MARKETAXESS HOLDINGS INC Management report and analysis of financial condition and results of operations. (Form 10-K)

You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our consolidated financial
statements and related notes included elsewhere in this Annual Report on Form
10-K. In addition to historical information, this discussion and analysis
contains forward-looking statements relating to future events and the future
performance of MarketAxess that are based on our current expectations,
assumptions, estimates and projections about us and our industry. These
forward-looking statements involve risks and uncertainties. Our actual results
and timing of various events could differ materially from those anticipated in
such forward-looking statements as a result of a variety of factors, as more
fully described in this section, in "Item 1A. Risk Factors", in "Cautionary Note
Regarding Forward Looking Statements" and elsewhere in this Annual Report on
Form 10-K. Except as may be required by applicable law, we undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.

The following discussion includes a comparison of our Financial Results, Cash
Flow Comparisons and Liquidity and Capital Resources for the years ended
December 31, 2021 and 2020, respectively. A discussion of changes in our
Financial Results and Cash Flow Comparisons from the year ended December 31,
2019 to December 31, 2020 may be found in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," of Part II of our
Annual Report on Form 10-K for the year ended December 31, 2020.

Executive Overview

MarketAxess operates leading electronic trading platforms delivering greater
trading efficiency, a diversified pool of liquidity and significant cost savings
to our clients across the global fixed-income markets. Almost 1,900
institutional investor and broker-dealer firms are active users of our patented
trading technology to efficiently trade U.S. high-grade bonds, U.S. high-yield
bonds, emerging market debt, Eurobonds, municipal bonds, U.S. government bonds
and other fixed-income securities. Our award-winning Open Trading marketplace is
widely regarded as the preferred all-to-all trading solution in the global
credit markets, creating a unique liquidity pool for a broad range of credit
market participants. Drawing on a diverse set of trading protocols, including
request-for-quote, live order books, sessions-based trading and portfolio
trading solutions, as well as our deep data and analytical resources, we believe
that we connect the most robust network of participants through an advanced full
trading lifecycle solution that also includes automated trading solutions,
intelligent data products and a range of post-trade services.

We operate in a large and rapidly growing market that provides us with a
significant opportunity for future growth. Many of our largest current product
areas, and areas of future growth, have relatively low levels of trading
electronification, which further increases the size of our addressable market.
Our platforms' innovative technology solutions are designed to capitalize on
this addressable market by increasing the number of potential trading
counterparties and providing our clients with a menu of solutions to address the
full lifecycle of fixed-income trading. We offer Open Trading for most of our
products and trading protocols, allowing our entire global network to interact
in one large pool of trading liquidity. We believe that Open Trading drives
meaningful transaction cost savings to our clients and reduces risk in
fixed-income markets by creating a global, diversified pool of liquidity.
Institutional investors can also send trading inquiries directly to their
traditional broker-dealer counterparties through a disclosed RFQ, while
simultaneously accessing additional counterparties through our anonymous Open
Trading solution. We also provide a number of integrated and actionable data
offerings, including Composite+ and Axess All real time pricing to assist
clients with trading decisions and transaction cost analysis. We have a range of
post-trade services, including straight through processing, trade matching,
trade publication, regulatory transaction reporting and market and reference
data across fixed-income and other products.

We derive revenue from commissions for trades executed on our platform, information services, post-trade services and other revenue. Our expenses include employee compensation and benefits, depreciation, technology and communication costs, professional and consulting fees, occupancy, marketing and advertising, customs clearance costs and overhead and administrative.

Our objective is to provide the leading global electronic trading platforms for
fixed-income securities, connecting broker-dealers and institutional investors
more easily and efficiently, while offering a broad array of trading information
and technology services to market participants across the trading cycle. The key
elements of our strategy are discussed in Item 1. "Business - Our Strategy."

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Critical Factors Affecting Our Industry and Business

Economic, political and market factors

The global fixed-income securities industry is risky and volatile and is
directly affected by a number of economic, political and market factors that may
result in declining trading volume. These factors could have a material adverse
effect on our business, financial condition and results of operations. These
factors include, among others, credit market conditions, the current interest
rate environment, including the volatility of interest rates and investors'
forecasts of future interest rates, economic and political conditions in the
United States, Europe and elsewhere, and the consolidation or contraction of our
broker-dealer and institutional investor clients.

The global economic and credit market environments during the year ended
December 31, 2021 were markedly different as compared to 2020. During 2020, the
global economy experienced a period of significant turmoil and deteriorating
economic conditions due to the outbreak of the COVID-19 pandemic (the
"Pandemic"). The steep drop in economic activity in 2020 impacted global credit
markets and resulted in sharp credit spread widening and an increase in credit
market volumes. During 2021, however, the improving economic conditions resulted
in lower volatility, credit spreads tightening to historical lows for a
prolonged period of time, a rising interest rate environment and a decline in
U.S. credit market volumes. In the year ended December 31, 2021, market volumes
in U.S. high-grade and U.S. high-yield corporate bonds as reported by TRACE
decreased 6.9% and 7.4%, respectively, compared to the year ended December 31,
2020. Turnover, which is the total amount traded as a percentage of the amount
outstanding, in U.S. high-grade bonds remains below the pre-credit crisis
levels. We believe that the benign credit market conditions in 2021 negatively
impacted trading velocity and the volumes traded on our platforms.

As a result of the Pandemic, we have continued to experience significant changes
in our daily operations. In mid-March 2020, we successfully implemented a global
work from home mandate for all our employees and we were able to continue to
provide our trading platforms and other services to our clients without
interruption. In particular, we believe that Open Trading liquidity was
essential to the functioning of credit markets during the Pandemic, and
MarketAxess played a valuable role keeping our clients connected to the market
as traders moved from their centralized trading floors to home offices. We
re-opened our primary offices in the fourth quarter of 2021 with an emphasis on
safety and employee wellbeing. While our offices remained open through the
Omicron variant surge in New York, London and elsewhere, we encouraged our
employees to work from home when possible. We remain confident that we can
continue to maintain business continuity and serve our clients in a virtual or
hybrid environment, as necessary, to promote employee and public safety.

There has been increased demand for green bonds and other ESG-linked securities
in the fixed income markets in which we operate. Based on the interest we are
receiving from investors, we expected such increased demand to continue.

Because the majority of our assets are short-term in nature, they are not
significantly affected by inflation. However, the rate of inflation may affect
our expenses, such as employee compensation and communications expenses, which
may not be readily recoverable in the prices of our services. To the extent
inflation results in rising interest rates and has other adverse effects on the
securities markets, it may adversely affect our financial position and results
of operations.

We expect that current cash and investment balances, in combination with cash
flows that are generated from operations and the ability to borrow under our
2021 Credit Agreement (as defined below), will be sufficient to meet our
liquidity needs and planned capital expenditure requirements for at least the
next twelve months. We ended the quarter with a strong balance sheet, no
borrowings under our 2021 Credit Agreement and with capital significantly in
excess of our regulatory requirements.

Competitive landscape

The global fixed-income securities industry generally, and the electronic
financial services markets in which we engage in particular, are highly
competitive, and we expect competition to intensify in the future. Sources of
competition for us will continue to include, among others, bond trading
conducted directly between broker-dealers and their institutional investor
clients over the telephone or electronically and other multi-dealer or
all-to-all trading platforms. Competitors, including companies in which some of
our broker-dealer clients have invested, have developed or acquired electronic
trading platforms or have announced their intention to explore the development
of electronic platforms or information networks that may compete with us.

We primarily compete on the basis of our client network, the liquidity provided
by our dealer, and, to a growing extent, institutional investor clients, the
total transaction costs associated with our services, the breadth of products,
protocols and services offered, as well as the quality, reliability, security
and ease of use of our platforms. We believe that our ability to grow volumes
and revenues will largely depend on our performance with respect to these
factors.

Our competitive position is also enhanced by the unique liquidity provided by
our Open Trading functionalities and the familiarity and integration of our
broker-dealer and institutional investor clients with our electronic trading
platform and other systems. We have focused on the unique aspects of the credit
markets we serve in the development of our platform, working closely with our
clients to provide a system that is suited to their needs.
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Regulatory environment

Our business is subject to extensive regulations in the United States and
internationally, which may expose us to significant regulatory risk and cause
additional legal costs to ensure compliance. The existing legal framework that
governs the financial markets is periodically reviewed and amended, resulting in
the enactment and enforcement of new laws and regulations that apply to our
business. For example, the SEC recently proposed rules that will expand
Regulation ATS and Regulation SCI to alternative trading systems (ATS) that
trade government securities and amend the SEC rule regarding the definition of
an "exchange" to include Communication Protocol Systems, such as our RFQ
protocols. In connection with these proposed rules, we expect that we will have
to operate all of our trading protocols in compliance with Regulation ATS. The
fixed-income industry has also been grappling with how to comply with Rule
15c2-11 ("Publication or submission of quotations without specified
information") of the Securities Exchange Act, which had not previously been
applied to debt securities. The impact of any of these reform efforts on us and
our operations remains uncertain.

As a result of Brexit, we obtained authorizations from the AFM for our
subsidiaries in the Netherlands in 2019. We now provide regulated services to
our clients within the E.U. in reliance on the cross-border services passport
held by our Dutch subsidiaries. Brexit has led to an ongoing divergence between
the U.K. and E.U. financial regulations, which has made it more difficult and
costly to comply with the extensive government regulation to which we are
subject. The cost and complexity of operating across increasingly divergent
regulatory regimes has increased and is likely to continue to increase in the
future.

Compliance with regulations may require us to dedicate additional financial and
operational resources, which may adversely affect our profitability. However, we
believe new regulations may also increase demand for our platforms and we
believe we are well positioned to benefit from those regulatory changes that
cause market participants to seek electronic platforms that meet the various
regulatory requirements and help them comply with their regulatory obligations.

For a more detailed description of the regulations that may limit our activities, see part 1, point 1. “Corporate-government regulations”.

Technological environment

We must continue to enhance and improve our electronic trading platforms. The
electronic financial services industry is characterized by increasingly complex
systems and infrastructures and new business models. Our future success will
depend on our ability to enhance our existing products and services, develop
and/or license new products and technologies that address the increasingly
sophisticated and varied needs of our existing and prospective broker-dealer and
institutional investor clients and respond to technological advances and
emerging industry and regulatory standards and practices on a cost-effective and
timely basis. We plan to continue to focus on technology infrastructure
initiatives and continually improve our platforms to further enhance our leading
market position. We expect that our agile software development processes will
help us continue to be a market leader in developing the technology solutions
for our clients' trading needs.

As the overall share of electronic trading grows in global credit products, we
are experiencing continued demand for, and growth in, our automated trading
solutions. Automated trading volumes rose to $167.2 billion in 2021, up 32.7%
from $126.0 billion in 2020. In addition, the use of dealer algorithms is
continuing to grow on our platforms, with approximately 18.4 million algorithmic
responses in 2021, up 29.1% from the prior year.

We experience cyber-attacks and attempted data security breaches. Cybersecurity
incidents could impact revenue and operating income and increase costs. We
therefore continue to make investments in our cybersecurity infrastructure and
training of employees, which may result in increased costs, to strengthen our
cybersecurity measures.

See also Part 1, Section 1A. – “Risk factors, technology, computer systems and cybersecurity risks.” »

Trends in our business

The majority of our revenue is derived from commissions for transactions
executed on our platforms between and among our institutional investor and
broker-dealer clients and monthly distribution fees. We believe that there are
five key variables that impact the notional value of such transactions on our
platforms and the amount of commissions and distribution fees earned by us:

the number of participants on our platforms and their willingness to use our platforms in place of competitors’ platforms or methods of execution;

the frequency and competitiveness of price responses by participants on our platforms;

the number of markets available for our clients to trade on our platforms;

the overall level of activity in these markets; and

the level of commissions we collect for transactions executed through the Platforms.

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We believe that overall corporate bond market trading volume is affected by
various factors including the absolute levels of interest rates, the direction
of interest rate movements, the level of new issues of corporate bonds and the
volatility of corporate bond spreads versus U.S. Treasury securities. Because a
significant percentage of our revenue is tied directly to the volume of
securities traded on our platforms, it is likely that a general decline in
trading volumes, regardless of the cause of such decline, would reduce our
revenues and have a significant negative impact on profitability.

As further described under "- Critical Factors Affecting our Industry and our
Company - Economic, Political and Market Factors" and "- Critical Factors
Affecting our Industry and our Company - Competitive Landscape," our trading
volume growth rate slowed in 2021.

Commission income

Commissions are recognized on a trade date basis, are generally calculated as a
percentage of the notional dollar volume of bonds traded on our platforms and
vary based on the type, size, yield and maturity of the bond traded, as well as
individual client incentives. Bonds that are more actively traded or that have
shorter maturities are generally charged lower commissions, while bonds that are
less actively traded or that have longer maturities generally command higher
commissions.

For Open Trading trades that we execute between and among institutional investor
and broker-dealer clients on a matched principal basis by serving as
counterparty to both the buyer and the seller, we earn our commission through
the difference in price between the two trades. For U.S. Treasury matched
principal trades, commissions are invoiced and recorded on a monthly basis.

U.S. High-Grade Corporate Bond Commissions. Our U.S. high-grade corporate bond
fee plans generally incorporate variable transaction fees and fixed distribution
fees billed to our broker-dealer clients on a monthly basis. Certain
broker-dealers participate in fee programs that do not contain monthly
distribution fees and instead incorporate additional per transaction execution
fees and minimum monthly fee commitments. Under these fee plans, we
electronically add the transaction fee to the spread quoted by the broker-dealer
client. The U.S. high-grade transaction fee is generally designated in basis
points in yield and, as a result, is subject to fluctuation depending on the
duration of the bond traded. The average U.S. high-grade fees per million may
vary in the future due to changes in yield, years-to-maturity and nominal size
of bonds traded on our platforms. Distribution fees include any unused monthly
fee commitments under our variable fee plans.

Other Credit Commissions. Other credit includes Eurobonds, emerging markets
bonds, high-yield bonds, municipal bonds and leveraged loans. Commissions for
other credit products generally vary based on the type of the instrument traded
using standard fee schedules. Our high-yield fee plan structure is similar to
our U.S. high-grade fee plans. Certain dealers participate in a high-yield fee
plan that incorporates a variable transaction fee and fixed distribution fee,
while other dealers participate in a plan that does not contain monthly
distribution fees and instead incorporates additional per transaction execution
fees and minimum monthly fee commitments. Other credit distribution fees include
subscription revenues associated with the MuniBrokers platform. The average
other credit fees per million may vary in the future due to changes in product
mix or trading protocols.

Rates Commissions. Rates includes U.S. Treasury, U.S. agency, European
government bonds and credit derivatives. Commissions for rates products
generally vary based on the type of the instrument traded. U.S. Treasury fee
plans are typically volume tiered and can vary based on the trading protocol.
The average rates fee per million may vary in the future due to changes in
product mix or trading protocols.

We anticipate that the average fee per million may change in the future. Therefore, past commission trends are not necessarily indicative of future commissions.

Information services

We generate revenue from data licensed to our broker-dealer clients,
institutional investor clients and data-only subscribers; professional and
consulting services; technology software licenses; and maintenance and support
services. These revenues are either for subscription-based services transferred
over time, and may be net of volume-based discounts, or one-time services.
Revenues for services transferred over time are recognized ratably over the
contract period while revenues for services transferred at a point in time are
recognized in the period the services are provided. Customers are generally
billed monthly, quarterly, or annually; revenues billed in advance are deferred
and recognized ratably over the contract period.

Post-trade services

We generate revenue from regulatory transaction reporting, trade publication and
trade matching services. Customers are generally billed in the current month or
monthly in arrears and revenue is recognized in the period that the transactions
are processed. Revenues billed in advance are deferred and recognized ratably
over the contract period. We also generate one-time implementation fees for
onboarding clients which are invoiced and recognized in the period the
implementation is complete.
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Other income

Other revenue includes revenue generated from telecommunications line charges to broker clients.

Expenses

In the normal course of our business, we incur the following expenses:

Employee Compensation and Benefits. Employee compensation and benefits is our
most significant expense and includes employee salaries, stock-based
compensation costs, other incentive compensation, employee benefits and payroll
taxes.

Depreciation and Amortization. We depreciate our computer hardware and related
software, office hardware and furniture and fixtures and amortize our
capitalized software development costs on a straight-line basis over three to
seven years. We amortize leasehold improvements on a straight-line basis over
the lesser of the life of the improvement or the remaining term of the lease.
Intangible assets with definite lives, including purchased technologies,
customer relationships and other intangible assets, are amortized over their
estimated useful lives, which range from one to 15 years, using either a
straight-line or accelerated amortization method based on the pattern of
economic benefit that we expect to realize from such assets. Intangible assets
are assessed for impairment when events or circumstances indicate a possible
impairment.

Technology and Communications. Technology and communications expense consists
primarily of costs relating to maintenance on software and hardware, our
internal network connections, data center hosting costs, data feeds provided by
outside vendors and U.S. treasuries technology platform licensing fees. The
majority of our broker-dealer clients have dedicated high-speed communication
lines to our network in order to provide fast data transfer. We charge our
broker-dealer clients a monthly fee for these connections, which is recovered
against the relevant expenses we incur.

Professional and Consulting Fees. Professional and consulting fees consist
primarily of accounting fees, legal fees and fees paid to information technology
and other consultants for services provided for the maintenance of our trading
platforms, information and post-trade services products and other services.

Occupation. Occupancy costs primarily include office and equipment rent, utilities and commercial rent tax.

Marketing and Advertising. Marketing and advertising expense consists primarily
of print and other advertising expenses we incur to promote our products and
services. This expense also includes costs associated with attending or
exhibiting at industry-sponsored seminars, conferences and conventions, and
travel and entertainment expenses incurred by our sales force to promote our
trading platforms, information services and post-trade services.

Clearing Costs. Clearing costs consist of fees that we are charged by
third-party clearing brokers and depositories for the clearing and settlement of
matched principal trades, regulatory reporting fees and variable transaction
fees assessed by the provider of our third-party middle office system.

General and administrative. General and administrative expenses primarily include general travel and entertainment expenses, board of directors’ expenses, charitable contributions, allowance for doubtful accounts and various deductibles and UK value added taxes.

Expenses may grow in the future, notably in employee compensation and benefits
as we increase headcount to support investment in new products, operational
support and geographic expansion, depreciation and amortization due to increased
investment in new products and enhancements to our trading platforms, and
technology and communication costs. Expenses may also grow due to acquisitions.

Other income (expenses)

Investment income. Investment income consists of interest income earned on our investments.

Interest charges. Interest expense includes financing costs incurred on short-term borrowings.

Other, Net. Other, net, includes unrealized gains or losses on investments in trading securities, realized gains or losses on investments, gains or losses on foreign exchange transactions, investment advisory fees, credit facility administration fees and other miscellaneous income and expenses.

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Critical accounting estimates

This Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our Consolidated Financial Statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States ("U.S. GAAP"). The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the reported amounts of income and
expenses during the reporting periods. We base our estimates and judgments on
historical experience and on various other factors that we believe are
reasonable under the circumstances. Actual results may differ from these
estimates under varying assumptions or conditions. Critical accounting estimates
for us include stock-based compensation and contingent consideration payable.

Stock-based compensation

We maintain a stock incentive plan which provides for the grant of stock
options, stock appreciation rights, restricted stock, performance shares,
performance units, restricted stock units, performance stock units, or other
stock-based awards as incentives and rewards to encourage employees, consultants
and non-employee directors. We make critical accounting estimates related to
performance shares and performance stock units.

In January 2020, annual performance share awards ("PSAs"), and in January 2021,
performance stock units (together with the PSAs, "performance equity awards")
were granted to the executive officers and certain senior managers. Each
performance equity award granted in January 2020 and January 2021 is earned or
forfeited based on our level of achievement of certain predetermined metrics,
including pre-tax adjusted operating income and market share. The vested share
pay-out ranges from zero to 150%, for the awards issued in January 2020, and
zero to 200%, for the awards issued in January 2021, of the performance equity
award target. The number of performance equity awards that vest, if any, will be
determined by the level of achievement of the performance metrics during the
three-year performance periods, as certified by the Board following the
conclusion of the performance period. In addition, participants must provide
continued service through the vesting date (subject, to death, disability and,
in the case of the awards issued in January 2021, qualified retirement
exceptions). Compensation expense for performance equity awards is measured
using the fair value of our stock at the grant date and estimates of future
performance and actual share payouts. Each period, we make estimates of the
current expected share payout and adjust the life-to-date compensation expense
recognized since the grant date. As of December 31, 2021, a 10% change in the
expected final share payout would increase or decrease the life-to-date
compensation expense by $1.0 million. Refer to Note 11 to the Consolidated
Financial Statements for more information related to changes in final share
payout expectations.

Contingent Consideration Payable

In connection with our acquisitions of MuniBrokers and Regulatory Reporting Hub,
we recognized contingent consideration payables of up to $49.6 million with
payment dates ranging from 18-24 months from the acquisition dates. These
contingent consideration payables are classified as Level 3 liabilities in the
fair value hierarchy and are valued using unobservable inputs and estimates of
various factors, including client retention rates, electronic order flow levels,
future license fees we earn and discount rates. Changes in these estimates or
the final figures on the payment dates could have a material impact on the
contingent consideration payable liabilities we record on our balance sheet. For
example, as of December 31, 2021, a 10% change in the projected annual
subscription and license fees would increase or decrease the expected contingent
consideration payable by approximately $2.0 million. Refer to Note 4 to the
Consolidated Financial Statements for more information related to the changes in
contingent consideration payable during the year ended December 31, 2021.

Recent accounting pronouncements

See Note 2 to the consolidated financial statements for a discussion of recent accounting pronouncements.

Segment Results

We operate electronic platforms for the trading of fixed-income securities and
provide related data, analytics, compliance tools and post-trade services. We
consider our operations to constitute a single business segment because of the
highly integrated nature of these product and services, the financial markets in
which we compete and our worldwide business activities. We believe that results
by geographic region or client sector are not necessarily meaningful in
understanding our business. See Note 16 to the Consolidated Financial Statements
for certain geographic information about our business required by U.S. GAAP.

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Operating results

Year ended December 31, 2021 Compared to the year ended December 31, 2020

The comparability of our results of operations is impacted by our acquisitions
of Regulatory Reporting Hub in November 2020 and MuniBrokers in April 2021. For
additional information regarding these acquisitions, see Note 6 to the
Consolidated Financial Statements. The following table summarizes our financial
results for the years ended December 31, 2021 and 2020. Results for the year
ended December 31, 2021 include Regulatory Reporting Hub and MuniBrokers related
revenue of $17.7 million and expenses of $24.0 million, including amortization
of acquired intangibles expense of $7.9 million.

                                                        Year Ended December 31,
                                           2021            2020        $ Change       % Change
                                              ($ in thousands, except per share amounts)
Revenues                                $   698,951      $ 689,125     $   9,826            1.4   %
Expenses                                    361,716        314,397        47,319           15.1
Operating income                            337,235        374,728       (37,493 )        (10.0 )
Other income (expense)                       (3,312 )         (369 )      (2,943 )        797.6
Income before income taxes                  333,923        374,359       (40,436 )        (10.8 )
Provision for income taxes                   76,035         74,982         1,053            1.4
Net income                              $   257,888      $ 299,377     $ 

(41,489) (13.9)%

Net earnings per common share – Diluted $6.77 $7.85 $(1.08) (13.8)%


A 7.0% change in the average foreign currency exchange rate of the British pound
sterling compared to the U.S. dollar had the effect of increasing revenues and
expenses by $5.4 million and $5.3 million, respectively, for the year ended
December 31, 2021.

Revenue

Our turnover for the financial years ended December 31, 2021 and 2020, and the resulting dollar and percentage changes, were as follows:

                                                Year Ended December 31,
                            2021                      2020
                                                   ($ in thousands)
                                    % of                      % of           $              %
                         $        Revenues         $        Revenues      Change         Change
Commissions          $ 621,008      88.8   %   $ 634,445      92.1   %   $ (13,437 )      (2.1 ) %
Information services    38,175       5.5          34,341       5.0           3,834        11.2
Post-trade services     38,922       5.6          19,460       2.8          19,462       100.0
Other                      846       0.1             879       0.1             (33 )      (3.8 )
Total revenues       $ 698,951     100.0   %   $ 689,125     100.0   %   $   9,826         1.4   %




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Fees

Our commission income for the years ended December 31, 2021 and 2020, and the resulting dollar and percentage changes, were as follows:

                                               Year Ended December 31,
                                                                $              %
                                  2021          2020         Change         Change
                                                  ($ in thousands)
Variable transaction fees
U.S. high-grade                 $ 213,790     $ 253,684     $ (39,894 )     (15.7 ) %
Other credit                      271,215       256,763        14,452         5.6
Total credit                      485,005       510,447       (25,442 )      (5.0 )
Rates                              16,572        15,890           682         4.3

Total variable transaction costs 501,577 526,337 (24,760 )

 (4.7 )
Distribution fees
U.S. high-grade                    87,265        81,893         5,372         6.6
Other credit                       31,913        25,834         6,079        23.5
Total credit                      119,178       107,727        11,451        10.6
Rates                                 253           381          (128 )     (33.6 )
Total distribution fees           119,431       108,108        11,323        10.5
Total commissions               $ 621,008     $ 634,445     $ (13,437 )      (2.1 ) %



U.S. high-grade variable transaction fees decreased $39.9 million due to a 9.1%
decrease in trading volume and a 7.2% decrease in the variable transaction fee
per million. Other credit variable transaction fees increased $14.5 million due
to a 9.5% increase in trading volume offset by a 3.5% decrease in the variable
transaction fee per million. Open Trading credit volume decreased by 2.0% and
represented 31.8% and 33.2% of credit variable transaction fees for the years
ended December 31, 2021 and 2020, respectively.

U.S. high-grade distribution fees increased $5.4 million mainly due to the
migration of certain dealers from all-variable fee plans to plans that
incorporate a monthly distribution fee and higher unused monthly minimum
commitment fees. Other credit distribution fees increased $6.1 million due to
subscription revenues associated with the MuniBrokers platform of $3.5 million
and the migration of certain dealers from all-variable fee plans to plans that
incorporate a monthly distribution fee.

Our trading volume for each of the years ended December 31, 2021 and 2020 was as
follows:


                                                 Year Ended December 31,
                                                                    $               %
                                   2021            2020           Change         Change
                                                     ($ in millions)
Trading Volume Data
U.S. high-grade - fixed rate    $ 1,197,526     $ 1,311,512     $ (113,986 )      (8.7 ) %
U.S. high-grade - floating rate      45,654          56,786        (11,132 )     (19.6 )
Total U.S. high-grade             1,243,180       1,368,298       (125,118 )      (9.1 )
Other credit                      1,381,604       1,262,074        119,530         9.5
Total credit                      2,624,784       2,630,372         (5,588 )      (0.2 )

Rates                             4,144,964       3,987,424        157,540         4.0

Number of U.S. Trading Days             250             251
Number of U.K. Trading Days             253             254



For volume reporting purposes, transactions in foreign currencies are converted
to U.S. dollars at average monthly rates. The 9.1% decrease in our U.S.
high-grade volume was principally due to a decrease in overall market volume.
Estimated U.S. high-grade TRACE volume decreased by 6.9% to $5.9 trillion for
the year ended December 31, 2021 from $6.3 trillion for the year ended December
31, 2020. Our estimated market share of total U.S. high-grade corporate bond
volume decreased to 21.0% for the year ended December 31, 2021 from 21.6% for
the year ended December 31, 2020.
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Other credit volumes increased by 9.5% for the year ended December 31, 2021
compared to the year ended December 31, 2020, primarily due to increases of
15.6% in emerging markets bond volume and 11.7% in Eurobond volume due to higher
estimated market share which offset decreases in overall estimated market
volumes. U.S. high-yield bond volume decreased 3.6% due to lower estimated
market volume. Our estimated market share of U.S. high-yield TRACE volume
increased to 15.2% for the year ended December 31, 2021 from 14.6% for the year
ended December 31, 2020. Rates volume increased 4.0% due to higher estimated
market volume.

Our average variable transaction costs per million for the financial years ended December 31, 2021 and 2020 was as follows:

                                                          Year Ended December 31,
                                                                          $             %
                                               2021         2020       Change        Change
Average Variable Transaction fee per million
U.S. high-grade - fixed rate                 $ 176.91     $ 191.34     $ (14.4 )      (7.5 ) %
U.S. high-grade - floating rate                 42.36        48.21        (5.9 )     (12.1 )
Total U.S. high-grade                          171.97       185.40       (13.4 )      (7.2 )
Other credit                                   196.30       203.45        (7.2 )      (3.5 )
Total credit                                   184.78       194.06        (9.3 )      (4.8 )

Rates                                            4.00         3.99         0.0         0.3



The decrease in U.S. high-grade average variable transaction fee per million was
mainly due to a decrease in the average duration of bonds traded on our
platforms and the migration of certain of our broker-dealer clients from an
all-variable fee plan to a plan that incorporates a monthly distribution fee.
The decrease in other credit average variable transaction fee per million was
mainly due to a larger percentage of trading volume in emerging market bonds
that command lower fees per million and the migration of certain of our
broker-dealer clients from an all-variable fee plan to a plan that incorporates
a monthly distribution fee.

Information Services. Information services revenue increased $3.8 million for
the year ended December 31, 2021 mainly due to net new data contract revenue of
$3.6 million and the positive impact of foreign exchange of $1.3 million, offset
by lower non-recurring data sales of $1.1 million.

Post-Trade Services. Post-trade services revenue increased $19.5 million for the
year ended December 31, 2021 principally due to additional regulatory
transaction reporting revenue of $13.0 million generated by Regulatory Reporting
Hub, which was acquired on November 30, 2020, net new post -trade services
contract revenue of $5.2 million and the positive impact of foreign exchange of
$1.5 million.

Other. Other income was $0.8 million and $0.9M for the years ended
December 31, 2021 and 2020, respectively.

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Expenses

The following table summarizes our expenditures for the years ended December 31, 2021 and 2020. Expenditures for the year ended December 31, 2021 include $24.0 million expenses related to the Regulatory Reporting Hub and MuniBrokers, including the amortization of acquired intangible assets $7.9 million.

                                                 Year Ended December 31,
                                                                  $              %
                                     2021          2020         Change        Change
                                                     ($ in thousands)
Expenses

Employee compensation and benefits $170,916 $156,885 $14,031

    8.9   %
Depreciation and amortization         53,447        35,996       17,451        48.5
Technology and communications         42,474        34,092        8,382        24.6

Professional and consulting fees 41,925 32,304 9,621

   29.8
Occupancy                             13,320        13,425         (105 )      (0.8 )
Marketing and advertising              9,059         7,940        1,119        14.1
Clearing costs                        16,074        21,058       (4,984 )     (23.7 )
General and administrative            14,501        12,697        1,804        14.2
Total expenses                     $ 361,716     $ 314,397     $ 47,319        15.1   %



Employee compensation and benefits increased by $14.0 million primarily due
increases in salaries, taxes and benefits on higher employee headcount of $16.4
million and stock-based compensation of $1.4 million, offset by lower employee
incentive compensation of $3.8 million, which is impacted by operating
performance.

Depreciation and amortization increased by $17.5 million primarily due to higher
amortization of acquired intangibles of $9.7 million and higher amortization of
software development costs of $6.3 million. For the years ended December 31,
2021 and 2020, $17.5 million and $15.0 million, respectively, of equipment
purchases and leasehold improvements and $33.1 million and $30.6 million,
respectively, of software development costs were capitalized.

Technology and communications expenses increased by $8.4 million primarily due
to higher software subscription costs of $4.2 million, higher market data costs
of $1.6 million, higher cloud hosting costs of $1.2 million and higher platform
technology licensing costs of $1.1 million.

Professional and consulting fees increased by $9.6 million mainly due to higher integration consulting fees related to the acquisition of $4.5 millionhigher IT consulting fees of $3.3 million and higher recruitment costs of $1.5 million.

Marketing and advertising expense increased $1.1 million due to the resumption
of certain advertising and travel and entertainment costs which had been reduced
in 2020 due to the Pandemic.

Clearing costs decreased by $5.0 million primarily due to lower clearing
expenses due to the benefits from our conversion to self-clearing. While Open
Trading credit volume decreased 2.0% compared to the year ended December 31,
2020, clearing costs decreased by 23.7%. Clearing costs as a percentage of Open
Trading matched principal trading revenue from credit products decreased from
9.8% to 7.6%.

General and administrative expenses increased by $1.8 million mainly due to the increase in corporate charitable contributions and the resumption of certain administrative costs that had been reduced in 2020 due to the pandemic.

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Other income (expenses)

Our other income (expenses) for the years ended December 31, 2021 and 2020, and the resulting dollar and percentage changes, were as follows:

                                          Year Ended December 31,
                                                          $              %
                               2021         2020        Change        Change
                                              ($ in thousands)
Investment income            $    401     $  2,446     $ (2,045 )     (83.6 ) %
Interest expense                 (842 )     (1,142 )        300       (26.3 )
Other, net                     (2,871 )     (1,673 )     (1,198 )      71.6

Total other income (expenses) ($3,312) $ (369 ) ($2,943) 797.6

%

Investment income decreased by $2.0 million mainly due to declining investment balances.

Interest expense decreased by $0.3 million due to lower financing activities related to our netting agreements.

Other, net minus $1.2 million primarily due to an increase in credit facility fees and administration fees.

Provision for income taxes.

The provision for income taxes and the effective tax rate for the years ended
December 31, 2021 and 2020 were as follows:

                                       Year Ended December 31,
                                                        $            %
                             2021         2020       Change       Change
                                          ($ in thousands)

Provision for income taxes $76,035 $74,982 $1,053 1.4%

Effective tax rate             22.8 %       20.0 %



The provision for income taxes reflected $11.7 million and $24.1 million of
excess tax benefits related to share-based compensation awards that vested or
were exercised during the years ended December 31, 2021 and 2020, respectively.
During the years ended December 31, 2021 and 2020, we recorded a benefit from
unrecognized tax benefits of $1.2 million and provision for unrecognized tax
benefits of $9.5 million, respectively. Our consolidated effective tax rate can
vary from period to period depending on the geographic mix of our earnings,
changes in tax legislation and tax rates and the amount and timing of excess tax
benefits related to share-based payments, among other factors.

                                       49
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Cash and capital resources

During the past two years, we have met our funding requirements through cash on
hand, internally generated funds and short-term borrowings. Cash and cash
equivalents and investments totaled $542.8 million at December 31, 2021. Our
investments are generally invested in U.S. treasury securities. We limit the
amounts that can be invested in any single issuer and invest in short- to
intermediate-term instruments whose fair values are less sensitive to interest
rate changes.

In October 2021, we entered into a new three-year revolving credit facility (the
"2021 Credit Agreement") provided by a syndicate of lenders and JPMorgan Chase
Bank, N.A., as administrative agent, that provides aggregate commitments
totaling $500.0 million, consisting of a revolving credit facility and a $5.0
million letter of credit sub-limit for standby letters of credit. The 2021
Credit Agreement replaced our credit agreement entered into in November 2020
(the "2020 Credit Agreement") and will mature on October 15, 2024, with our
option to request up to two additional 364-day extensions at the discretion of
each lender and subject to customary conditions. The 2020 Credit Agreement also
provided aggregate commitments totaling $500.0 million. As of December 31, 2021,
we had $1.0 million in letters of credit outstanding and $499.0 million in
available borrowing capacity under the 2021 Credit Agreement. The 2021 Credit
Agreement requires that we satisfy certain covenants, which include a leverage
ratio. We were in compliance with all applicable covenants at December 31, 2021.
See Note 13 to the Consolidated Financial Statements for a discussion of the
2020 Credit Agreement and the 2021 Credit Agreement.

In connection with its self-clearing operations, our U.S. broker-dealer
subsidiary entered into an agreement (the "Collateralized Agreement") with its
settlement bank to provide loans up to an aggregate of $200.0 million on an
uncommitted basis. Borrowings under the Collateralized Agreement are
collateralized by securities pledged by the broker-dealer subsidiary to the
settlement bank, subject to applicable haircuts and concentration limits. As of
December 31, 2021, the broker-dealer subsidiary had no borrowings outstanding
and $200.0 million in available borrowing capacity under the Collateralized
Agreement. See Note 13 to the Consolidated Financial Statements for a discussion
of the Collateralized Agreement.

As part of the arrangements with their settlement banks, some of our we and UK
operating subsidiaries may receive day-to-day financing in the form of bank overdrafts. From December 31, 2021we had no overdraft to pay in progress.

As a result of our self-clearing and settlement activities, we are required to
finance certain transactions, maintain deposits with various clearing
organizations and clearing broker-dealers and maintain a special reserve bank
account for the benefit of customers pursuant to Rule 15c3-3 of the Exchange
Act. As of December 31, 2021, the aggregate amount of the positions financed,
deposits and customer reserve balances associated with our self-clearing and
settlement activities was $226.0 million. These requirements can fluctuate based
on trading activity, market volatility or other factors which may impact our
liquidity or require us to use our capital resources.

Over the past two years, our cash flows have been as follows:

                                                              Year Ended December 31,
                                                                               $                %
                                                2021           2020          Change          Change
                                                         ($ in thousands)
Net cash provided by operating activities    $  282,091     $  404,489     $ (122,398 )      (30.3 )  %
Net cash provided by (used in) investing
activities                                      (67,694 )       68,867       (136,561 )     (198.3 )
Net cash (used in) financing activities        (189,775 )     (145,112 )      (44,663 )       30.8
Effect of exchange rate changes on cash and
cash equivalents                                 (7,105 )        5,553        (12,658 )     (227.9 )
Net increase for the period                  $   17,517     $  333,797     $ (316,280 )      (94.8 ) %


Cash flow for the year ended December 31, 2021 Compared to the year ended December 31, 2020

The $122.4 million decrease in net cash provided by operating activities was
primarily due to decreases in net sales and maturities of trading investments of
$73.5 million, net income of $41.5 million, net receivables from broker-dealers,
clearing organizations and customers of $11.4 million and deferred taxes of $7.0
million, offset by an increase in depreciation and amortization of $17.5 million
and a decrease in accounts payable, accrued expenses and other liabilities of
$5.8 million.

The $136.6 million decrease in net cash provided by (used in) investing
activities was primarily attributable to a decrease in net proceeds from sales
and maturities of securities available-for-sale of $137.8 million and an
increase in capital expenditures of $5.0 million, offset by lower cash used for
acquisitions of $6.2 million.

The $44.7 million increase in net cash (used in) financing activities was
principally due to increases in repurchases of our common stock of $47.1 million
and cash dividends paid on common stock of $9.2 million, offset by decreases in
exercises of stock options of $3.1 million and withholding tax payments on
restricted stock vesting and stock option exercises of $8.5 million.
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Past cash flow trends are not necessarily indicative of future cash flow levels. A decrease in cash flow could have a material adverse effect on our liquidity, business and financial condition.

Other factors affecting liquidity and capital resources

We believe that our current resources are adequate to meet our liquidity needs
and requirements, including commitments for capital expenditures, in the
short-term (during the next 12 months). However, our future liquidity and
capital requirements will depend on a number of factors, including liquidity
requirements associated with our self-clearing operations and expenses
associated with product development and expansion and new business opportunities
that are intended to further diversify our revenue stream. We may also acquire
or invest in technologies, business ventures or products that are complementary
to our business. In the event we require any additional financing, it will take
the form of equity or debt financing. Any additional equity offerings may result
in dilution to our stockholders. Any debt financings, if available at all, may
involve restrictive covenants with respect to dividends, issuances of additional
capital and other financial and operational matters related to our business. In
addition, in the long-term (beyond 12 months), we believe our liquidity needs
and requirements will be affected by the factors enumerated above.

Certain of our U.S. subsidiaries are registered as a broker-dealer or a SEF and
therefore are subject to the applicable rules and regulations of the SEC, FINRA
and the CFTC. These rules contain minimum net capital requirements, as defined
in the applicable regulations, and also may require that a significant part of
the registrants' assets be kept in relatively liquid form. Certain of our
foreign subsidiaries are regulated by the FCA in the U.K. or other foreign
regulators and must maintain financial resources, as defined in the applicable
regulations, in excess of the applicable financial resources requirement. As of
December 31, 2021, each of our subsidiaries that are subject to these
regulations had net capital or financial resources in excess of their minimum
requirements. As of December 31, 2021, our subsidiaries maintained aggregate net
capital and financial resources that were $561.2 million in excess of the
required levels of $22.0 million.

Each of our U.S. and foreign regulated subsidiaries are subject to local
regulations which generally prohibit repayment of borrowings from our
affiliates, paying cash dividends, making loans to our affiliates or otherwise
entering into transactions that result in a significant reduction in regulatory
net capital or financial resources without prior notification to or approval
from such regulated entity's principal regulator. As of December 31, 2021, the
amount of unrestricted cash held by our non-U.S. subsidiaries was $303.6
million.

We execute bond transactions between our institutional investor and
broker-dealer clients on a matched principal basis by serving as counterparty to
both the buyer and the seller in trades. Our U.S. broker-dealer subsidiary
operates under a self-clearing model for the settlement of such transactions.
Our subsidiaries also settle their transactions through third-party clearing
brokers or settlement agents. Settlement typically occurs within one to two
trading days after the trade date. Cash settlement of the transaction occurs
upon receipt or delivery of the underlying instrument that was traded. Under
both the self-clearing and the third-party clearing models, we may be exposed to
credit risk in the event a counterparty does not fulfill its obligation to
complete a transaction or if there is an error in executing a matched principal
transaction. Pursuant to the terms of the securities clearing agreements, each
third-party clearing broker has the right to charge us for any losses they
suffer resulting from a counterparty's failure on any of our trades. We did not
record any liabilities or losses with regard to counterparty failures for the
years ended December 31, 2021 and 2020. Substantially all our open securities
failed-to-deliver and securities failed-to-receive transactions as of December
31, 2021 have subsequently settled at the contractual amounts.

In the normal course of business, we enter into contracts that contain a variety
of representations, warranties and indemnification provisions. Our maximum
exposure from any claims under these arrangements is unknown, as this would
involve claims that have not yet occurred. However, based on past experience, we
expect the risk of material loss to be remote.

In January 2019, our Board authorized a two-year share repurchase program for up
to $100.0 million that commenced in April 2019 and expired on March 31, 2021. In
January 2021, our Board authorized a new share repurchase program for up to
$100.0 million that commenced on April 1, 2021 and was exhausted in January
2022. In January 2022, our Board authorized a new share repurchase program for
up to $150.0 million. We expect repurchases under the new program to commence in
the first quarter of 2022. Shares repurchased under each program will be held in
treasury for future use.

On November 30, 2020, we acquired Regulatory Services GmbH, the pan-European
regulatory reporting business of Deutsche Börse Group. The purchase price
consists of $22.5 million in cash paid at closing and up to $24.6 million in
contingent consideration payable in cash within 18 months of the closing. On
April 9, 2021, we acquired MuniBrokers, a central electronic venue serving
municipal bond brokers and dealers. The purchase price consists of $17.1 million
in cash paid at closing and up to $25.0 million in contingent consideration
payable in cash within approximately two years of the closing.

See Section 5 of this Annual Report on Form 10-K for additional discussion of our common stock repurchases and dividend policy.

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Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, we use
certain non-GAAP financial measures called earnings before interest, taxes,
depreciation and amortization ("EBITDA") and free cash flow. We define free cash
flow as cash flow from operating activities excluding the net change in trading
investments and net change in securities failed-to-deliver and securities
failed-to-receive from broker-dealers, clearing organizations and customers,
less expenditures for furniture, equipment and leasehold improvements and
capitalized software development costs. We believe these non-GAAP financial
measures, when taken into consideration with the corresponding GAAP financial
measures, are important in understanding our operating results. EBITDA and free
cash flow are not measures of financial performance or liquidity under GAAP and
therefore should not be considered an alternative to net income or cash flow
from operating activities as an indicator of operating performance or liquidity.
We believe that EBITDA and free cash flow provide useful additional information
concerning profitability of our operations and business trends and the cash flow
available to pay dividends, repurchase stock and meet working capital
requirements.

The table below provides a reconciliation of our net income and EBITDA, as defined, for the years ended December 31, 2021 and 2020:

                                                                  Year Ended December 31,
                                                                   2021              2020
                                                                      (In thousands)
Net income                                                     $    257,888       $  299,377
Add back:
Interest expense                                                        842            1,142
Provision for income taxes                                           76,035           74,982
Depreciation and amortization                                        53,447           35,996

Earnings before interest, taxes, depreciation and amortization $388,212

      $  411,497





The table set forth below presents a reconciliation of our net cash provided by
operating activities to free cash flow, as defined, for the years ended December
31, 2021 and 2020:


                                                              Year Ended December 31,
                                                               2021              2020
                                                                  (In thousands)
Net cash provided by operating activities                  $    282,091       $  404,489
Exclude: Net change in trading investments                        5,574     

(67,952 ) Exclude: Net change in delivery/receipt defaults from brokers, clearing organizations and customers

             59,651     

49,278

Less: Purchases of furniture, equipment and leasehold improvements

                                                    (17,493 )        (15,010 )
Less: Capitalization of software development costs              (33,123 )        (30,618 )
Free cash flow                                             $    296,700       $  340,187




Contractual obligations and commitments

As of December 31, 2021, we had the following contractual obligations and
commitments:

                                                             Payments due by period
                                                 Less than                                          More than
                                     Total         1 year        1 - 3 years       3 - 5 years       5 years
                                                                 (In thousands)
Operating leases                   $ 123,402     $   11,163     $      22,104     $      22,070     $   68,065





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