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Tradeweb Markets Inc (NASDAQ:TW)
Q3 2020 Earnings Call
Oct 28, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, and welcome to Tradeweb's third-quarter 2020 earnings conference call. As a reminder, today's call is being recorded and will be available for playback. To begin the call, I'll turn the call over to Head of U.S. Corporate Development and Investor Relationship Ashley Serrao.

Please go ahead.

Ashley Serrao -- Head of U.S. Corporate Development and Investor Relations

Thank you, and good morning. Joining me today for the call are our CEO, Lee Olesky, who will review the highlights of the quarter and provide a business update, our president, Billy Hult, who will dive a little deeper into some growth initiatives, and Bob Warshaw, our CFO, who will review our financial results. Our third-quarter earnings release, prepared remarks and accompanying presentation are available on the investor relations portion of our website. 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, including full-year 2020 guidance and the COVID-19 pandemic, the potential impacts of which are inherently uncertain, 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 reconciliation to GAAP measures, are in our posted earnings release and presentation. Lastly, we provide certain market and industry data, which is based on management's estimates and various industry sources. See our posted earnings presentation for more details. To recap, this morning, we reported GAAP earnings per diluted share of $0.19.

Excluding certain noncash stock-based compensation expense, acquisition and Refinitiv-related D&A and certain FX items. And assuming an effective tax rate of 22%, we have reported adjusted net income per diluted share of $0.30. 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 -- Chief Executive Officer

Thanks, Ashley. Good morning, everyone, and thank you for joining our third-quarter earnings call. The world remains an uncertain place amid numerous political climate, health and social challenges. At Tradeweb, cyclical macro headwinds from subdued rate volatility and lower yields continue to partially mask encouraging secular and organic growth across our rates, credit and money market asset classes.

Our team remains focused on the future, operating purposely to execute on our growth road map by managing what's within our control, which is relentlessly engaging clients, innovating with technology and improving trading workflows to gain share. And as we continue to focus on revenue growth, we believe we are increasing our earnings path, positioning Tradeweb to eventually benefit when volatility resurfaces; and secondarily, when interest rates head higher. Our message to our investors is unchanged. We remain laser-focused on capitalizing on the secular tailwinds underpinning our business to drive revenue growth and margin expansion for the remainder of 2020 and in 2021 and beyond as both our existing and pending investments scale globally.

Turning to Slide 4. We reported the strongest third quarter in our history, hitting new market share and volume records across numerous products. Specifically, gross revenues of $213 million during third-quarter 2020 were up 5.9% year on year on a reported basis and by 4.7% on a constant-currency basis. The revenue growth and the resulting scale translated into improved profitability year over year as our third-quarter adjusted EBITDA margin expanded by 91 basis points to 47.4%.

On the investment front, we continue to innovate by rolling out several early stage initiatives. We launched our enhanced specified pool platform after collaborating for a year with leading mortgage originators to design a feature-rich offering to automate this large market, which traded $26 billion a day on average during the first nine months of 2020. We believe this offering builds on our strength in the TBA market. The frequent high-volume and spreadsheet-driven nature of the specified pool market makes it well suited for automation as we estimate electronification levels today are less than 5%.

Similarly, the culmination of another year-long project led Tradeweb to becoming the first offshore platform to offer foreign investors electronic access to the China interbank bond market for CIBM direct, complementing our existing bond connect offering. We now give clients access to the two most popular north bound trading channels and nearly doubling our addressable market. Finally, in U.S. corporate credit, we continue to lead the next-generation of innovation in the space.

Building on the growing adoption of net spotting and portfolio trading by rolling out ReMatch, which connects our wholesale liquidity to our institutional and retail liquidity pools. Looking ahead, our sales team remains highly engaged and our technology team as a busy pipeline as we look out over the next 12 months. Turning now to Slide 5. This quarter was marked by strong credit and market data growth, which more than offset flattish performance in other asset classes.

Specifically, credit grew by double digits at 26.9%. While rates and money markets were relatively in line, with last year as organic growth more than offset strong rate headwinds. Our post-March performance in rates continued to be earmarked by the same mix of tailwinds and headwinds we discussed last quarter. Cash rates posted its second highest revenue and volume quarter as record central bank issuance fueled institutional government bond trading and low interest rates sparked higher refinancing activity, thereby boosting mortgage trading.

On the other hand, subdued rate volatility took its toll on most of the rates franchised, with interest rate swaps seeing the most pressure. Equities fell 3.9% against an exceptional third-quarter 2019 comparison, and market data grew by 10%. Moving on now to Slide 6. Let me provide a brief update on our four main focus areas: global interest rate swaps, U.S.

treasuries, U.S. credit and global ETFS. So starting with interest rate swaps, a tough macro environment, characterized by low volatility continue to pressure our volumes, which fell 36% year on year but outpaced industry volumes as measured by Claris. Our main focus area and higher fee per million longer duration swaps held up relatively better, falling only 17%.

All in, our market share hit a new record, eclipsing 10% for the first time as we continue to focus on what we can control. Deepening our client wallet share and scaling new products and protocols as we unlock new electronic options for clients. We believe we gained meaningful share versus our closest competitor, Bloomberg, in both the U.S. and Europe.

Longer term, we remain excited by the opportunity here as the rate cycle improves and the market continues to electronify. Billy will give you an update on our strategy momentarily. So moving on to U.S. treasuries.

Our volumes increased 6% year on year, led by the institutional business pushing market share to record levels, exceeding 15% of the U.S. treasury market. Amidst the backdrop of heavy stimulus driven issuance, the composition of the U.S. treasury market has shifted toward the institutional sector as client activity served while wholesale activity slowed.

At Tradeweb, share gains within institutional have been driven by existing clients doing more business, competitive share gains versus Bloomberg and further inroads into the Tivo market, capitalizing on the recent wave of short-dated issuance. Looking ahead, we are also investing in driving adoption of our early stage protocols such as STAQ, Tradeweb Plus and request-for-market, RFM. In the wholesale arena, our disclosed streaming protocol registered its second best quarter as trading behavior continues to shift away from traditional central limit order books, given better price discovery and reduced information leakage as clients respond positively to our proprietary technology investments relative to the competition. Looking ahead, we believe the mix of our organic growth initiatives and the growing pool of U.S.

treasuries outstanding, courtesy of the Fed overexpanding deficit bodes well for earnings power as we emerge from this pandemic into a higher and more volatile interest rate environment. Shifting to credit, the asset class continued with strong growth and generated $50 million in revenues. Our U.S. corporate credit market share continues to rise and set new records in both investment-grade and high yield, driven primarily by our institutional RFQ business, recent innovations, like portfolio trading and net spotting and growth of our suite of anonymous trading protocols.

Our wholesale session trading business rebounded back to levels seen in the first quarter, with activity accelerating in September. The retail business saw significantly less activity as low yields reduce the appeal of credit products for financial advisors. Looking ahead, we continue to see a lot of opportunity in credit as our platform continues to scale. We remain focused on serving both voice and electronic workflows and electronically connecting our three pools of liquidity.

Finally, within the equities, institutional ETFs were down 8% year on year, as volumes were hampered by subdued European market activity, especially in August, which displayed a typical summer low relative to the heightened volatility that characterized August 2019 when recession and trade war fears gripped the market. Fundamentally, we continue to add new clients globally and remain excited about the prospects for the business. Our progress was recognized when our ETF platform was recently named as the Best ETF platform by ETF Express U.S. awards.

We believe our intelligent pre-trade liquidity provider selection, robust electronic auto trails, and deep integration with OMS providers continue to drive the success of our offering. Our other initiatives to expand beyond our flagship ETF franchise are also bearing through, with momentum continuing in equity options, Delta 1 and convertibles. During the quarter, we also announced a partnership with CBOE for EFPs, which will leverage our leading wholesale ETF platform, a primary destination for EFP trading. Looking ahead, we believe we remain well-positioned to benefit from the continued growth of ETFs globally with our newer product additions and an expanding client footprint.

With that, I will turn it over to Billy.

Billy Hult -- President

Thanks, Lee. Turning to Slide 7 for a closer look at swaps. Swaps remained a critical component of the Tradeweb story and one with considerable room for growth and innovation. We continue to operate with a growth mentality, investing for the future.

The broader industry backdrop in the third quarter for interest rate swaps remained cyclically challenging given low interest rate volatility. Industry volumes, as measured by Clarus, were down 38% year over year during the quarter, driven primarily by a 56% decline in lower fee per million overnight index swaps, OIS, which were pressured by reduced speculation on the front end of the curve. The higher fee per million core IRS market fared relatively better. Industry volumes here declined 29% year over year.

But as Lee indicated, our volumes outperformed the overall market as our targeted investments continued to pay off. Specifically, our market share increased to a record 10.2% from 9.8% last year, driven primarily by gains within core IRS, our main market of focus, where shares rose or share rose to a record 17.5%. We are also pleased to be recognized by global capital as the OTC trading venue of the year for our consistent ability to pioneer the next-generation of tools to access liquidity and inform trading decisions. We are continuing to innovate by responding to structural changes in the swaps market, be it the growth of emerging market swaps clearing or the transition to alternative reference rates.

We are launching new protocols like RFM, adding new products like electronic FRAs and package swaps and expanding regionally in APAC. Specifically, during the third quarter, we posted our highest single revenue day for EM Swaps as large asset managers that are fully integrated into Tradeweb for major currencies leveraged the same infrastructure to trade EM currencies. Clients have now traded $386 billion over the last 12 months. During the third quarter, we added three new currencies, bringing our total to 13 and completed our first Chinese interest rate swap trade.

The momentum is building, and today, we have more than 40 clients and 15 dealers, both numbers doubling since the third-quarter 2019. Looking ahead, we continue to add more currencies and actively onboard dealers to provide liquidity for specific currencies. Clients are also utilizing list trading to trade risk, migrate positions from LIBOR to new risk-free indices like SONIA and SOFR and switch portfolios between central park -- central counterparties in anticipation of Brexit. Like we have always done, we are partnering very closely with our clients to help them navigate regulatory change.

We are also continuing to grow our electronic solutions for historically voice traded products such as swaptions and multi-asset package swaps. Clients have now traded $74 billion in multi-asset package swaps since our launch in August last year. Given the momentum, we intend to add more currencies as we build this offering out. Our efforts to build a competitive wholesale FRA offering continue, and the early signs are encouraging.

We traded nearly $18 billion daily, a new record during the third quarter. Protocol-wise, we are growing RFM or request-for-market, which help clients protect their intent to buy or sell by requesting two-sided markets. We continue to onboard dealers to support this market. In sum, with global electronification levels in swaps hovering around 20% to 25%, we continue to strategically collaborate with our clients to migrate more business online.

Real change is rarely instantaneous but rather a series of day-to-day evolutions that combine to drive behavioral change. We are focused on listening to our clients across all our products to create win-win outcomes for them and Tradeweb. One product where we have had several win-win light bulb moments is U.S. corporate credit on Slide 8.

We continue to invest to build a franchise that supports both electronic and voice workflows by leveraging our unique and diverse liquidity pool shared across our wholesale, retail and institutional sectors. Our value proposition is resonating strongly with our clients as our network continues to grow with more than 720 clients signed up to trade on Tradeweb at the end of the third quarter. As a result, market share and block share continued to increase both our IG and high-yield offering as our liquidity pool deepens. In terms of drivers, the composition of our share continues to be led by our institutional franchise, which helped drive TRACE high-yield market share to a monthly record of 5.3% in September and high-grade market share to a record 18.2% in August.

Clients continue to increase their engagement with our pioneering innovations like portfolio trading and net spotting and are also ramping up their disclosed and all-to-all RFQ activity on the platform. Portfolio trading continues to see increased adoption as clients across a variety of financial institutions champion the protocol's efficient price discovery, faster risk transfer, greater certainty of execution and reduced information leakage. Specifically, we estimate portfolio trading has increased to compromise approximately 3% to 3.5% of TRACE from about 2% at the end of the second -- at the end of 2019. And Tradeweb accounted for $28 billion single and multi-dealer portfolio trades in the third quarter alone.

Behaviorally, as comfort with the protocol grows, clients are increasingly putting dealers in competition and increasing the size and complexity of their trades. As a result, the number of line items and portfolios on our platform also hit a new record. Our advance net spotting offering saw another healthy quarter with $73 billion of activity and over $225 billion year to date as clients increasingly co-mingle electronic and voice trades to maximize savings and eliminate the inefficiencies of manual processes. We estimate we saved clients over $50 per million during the third quarter.

We also continued to invest in creating the broadest anonymous trading offering in the market. Trading volume here rose to over $50 billion, driven by growth in our all-to-all volumes, which have doubled over the last year to record levels as liquidity continues to build along with our network of responders. We are also pleased to be included as an all-to-all counterparty for the New York Fed secondary market corporate credit facility, building on our existing relationship for disclosed trading. As Lee mentioned, we are very focused on connecting our three pools of liquidity.

To this end, our effort to incorporate retail streaming order book liquidity into institutional RFQ trading continues to see increased adoption. And we recently launched our ReMatch protocol, which will enable unmatched wholesale inquiries to interact with the liquidity on Tradeweb. We are very focused on leveraging our technology and sectorwide presence to optimize price discovery and maximize matches by connecting inquiries across sectors, and we believe we are in the early innings of this story. We are also heavily investing in expanding our leading automated trading capability, AiEX within credit.

We recently rolled out an enhanced offering giving traders more control over the degree of automation, and we saw record levels of activity in September. We also continued to invest in increasing the coverage of Ai-Price, our evaluated pricing offering in credit, which today prices more than 20,000 bonds. Turning to the rest of our credit business, we believe one of our strategic advantages lies in the diversity and liquidity of our product set. As such, we are pleased to offer our insight on the corporate and municipal bond market at the SEC's fixed income Market Structure Advisory Committee Meeting.

Our Credit Default Swap business posted the strongest third quarter to date as we continue to gain more market share in both the U.S. and Europe. And our China bond volumes hit a new record. Municipal activity declined year over year, driven by reduced buying in the retail sector.

However, our effort to build an institutional offering continues with double-digit average daily volume growth, putting us on course for a record year. In sum, we believe our credit business has tremendous room for growth, and we have an exciting road map to lead the innovation across the credit markets. We are arming execution traders across the market with a variety of protocols to intelligently find liquidity and optimize their execution objectives. And with that, let me turn it over to Bob to discuss our financials in more detail.

Bob Warshaw -- Chief Financial Officer

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 quarterly total average daily volumes of $780 billion, down 4.5% but up 5.4% when you exclude short-tenor swaps.

Areas of notable growth include mortgages, U.S. corporate credit, global CDS, Chinese bonds, equity derivatives and bilateral repo. Slide 10 provides a summary of our quarterly earnings performance. Despite the lower volumes, which were mainly driven by short-tenor swaps, third-quarter volumes translated into gross revenues increasing by 5.9% on a reported basis and 4.7% on a constant-currency basis.

We derived approximately 36% of our revenues from international customers. Recall that approximately 30% of our revenue base is denominated in currencies other than dollars, predominantly in euros. Our variable revenues increased by 7.1%, and our total trading revenue increased by 5.5%. Total fixed revenues related to our four major asset classes continued to grow as expected, up 3% year over year and 1% on a constant-currency basis.

Credit fixed revenue growth was primarily driven by the addition of new dealers in U.S. credit and additional clients in Chinese bonds. Rates fixed revenue growth was driven by the addition of new dealers and swaps and the impact of FX. Market data increased by 10% year over year, led by Refinitiv, APA and proprietary data products.

Adjusted EBITDA margin came in at 47.4% and expanded nicely by 91 basis points relative to third-quarter 2019 as we continue to benefit from scale. All in, we reported adjusted net income per diluted share of $0.30. 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 fee per million increased 12% year over year, primarily as the result of mix shift away from lower fee per million short tenure swaps and toward higher fee per million, high-grade and high-yield credit. Excluding lower fees per million short-tenor swaps and futures, our blended fee per million was up 1%, year over year. Let's review the underlying trends by asset class. All trends will be discussed on a year-over-year basis.

Starting with rates. Average fees per million for rates was up 14% year over year overall. For cash rates products, which include government bonds and TBAs, and fees volume decreased 6%, primarily due to a mix shift to mortgages, which carry a lower fee per million than the cash rates average. For long-tenor swaps, fees per million was up 12% year over year due to an increase in average maturity and less compression activity.

In other rates derivatives, which includes rates, futures and short-tenor swaps, average fees per million increased substantially year over year due to growth in FRAs, which carry higher fees per million than overnight index swaps. Continuing to credit. Average fees per million for credit increased 13% year over year overall. Drilling down on cash credit, average fees per million increased 9% due to a positive mix shift toward U.S.

high-grade and high-yield activity, which carry higher fees per million than the cash credit average. Looking at the credit derivatives and electronically processed U.S. cash credit category, fee per million decreased 4% on higher electronically processed high-yield volumes and more roll activity in CDS. Continuing with equities.

Average fees per million for equities was down 23% year over year overall. For cash equities, average fees per million decreased 27% due to mix shift toward wholesale ETFs, which carry lower fees per million than institutional ETFs. Equity derivatives average fees per million increased 2% due to regional mix shift toward U.S. options, which carry a higher fee per million than the equity derivatives average.

Finally, within money markets, fees per million decreased 17%. This was primarily driven by mix shift away from high fee per million retail CDs given the low interest rate environment and toward bilateral repo, which reached record levels and carries a lower fees per million than other money market products. Slide 12 details our expenses. At a high level, we continue to invest for growth.

There's been no change to our philosophy here. As a reminder, adjusted expenses excludes noncash stock-based compensation expense related to options issued primarily as a result of the IPO, acquisition and Refinitiv-related D&A and certain FX-related gains and losses. Adjusted expenses for third quarter increased 4.2%. Recall, approximately 15% of our expense base is denominated in currencies other than dollars, predominantly in Sterling.

Third-quarter 2020 operating expenses were higher as compared to third-quarter 2019 due to increased employee compensation costs and technology and communication expenses, partially offset by lower G&A. Compensation costs were higher year on year due to higher headcount, as well as higher performance-related compensation. Adjusted non-comp expense increased 1.2% on a reported basis and increased 1.4% on a constant-currency basis. Specifically, G&A declined primarily due to less travel and entertainment expense.

We continue to expect $7 million to $8 million in expense during the fourth quarter. Longer term, we are reviewing our level of spend. Technology and communication costs increased primarily due to higher clearing and data fees as a result of higher trading volumes as our anonymous credit volumes and streaming U.S. treasury volumes continue to grow.

In addition, this quarter also saw the impact of our previously communicated investments in data strategy in cybersecurity. Recall our guidance embeds a $4 million to $5 million increase versus 2019, which we expect to continue to ramp going forward. Slide 13 details capital management and our guidance. First, on our cash position and dividend policy.

We ended third quarter in a strong position, holding $677 million in cash and cash equivalents, and free cash flow reached $380 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 $10.2 million, a decrease of 16% year over year, primarily due to timing of investment spend. We continue to expect capital expenditures and capitalized software to be in the range of $45 million to $50 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. Turning to other guidance items for 2020, we now expect adjusted expenses to trend in the lower half of our previous $495 million and $505 million range for 2020. We continue to believe we can drive operating margin expansion compared to 2019 at either end of this range. For forecasting purposes, we continue to use an assumed non-GAAP tax rate of 22% for the year.

Finally, we have updated our quarterly share count sensitivity for 2020 to help you calibrate your models for fluctuations in our share price. Now I'll turn it back to Lee for concluding remarks.

Lee Olesky -- Chief Executive Officer

Thanks, Bob. In sum, despite macro challenges, market share gains and volume increases continue to drive growth today, and we believe increase our future earnings potential. The secular trends powering electronification and automation remain intact. We continue to operate with a growth mindset, and we are focused on collaborating with our clients to capitalize on the various opportunities ahead of us across asset classes.

The regional product and asset class diversity of our revenues was on display with another strong quarter for credit, with rates, equities and money markets having multiple growth levers despite the noted macro challenges. In addition to organic growth, we continue to spend a lot of time evaluating potential M&A opportunities that we believe would further augment our growth as cash builds on our balance sheet. With a couple of important month-end trading days left in October, firmwide volumes are up double digits relative to October 2019. We are happy to provide more detail during the Q&A.

I'd like to conclude my remarks by thanking our clients for their business and partnership in the quarter, and I want to especially thank my colleagues for their efforts that contributed to our strongest third quarter in our history. With that, I'll turn it back to Ashley for your questions.

Ashley Serrao -- Head of U.S. Corporate Development and Investor Relations

Thanks, Lee. As a reminder, please limit yourself to one question only. Feel free to hop back in the queue and ask additional questions at the end. Q&A will end at 10:00 a.m.

Eastern Time. Operator, you can now take our first question.

Questions & Answers:


Operator

Our first question comes from Ari Ghosh with Credit Suisse. Your line is open.

Ari Ghosh -- Credit Suisse -- Analyst

Hi. Thank you. Good morning, everyone. So Lee, the rates business right now has some obvious macro challenges, but there also seems to be like several pockets of opportunity as we look at the overall business.

So can you talk about maybe the structural tailwinds and new initiatives that perhaps are less impacted by the low volatile backdrop as you look out over the next 12 months.

Lee Olesky -- Chief Executive Officer

Thanks, Ari. Yes, it's an important question, and I do think it merits spending a little bit of time on this one. One of the aspects of our rates business that we believe is still underappreciated by the market is our product set is not as mature, despite we've been doing this for over 20 years. So behavior is still changing.

Our products are still electronifying, which is why our volumes are able to outperform the more mature rate sectors like futures and cash rate venues. Our biggest competitor, we used to always say this when we started off, and I think it's still largely the case. Our biggest competitor is actually the phone and the cultural change to get people to go electronic. The other point I'd make is that our rates business, it isn't one product or one client sector, right? We have treasuries.

We have European government bonds. We have mortgages. We have interest rate swaps. And the diversity is important because lower volatility in rates hit these products differently, right? So some you might have more issuance or prescriptive monetary policy messaging, which creates both tailwinds and headwinds for our product set.

But you can't lose sight of the fact that we are primarily an institutional marketplace between the buy side and sell-side, which is a bit different from futures markets or the interdealer markets, which we're also in but are not as large a part of our business. So it's this combination of being levered to institutional growth. The diversity of our product set and our organic investments that drive behavior change that really allows us to persist and grow. So to be more specific, right, with respect to government bonds, where we're hitting new market share records, here, we are focusing on our single share, onboarding new clients.

We've got things like AiEX growing our streaming protocols in both wholesale and institutional. These are all engines of growth. Structurally, behavioral change toward streaming protocols, especially in wholesale and potentially the market composition change in larger institutional versus wholesale sector, which is what we've seen a shift to in this last quarter are themes to watch. So on our other cash products, we have things in rates.

We have things like mortgages, which have been benefiting from the higher refinancing activity and a pretty good housing market, which sort of bodes well for origination and TBA activity. So in this space, we're focused on the specified pool market, broadening our base of liquidity providers and spec pools. We said this in the prepared remarks, that's a market that's less than 5% electronic. And finally, when we get to the derivative products, swaps are more sensitive to interest rate volatility in the shape of the yield curve.

So activity has slowed in the whole market, which we pointed out. But we have seen our clients reacting to balance of volatility in some of the days in September and October, trading significant volumes at levels that were similar to or higher than actually 2019. So in swaps, we're focused on electronifying traditionally voice traded markets, like multi-asset swaps and FRAs, broadening our product set. We've moved into emerging markets, expanding into cross currency swaps, growing the RFM protocol.

And our view is as clearing houses move more currencies to -- into their clearing houses, we'll tend to benefit on the execution front. So I know that was long-winded, but I think you can tell the macro matters, right? We're not saying that. But we're not as captive to macro as some of our peers. And our volumes are showing that we continue to operate with this growth mentality and see plenty of opportunities to drive change and nudge the electronification higher in the rate space while we are winning on a competitive basis.

Operator

Thank you. Our next question comes from Rich Repetto with Piper Sandler. Your line is open.

Rich Repetto -- Piper Sandler -- Analyst

I'm sorry to stay on the rates question, but it does drive so much of your revenue. So this was the first quarter you've had single-digit year-over-year percentage revenue growth because of the rates. And I guess, I sort of want to get the benefit of your experience. Clearly, you've been through cycles before.

So could you talk about any time in history where the growth has slowed. And you had growth opportunities, which you outlined dramatically on in the call. Is the growth opportunity bigger? Has this slow down more? And that's one part of the question. And you also mentioned the FIMSAC in the prepared remarks, they just put in some new proposal for rules on treasury training platforms and to regulate them as ETFs, etc., and whether that will have an impact on the different platforms you have in rates and in treasury.

Lee Olesky -- Chief Executive Officer

Right. So let me take a crack at this. I think the first part was, have we seen slowdowns like this before historically. And I don't know if this is just a reflection of my years of doing this.

Of course, we have been doing this well over 20 years. And there are periods when we have a slowdown. I mean, we haven't seen this exact set of circumstances, obviously, with the coronavirus and the zero interest rate environment. But this is -- over time, while this is an extreme situation for everybody on so many different levels, it's not unprecedented to see this sort of activity.

And I think what we would stress here is look at the diversity of our business. The credit business grew 27% in the last quarter, which I would say is a leader across the board in terms of growth percentage-wise. So it's now a $50 million business in the last quarter alone. So certain markets are going to be more active than other markets.

And we think it's -- this is one of the reasons. There's many reasons for being diverse, but this is one of the reasons to be diverse. You have different situations. The rates market, we've seen a surge of government bond activity of issuance and focus, even though we have a very low rate environment.

But derivatives have slowed because of the volatility and the way derivatives are often traded. So I don't think that we should be overly concerned with a few weeks or a quarter or even a slightly longer period of time. The most critical thing has been really this secular trend of moving markets electronically. And in many of our markets, we are still barely at the halfway point in terms of the percentage of the markets that are electronic.

And derivatives is a good example of that, but we have many other markets like that. So we stay very optimistic about future growth, recognizing we're going to have -- given how diverse our different product offering is, we're going to have different products that will overperform or underperform based on what's happening in a particular market. So we continue to be very excited about our rates business. On the second part of your question, I think it was the FIMSAC thing.

So we had the last public meeting for FIMSAC focused on the events that occurred in March and April. And without getting into too much detail, Tradeweb spoke about the -- what was happening in the corporation market, what was happening in the muni market. And the way I would characterize it really is just to say, we all had surges. And obviously, March and April were incredibly challenging moments when in a matter of days, we had literally tens of thousands of clients going home and needed to log into remotely to work from home.

I would characterize it as an incredible performance of the infrastructure of the market during that period. We had massive, massive volatility, surges of volume that were in terms of data and trading, absolutely unprecedented. We had one day, we created $1.5 trillion worth of activity. And I think March averaged about $1 trillion a day.

So it was an incredible surge at a time when everybody went remote essentially at the same time. And I'll take some credit for Tradeweb in that we handled that incredibly well. Our team, our 1,000 people went home and performed and connected up to clients, but it was well beyond Tradeweb. The entire market functioned incredibly well given the stresses.

In terms of some of the regulatory stuff that was starting to come out, I would characterize that really as a bit of a -- and FIMSAC has been doing this quite admirably focusing on the fixed income markets, and where we can improve some of the situation. I would say our biggest comment on that is really just getting a common regulatory framework, right? We're regulated as an ATS, as a broker dealer. As a result of the different regulatory structures, it affects a number of things. And I think it is -- it would be useful to get some things in sync.

So that it would just be a little easier to interpret a number of things and a little bit smoother in terms of having a common regulatory platform, because things have changed so much in terms of the fixed income platforms and electronic trading. I think it's worth a new focus to kind of modernize that and sync it up.

Operator

Thank you. Our next question comes from Mike Carrier with Bank of America. Your line is open.

Dean Stephan -- Bank of America Merrill Lynch -- Analyst

Hey, guys, This is Dean Stephan on for Mike Carrier. My question is for Billy. Given attractive volume growth in 3Q, can you update us on the outlook for both portfolio trading and net spotting. Have you guys seen any significant shifts in either client behavior or utilization? And then, finally, what are your thoughts on the competitive landscape given new launches and collaborations from several competitors? Thanks.

Billy Hult -- President

Yeah, sure. That's a great question. Lee described really well this kind of -- this big thing that happened around work from home. And I think in a certain way, if we could design a perfect product around the work-from-home environment, it might be something around portfolio trading, where it kind of solves these issues around execution leakage, around information leakage.

It solves these issues around certainty of execution. It's almost like the perfectly designed product for this moment in time. And we're seeing very clearly the results kind of following that. We've talked a lot on these calls around net spotting and net hedging in the way that we've kind of created this lightbulb moment for clients, and we feel really good about the efficiencies and the dollar savings that we've provided for our clients.

So as we've made this growth in credit that Lee has described, I would say, for sure, net spotting and hedging and portfolio trading. And then, on some level, we feel also equally excited about this ReMatch that we described, which is, again, we've always felt like from a market structure perspective, create optionality, get into the wholesale business, get into the retail business because the market structures tend to change quickly. And we never want to be kind of left out in the cold as these changes happen. So we're going to be in front of all of this stuff.

And so these are the kind of thought processes and innovations, I think, that have helped us kind of grow the way we have in credit. So we feel -- ultimately, to your question, we feel really good about where we stand around that. Listen, around the competitive landscape and specifically, maybe for a second, in credit, we've said very consistently that the market -- we feel like the market wants competition in the space. And over the past period of time, obviously, we have significant business, and we are clearly a competitive threat and a force in credit.

And I think there's some version of kind of acknowledgment around that as we will see more entities getting into the credit space. Because it is as lucrative as it is. It's as big as it is, and I think we are going to see more entrants coming in. But we're going to focus always on what we do best, which is problem solve with clients, build efficiencies for clients and get in businesses the right way.

And thanks for the question.

Operator

Thank you. Our next question comes from Jeremy Campbell with Barclays. Your line is open.

Jeremy Campbell -- Barclays -- Analyst

Hey, thanks, Lee, I know you spent some time on rates already at a high level in response to Ari's question earlier, but I just wanted to dig in a little bit on MBS since low rates puts MBS prepays into focus. Can you remind us first how overall refi originations and MBS prepayments correlate with the total MBS trading volume on the Trader platform? And then, maybe second, we spent some time in spec tools with their low prepaid characteristics, and they're currently in demand. I know you mentioned that that market was less than 5% electronic, and you recently enhanced your electronic platform. Just wondering if you could provide some color around the client demand for that enhanced platform? And any goals on how quickly that platform could get some traction to meaningfully move that needle up from 5% electronic in that subsector?

Lee Olesky -- Chief Executive Officer

Thanks, Jeremy. You know what? Since Billy builds our mortgage business, I'm going to let him take this one and just chime in. But I think we've got sort of the foremost expert on that space, on the call with us, my partner, Billy. So I'm going to let him tackle that.

Billy Hult -- President

Sure. Yes. I mean, sure, sure. The question is a really good one.

You described it really well. And look, we have this really strong TBA mortgage trading franchise. We are very hooked into the originator community. The more refi, the better, and this is a moment in time that kind of plays to that business very well.

As we kind of move forward in mortgages around specified pools, what's interesting in some ways is that clearly, our TBA focus and our TBA franchise is going to help us dramatically because we have the clients, we have the end users. We're connected. We have the brand, we have the credibility. But what I would also say is, in an obvious way, specified pools trade on spread in a very similar way that corporate bonds trade on spread.

And so the domain understanding of how these securities trade is very, very helpful to us as we kind of build out this specified pool platform going forward. We have all the kind of pieces of the puzzle, and we're putting them together. And so our feeling is very confident as we kind of move forward with our specified pool platform.

Operator

Thank you. Our next question comes from Alex Kramm with UBS. Your line is open.

Alex Kramm -- UBS -- Analyst

Hey, good morning, everyone. Lee, I guess, you mentioned or gave a quick look about October, I think, double digits overall was the comment you made. Since nobody else has asked would be interested, what additional color you can give us by asset class and cash versus derivatives. So we have a better idea how things are trending so far in the fourth quarter.

Thank you.

Lee Olesky -- Chief Executive Officer

Oh, thanks, Alex. Always a tricky one, right? So let me just say, we still have a couple of very important month and trading days for October at a particularly interesting time for everybody. But the one comment I'd make is October is trending close to double digits in terms of revenue growth, just rather than getting into the detail of volumes, which are -- can be confusing. I'm not going to get specifically into volumes.

We released that next week. We believe we continue to gain share across many of our products. Rates have seen a continuation of the themes that characterize the third quarter. Swaps are better, but remain challenged.

Mortgages and government bonds continue to grow. The credit space with IG and high yield, those markets are running higher than September 2020 at really record levels for us, the acceleration of all-to-all network and other things. Money markets is a particularly strong month, growth in repo, client focus on that. Equities is a good month for the ETF and derivative space.

Overall, our team, our client onboarding and sales team has really been very busy engaging clients. And our technology team of 300-plus are -- they just rolled out another software released recently and are continuing to crank out new features, new functionality and are working hard on the next set of innovations and enhancements. So we're feeling pretty good about October, but we have two more days to go here. But things have been, as I said, sort of in this trending toward close to double-digit revenue growth.

Operator

Thank you. Our next question comes from Ken Worthington with JP Morgan. Your line is open.

Ken Worthington -- J.P. Morgan -- Analyst

Hi, it's Ken Worthington. Thank you for taking my question here. I wanted to ask maybe on the transition from LIBOR to other benchmarks like SONIA and SOFR. To what extent is that having an impact on trading activity.

Are these transitions having any bearing on either usage or adoption of your trading tools and products? Thank you.

Lee Olesky -- Chief Executive Officer

I'll take that, Ken. One of the challenges of as solving in different locations is --

Billy Hult -- President

We can't look at each other.

Lee Olesky -- Chief Executive Officer

You're going to take that one, or am I going to take that one? So I'll start off and leave room for anyone to chime in on our team. It's -- we've been the first in so many things. And I think we've clearly been preparing for this for some time as the market has. We just executed one of the first trades in SONIA.

That was a link trade. It's moving along. I think that we are ready. We're ready for this transition.

The market is starting to make the changes over. And it's interesting because there's just so many other things happening in this market. It's probably not getting the attention it would in another scenario between the markets and the politics and everything else. But we are confident this is -- I don't see this as a fundamental change for our business.

It's a pretty big change in general, for sure, but we're well prepared for it. I think the clients are, by and large, prepared for it. It's like a lot of things. The larger firms are all over this.

And as you get to smaller organizations, they're ready or getting ready, but they're -- some of them are a little bit further behind the firms that have a lot more to invest in attention on these kinds of issues. But I don't see this as a material issue for Tradeweb. And I think, ultimately, for the markets, too. But I don't know if anyone wants to add anything from our team.

We're running out of time.

Ken Worthington -- J.P. Morgan -- Analyst

OK, thank you very much. I appreciate the response.

Operator

Thank you. And our next question comes from Ken Hill with Loop Capital. Your line is open.

Ken Hill -- Loop Capital -- Analyst

Yeah. Thanks for taking the question. Lee, I just wanted to follow up. At the end of your prepared remarks, you mentioned you're spending a lot of time evaluating potential M&A opportunities.

I was hoping you could kind of flesh that out a little bit, maybe talk about what capabilities or opportunities you see in the market right now that might look more attractive given the cash build you guys have on your balance sheet. Thanks.

Lee Olesky -- Chief Executive Officer

Sure. Well, look, I mean, the bottom line is we do spend a fair amount of time on this. We have a whole team that is focused on M&A and the nonorganic side of things. And we continue to look at a number of things.

I've kind of given some direction on what we focus on. We're, obviously, going to be focused on what we think is strategically sensible, what fits our business. We have, as you mentioned, we are very well aware of the cash building and the excess cash we're sitting on. We believe the space is going to continue to consolidate.

There will be a number of opportunities. We're always looking, and this is a bit of a repeat from what I've said on areas where we can expand our network of customers. In the past, we -- that's how we got into retail and the wholesale side. We're very focused on adjacent markets and expanding into adjacent markets, new geographies and adding spec capability, which as everyone is well aware, there's a huge premium on tech talent across the board.

So M&A is a way of getting a little bit more tech talent in the door. So we're focused on that as well. Bob, I don't know if you want to add anything in terms of M&A side.

Bob Warshaw -- Chief Financial Officer

Yes. Sure. I think one of the things that -- and you mentioned it, Lee, was we are building cash. We have a line of credit, this $500 million that we haven't drawn down.

We certainly think we could go at 3.5 times or maybe even four times EBITDA on a net-debt basis. All that allows us to say that we think it's really important at this moment, given all the changes in the marketplace. We talked about consolidation and some other things over time that we, in effect, be ready for -- when we want to pool the trigger, that we have the right assets and capabilities to do that. And it's part of what we are doing, and we've talked internally a lot about this is let's make sure that it meets what we described are the things we're trying to grow but also meets all of the performance criteria that we did to meet in terms of understanding how we make it any acquisition accretive as well.

And so it's a bit of -- a lot of -- we're sort of ready and armed and spending a lot of time understanding what the opportunities might be.

Ken Hill -- Loop Capital -- Analyst

Got it. Thanks for all the detail there, Bob and Lee.

Operator

Thank you. Our next question comes from Alex Blostein with Goldman Sachs. Your line is open.

Alex Blostein -- Goldman Sachs -- Analyst

Thanks for squeezing my question here. And I was hoping you guys could comment on the new approval you received with respect to your bunker end business in China. Maybe speak to what extent this improves the addressable market for you and ultimately, kind of the framework of thinking how that could translate into better revenue growth and the impact on the kind of profitability of that business. Thanks.

Lee Olesky -- Chief Executive Officer

Sure. Thanks for that question. Yes, look, let me just set the stage. We're still in the early stages of evolution of the market.

But as more foreign institutions are connecting to bond connect via Tradeweb, remember, we start -- we were the first ones, right? So we were over there many years ago, but really, it was 2017 that we opened up this channel for our customer base, and we now have I don't know, close to 400 institutions and over 1,700 funds. The newest initiative, the access to the CIBM, the China Interbank Bond Market. That's a relatively new channel, northbound channel, which gives all of our clients the electronic access for price discovery, transparency, efficiency. That's going well.

We think the opportunity is very exciting. China is the third largest bond market in the world, $13 trillion of debt. And yet it's less than 3% in foreign hands. And you compare that to the U.S., which is like 30%.

So we've invested with boots on the ground. We've got our office opened in Shanghai to capitalize on this first-mover advantage. We've got streaming prices. We're really kind of getting our feet underneath us with respect to China, and we see it as a really big considerable opportunity.

It's about innovating. So it's not just -- we were the first in 2017. But now we've got the messaging tool from CFETS integrated. As the index inclusion grows, we see Chinese bonds becoming increasingly more part of the global benchmark.

We've got FTSE Russell in. So I think this is a huge opportunity. But as I've said before, it's a little challenging to forecast time lines. A lot of it will be down to liberalization and from the government in China.

And the market's acceptance of this huge amount of debt, but we continue to invest there. We continue to see it grow and think it's a very significant opportunity for us.

Operator

Thank you. And our last question comes from Kyle Voigt with KBW. Your line is open.

Kyle Voigt -- KBW -- Analyst

Hi, thanks for taking my question. Maybe just a question on credit trading. I think one of your private competitors is seeing significant success in new issue trading and your largest public competitor is also launching a cloud-like offering to address that more liquid part of the corporate bond market. So just wondering if we can get an update on the strategy for attacking that more liquid part of the market.

And also wondering if you're seeing any institutional client demand for a cloud or cloud-like trading for U.S. credit?

Billy Hult -- President

Hey, it's Billy. Yeah, so listen, I'll make the joke that we are not going to give away too many kind of company secrets exactly in this forum. But we're watching all of the developments around new issuance in the way that you would expect us to. And it's certainly a business that we've looked at and that we are sizing up and that we are very well aware of.

In terms of your question, which is a good one around sort of the central limit order book pricing in credit, that's a little bit kind of -- if you think about it, that's a little bit out of our rates playbook, and it's a type of business that we know extremely well. So again, kind of eyes wide open. We are very well aware of how things are developing in that space. We are going to kind of continue to do what we sort of are focused on in credit and some of those things I would describe around kind of continued innovation around portfolio trading.

We love the concept of axis and inventory and credit. And we are going to have kind of eyes wide opened around potential kind of changes in the market structure around credit. And we are certainly aware of everything that's happening around firm pricing.

Operator

Thank you. And at this time, I'd like to hand the call back over to Mr. Lee Olesky for any further comments.

Lee Olesky -- Chief Executive Officer

So I would just thank you guys all for joining us this morning and for your thoughtful questions. And we look forward to talking to you after our fourth quarter, and we're through some really interesting period of time here, especially in the U.S. and also in Europe. So stay well, and thank you for joining us this morning.

Take care.

Operator

[Operator signoff]

Duration: 66 minutes

Call participants:

Ashley Serrao -- Head of U.S. Corporate Development and Investor Relations

Lee Olesky -- Chief Executive Officer

Billy Hult -- President

Bob Warshaw -- Chief Financial Officer

Ari Ghosh -- Credit Suisse -- Analyst

Rich Repetto -- Piper Sandler -- Analyst

Dean Stephan -- Bank of America Merrill Lynch -- Analyst

Jeremy Campbell -- Barclays -- Analyst

Alex Kramm -- UBS -- Analyst

Ken Worthington -- J.P. Morgan -- Analyst

Ken Hill -- Loop Capital -- Analyst

Alex Blostein -- Goldman Sachs -- Analyst

Kyle Voigt -- KBW -- Analyst

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