.

He was ready and had answers that reminded me of Tommy (aka “The Motor City Cobra” aka “The Hitman”) Hearn’s vicious 1–2 right cross combination.

Mr. McVey delivers his first point, followed by a quick second point in response to a question about the competitive landscape.

At the beginning of the interview, the analyst makese a snarky remark about initiating coverage of MarketAxess as a sell with an initial price target of $175. I WISH Mr. McVey would have started the interview with a smirk and a quick jab about the SELL recommendation. How did that recommendation go for your clients? Just a little pop.

MKTX price as of 2021

But he didn’t……PR….what are you going to do. As you can see from the chart, that recommendation wasn’t so hot.

He then answers the question on the competitive landscape -note this was transcribed by listening and relistening and relistening. If you the reader notice a mistake, please reach out to me.

There are two things that I think for all of you as your making comparisons for fixed income electronic trading platforms in this space that are really important.

1) There are no industry standards for the way that companies report their volumes in OTC fixed income so you really need to understand what they are reporting and there is alot of commingling going on that is not always helpful to the investors understanding of what is actually taking place. And sometimes commingling what is not even electronic like phone trade capture. So there are no standards. So you can’t just take a press release and put three or four on the board and say they are all the same because I guarantee you all of their reporting standards are different.

We’ve been a public company now for fifteen years and I think investors know everything about our reporting standards and how our volume reports work. And more importantly how they translate to revenue because were very transparent about our fee capture and our fee models. And I think that is where we want to be as a company as being totally transparent so there is a close correlation between what was being reported in volume and what you expect to see in revenue.

2)Understanding the fee model is important because not all fee models scale the same way. And if your heavily reliant for example on dealer fees to grow your business, at some point that’s going to run into challenges. So every fee model is slightly different as well. They don’t always scale the same way. They are different in the retail market than they are in the dealer to dealer market and the institutional client market. So I think its really important to understand what the reporting methodology and practices are at all of these companies. AND THEN really important to understand the fee model so that you can model these businesses and the analysts can too in a way that you see a volume report you know it will have some correlation to what your going to see in revenues in the quarterly earnings report.

I 100% agree with Mr. McVey. We need standards for reporting volume in OTC fixed income and transparency with fee models from the big three (TW,BBG, MKTX). Regulations can get wild and the US market doesn’t need a MIFID II type of mess.

More importantly, this message should not be wasted on analysts and investors.

This should be the message Mr. McVey tells the dealer community.

How is the head of a desk (mainly a regional) supposed to decide which fixed income electronic trading platform is worth the budget without accurate metrics that conform to an industry standard?

Look at what Citi did in the FX market. You don’t think that will happen in Fixed Income? MarketAxess has posted enviable volumes that I try to on a monthly basis and their reporting makes it easy to separate electronic versus semi-electronic. Transparency is key and has always been encouraged so we say to you Mr. McVey — A tip of the cap and keep rolling with devastating Haymakers about transparency.