Earnings Call Transcript - TW Q2 2022

Operator, Operator

Good morning, and welcome to the Tradeweb Second Quarter 2022 Earnings Conference Call. As a reminder, today's call is being recorded and will be available for playback. To begin, I will turn the call over to Head of Treasury, FP&A and Investor Relations, Ashley Serrao. Please go ahead.

Ashley Serrao, Head of Treasury, FP&A and Investor Relations

Thank you, and good morning. Joining me today for the call are Chairman and CEO, Lee Olesky, who will review the highlights for the quarter and provide a business update. Our CEO Elect and President, Billy Hult, who will dive a little deeper into some growth initiatives; and our CFO, Sara Furber, who will review our financial results. We intend to use the website as a means of disclosing material, non-public information and complying with disclosure obligations under SEC Regulation FD. I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations, and as such, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements related to, among other things, our guidance are forward-looking statements. Actual results may differ materially from these forward-looking statements. Information concerning factors that could cause actual results to differ from forward-looking statements is contained in our earnings release and periodic reports filed with the SEC. In addition, on today's call, we will reference certain non-GAAP measures. Information regarding these non-GAAP measures, including reconciliations to GAAP measures in our posted earnings release and presentation. To recap, this morning, we reported GAAP earnings with diluted share of $0.33. Excluding certain non-cash stock-based compensation expense, acquisition-related transaction costs, acquisition Refinitiv-related depreciation and amortization and certain foreign exchange items and assuming an effective tax rate at 22%, we reported adjusted net income per diluted share of $0.47. Please see the earnings release and the Form 10-Q to be filed with the SEC for additional information regarding the presentation of our historical results. Now let me turn the call over to Lee.

Lee Olesky, Chairman and CEO

Thank you, Ashley. Good morning, everyone, and thank you for being here for our second quarter earnings call. The tumultuous start to 2022 carried into the second quarter as increasing recession fears led to investor uncertainty, influenced by global interest rate hikes, soaring inflation, supply chain disruptions, and the ongoing war in Ukraine. These macroeconomic factors caused 10-year government bond yields to reach their highest levels in three years during June, alongside wider corporate bond spreads and diminished equity market valuations. We have remained actively engaged with our clients, who traded over $1 trillion daily on average, achieving another quarterly record. These record volumes resulted in continued strong double-digit revenue growth, making it our highest second quarter revenues on record. While some products faced challenges due to a more cautious client mentality related to the yield curve, the same conditions allowed other products to flourish. Our advantages in fostering diversity across our global multi-asset class decline and multi-protocol business over the past 25 years really stand out in such times. We reached record second quarter revenues in U.S. Treasuries, global swaps, U.S. Credit, munis, CDS, global ETFs, equity derivatives, and repo. Additionally, we achieved record second quarter revenues in European government bonds and European credit on a constant currency basis. It's encouraging to observe the continued growth in our retail business, which generated its highest quarterly revenue ever. As for our financial results, record second quarter revenues of $297 million represented a 13.9% increase year-on-year on a reported basis and a 17.8% increase on a constant currency basis. This revenue growth and scale translated into improved profitability compared to full year '21, with our second quarter adjusted EBITDA margin rising to 52.4%. This quarter demonstrated strong performance across all asset classes, particularly in rates and credit, which contributed 48% and 32% to our revenue growth, respectively. Rates achieved its best second quarter revenue ever, driven by our continued expansion in global government bonds and swaps. Revenues from cash rates and global government bonds benefitted from increased government debt levels and higher volatility aiding the wholesale channel and the addition of NFI. Swaps continued to perform well, with positive market share growth, though mortgage revenues faced challenges due to the current rate environment. Credit achieved its highest second quarter revenues, primarily from strong Muni, U.S. corporate credit, and CDS trading. Equities also had a strong second quarter, driven by institutional ETFs and our diversification strategies across equity products. Money markets set a new record, buoyed by organic growth in institutional repos and improving fundamentals in our retail CD business. In terms of Market Data, revenue growth was evenly distributed between our Refinitiv contract and proprietary data products, both experiencing robust growth. In our focus areas, interest rate swaps, which is our largest rate product, posted record second quarter revenues, with overall swaps volume growing by 43%, thanks to an improved macro backdrop and our continued organic growth strategies, which have enhanced our market share to 15.1% as reported by Clarus. We are attracting new clients and increasing engagement with both existing and new products and protocols. Regarding Treasuries, our volumes grew by 23% year-on-year, led by the wholesale segment and boosted by our NFI acquisition. Our market share reached 19.6% of the U.S. Treasury market. Asset manager and hedge fund clients have become more cautious, reducing risk amid rising volatility, while our wholesale channel has benefited from this volatility. Our market share gains are attributable to existing clients increasing their business with us, and we aim to make further progress in the T-bill market. Looking ahead, we are focused on promoting the adoption of early-stage institutional streaming protocols, like Tradeweb PLUS. The end of June marked one year since our acquisition of NFI. We are pleased with how the integration is going and are awaiting regulatory approval to consolidate the two broker-dealers. NFI margins are progressing as planned, with expectations for further margin expansion moving forward. In credit, we had a strong quarter, generating $84 million in revenues despite fee pressures in our largest business segment, institutional corporate credit. Our first half revenues of $170 million were up 16% from the same period last year. Over seven years of development, it’s impressive to see the resilience of the business despite challenging market conditions and subdued corporate credit volumes. Institutional client demand continues to rise, with increasing use of Munis, portfolio trading, AllTrade, net spotting, and rising wholesale session trading and ReMatch. We remain optimistic about credit opportunities as our platform scales and the retail business recovers. In equities, institutional ETFs saw robust quarterly revenue growth, with average daily volume up 50% year-on-year, driven by new client acquisitions and strong industry performance. We achieved our highest first half revenues ever, as institutional investors increasingly turn to ETFs for their low-cost, highly liquid, and flexible nature in various market scenarios. The growing adoption of RFQ has also spurred greater ETF usage within institutional portfolios, allowing efficient trading of large risk amounts and swift changes to portfolio exposures. Looking ahead, we believe we are well positioned to continue benefiting from the global ETF market growth as our initiatives expand. Now, I’ll turn it over to Billy.

William Hult, CEO Elect and President

Thanks, Lee. Since our inception Tradeweb has been focused on meeting our clients' needs while being at the forefront of technological developments across the trading ecosystem. Our competitive advantage is our people, network and technology, and we remain hyper-focused on continuing to grow that moat. On the people front, as we continue with the CEO transition, we are excited that Tom Pluta will be joining the firm in October as President-elect before officially becoming President at the start of next year. Tom is a seasoned global leader who most recently spent his last 27 years at JPMorgan and has had a long relationship with the firm as a client, trader investor and most recently as one of our Board of Directors. Tom likewise believes in our client-first approach, and we believe he will further enhance the team's ability to drive further innovation for our clients. On the network and technology front, we recently launched the Spotlight Dealer Diversity Program. This was a very important initiative that we crafted carefully in collaboration with our clients over the last year, placing a lot of importance on genuinely leveling the playing field. Now diverse dealers will be able to elevate their profile and leverage electronic trading in a meaningful way by having the option to either directly provide liquidity or intermediate trades on our AllTrade network. The initiative has already hit the ground running. Turning to Slide 7 for a closer look at credit. Last quarter, we believe we received validation that our strategy of catering to the entire credit market was the correct one. This quarter, the first word that comes to mind is resiliency. As Lee highlighted in his opening, our clients are operating in a very uncertain and complicated time. The diversity of our Credit business shined during the quarter. Institutional corporate credit continued to grow overcoming fee per million pressures and investment-grade bond trading from duration falling 20% year-over-year. On the other hand, wider spreads boosted our CDS business and higher rates helped our retail credit and overall muni businesses. As we build our corporate credit business, we always thought we needed to respect the complexity of the fixed income market and give our clients the choice of picking a protocol that suits them best. Today, we are very pleased by the product protocol diversity, powering our business and we continue to pay close attention to our clients' need for competition. Our institutional growth continues to be underpinned by growth in RFQ and portfolio trading. Our second quarter RFQ average daily volume grew 25% year-over-year, driven by both investment grade and high yield. Expanding our RFQ presence remains our biggest opportunity, and we continue to see great success cross-selling the innovations we have brought to the credit market to gain wallet share. Despite the continued increase in spreads and volatility, we also continue to see strong portfolio trading activity on the platform with average daily volume growing 29% year-over-year. As we step back, the underlying trends were impressive. Globally, the number of users and line items traded were up over 50% year-over-year while our largest trade was greater than $1.5 billion in the quarter. When you introduce something new, behavior takes time to change, and these trends speak to the growing comfort that clients have in executing large trades using portfolio trading despite the volatile macro environment. Dealers also remain very engaged as our in-comp portfolio volume reached 84%, up from 73% last year. Behaviorally, we also continue to see clients substitute some RFQ and all-to-all trading with portfolio trading, taking advantage of the certainty of execution, time and cost savings associated with the protocol. In fact, Barclays Credit Research recently published a deep dive on portfolio trading. They concluded that despite the pickup in volatility, portfolio trading remains more effective relative to other protocols in terms of the transaction cost savings, reducing costs by 30% to 40% depending on the level of volatility. They also noted that the robust growth prospects for ETFs bode well for future growth and adoption of portfolio trading. The strength in RFQ and portfolio trading was matched by the strong growth of our anonymous liquidity solution, AllTrade, which saw over $94 billion in volume with average daily volume increasing 7% year-over-year. Session trading submission volumes continue to remain steady despite the increased volatility, and we remain laser-focused on maximizing the value of session liquidity uploaded on our platform through newer protocols like ReMatch, which access our all-to-all liquidity. Our ReMatch average daily volume was up nearly 100% in the second quarter. Turning to the rest of our credit business. It was great to see a lot of our products really drive. We achieved record constant currency revenues in institutional European credit with strong growth driven by portfolio trading. Our muni business achieved record second quarter revenues as the retail markets sprung back to life in the institutional business, which grew more than 100% year-over-year continues to attract new clients. Last quarter, we announced the launch of Ai-Price for Munis, and the team is seeing strong interest out of the gate for the product given the quality of the pricing. The volatility in the market also boosted our CDS revenues, which grew by over 70% year-over-year with strong growth across regions. Looking ahead, we continue to invest in building out our EM Credit offering, and we're excited about our collaboration with London Stock Exchange Group's FXall to develop hedging workflow solutions that allow emerging market products to be traded more efficiently. In sum, it was another solid quarter for credit, and we continue to believe we have a lot of potential for growth as we look ahead. Moving on to swaps. Just like Credit, the multiyear growth story continues as swaps registered another strong quarter aided by rebounding industry volumes and market share gains. Our variable swap revenues grew 26% year-over-year, driven by strong growth across tenors and market share climbing to 15.1%. Our momentum in major currencies continues with record first half share in euro and pound denominated swaps. We believe the LIBOR transition is progressing well. 47% of our first half volumes came from SOFR trades, up from 12% in the year-ago period, with 95% of our dollar swap clients having executed a SOFR-based trade since the start of the year. I wanted to spend a minute on inflation swaps, which have become an important tool in today's environment. Like credit, product and protocol diversity in the swaps market is equally important. Since executing our first cleared inflation swap transaction in 2017 using our RFQ protocol, we have responded to increasing demand from our clients to become the leaders in electronic trading of inflation swaps. Today, clients can aggregate inflation swap liquidity across four major cleared indices, taking advantage of the efficiencies of electronic trading. Our efforts are seeing early success with first half volumes up over 30% year-over-year. Beyond the risk-free rate transition and inflation swaps, we continue to respond to structural changes in the swaps market, making strong but early advances in cleared EM swaps, RFM protocol adoption, and multi-asset trading. We saw a record EM share in the first half with revenues increasing by over 140% year-over-year. We also saw a record RFM activity as we continue to onboard dealers and deepen our liquidity pool. Our first half RFM activity is over 90% of the activity we saw in full year 2021 with strong growth across U.S., EMEA and APAC regions. Looking ahead, we believe the long-term swap revenue growth potential is meaningful. This quarter, we successfully completed the first-ever fully electronic institutional SOFR swaps and trades. Just another example of how we, in conjunction with our customers, look to grow the electronic pie. With the market still only 30% electronified, we believe there remains a lot we can do to help digitize our clients' manual workflows while the global fixed income markets and broader swap market grows. Finally, we continue to invest in our leading multi-asset class automated trading capability, AiEX. Ten years into our journey, the second quarter is a testament to how we're helping our clients lower operational risk and transaction costs across trades of various sizes and complexities. Specifically, the number of AiEX trades grew by over 35% year-over-year in the second quarter. We have recently seen the lessons learned from COVID-19 being applied by traders to navigate new challenges brought on by the Russian-Ukraine War, surging inflation, and Central Bank rate hike fears. The upshot has been that clients are auto trading with relative ease, modifying rules on the fly to manage transaction costs using AiEX's innovative features. And as clients become more comfortable with automation, we are seeing them get more comfortable trading larger volumes through AiEX. And with that, let me turn it over to Sara to discuss our financials in more detail.

Sara Furber, CFO

Thanks, Billy, and good morning. As I go through the numbers, all comparisons will be to the prior year period, unless otherwise noted. Let me begin with an overview of our volumes on Slide 9. We reported record quarterly average daily volume in excess of $1.1 trillion, up 20% year-over-year and up 16% when excluding short-tenor swaps. Among the 22 product categories that we include in our monthly activity report, five hit quarterly records, while another four achieved the second highest quarterly ADV. Perhaps even more notable, ten of the 22 product areas produced year-over-year volume growth of more than 20%. Areas of strong growth include European government bonds, global swaps, U.S. Corporate Credit, global ETF, and institutional repo. Slide 10 provides a summary of our quarterly earnings performance. The record second quarter volumes translated into gross revenues increasing by 13.9% on a reported and 17.8% on a constant currency basis. We derived approximately 36% of our revenues from international customers. and recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros. Our variable revenues increased by 20.7% and our total trading revenue increased by 14.6%. Total fixed revenues related to our four major asset classes continued to grow, up 1.3% and 5.5% on a constant currency basis. Rate fixed revenue growth was primarily driven by the addition of the NFI acquisition, while money markets fixed revenue growth was driven by global repos. Other trading revenues were down 3%. As a reminder, this line does fluctuate as it is affected by periodic revenues tied to technology enhancements performed for our retail clients. Market data increased by 5.1% due to growth in Refinitiv and our proprietary data products. This quarter's adjusted EBITDA margin of 52.4% increased by 181 basis points relative to the second quarter of 2021. And our adjusted EBITDA margin for the first six months of the year increased 115 basis points from the full year 2021 margin. We remain committed and on track to delivering annual margin expansion in 2022, and there has been no change in our philosophy of balancing revenue growth with margin expansion. All in, we reported adjusted net income per diluted share of $0.47. Moving on to fees per million on Slide 11. The trends I'm about to describe are driven by a mix of the various products within our four asset classes. In sum, our blended fees per million increased 3% year-over-year, primarily as a result of stronger growth in higher fee per million rates derivatives and cash equities. Excluding lower fee per million short-tenor swaps and features, our blended fees per million were up 7%. Let's review the underlying trends by asset class, starting with rates. Average fees per million for rates were up 1%. For cash rate products, fees per million were up 12%, primarily due to growth in higher fee per million U.S. Treasuries and migration of certain European government bond clients from fixed to variable contracts at the end of last year. For long tenor swaps, fees per million were down 4%, primarily due to lower duration and billable volume mix, while we continue to see growth in emerging market swaps and RFM. In other rates derivatives, which includes rates futures and short-tenor swaps, average fees per million decreased 21% due to a shift towards OIS, which carries a lower fee per million than FRAs. Continuing to credit, average fees per million for credit decreased 18% due to the relative product mix with stronger volume growth and lower fee per million credit derivatives and electronically processed trades. Drilling down on cash credit, average fees per million increased 12% due to stronger growth in U.S. high yield, U.S. high-grade and munis, which carry a higher fee per million than overall cash credit. Notably, our U.S. high-grade volumes were a record in the second quarter. Looking at the credit derivatives and electronically processed U.S. cash credit category, fees per million decreased 2%, driven by stronger growth in CDS, which carries a lower fee per million than the group average. Continuing with equities, average fees per million for equities were up 36%. For cash equities, average fees per million increased by 26% due to an increase in fees per million within U.S. ETFs, which was driven by a decrease in notional per share traded. Recall in the U.S., we charge per share and not for notional value-traded. Equity derivatives average fees per million increased 11% due to an increase in fees per million within equity futures. Finally, within money markets, fees per million decreased 6%. This was primarily driven by a decrease in our U.S. repo fees per million. The higher fee per million retail money market business continues to improve given the higher interest rate environment. Slide 12 details our expenses. Adjusted expenses for the second quarter increased 9.9% and 12.6% on a constant currency basis, recall, approximately 15% of our expense base is denominated in currencies other than dollars, predominantly in sterling. Second quarter 2022 adjusted operating expenses were higher as compared to the second quarter of '21, primarily due to increased employee compensation, G&A, and technology and communication. Compensation costs increased 7.3% due to higher headcount and performance-related compensation. Adjusted non-comp expense increased to 15.6% on a reported basis primarily due to G&A, technology and communications, D&A, and professional services, but were helped by favorable movements in FX. Adjusted non-comp expense on a constant currency basis increased 19.8%. Specifically, technology and communication costs increased primarily due to higher clearing and data fees as a result of higher credit AllTrade volumes and streaming U.S. Treasury volumes which continue to grow. In addition, this quarter also saw the continued impact of our previously communicated investments in data strategy and infrastructure. Adjusted general and administrative costs increased primarily due to an increase in travel and entertainment as we recover from the pandemic. Favorable movements in FX resulted in a $1 million gain in the second quarter of 2022 versus a $300,000 loss in the second quarter of 2021. Professional fees increased 15.6% due to higher legal costs and the inclusion of NFI expenses following our acquisition in June of last year. Slide 13 details capital management and our guidance. First, on our cash position and capital return policy. We ended the second quarter in a strong position, holding $959 million in cash and cash equivalents, and free cash flow reached $538 million for the trailing 12 months. We have access to a $500 million revolver that remains undrawn as of quarter end. CapEx and capitalized software development for the quarter was $15 million, an increase of 17% year-over-year. We continue to expect capital expenditures and capitalized software to be in the range of $62 million to $68 million for the full year. With this quarter's earnings, the Board declared a quarterly dividend of $0.08 per Class A and Class B share. We spent $11.2 million offsetting equity dilution during the quarter. Specifically, we spent $9 million under our regular share buyback program, leaving $18 million for future deployment as of the end of the quarter. In addition, we withheld $2.2 million in shares to cover payroll tax obligations related to equity compensation. As a reminder, we plan to use our share repurchase authorization to mostly offset dilution from ongoing equity compensation. Turning to other guidance items for 2022. In line with our previous guidance, we expect adjusted expenses to range from $620 million to $655 million. For forecasting purposes, we continue to use an assumed non-GAAP tax rate of 22% for the year. And finally, on Slide 14, we have updated our quarterly share count sensitivity for the third quarter of 2022 to help you calibrate your models for fluctuations in our share price.

Lee Olesky, Chairman and CEO

Thanks, Sara. Halfway through 2022 is off to a strong start, and I'm very encouraged by the diversity of growth across products and the reemergence of our retail channel, which further solidifies our growth foundation. While areas of the business continue to contend with more risk-off client behavior, we remain focused on investing in our leading position across products to drive further electronification and our earnings power higher. Taking a step back in the majority of our markets, our clients are still trading over the fall. And we believe we have a meaningful revenue growth opportunity as we continue to collaborate and innovate with our customers to improve their trading experience. We released July volumes this morning and the secular trends powering electronification were on display again, having already facilitated more than $1 trillion in average daily volumes. July volumes increased over 10% year-on-year, led by growth across interest rate swaps, money markets and institutional ETFs. The diversity of our credit business was on display yet again, with strong growth in U.S. IG credit, munis, and CDS. Before I conclude, I'd like to welcome Tom, who I think will be a terrific leader at Tradeweb. I would also like to welcome Jacques Aigrain and welcome back Rana Yared to our Board of Directors as we increase the independence of our Board. Jacques brings more than 30 years of financial service expertise and global leadership and human capital experience to our Board. Rana previously spent 5 years on the Board prior to our IPO and brings a strong leadership and financial experience to the Board. I'd like to conclude my remarks by thanking our clients for their business and partnership in the quarter, and I want to thank my colleagues for their efforts that contributed to the record quarterly revenues and volumes of Tradeweb. With that, I will turn it back to Ashley for your questions.

Ashley Serrao, Head of Treasury, FP&A and Investor Relations

Q&A will end at 10:30 a.m. Eastern time. We can now take our first question.

Operator, Operator

Our first question comes from Alexander Blostein of Goldman Sachs.

Alexander Blostein, Analyst

A bit of an ecosystem question for you guys, I guess. But we've seen excess capital at a number of large money center banks decline pretty meaningfully the cycle, and that's before I guess, considering any potential credit issues, which is sort of leading to various balance sheet and RWA mitigation across the space. So not asking you to obviously predict volumes, but curious how you think smaller bank balance sheets and maybe less liquidity in the system, sort of in general impact Tradeweb's various businesses, but in particular, rates; is that one tends to be, I guess, a little bit larger from, as I think about the bank's balance sheet consumption. Is there a risk? Is there a positives? Is there are negatives? How are you sort of thinking about that dynamic?

Lee Olesky, Chairman and CEO

Thanks for the question. It's challenging to group all banks together since they don't all respond in the same way. Our extensive network of liquidity providers will react differently to market conditions, with some increasing risk while others may withdraw it. The key takeaway is that, as an electronic platform, we believe we will continue to be essential in helping clients secure liquidity and assisting dealers in managing their balance sheets. Recently, we've consistently traded over $1 trillion daily as market conditions have shifted. From a banking standpoint, our primary products are quite capital efficient, with our large cash products featuring very low risk weightings and most derivatives being cleared. While high-yield repos may experience some impact, they are still in the early stages of moving toward electronic trading. Additionally, market structures are evolving, with banks and a wider range of non-banks taking on a more significant role in our treasury market, accounting for over 50% of accepted liquidity in 2022. This is a crucial point. Principal trading firms are also increasingly involved in markets like U.S. Credit. Overall, we feel well-positioned. The market remains fluid, and we are actively engaging with our sales team. Even in today's challenging environment, we are seeing new clients transition from traditional voice trading to electronic platforms. We remain focused on the future opportunities we believe we have.

Operator, Operator

Our next question comes from Richard Repetto of Piper Sandler.

Richard Repetto, Analyst

Hello? I'm having a little technical difficulty here.

Operator, Operator

I apologize, it looks like he disconnected. Our next question comes from Craig Siegenthaler of Bank of America.

Craig Siegenthaler, Analyst

So my question is on MBS volumes, which tie to decline. Is this more of a function of lower industry volumes due to higher rates or share declines for electronic trade and give less issuance? And then with the bond markets now starting to price in rate cuts by '23, we want to get your perspective also the potential for MBS volume reacceleration next year?

William Hult, CEO Elect and President

Craig, it's Billy. That's a great question, thanks for bringing it up. As you are aware, we hold a strong position in the mortgage market, both on the institutional and wholesale sides. Currently, the mortgage market is facing challenges due to higher yields and reduced issuance. Additionally, the Federal Reserve's involvement is affecting the mortgage trade, making volumes tricky right now. However, we are confident about our market share in this area. This marketplace has demonstrated resilience in the past, and we believe that the Fed's eventual exit from the mortgage trade will help boost volumes. From our perspective, the outlook for mortgage volume looks promising, and we are well-positioned with solid market share across the board. Thanks again for your question.

Operator, Operator

Our next question comes from Michael Cyprys of Morgan Stanley.

Michael Cyprys, Analyst

I wanted to ask about the Munis business. You guys are putting up some very strong volumes there. I think it was up 10% in the quarter, it looks like the strength is continuing here in July, up over 90% year-on-year. So I was just hoping you could elaborate a bit on the strength that you guys are seeing from your Munis franchise. How much of that is coming from retail versus institutional? I think can you talk about some of the initiatives and priorities to make your Munis business a more meaningful revenue contributor at Tradeweb? And is there any sort of role for M&A to play to help accelerate your presence within the Muni space?

William Hult, CEO Elect and President

It's not exactly the opposite of the mortgage story, but it's somewhat of an inverse situation. A lot of positive developments are happening in the Muni space right now. From our perspective, one of the most encouraging aspects is that the last several months of higher rates have validated our retail strategy. The Muni volume is essentially the driving force behind our retail strategy. Concurrently, we are also intensely focused on building and expanding our Muni institutional platform, as we believe that market will greatly benefit from increased transparency, efficiency, and modernization. Therefore, we have a dual approach in Munis, targeting both the retail and institutional sectors. We view this as a significant opportunity where we are dedicating appropriate resources to both areas, as you would expect. The Muni market, being traditionally old-fashioned, presents a perfect setup for us. As Lee mentioned in his prepared remarks, we are consistently working on transitioning firm business into the electronic world, and the Muni market epitomizes that for us. This makes it a major priority for our company.

Michael Cyprys, Analyst

Great. And just on the M&A point, just any thoughts there if that could be helpful.

William Hult, CEO Elect and President

Nothing I think that would absolutely kind of come to mind for us right now around that. Obviously, we're always looking at M&A opportunities in ways that would help our business, grow our network or add a piece of technology that we feel would be incredibly useful for us. But I don't think that we would have like a big comment around a sort of M&A lead in that space, in part because we feel really good about how we're approaching this business organically.

Operator, Operator

Our next question comes from Kyle Voigt of KBW.

Kyle Voigt, Analyst

Question for Billy. You mentioned in your prepared remarks the external hire of Tom Pluta to fill that president position. Just wondering if you could elaborate a bit more on why you landed on Tom to fill that role? And more specifically, someone with an interest rate trading background. I'm just wondering if we should infer from that move that you're kind of doubling down in rates versus maybe choosing a candidate with a credit background, for example?

William Hult, CEO Elect and President

Yes, it's a great question. Lee and I have dedicated a lot of time to this because hiring someone for a senior position from outside the company is significant. We focused on making sure we got this hire right, and we feel very positive about it. Tom has strong tangible qualities, with over 25 years at JPMorgan, which gives him extensive experience in the space that Tradeweb operates. We've known Tom for a long time as a client and a Board member, and we have great confidence in his market background. Additionally, intangibles matter a lot at a company like Tradeweb. We became very comfortable with how Tom operates; he's exceptionally transparent and a great communicator. We strongly believe he will be a valuable addition to our management team. The good news is that the team and the company have reacted positively to his hire. We're excited for him to start in October and feel confident in the skills and background he brings. His expertise in rates is beneficial, especially with our strong rates team, who are eager to have him on board. Our credit team shares that enthusiasm, so we believe his contribution will positively impact all areas as expected. Thank you for the questions.

Operator, Operator

Our next question comes from Alex Kramm of UBS.

Alexander Kramm, Analyst

So hoping you could give us an update on high-yields credit trading. I think the year-over-year trends in electronic trading are clearly solid, but it seems like the market share gains have stalled out a little bit. So just wondering specific efforts in that area, macro environment? And then maybe just remind us around pricing relative to other, I guess, IG and competitors, how we should be thinking about that business?

William Hult, CEO Elect and President

It's a good question. We wouldn't say sort of dismiss month-to-month market share numbers or even quarter-to-quarter market shares as sort of static noise because we care about everything. And you guys know that we are a very, very competitive company that wants to win every day, every week, every month, every quarter. So we care about all of it. That being said, if you take a step back, right? We have, from sort of March of 2020 sort of increased our market share, just specifically speaking, in high yield from basically less than 1% to up to 8% in January. Of course, there's always going to be some sort of back and forth around the numbers. And if I was going to describe it to you specifically, what I would say is just, again, very bluntly through February, March and April of this past year as the markets got more volatile, our take on it all is that more business went into the all-to-all channel than from portfolio trading, which has been our historical strength and lead. One of the things, I think, that we do a very good job at and pay a lot of close attention to is what I would describe to you as sort of signposts or sort of indications of, from our perspective, franchise strength. So around high yield, what we would say to you, I think in a very specific way is that in the second quarter, our responder rate on Tradeweb was up 25% year-over-year. That's a very strong and important number. Our average daily volume was up 16% in the second quarter year-over-year. And the percent of high-yield RFQ trades that utilize AiEX increased over 30% or up 4x actually since 2020. These become kind of very important indicators of where we are going. And in a really important way, they sort of mimic stats that we saw along the way as our IG market share continues to do exceptionally well, now up over 13-odd percent, and it continues to sort of increase and play a leading role for us. So those are the kind of things that we focus on and we think about when we look at where we are around all of this.

Operator, Operator

Our next question comes from Daniel Fannon of Jefferies.

Daniel Fannon, Analyst

Sara, I was hoping you could provide some additional color on just the expense outlook halfway through the year with FX as kind of a benefit with inflation maybe as a headwind? Maybe talk about how you're tracking as you think about the full year based on kind of current spending levels.

Sara Furber, CFO

Sure. Thanks for the question. Based on where we are for the first half of the year, we're trending towards the middle of our range for expenses, which is $620 million to $655 million. And to your point on FX, that's partially being helped by the depreciation of the pound, which we've seen in the first six months of the year. As we think about the rest of the year and as you're trying to get a hit on it, a significant portion of our expense base is variable, about 30% varies with revenue. And a large part of that is really compensation, obviously, which is impacted by how well we do in terms of revenue and margins. Beyond that, I would just say in terms of the year-over-year comparisons or as you look at sequential quarters, obviously, we expect tech and communication to grow on an absolute basis if volumes continue to grow. G&A clearly is an area where we're seeing a pickup with travel, which is not a bad thing when you think about coming out of the pandemic. And so from an absolute level, I'd expect those to increase. And then I just keep an eye on currency, which obviously hasn't been as big a factor in years past. But when you look at the first half, we talked about an impact and we lay a lot of that out in the Q. Even in July, we're seeing the pound was down almost another 5%. So that's another element just as you think about the overall expense range. But overall, I think we feel comfortable that we're in the middle of that. And I think that's in a variety of markets and FX conditions.

Operator, Operator

Our next question comes from Ken Worthington of JPMorgan.

Kenneth Worthington, Analyst

Congrats on hiring Tom. It's a loss for us, and I think a big win for you. And then maybe for Bill, Billy or Lee you mentioned that you're working more closely with LSE and you called out FXall as an initiative, LSE would seem to have some unique businesses and capabilities, which might be relevant for Tradeweb. So as you look out at the opportunity set for Tradeweb innovation and new products in the future, how big a deal, if it is a bigger deal, are opportunities for further LSE collaboration? And are there any asset classes that represent bigger opportunities than others?

Lee Olesky, Chairman and CEO

Thank you, Lee. I appreciate the opportunity to address this. We are always looking for chances to partner with major market players like LSEG. Recently, we announced our EM FX initiative in collaboration with them and their FXall capabilities, which we find very promising. Our focus continues to be on the customer and delivering solutions that address their needs by solving problems, enhancing efficiency, and cutting costs. We have a productive dialogue with LSEG, and the EM FX initiative is a testament to our progress, especially in the emerging markets swap space. We are actively exploring all opportunities within EM. This collaboration is significant, and we are continually engaging with market participants to identify areas where we can connect and provide beneficial solutions for our customers. I'm confident we will discover more opportunities with LSEG and other key market players to collaborate in ways that add value to the market.

Operator, Operator

Our next question comes from Gautam Sawant of Credit Suisse.

Gautam Sawant, Analyst

Just given the heightened level of volatility in the market, how is Tradeweb positioned to grow the firm's client network longer term? And what is attracting new domestic and international clients to the firm's platform? And then longer term, could you expand on what some of the most important factors are for growing in Europe and Asia?

Lee Olesky, Chairman and CEO

I'm Lee. Let me begin by discussing our international perspective. This has been a fantastic business for us over time, contributing around 36% to 37% of our revenue. Our focus on this area spans decades, and our team has done an incredible job growing this business. It's about delivering high-quality solutions, addressing client challenges, and creating efficiencies, which give us a competitive edge in Europe and Asia. Our strengths in these international markets mirror our overall business strengths, including our people, network, and technology. Our technology scales effectively on a global level, and we have developed a strong presence in Europe and Asia over many years. We are continually seeking to expand into new regions and asset classes within our global network. Notably, our leading position in global swaps, which we established in Europe some time ago, continues to grow significantly. There are numerous opportunities, particularly in Europe and Asia, and we are leveraging our technology and presence to enter emerging markets related to swaps. We believe we have a solid competitive advantage and a genuine opportunity to enhance our growth. To date, we have introduced 14 emerging market currencies, the latest being the Israeli shekel, which we launched in July. The Asia region is increasingly important to our international growth, and we anticipate that this trend will accelerate over time. We see considerable potential to expand our network, cross-sell our products, and enhance our global presence through our established operations in Europe and Asia.

Operator, Operator

Our next question comes from Brian Bedell of Deutsche Bank.

Brian Bedell, Analyst

Could you provide an updated perspective on the potential dominance of portfolio trading in the market? I've seen various studies regarding its resiliency in more volatile conditions, and I'm curious to know to what extent we are seeing this trend manifest as we head into summer, specifically regarding market share gains from portfolio trading.

William Hult, CEO Elect and President

That's a great question. Thanks for bringing it up. If you had doubts about whether portfolio trading would perform well in highly volatile market conditions, it's clear now that it does. This has been a significant test for portfolio trading, especially considering the turbulence in February, March, and April. It's becoming more reliable for clients, who are utilizing it for both high-yield and investment-grade trading. These are substantial observations I'm making. If you believe in the growth of the ETF sector, you should also trust in the expansion of portfolio trading. Clients are increasingly becoming adept at measuring how much time and money they save through portfolio trading, which is proving to be more resilient. As we make notable gains in market share within investment-grade trading, the driving force behind that progress is our leadership role in portfolio trading. As high-yield markets face challenges, we are confident that portfolio trading is crucial for optimizing outcomes for clients, who are becoming more knowledgeable about its value. Additionally, it's important to emphasize that this is a global initiative. Our European volume, in particular, sets the standard for our approach to portfolio trading, especially as a method for transferring real risk. It was essential for us, as a company in the credit sector, to establish a true differentiator in client experience, and I believe we’ve established a leadership position in portfolio trading that remains a core strength in our credit offerings. Thank you for the question.

Operator, Operator

I'm showing no further questions at this time. Let's turn the call back over to management for any closing remarks.

Lee Olesky, Chairman and CEO

So okay. Thank you. Thanks very much for joining us this morning. As you heard from us and saw on the numbers, it was a great first half of the year. That strength has absolutely continued into July. And of course, if you have any follow-up questions, feel free to reach out to Ashley and Sameer and the team. Have a great day. Thanks for joining us. Take care.

Operator, Operator

Thank you, gentlemen. This does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.