Marketaxess Holding Inc (MKTX) Q1 2021 Earnings Call Transcript

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Marketaxess Holding Inc (MKTX 1.70%)
Q1 2021 Earnings Call
Apr 22, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. [Operator Instructions] As a reminder, this conference call is being recorded on April 22, 2021.

I would now like to turn the call over to Dave Cresci, Investor Relations Manager at MarketAxess. Please go ahead, sir.

David Cresci -- Investor Relations Manager

Good morning, and welcome to the MarketAxess First Quarter 2021 Conference Call. For the call, Rick McVey, Chairman and Chief Executive Officer, will review the highlights for the quarter; Chris Concannon, President and COO, will discuss automation and product expansion; and then, Tony DeLise, Chief Financial Officer, will review the financial results.

Before I turn the call over to Rick, let me remind you that today's call may include forward-looking statements. These statements represent the company's beliefs regarding future events that, by their nature are uncertain. The company's actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the company's future results, please see the description of risk factors in our annual report on Form 10-K for the year ended December 31, 2020. I would also direct you to read the forward-looking statement disclaimer in our quarterly earnings release, which was issued earlier this morning and is now available on our website.

Now let me turn the call over to Rick.

Richard M. McVey -- Chairman and Chief Executive Officer

Thank you for joining us for our first quarter earnings call. First quarter revenue reached a new quarterly record of $195 million, up 16%, operating income of $103 million was up 14% and EPS of $2.11 was up 8%. Record revenue was driven primarily by market share gains in our core credit products, new quarterly volume records were set for total credit trading volume as well as new volume records for high-yield trading, emerging markets, Eurobonds and municipal bonds.

Open Trading volumes grew 20% year-over-year and estimated transaction cost savings delivered to our clients were $197 million. International client volume was up 18% and reached a new record of $237 billion [Phonetic]. It is important to remember that in Q1 last year we had FIFO weeks of elevated credit market activity due to the onset of the pandemic. In light of the significant difference in market conditions this year, we feel very good about the volume, revenue and earnings growth this quarter.

Slide 4 provides an update on market conditions. The top left chart displays just how different the market environment was one year ago. Our business thrives when credit spread volatility increases. During Q1 last year, credit spread volatility was 10 times greater than this year, and credit spreads in high-grade were nearly 200 basis points wider. New issue activity was strong during the quarter and similar to last year. TRACE volumes in high-grade were up 7% in Q1, reflecting a continuing trend toward higher secondary market turnover. Average years to maturity for investment-grade bonds traded on this system continues to climb and reached the high end of the historical range at 10 years this quarter.

Slide 5 provides an update on Open Trading. Our market-leading all-to-all marketplace Open Trading set new records this quarter with an average of 34,000 orders per day totaling over $19 billion in notional value per day in credit products, high grade, high-yield, and emerging markets all show healthy Open Trading volume increases in excess of 20%. Dealer initiated Open Trading orders were up 78% year-over-year. Our D2D business now represents 8% of our credit trading volume and 7% of credit trading revenue, as we compete effectively in this client segment with more traditional D2D competitors through Open Trading.

This quarter, two-thirds of our systemwide open orders traded with a traditional dealer counterparty, while one-thirds on price improvement in Open Trading. Open Trading ADV reached a new record of $4 billion per day, up 22% year-over-year. For the fifth quarter in a row estimated transaction cost savings of $197 million delivered to our clients were in excess of total company credit trading revenue.

Now let me turn the call over to Chris to provide an update on product and client expansion.

Chris Concannon -- President and Chief Operating Officer

Thank you, Rick. Slide 6 highlights our international growth and product expansion. Throughout the past year, we've remained focused on bolstering our global footprint and expanding our product offerings. I will touch on a few of these initiatives today. Our international growth continues with an 18% year-over-year increase in international client volumes driven by over 900 active clients across our global products.

In the first quarter, US credit volume from international clients was up 23%, emerging markets volume increased by 22%, and Eurobond volumes increased by 13%. Our ongoing investment in Asia-Pacific region delivered an increase in the number of clients and significant gains in volume. Client credit volume from the region grew to $29 billion, up 57% from the first quarter of 2020, as the number of clients in the region also grew by 14% over the past year. We are encouraged by the progress we are making outside the US and we believe we are well-positioned to capture a larger share of trading in the growing global credit markets.

In the area of product expansion, we continue to see momentum in our municipal bond offering. In the first quarter, we again hit record volumes with a total of $5.8 billion in municipal bond volumes, up 75% from a year ago. We also released recently closed on the acquisition of MuniBrokers, essential electronic venue serving large banks and inter-dealer brokers in the municipal bond market. The acquisition expands our connectivity with dealers and provides rich content for our growing muni client business.

Our post-trade business, an important contributor to our data strategy continues to grow with organic post-trade revenue up 50% in the first quarter, driven largely by new client additions in our SFTR offering. We now have over 950 unique post-trade clients. The integration of our recently acquired Regulatory Reporting Hub is well under way and is extending our leading regulatory reporting business across Europe, while further strengthening our data capabilities and our post-trade services.

Slide 7 demonstrates our continued momentum of automation in credit trading. Automated trading and dealers automated responses continue to grow across the platform. Automated trading volumes rose to $39 billion in the first quarter, up from $31 billion in the first quarter of 2020. Auto-X trade count also grew in the quarter to 205,000, up 37% from the prior year. 95 firms utilized our Auto-X functionality in the quarter, up from 84 in Q1 of last year, while 22 firms used our Auto Responder functionality. We are also seeing healthy adoption of Auto-X across investment grade, Eurobonds, high-yield, and emerging markets.

The use of dealer algorithms is continuing to grow on the platform with approximately 4.8 million algo responses in the first quarter, up 57% from the same period last year. The growth in the average number of responses per inquiry has resumed following a decline in the first half of last year. The increasing responses ultimately improves the likelihood of execution across the platform. As the overall share of electronic trading grows in global credit, we are seeing continued demand for and growth in our automated trading solutions. We are continuing to develop innovative automated trading solutions in collaboration with our buy and sell side clients and I look forward to sharing updates to our offering in the coming quarters.

Slide 8 provides a summary of our trading volume across product categories. Our US high-grade volumes were up 10% year-over-year to $363 billion for the quarter, largely due to an increase in market volumes and market share gains. Estimated US high-grade market volumes were up 7%, while estimated share increased, market share increased by 0.5 percentage points year-over-year to 20.5%.

Volumes in our Other credit category were up 19% year-over-year to $391 billion for the quarter and we achieved record quarterly trading volume in high-yield, emerging markets, Eurobonds, and municipal bonds. Market share gains account for the vast majority of the increase across each product category with US high-yield volume up 21%, emerging markets volume up 18%, Eurobond volume up 15%, and municipal bonds up 75%.

Our Rates business maintained its dealer to dealer market share compared to Q4 of 2020 and we are beginning to see volume contribution from both our new dealer to client trading protocol and our recently launched hedging initiatives. Over 150 clients are now approved for our Click to Trade rates offering regarding April activity with seven full days of trading left in April, it is far too early to draw any conclusions on the format. However, TRACE market volumes are currently running below Q1 levels and our market share is maintaining levels similar to Q1.

Now let me turn the call over to Tony to provide an update on our financials.

Antonio L. DeLise -- Chief Financial Officer

Thank you, Chris. On slide 9, we've provided a summary of our quarterly earnings performance. Revenue was a record $195 million, up 16% year-over-year, the 14% increase in credit trading volume led to a 13% uplift in commissions. Post-trade services revenue more than doubled to $10.3 million and includes $4 million of trade reporting revenue from client added through the Regulatory Reporting Hub acquisition.

Operating income was up 14% year-over-year and operating margin was 53% in the first quarter. EBITDA hit a record quarterly level in the quarter. Other expense was $1.6 million in the first quarter and includes foreign currency transaction losses of $500,000. Absent unpredictable items like foreign currency transaction and investment gains and losses, we would expect Other expense to run around $1 million per quarter.

The effective tax rate was 21% in the first quarter and reflects $4 million of excess tax benefits related to share-based compensation awards. Inclusive of the recently enacted increase in the New York State corporate tax rate, we are maintaining our full-year effective tax rate guidance range of 22% to 24%.

On slide 10, we have laid out our commission revenue, trading volumes, and fees per million. Total variable transaction fees were up 15% year-over-year. On a composite basis, the majority of the 17% increase in credit transaction fees was driven by estimated market share gains. The decline in Rates transaction fees was due to lower US treasuries trading volume, principally resulting from a decline in estimated dealer to dealer market volumes.

US high-grade fee per million was down $7 versus the fourth quarter level but $4 higher year-over-year. It was several factors contributing to the sequential decline in fee capture including a shift in trade size. The duration impact on US high-grade fee capture was muted on a sequential quarterly basis as longer years to maturity on bonds traded over the platform was offset by higher bond yields. Our other credit category fee per million of $202 was similar to both the fourth quarter 2020 and first quarter 2020 levels. Product mix, along with fee capture at the individual product level was very consistent across these periods.

Slide 11 provides you with the expense detail. First quarter expenses were up 18% year-over-year and includes $3.6 million of operating expenses, amortization of acquired intangibles and non-recurring integration costs related to the Regulatory Reporting Hub business. Excluding the Regulatory Reporting Hub activity, expenses were up 14% year-over-year and up 11% on a constant currency basis. The rise in compensation and benefits was due to an increase in headcount of 74 personnel in support of our growth initiatives. The increase in professional and consulting expenses is due to a variety of factors including M&A transaction and integration costs and consulting costs associated with our clearing and settlement transition projects.

Higher depreciation and amortization reflects the continuing investment in product development along with the amortization of acquired intangibles. While Open Trading volume increased 20%, overall clearing costs were down 15%. In March, we completed the second phase of our settlement project with the transition to a new settlement agent in the UK. Although we expect to realize some further cost improvements over the balance of this year, I'm happy to report that third-party clearing costs measured on a per ticket basis declined by over 35% year-over-year.

As Chris mentioned, we closed the MuniBrokers acquisition on April 9. We expect MuniBrokers expenses will be around $4 million in 2021, 50% of which will be amortization of acquired intangibles. We are updating our full-year expense guidance range to $370 million to $386 million to incorporate the MuniBrokers expense activity.

On slide 12, we provide balance sheet information. Cash and investments were $415 million at March 31 and trailing 12 months free cash flow reached $340 million. During the first quarter, we paid out year-end employee bonuses and related taxes of roughly $50 million and the quarterly cash dividend of $25 million. We also repurchased 54,000 shares during the quarter, the majority of which were associated with the investing of employee stock awards. We didn't borrow against the revolving credit facility in the first quarter and ended the period with over $300 million of excess net capital resident at MarketAxess Corp, our regulated self-clearing entity. Based on the first quarter results, our Board has approved a $0.66 regular quarterly dividend.

Now let me turn the call back to Rick.

Richard M. McVey -- Chairman and Chief Executive Officer

Thank you, Tony. Market share gains across all credit products in all geographic regions drove our record results in Q1. Trading automation is advancing in credit products with both dealer and investor clients and MarketAxess Open Trading is leading the way. We continue to invest actively in new product areas like municipal bonds, government bonds, and Asia emerging markets to sustain long-term growth. We are also pleased with the progress we are making with new electronic trading protocols.

Now, I would be happy to open the line for your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from the line of Rich Repetto from Piper Sandler. You may begin.

Rich Repetto -- Piper Sandler -- Analyst

Yeah. Good morning, Rick and Tony, and Chris. I guess the question is on the fee per million and slide, slide 4 helps, it shows the yield to maturity, but I guess, I guess the question is, Tony, can you review the drivers, we know that duration, trade size, and mix, but just trying to see the moving parts and if it's easier to compare quarter-to-quarter, I believe rather than year-over-year because a big change in, in yields occurred between 4Q and 1Q I believe or you, you can explain whatever easiest, easiest that we can understand, I guess.

Antonio L. DeLise -- Chief Financial Officer

Yeah, I'm happy to do that Rich. So, Rich, you're, you're right that there is lots of factors that influence the high-grade fee capture and we're really talking about investment-grade here and, and years to maturity matters, yields matter, we have a tiered fee plan, so trade size matters, we have the mix of dealers that are participating, so for example dealers that are on a distribution fee plan versus dealers that are on all variable plan, the fee capture looks different even, even when it comes to protocol, it may look different, Open Trading fee capture slightly different than disclose request for -- some the newer protocols, the fee capture is different.

So there's a lot of moving parts here, but, but Rich, you're, you're right, looking at say Q4 versus Q1, yeah, that's, that's probably the best way to describe and when you look at those two, periods fee capture was down about $7 per million, couple of items in there, trade size was one of them, not, not a big influencer but trade size did [Indecipherable] or to shift to a little bit larger trade sizes, our fee capture is a little bit lower dealer mix. So when we look at dealers that are on all variable plans versus fixed plan, a little bit heavier weighting to dealers on fixed plan fee capture a little bit lower, but, but the, the item you mentioned which is very interesting as Rick picked it up on in his, in his comments, we're at close to the post-credit crisis high on years to maturity of bonds traded over the platform, typically that would result in higher fee capture, [Indecipherable] basis points higher with longer years to maturity, but, but in this case what offset the years to maturity was the fact that yields were up. So, so again, you're right, you look at fourth quarter to first quarter, you did see, you did see a rise in bond yields. So, those two were largely offsetting.

One last thing because I'm getting, I'm on a flock [Phonetic] right now. One last thing, just sensitivity going forward every year to maturity around $10 to $15 per million all things being equal, a 1% change in, in yields across the yield curve again about a $10 to $15, $10 to $15 per million, all things, all else being equal.

Rich Repetto -- Piper Sandler -- Analyst

Okay. Thank you.

Operator

Our next question will come from the line of Patrick O'Shaughnessy from Raymond James. You may begin.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Hey, good morning guys. So I think portfolio trading is up to around 5% of high-grade and high yield trading volume in recent months. What's driving this adoption by the buy side, and can you provide an update on MarketAxess efforts to develop a client solution in this area?

Richard M. McVey -- Chairman and Chief Executive Officer

Sure. I'd be happy to start on that, Patrick. Thank you for your question. But yes, you did see growth again in the first quarter in portfolio trading and I think that situationally clients and dealers are finding good opportunities to use the workflow solutions around portfolio, portfolio trading for efficiency and execution, and there are variety of different cases where dealers can promote inventory and baskets to clients, which in an environment like this has been very popular from both sides.

You have certain transactions that involves offsetting buys and sells where the, the combined risk of the basket is less than it would be in individual bonds and can sometimes create efficient execution for both sides. You've also seen trades where investors are making room for new issues through portfolio trading. So a variety of different case studies and March was an unusually active month for portfolio trading, it's tapered off from what we can see on the TRACE tape in April so far, but very large month in March. We continue to work on our workflow solution there, we are very confident that we are closing the gaps that we have and will be competitive in this space. At the same time, we're making very large investments in our liquidity solutions through Open Trading and in new product areas. So it's, it's a convenient workflow solution, it's, there are a subset of very large dealers that are active, a subset of very large clients limited client community, but growing importance in the market and it's something that we expect to be competitive in throughout '21 and beyond.

Chris Concannon -- President and Chief Operating Officer

And Rick, I'll just add that we are rolling out enhancements to our portfolio trading solution this quarter and, and, and the coming quarters, including things like critically important things like net hedging that will be available to portfolio trades. The other things worth mentioning is we are seeing activity in our dealer RFQ platform on Open Trading, which is likely resulting from the liquidation of portfolios that, that dealers are trading into. So we are getting collateral benefit on the platform, particularly in Open Trading and things like investment grade and high-yield, as a result of these very large block trades that are going up on TRACE. And then we're seeing those, those dealer liquidations happening on the platform.

Patrick O'Shaughnessy -- Raymond James -- Analyst

That's very helpful. Thank you.

Operator

Our next question comes from the line of Dan Fannon from Jefferies. You may begin.

Dan Fannon -- Jefferies -- Analyst

Thanks. Good morning. Wanted to follow up a bit more on some of the market share trends year-to-date and the detail on slide 4 highlights some of the macro factors, but as you think about volatility maybe being a bit more depressed and the work from home environment ending as things normalize, how are you thinking about kind of the trajectory of market share from here?

Richard M. McVey -- Chairman and Chief Executive Officer

Yeah, I'll start with, thanks for the question Dan, but listen when we look at broadly at market share trends, we're really encouraged by what we see in the first quarter, even though as you point out, market volatility across most credit products is significantly lower than it had been much, for much of last year, it's coming through most clearly in year-over-year gains in high-yield and emerging markets, in high-grade, a little bit more developed market electronically is going to have ebbs and flows based on volatility and especially with the ETF arb community, where you would have seen them very active year ago at high volatility levels and, and they are always less active in low volatility environments.

But beyond that, when we look under the hood at the trends that we see with investment managers, hedge funds, dealers using Open Trading, international clients, it's all very encouraging for long-term market share gains and we have no control over the quarter to quarter market conditions, but if you look historically at our consistent growth and success over almost 17 years of being a public company, we've been able to show sustainable long-term growth through any environment. So our expectation is that we have lots of reason for optimism, because of the liquidity solutions that we are delivering in the significant transaction cost savings to see share gains through any environment and that is certainly what we saw in the first quarter of this year.

Dan Fannon -- Jefferies -- Analyst

Great. Thank you.

Operator

Our next question comes from the line of Ari Ghosh from Credit Suisse. You may begin.

Ari Ghosh -- Credit Suisse -- Analyst

Hey, good morning everyone. So just wanted to come back to some of your new initiatives and rollouts, especially as institutional participation continues to improve this year, specifically appreciate any color around the traction that you're seeing around live markets and then also the opportunity for, for MarketAxess in China, just given that there has been some recent regulatory changes and relaxation of requirements for foreign investors. So just trying to think about how you scale that, that opportunity and timelines around when you think that start rolling into your numbers in a meaningful manner? Thanks so much.

Chris Concannon -- President and Chief Operating Officer

Well, great question. So on live markets, I'll start. We're seeing more activity on live markets and it's quite encouraging because it is a, a brand new protocol to the credit space, and what we have seen is, we've got 19 dealers live on the platform, we expect to have new announcements around designated market makers on the platform as well, we would likely have up to three designated market makers, those are fully committed two-sided market makers on the platform and we expect to have announcements around that in the coming quarter very encouraging signs on the size of trades on live markets. Right now, our average trade size on live markets is 2 million, which is much larger than your traditional RFQ average on the platform. So we're encouraged that there is a sizable live liquidity with two-way markets in over 250 [Indecipherable] across the platform. So again it's a new protocol the, the changes in, in workflow and trading behavior by clients is a, is a sizable lift, but the liquidity that's building on the platform is encouraging and the opportunity for clients to join a bit, or an offer and not cross spread is growing at that liquidity on live markets grow. I'll let Rick cover our recent activities in, in Asia and the growth of our volumes there.

Richard M. McVey -- Chairman and Chief Executive Officer

Sure. We highlighted in the prepared remarks that we're really encouraged by the developments we see with our APAC business and, and part of it is organic, where we see more dealers and investor clients embracing electronic trading and, and trading consistently across the platform. Part of it, we hear back from dealers is a view that our competitive position has gotten even stronger in EM globally and, and particularly in the Asia region. So really good news there in terms of the trends in EM broadly in, in very large markets.

With respect to China, I think that it's very clear that they will continue to take additional steps to open up their fixed income markets and given the presence, we have with global investors in our EM franchise, we know that we can play a significant role in bringing investor order flow into China and we're also encouraged by southbound traffic where it's likely that investors within China will be trading more actively outside of China, so we, we would expect to be more involved in that market, we are taking the steps to be eligible to do so and we're hopeful that our presence in EM is going to make a significant contribution to the Chinese goal of opening up their fixed income markets.

Ari Ghosh -- Credit Suisse -- Analyst

Great. Thanks so much.

Operator

Our next question will come from the line of Alex Blostein from Goldman Sachs. You may begin.

Alex Blostein -- Goldman Sachs -- Analyst

Hey, good morning guys. Thanks for the question. Just sticking with some of the new initiatives, Chris, you highlighted muni markets, I was hoping to dig into that a little bit more, can you provide us, I guess maybe some specifics around what MarketAxess doing in order to enable greater pace of electronification in the muni market today, what are some of the biggest hurdles, obviously that feels like there's a lot of inertia in that space, I'm trying to think, how you guys trying to break through that and how much of the, of the muni market, do you think could ultimately become electronically traded?

Chris Concannon -- President and Chief Operating Officer

Sure. I'll, I'll tackle that one. Well, I continue to be excited about the muni market, and our opportunity there. You're talking about a very large market, a difficult market to trade, because of the, the breadth of product in that market, data analytics will prove to be very helpful in the muni market as we break down the more manual parts of the market and add electronic trading. I am encouraged by our growth in munis, obviously, the 75% year-over-year increase in that market is, is encouraging, also I'm encouraged by the size of our all-to-all market in munis. So all-to-all is proving to be a very important component to our growth rate, it's now 43% of our volume in muni. The, the other areas that, we're seeing areas like dealer RFQ in munis grow over 170% year-over-year. So we are seeing dealers using our platform similar to the way they would use an inter-dealer market, inter-dealer broker market.

We obviously have closed the acquisition of Munibrokers, that's approximately 4% of the muni market, heavily weighted toward exempt munis. So we're working on the integration of that market and we plan to have that integrated more largely in, in 2021. I do think, as you think about that, that market, there is sizable costs to large investors to maintain their large, small trade size across the muni market and, and we're seeing investments from the large investment managers to reduce their costs in that market similar to the ways they've embraced electronic trading across their investment grade and high yield trading desk. So we just see that trend continuing. We see getting higher penetration rates in those large client flows in the muni market. I can't predict how far it goes, but given the small ticket sizes, the complexity of the market, I would expect high dependency on electronic solutions for the years to come.

Richard M. McVey -- Chairman and Chief Executive Officer

And yeah, just, just one last thing, just on the, the size of the market. And think about where we are today, we're at about 2% market share and, and we've talked about this before in terms of revenue opportunity. For us every 1% of share equates to about $10 million in annual revenue. We don't know where this, this will end up in terms of electronic adoption, but yeah, you can do a little math around it, if, if half the market goes electronic, this is an enormous opportunity. That's why we're so focused on it. That's how we continue to invest, that's part of the strategy around bringing on board Munibrokers, so big opportunity ahead of us.

Alex Blostein -- Goldman Sachs -- Analyst

Yeah. For sure, it feels like a good run rate. Thanks.

Operator

Our next question will come from the line of Michael Cyprys from Morgan Stanley. You may begin.

Michael Cyprys -- Morgan Stanley -- Analyst

Thank you for taking the question. Just hoping you could talk a little bit about block trades, maybe some of the initiatives you have there to further penetrate that where you stand today in terms of a block trade penetration and how you're seeing client behavior change around that?

Richard M. McVey -- Chairman and Chief Executive Officer

Sure. Happy to take a stir on that, Mike. Thank you. But it's, it's an important part of the market, we're investing in new solutions to address blocks and we're seeing good progress in some areas as well. And I would point to high yield in particular, where for many years almost all of our volume was in [Indecipherable] trade sizes and if you see the big jump year-over-year in high yield share, the majority of that is driven by more success and what is considered to be block-size trades in high yield over 1 million. So we've moved our market share up primarily by investors and dealers in high-yield getting more comfortable with large trade sizes.

In high-grade, we've been pretty flat around the 10% area lately, clearly live markets is intended to [Indecipherable] part of the block trading market in very liquid bonds, where both new issues and benchmark deals trade actively in block size and, and very tight bid-offer and we're encouraged as you heard Chris say about some of the developments in live markets that we think over the coming quarters are going to make a viable new addition to activity on our trading platform, and especially in blocks.

Chris Concannon -- President and Chief Operating Officer

And I'll just add to Rick, that we have a very unique view of the credit market and we've been developing a number of data solutions that help traders to identify the true depth of the market, things like our tradability data, solution. So we do think we can be super helpful to the average trade desk, when they're determining true size of a block and how to engage the market and we do think that will attract larger-sized orders on our platform, when we can define for them, what the execution could be, execution costs for that block and, and the true depth of the market at the moment in time they want to trade.

Operator

Thank you. Our next question will come from the line of Brian Bedell from Deutsche Bank. You may begin.

Brian Bedell -- Deutsche Bank -- Analyst

Thanks. Good morning. If I can squeeze a two-parter in here, I apologize, I joined a few minutes late, but just on, back to the high-grade market share question, given the growth initiatives, and the pretty good client traction that you have across the different protocols including Auto-X and the transaction savings, given that versus the challenges of the lower volatility at the sort of a more, of a macro headwind, when do you, maybe, it's hard to answer, but when do you think you could cross those initiatives and client traction could, could outweigh that headwind of volatility as we sort of move through '21 in terms of having a year-over-year gain in high-grade market share? And then the second part is just, I don't think you talked about this Chris yet, but just an update on the green bond trading as that seems to be gaining momentum globally.

Richard M. McVey -- Chairman and Chief Executive Officer

Well, I'll start on the volatility question and then I'm sure Chris would, would like to update you on the green bond initiative and, and client adoption as well. But listen volatility comes and goes in every market, right, so yes it's temporarily a headwind in credit, it's not to say that will be that way next week or next month, or next quarter. So we do have a Goldilocks scenario right now, where people are quite optimistic on economic growth for the quarters ahead. And that leads to better credit quality among a lot of corporate bond issuers, but our business keeps getting more diversified, right, so our European businesses is, is more important than ever.

We talked about Asia, global EM is loaded with opportunities, all of them have different cycles and volatility characteristics along the way that, it's not something that we worry that much about, we would not have encouraged anybody last spring to use, those volatility levels is the new normal, and we would not encourage you today to leave, to use current levels as the new normal either. And what we do is focus on the long term and that's, that's where we've had great success as investing in important trading protocols and new markets around the world and new clients onboarding and there is a lot of that going on right now. And there is a lot of reason to believe that over the coming quarters, there are multiple factors that could increased volatility. So it's a short-term headwind, but we are, we're not, it's not something we obsess over because we've been through all kinds of market environments over the last 17 years.

Chris Concannon -- President and Chief Operating Officer

And I'll just add, just when it comes to long-term growth rates, we are encouraged by the growth of fixed income ETFs, we clearly have correlation to some of the growth around fixed income ETFs and the trading of fixed income ETFs and that long-term growth is, is under way and, and quite powerful as you look at the numbers that AUM pouring into fixed income ETFs globally. One reflection of that is in investment-grade in the first quarter our Open Trading, which is an important component of that fixed income ETF arb grew 24% in Q1 over 2020. So important fundamental growth rates are happening even in the face of macro wins. With regard to green bonds, we're doing a lot of exciting things in the whole ESG area. I'll note that our ESG report is now live up on our website, so please take a look, there has been a lot of work into that report and it reflects all the different things we're doing as a company, but also some of the things that we're doing for our client investors, who trade green bonds. First quarter green bond volume was $13 billion. So we continue to see increases on our platform in green bonds. More importantly, we launched last year, the green bond, the Trading for Trees initiative. So not only are we benefiting from the growth of green bonds trading on our platform, but we're taking a stand in the environment and planting trees. We planted 65,000 trees in the first quarter. That's on top of what we planted in 2020 which was 130,000 trees. So we continue to see progress there and we have a, a small fire alarm test going on in our background. So please ignore that, but the trees are being planted, green bonds are being traded and we're super excited about what we can do in that, in that environment.

Brian Bedell -- Deutsche Bank -- Analyst

Okay. Great.

Richard M. McVey -- Chairman and Chief Executive Officer

The last, the last thing I'll say is that the other trend that's important for all of you to keep an eye on is the, the increase in trading velocity that's taking place in credit and a variety of factors for that, right, all-to-all trading is bringing a lot of new market participants into credit trading, many for the first time. So you have a new base of market makers, a new base of systematic credit investors, they are clearly adding to the mix around trading velocity and then you see all-to-all trading reducing transaction costs, which also traditionally will increase velocity. So lots of reasons to be optimistic that we could see higher levels of market turnover in global credit as all client segments seem to be embracing greater levels of electronic trading and trading automation.

Brian Bedell -- Deutsche Bank -- Analyst

Makes sense. Thank you so much.

Operator

[Operator Instructions] Our next question comes from the line of Sean Horgan from Rosenblatt. You may begin.

Sean Horgan -- Rosenblatt -- Analyst

Hey guys, thanks for taking my question. I was wondering if you could talk about hiring plans for the year, how many new hires are you targeting for 2021 and how many of those are, will be technology hires?

Chris Concannon -- President and Chief Operating Officer

Yes. Sure, Sean. Happy to take the question. And, and big component of our, of our expenses, is is compensation and benefits, it's more than 50% of our costs and in this year as we enter the year, we were looking to add somewhere around 60 or 70 personnel and the majority of that, the vast majority of that would be, would be in the technology space. We've got, when you look at where we ended the first quarter with around 610 people, we've got just to put in perspective, right now, we've got about line of sight on 50 roles with, with names attached to those roles and, and about half of those are part of our college grad program but, but we've got, we've got line of sight on around 50 roles today. So we feel pretty good about hitting that, that target of adding 60 or 70 personnel over the balance of the full year.

Sean Horgan -- Rosenblatt -- Analyst

Okay, great. Thank you.

Operator

And our next question will come from the line of Ari Ghosh from Credit Suisse. You may begin.

Ari Ghosh -- Credit Suisse -- Analyst

Thanks for taking my follow-up guys. Tony, just a quick clean-off item. And again, apologies if I missed this one, but just looking at the 1Q non-op expense of that $1.7 million, I'm wondering if that's a good starting point for 2Q, I know there is a commitment fee here in the numbers, but I was wondering if the other moving parts that might drop off next quarter. Thanks so much.

Antonio L. DeLise -- Chief Financial Officer

Yeah, sure, Ari. I know it's been a, I know it's been a challenge to what to predict that line item. There is, there is a variety of non-operating items in there. So you've got foreign currency transaction gains or loss, hard to predict that one, you've got unrealized and realized gains and losses on the investment portfolio. Again, hard to predict. There's items like our credit facility fees in there as well, but it was around $1.6 million in the first quarter that did have some foreign currency transaction losses in there. Absent, absent these unpredictable items is what I had in the prepared remarks, absent the unpredictable items, foreign currency transaction gains or losses, unrealized and realized gains and losses on the investment portfolio, we think it's going to be about $1 million per quarter. That's where it would have been in the first quarter, that's where it would have been in the fourth quarter. Again absent these unpredictable items, that's where we think it will be over the balance of the year.

Ari Ghosh -- Credit Suisse -- Analyst

Got it. Thanks so much.

Operator

Thank you. And there are no further questions. So I'll turn the call over to Rick McVey for any closing comments.

Richard M. McVey -- Chairman and Chief Executive Officer

Thank you for joining us this morning and we look forward to catching up with you again next quarter.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

David Cresci -- Investor Relations Manager

Richard M. McVey -- Chairman and Chief Executive Officer

Chris Concannon -- President and Chief Operating Officer

Antonio L. DeLise -- Chief Financial Officer

Rich Repetto -- Piper Sandler -- Analyst

Patrick O'Shaughnessy -- Raymond James -- Analyst

Dan Fannon -- Jefferies -- Analyst

Ari Ghosh -- Credit Suisse -- Analyst

Alex Blostein -- Goldman Sachs -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

Sean Horgan -- Rosenblatt -- Analyst

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