MARKETAXESS HOLDINGS INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)


Forward-looking statements

This report contains certain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
may be identified by words such as "expects," "intends," "anticipates," "plans,"
"believes," "seeks," "estimates," "will," or words of similar meaning and
include, but are not limited to, statements regarding the outlook for our future
business and financial performance. Forward-looking statements are based on
management's current expectations and assumptions, which are subject to inherent
uncertainties, risks and changes in circumstances that are difficult to predict.
It is routine for our internal projections and expectations to change as the
year or each quarter in the year progresses, and therefore it should be clearly
understood that the internal projections and beliefs upon which we base our
expectations may change prior to the end of each quarter or the year. Although
these expectations may change, we undertake no obligation to revise or update
any forward-looking statements contained in this report, except to the extent
required by applicable law. Our company policy is generally to provide our
expectations only once per quarter, and not to update that information until the
next quarter. Actual future events or results may differ, perhaps materially
from those contained in the projections or forward-looking statements. Factors
that could cause or contribute to such differences include those discussed below
and elsewhere in this report, particularly in the section captioned Part II,
Item 1A, "Risk Factors," and in our Form 10-K for the year ended December 31,
2021, including in Part I, Item 1A, "Risk Factors" and Part II, Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Executive Overview

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

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

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

Our objective is to provide the leading global electronic trading platforms for
fixed-income securities, connecting broker-dealers and institutional investors
more easily and efficiently, while offering a broad array of trading information
and technology services to market participants across the trading cycle. The key
elements of our strategy are discussed in Part 1, Item 1. "Business - Our
Strategy" of our Form 10-K for the year ended December 31, 2021.

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Critical Factors Affecting Our Industry and Business

Economic, political and market factors

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

We experienced improving operating conditions in the third quarter of 2022
compared to the third quarter of 2021, with credit spreads widening, increased
volatility and higher U.S high-grade market volumes. In the three months ended
September 30, 2022, market volumes in U.S. high-grade corporate bonds as
reported by FINRA's Trade Reporting and Compliance Engine ("TRACE") increased
20.1% compared to the three months ended September 30, 2021. Although our
trading volumes increased during the three months ended September 30, 2022 due
to higher market volumes and increases in our estimated market share in several
of our product areas, a significant rise in corporate bond yields during the
three months ended September 30, 2022 contributed to a decrease in the duration
of the bonds traded on our platforms, which had a negative effect on our average
variable transaction fee per million.

In February 2022, following Russia's invasion of Ukraine, the U.S., the U.K.,
and the European Union, among others, have adopted sanctions that, in various
ways, prohibit transactions with numerous Russian entities, including major
Russian banks, and individuals; limit transactions in Russian sovereign debt;
and constrain investment, trade and financing to, from or in certain regions of
Ukraine. We did not incur any material losses on trades that were unsettled at
the time sanctions were imposed. To the extent the sanctions are further
expanded or the ongoing war, sanctions, or geopolitical tensions and volatility
have further adverse effects on the global economy and markets or the
participants on our platforms, our financial position and results of operations
may be adversely affected.

Throughout 2022, the COVID-19 pandemic (the "Pandemic") has continued to have an
impact on how we manage our business. Most of our employees have transitioned to
a hybrid employment model with an emphasis on safety and employee wellbeing. We
continue to monitor the impact of the Pandemic on our communities, including the
spread of any variants, and we remain confident that we could continue to
maintain business continuity and serve our clients if a return to an all-virtual
environment becomes necessary to promote employee and public safety.

Demand for green bonds and other securities related to environmental, social and governance factors has increased in the bond markets in which we operate. Based on the interest we are receiving from investors, we expect this increased demand to continue.

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

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

Competitive landscape

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

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

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

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

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

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

For further description of the regulations which govern our business, see Part1,
Item 1. "Business - Government Regulation" of our Form 10-K for the year ended
December 31, 2021.

Technology Environment

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

As the overall share of electronic trading grows in global credit products, we
are experiencing continued demand for, and growth in, our automated trading
solutions. Automated trading volumes rose to $51.7 billion in the third quarter
of 2022, up 22.1% from $42.3 billion in the third quarter of 2021. In addition,
the use of dealer algorithms is continuing to grow on our platforms, with
approximately 5.8 million algorithmic responses in the third quarter of 2022, up
33.5% from the same period last year.

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

See also Part 1, Section 1A. – “Risk Factors, Technology, IT Systems and Cybersecurity Risks” from our Form 10-K for the year ended December 31, 2021.

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Trends in our business

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


• the number of participants on our platforms and their willingness to

          use our platforms instead of competitors' platforms or execution
          methods;
    •     the frequency and competitiveness of the price responses by
          participants on our platforms;
    •     the number of markets that are available for our clients to trade on
          our platforms;
    •     the overall level of activity in these markets; and
    •     the duration of the bonds trading on our platforms and the level of

the commissions we collect for transactions executed through the Platforms.


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

As further described under "- Critical Factors Affecting our Industry and our
Company - Economic, Political and Market Factors" and "- Results of Operations -
Three Months Ended September 30, 2022 Compared to Three Months Ended September
30, 2021," our trading volumes increased and our average variable transaction
fee per million decreased compared to the three months ended September 30, 2021.

Commission income

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

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

Credit Commissions. Credit includes U.S. high-grade corporate bonds, high-yield
bonds, emerging markets bonds, Eurobonds, municipal bonds and leveraged loans.
Our U.S. high-grade corporate bond fee plans generally incorporate variable
transaction fees and fixed distribution fees billed to our broker-dealer clients
on a monthly basis. Certain broker-dealers participate in fee programs that do
not contain monthly distribution fees and instead incorporate additional per
transaction execution fees and minimum monthly fee commitments. Under these fee
plans, we electronically add the transaction fee to the spread quoted by the
broker-dealer client. The U.S. high-grade transaction fee is generally
designated in basis points in yield and, as a result, is subject to fluctuation
depending on the duration of the bond traded.

Commissions for high-yield bonds, emerging markets bonds, Eurobonds, municipal
bonds and leveraged loans generally vary based on the type of the instrument
traded using standard fee schedules. Our high-yield fee plan structure is
similar to our U.S. high-grade fee plans. Certain dealers participate in a
high-yield fee plan that incorporates a variable transaction fee and fixed
distribution fee, while other dealers participate in a plan that does not
contain monthly distribution fees and instead incorporates additional per
transaction execution fees and minimum monthly fee commitments.

Average credit charges per million may vary in the future due to changes in yield, term to maturity and nominal size of high quality bonds traded on our platforms and changes in the range of products or trading protocols.

Credit distribution fees include any unused monthly fee commitments under our
variable fee plans and subscription revenues associated with the MuniBrokers
platform.

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

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

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Information services

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

Post-trade services

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

Other income

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

Expenses

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

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

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

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

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

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

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

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

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

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

Investment income. Investment income includes interest income earned on our cash and cash equivalents, restricted cash, deposits and investments.

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

Unconsolidated Affiliate Revenue Equity. Equity in earnings of unconsolidated affiliate represents the proportionate share of net earnings of our entity that is accounted for using the equity method.

Other, Net. Other, net consists of realized and unrealized gains or losses on
trading security investments and foreign currency forward contracts, foreign
currency transaction gains or losses, investment advisory fees, credit facility
administrative fees, gains or losses on revaluations of contingent consideration
payable and other miscellaneous revenues and expenses.

Critical accounting estimates

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

Stock-based compensation

We maintain the 2020 Plan which provides for the grant of stock options, stock
appreciation rights, restricted stock, performance shares, performance units,
restricted stock units, performance stock units, or other stock-based awards as
incentives and rewards to encourage employees, consultants and non-employee
directors. We make critical accounting estimates related to performance shares
and performance stock units granted under the 2020 Plan.

In 2020, annual performance share awards ("PSAs"), and in 2021 and 2022,
performance stock units (together with the PSAs, "performance equity awards")
were granted to the executive officers and certain senior managers. Each
performance equity award is earned or forfeited based on our level of
achievement of certain predetermined metrics, including pre-tax adjusted
operating income and market share for the 2020 and 2021 awards, and pre-tax
adjusted operating income, U.S. credit market share, and revenue growth
excluding U.S. credit for the 2022 awards. The vested share pay-out ranges from
zero to 150% for the awards granted in 2020, and zero to 200%, for the awards
granted in 2021 and 2022, of the performance equity award target. The number of
performance equity awards that vest, if any, will be determined by the level of
achievement of the performance metrics during the three-year performance
periods, as certified by the Board following the conclusion of the performance
period. In addition, participants must provide continued service through the
vesting date (subject, to death, disability and, in the case of the awards
granted in 2021 and 2022, qualified retirement exceptions). Compensation expense
for performance equity awards is measured using the fair value of our stock at
the grant date and estimates of future performance and actual share payouts.
Each period, we make estimates of the current expected share payouts and adjust
the life-to-date compensation expense recognized since the grant date. As of
September 30, 2022, a 10% change in the expected final share payouts would
increase or decrease the life-to-date compensation expense by $1.6 million. The
estimated final share payouts for the 2020 and 2021 awards as of September 30,
2022 decreased 5.2% compared to December 31, 2021.

Contingent Consideration Payable

In connection with our acquisitions of MuniBrokers and Regulatory Reporting Hub,
we recognized contingent consideration payables of up to $49.6 million with
payment dates ranging from 18-24 months from the acquisition dates. These
contingent consideration payables are classified as Level 3 liabilities in the
fair value hierarchy and are valued using unobservable inputs and estimates of
various factors, including client retention rates, electronic order flow levels,
future license fees we earn and discount rates. Changes in these estimates or
the final figures on the payment dates could have an impact on the contingent
consideration payable liabilities we record on our balance sheet. As of
September 30, 2022, a 10% change in the projected annual subscription and
license fees would not have a material impact on the expected contingent
consideration payable. As of September 30, 2022, the remaining outstanding
contingent consideration payable was $12.2 million. Refer to Note 4 to the
Consolidated Financial Statements for more information related to the changes in
contingent consideration payable during the nine months ended September 30,
2022.

Recent accounting pronouncements

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

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Sector results

We operate electronic platforms for the trading of fixed-income securities and
provide related data, analytics, compliance tools and post-trade services. We
consider our operations to constitute a single business segment because of the
highly integrated nature of these product and services, the financial markets in
which we compete and our worldwide business activities. We believe that results
by geographic region or client sector are not necessarily meaningful in
understanding our business. See Note 15 to the Consolidated Financial Statements
for certain geographic information about our business required by GAAP.

Operating results

Three months completed September 30, 2022 Compared to the three months ended September 30, 2021

The following table summarizes our financial results for the three months ended
September 30, 2022 and 2021.

                                                  Three Months Ended September 30,
                                                                          $            %
                                         2022              2021         Change      Change
                                             ($ in thousands, except per share amounts)
Revenues                              $   172,112       $  162,093     $ 10,019         6.2   %
Expenses                                   95,801           88,090        7,711         8.8
Operating income                           76,311           74,003        2,308         3.1
Other income (expense)                      2,552              491        2,061          NM
Income before income taxes                 78,863           74,494        4,369         5.9
Provision for income taxes                 19,556           16,536        3,020        18.3
Net income                            $    59,307       $   57,958     $  

1,349 2.3%

Net earnings per common share – Diluted $1.58 $1.52 $0.06 3.9% NM – not significant


Changes in the average foreign currency exchange rates of the British pound
sterling and the Euro compared to the U.S. dollar had the effect of decreasing
revenues and expenses by $4.2 million and $3.6 million, respectively, for the
three months ended September 30, 2022.

Revenue

Our income for the three months ended September 30, 2022 and 2021, and the resulting dollar and percentage changes, were as follows:

                                           Three Months Ended September 30,
                              2022                      2021
                                                   ($ in thousands)
                                    % of                      % of          $            %
                                  Revenues                  Revenues      Change      Change
Commissions          $ 153,164      89.1   %   $ 142,826      88.2   %   $ 10,338         7.2   %
Information services     9,711       5.6           9,608       5.9            103         1.1
Post-trade services      9,000       5.2           9,444       5.8           (444 )      (4.7 )
Other                      237       0.1             215       0.1          

22 10.2 Total turnover $172,112 100.0% $162,093 100.0% $10,019 6.2%




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Commissions. Our commission revenues for the three months ended September 30,
2022 and 2021, and the resulting dollar and percentage changes, were as follows:


                                         Three Months Ended September 30,
                                                               $             %
                                  2022          2021         Change        Change
                                               ($ in thousands)
Variable transaction fees
Credit                          $ 116,309     $ 108,323     $  7,986        7.4   %
Rates                               5,463         3,825        1,638       42.8
Total variable transaction fees   121,772       112,148        9,624        8.6

Fixed distribution fees
Credit                             31,328        30,609          719        2.3
Rates                                  64            69           (5 )     (7.2 )
Total fixed distribution fees      31,392        30,678          714        2.3
Total commissions               $ 153,164     $ 142,826     $ 10,338        7.2   %



Credit variable transaction fees increased $8.0 million driven by a 17.6%
increase in trading volume, partially offset by an 8.7% decrease in average
variable transaction fee per million. Open Trading credit volume totaled $228.2
billion during the three months ended September 30, 2022, up 21.4%, and Open
Trading credit variable transaction fees represented 34.7% and 30.5% of total
variable transaction fees for the three months ended September 30, 2022 and
2021, respectively. The 42.8% increase in variable transaction fees for rates
was mainly attributable to higher U.S. Treasury trading volume.

Fixed credit distribution fees increased $0.7 million primarily due to some brokers migrating from fully variable fee plans to plans that incorporate a monthly distribution fee, some brokers moving to plans with higher fixed distribution fees, and an increase in distribution fees. minimum unused monthly commitment.

Our trading volumes for the three months ended September 30, 2022 and 2021 were
as follows:

                                              Three Months Ended September 30,
                                                                      $              %
                                     2022            2021          Change         Change
                                                       ($ in millions)
Trading volume data
Credit
High-grade                        $   327,916     $   277,837     $  50,079        18.0   %
High-yield                            104,066          83,136        20,930        25.2
Emerging markets                      165,910         154,034        11,876         7.7
Eurobonds                              80,305          76,215         4,090         5.4
Other credit                           24,159           5,824        18,335       314.8
Total credit                          702,356         597,046       105,310        17.6

Rates
U.S. Government Bonds               1,288,543         910,439       378,104        41.5

Agency bonds and other government bonds 21,281 19,295 1,986

       10.3
Total rates                         1,309,824         929,734       380,090        40.9

Total trading volume              $ 2,012,180     $ 1,526,780     $ 485,400        31.8

Number of U.S. Trading Days                64              64
Number of U.K. Trading Days                64              65




                                       31
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For volume reporting purposes, transactions in foreign currencies are converted
to U.S. dollars at average monthly rates. The 18.0% increase in our U.S.
high-grade volume was principally due to an increase in overall market volume.
Estimated U.S. high-grade TRACE volume increased by 20.1% to $1.6 trillion for
the three months ended September 30, 2022. Our estimated market share of total
U.S. high-grade corporate bond volume decreased to 21.1% for the three months
ended September 30, 2022 from 21.4% for the three months ended September 30,
2021.

High-yield, emerging markets and Eurobond volumes increased by 25.2%, 7.7%, and
5.4%, respectively, due to increases in our estimated market share which more
than offset declines in estimated market volumes. Estimated U.S. high-yield,
emerging markets and Eurobond market volumes decreased by 0.5%, 11.0% and 21.6%,
respectively, compared to the three months ended September 30, 2021. Other
credit volumes increased 314.8%, driven by higher municipal bonds volume, which
reflects the inclusion of MuniBrokers variable subscription related trading
volume in the third quarter of 2022. Rates trading volume increased 40.9%
primarily due to increases in U.S. Treasuries dealer-to-dealer estimated average
daily trading volume and our estimated market share.

Our average variable transaction fees per million for the three months ended
September 30, 2022 and 2021 was as follows:

                                               Three Months Ended September 30,
                                    2022           2021          $ Change         % Change
Average variable transaction fee
per million
Credit                               165.60         181.43           (15.83 )            (8.7 )
Rates                                  4.17           4.11             0.06               1.5



Credit average variable transaction fee per million decreased 8.7% to $165.60
per million for the three months ended September 30, 2022 due to a decrease in
the duration of bonds traded on our platforms, a larger percentage of trading
volume in emerging market bonds that command lower fees per million and dealer
migration to fixed distribution fee plans that provide for lower transaction
fees.

Information Services. Information services revenue increased $0.1 million for
the three months ended September 30, 2022 mainly due to net new data contract
revenue of $1.0 million partially offset by the negative impact of foreign
exchange of $0.9 million.

Post-Trade Services. Post-trade services revenue decreased $0.4 million for the
three months ended September 30, 2022 principally due to the negative impact of
foreign exchange of $1.6 million partially offset by net new contract revenue of
$1.2 million, which includes the impact of planned customer attrition in
connection with the Regulatory Reporting Hub integration.

                                       32
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Expenses

The following table summarizes our expenses for the three months ended September
30, 2022 and 2021.


                                            Three Months Ended September 30,
                                                                $              %
                                     2022         2021        Change        Change
                                                    ($ in thousands)
Expenses

Employee compensation and benefits $44,805 $40,878 $3,927

  9.6   %
Depreciation and amortization        15,302       13,964        1,338         9.6
Technology and communications        14,169       10,665        3,504        32.9
Professional and consulting fees      7,560       10,847       (3,287 )     (30.3 )
Occupancy                             3,381        3,265          116         3.6
Marketing and advertising             1,797        1,821          (24 )      (1.3 )
Clearing costs                        4,211        3,269          942        28.8
General and administrative            4,576        3,381        1,195        35.3
Total expenses                     $ 95,801     $ 88,090     $  7,711         8.8   %



Employee compensation and benefits increased by $3.9 million, primarily due to
higher salaries, taxes and benefits of $2.5 million on higher employee
headcount, higher employee incentive compensation of $0.9 million, which is
impacted by operating performance, and higher stock­based compensation of $0.5
million.

Depreciation and amortization increased by $1.3 million primarily due to higher
amortization of software development costs of $1.8 million, offset by a decrease
in depreciation of software licenses of $0.6 million. For the three months ended
September 30, 2022 and 2021, $4.0 million and $4.8 million, respectively, of
equipment purchases and leasehold improvements and $8.5 million and $8.2
million, respectively, of software development costs were capitalized.

Technology and communications expenses increased by $3.5 million primarily due
to higher software subscription costs of $2.6 million and higher cloud and data
center hosting costs of $1.0 million.

Professional and consulting fees decreased $3.3 million due to lower
acquisition-related consulting expenses of $1.1 million, lower recruiting fees
of $1.0 million, lower IT and other consulting costs of $0.6 million and lower
self-clearing consulting fees of $0.5 million.

Customs clearance fees have increased $0.9 million primarily due to increased trading volumes of capital-matched and rate loans.

General and administrative expenses increased $1.2 million mainly due to the increase in travel and entertainment expenses of $0.5 millionhigher regulatory costs of
$0.2 millionhigher subscription fees $0.3 million and higher office-related administration costs $0.2 million.

                                       33
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Other income (expenses)

Our other income (expenses) for the three months ended September 30, 2022 and 2021, and the resulting dollar and percentage changes, were as follows:

                                                      Three Months Ended September 30,
                                                                          $             %
                                                 2022        2021      Change        Change
                                                              ($ in thousands)
Investment income                              $  1,433     $  108     $ 1,325          NM
Interest expense                                   (138 )     (314 )       176       (56.1 ) %
Equity in earnings of unconsolidated affiliate      869          -         869          NM
Other, net                                          388        697        (309 )     (44.3 )
Total other income (expense)                   $  2,552     $  491     $ 2,061       419.8   %
NM - not meaningful

Investment income increased $1.3 million due to higher interest income driven by higher interest rates.

Equity in earnings of unconsolidated affiliate represents the share of net earnings of our entity that is accounted for using the equity method.

Other, net minus $0.3 million mainly due to higher foreign exchange gains of $4.8 million offset by losses of $4.9 million on forward exchange contracts.

Provision for income taxes

Provision for income taxes and effective tax rate for the three months ended
September 30, 2022 and 2021 were as follows:

                                   Three Months Ended September 30,
                                                        $            %
                             2022         2021       Change        Change
                                           ($ in thousands)

Provision for income taxes $19,556 $16,536 $3,020 18.3%

Effective tax rate             24.8 %       22.2 %



The provision for income taxes reflected less than $0.1 million of excess tax
detriments and $1.7 million of excess tax benefits related to share-based
compensation awards that vested or were exercised during the three months ended
September 30, 2022 and 2021, respectively. Our consolidated effective tax rate
can vary from period to period depending on the geographic mix of our earnings,
changes in tax legislation and tax rates and the amount and timing of excess tax
benefits related to share-based payments, among other factors.

                                       34
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Nine month period ended September 30, 2022 Compared to the nine months ended September 30, 2021

The following table summarizes our financial results for the nine months ended
September 30, 2022 and 2021.

                                                   Nine Months Ended September 30,
                                                                           $             %
                                         2022              2021         Change         Change
                                             ($ in thousands, except per share amounts)

Revenues                              $   540,398       $  533,891     $   6,507        1.2   %
Expenses                                  291,195          269,237        21,958        8.2
Operating income                          249,203          264,654       (15,451 )     (5.8 )
Other income (expense)                      9,657           (2,306 )      11,963         NM
Income before income taxes                258,860          262,348        (3,488 )     (1.3 )
Provision for income taxes                 67,862           56,645        11,217       19.8
Net income                            $   190,998       $  205,703     $ 

(14,705) (7.1)%

Net earnings per common share – Diluted $5.07 $5.40 $(0.33) (6.1) % NM – not significant


Changes in the average foreign currency exchange rates of the British pound
sterling and the Euro compared to the U.S. dollar had the effect of decreasing
revenues and expenses by $8.4 million and $7.3 million, respectively, for the
nine months ended September 30, 2022.

Revenue

Our revenues for the nine months ended September 30, 2022 and 2021, and the resulting dollar and percentage changes, were as follows:

                                           Nine Months Ended September 30,
                            2022                      2021
                                                  ($ in thousands)
                                    % of                      % of          $             %
                                  Revenues                  Revenues      Change        Change
Commissions          $ 482,740      89.3   %   $ 475,095      89.0   %   $  7,645        1.6   %
Information services    28,916       5.4          28,614       5.4            302        1.1
Post-trade services     28,056       5.2          29,553       5.5         (1,497 )     (5.1 )
Other                      686       0.1             629       0.1          

57 9.1 Total turnover $540,398 100.0% $533,891 100.0% $6,507 1.2%



Commissions. Our commission revenues for the nine months ended September 30,
2022 and 2021, and the resulting dollar and percentage changes, were as follows:

                                          Nine Months Ended September 30,
                                                               $              %
                                  2022          2021         Change        Change
                                                ($ in thousands)
Variable transaction fees
Credit                          $ 370,793     $ 376,065     $ (5,272 )      (1.4 ) %
Rates                              17,674        11,580        6,094        52.6

Total variable transaction costs 388,467 387,645,822

 0.2

Fixed distribution fees
Credit                             94,098        87,251        6,847         7.8
Rates                                 175           199          (24 )     (12.1 )
Total fixed distribution fees      94,273        87,450        6,823         7.8
Total commissions               $ 482,740     $ 475,095     $  7,645         1.6   %



                                       35
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Credit variable transaction fees decreased $5.3 million driven by a 9.7%
decrease in average variable transaction fee per million, partially offset by a
9.2% increase in trading volume. Open Trading credit volume totaled $690.6
billion during the nine months ended September 30, 2022, up 6.1%, and Open
Trading credit variable transaction fees represented 32.6% and 30.9% of total
variable transaction fees for the nine months ended September 30, 2022 and 2021,
respectively. The 52.6% increase in variable transaction fees for rates was
mainly attributable to higher U.S. Treasury trading volume.

Fixed credit distribution fees increased $6.8 million primarily due to some brokers migrating from fully variable fee plans to plans that incorporate a monthly distribution fee, some brokers moving to plans with higher fixed distribution fees, and an increase in distribution fees. minimum unused monthly commitment.

Our trading volumes for the nine months ended September 30, 2022 and 2021 were
as follows:

                                                Nine Months Ended September 30,
                                                                       $               %
                                     2022            2021           Change          Change
                                                        ($ in millions)
Trading volume data
Credit
High-grade                        $ 1,029,794     $   965,291     $    64,503         6.7   %
High-yield                            314,721         287,111          27,610         9.6
Emerging markets                      530,964         488,895          42,069         8.6
Eurobonds                             263,862         260,082           3,780         1.5
Other credit                           67,820          19,004          48,816       256.9
Total credit                        2,207,161       2,020,383         186,778         9.2

Rates
U.S. Government Bonds               4,248,009       2,891,042       1,356,967        46.9
Agency and other government bonds      74,644          47,827          26,817        56.1
Total rates                         4,322,653       2,938,869       1,383,784        47.1

Total trading volume              $ 6,529,814     $ 4,959,252     $ 1,570,562        31.7

Number of U.S. Trading Days               188             188
Number of U.K. Trading Days               187             189



For volume reporting purposes, transactions in foreign currencies are converted
to U.S. dollars at average monthly rates. The 6.7% increase in our U.S.
high-grade volume was principally due to an increase in estimated market
volumes. Estimated U.S. high-grade TRACE volume increased by 4.7% to $4.8
trillion for the nine months ended September 30, 2022. Our estimated market
share of total U.S. high-grade corporate bond volume increased to 21.4% for the
nine months ended September 30, 2022 from 21.0% for the nine months ended
September 30, 2021.

High-yield, emerging markets and Eurobond volumes increased by 9.6%, 8.6%, and
1.5%, respectively, due to increases in our estimated market share which more
than offset declines in estimated market volumes. Estimated U.S. high-yield,
emerging markets and Eurobond market volumes decreased by 3.5%, 9.4% and 17.5%,
respectively, compared to the nine months ended September 30, 2021. Other credit
volumes increased 256.9%, driven by higher municipal bonds volume, which
reflects the inclusion of MuniBrokers variable subscription related trading
volume in 2022. Rates trading volume increased 47.1% primarily due to increases
in U.S. Treasuries dealer-to-dealer estimated average daily trading volume and
our estimated market share.

Our average variable transaction costs per million for the nine months ended
September 30, 2022 and 2021 was as follows:

                                               Nine Months Ended September 

30,

                                    2022           2021          $ Change         % Change
Average variable transaction fee
per million
Credit                               168.00         186.14           (18.14 )            (9.7 )
Rates                                  4.09           3.94             0.15               3.8



                                       36
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Credit average variable transaction fee per million decreased 9.7% to $168.00
per million for the nine months ended September 30, 2022 due to a decrease in
the duration of bonds traded on our platforms, a larger percentage of trading
volume in emerging market bonds that command lower fees per million and dealer
migration to fixed-distribution fee plans that provide for lower transaction
fees.

Information Services. Information services revenue increased $0.3 million for
the nine months ended September 30, 2022 mainly due to net new data contract
revenue of $1.9 million partially offset by the negative impact of foreign
exchange of $1.6 million.

Post-Trade Services. Post-trade services revenue decreased $1.5 million for the
nine months ended September 30, 2022 principally due to the negative impact of
foreign exchange of $3.2 million partially offset by net new contract revenue of
$1.7 million, which includes the impact of planned customer attrition in
connection with the Regulatory Reporting Hub integration.

Expenses

The following table summarizes our expenses for the nine months ended September
30, 2022 and 2021.

                                             Nine Months Ended September 30,
                                                                  $              %
                                     2022          2021         Change        Change
                                                     ($ in thousands)
Expenses

Employee compensation and benefits $137,996 $129,698 $8,298

    6.4   %
Depreciation and amortization         45,716        38,840        6,876        17.7
Technology and communications         38,851        31,245        7,606        24.3

Professional and consulting fees 26,101 31,191 (5,090 )

  (16.3 )
Occupancy                             10,468         9,882          586         5.9
Marketing and advertising              6,535         6,153          382         6.2
Clearing costs                        13,049        12,335          714         5.8
General and administrative            12,479         9,893        2,586        26.1
Total expenses                     $ 291,195     $ 269,237     $ 21,958         8.2   %



Employee compensation and benefits increased by $8.3 million, primarily due to
higher salaries, taxes and benefits of $7.3 million on higher employee headcount
and higher stock-based compensation of $1.1 million, offset by lower employee
incentive compensation of $0.1 million, which is impacted by operating
performance.

Depreciation and amortization increased by $6.9 million primarily due to higher
amortization of software development costs of $5.4 million and amortization of
acquired intangibles expense of $2.1 million. For the nine months ended
September 30, 2022 and 2021, $6.6 million and $14.6 million, respectively, of
equipment purchases and leasehold improvements and $27.1 million and $24.7
million, respectively, of software development costs were capitalized.

Technology and communications expenses increased by $7.6 million primarily due
to higher software subscription costs of $4.3 million, higher cloud and data
center hosting costs of $2.3 million, higher market data costs of $0.6 million
and higher platform license fees of $0.5 million.

Professional and consulting fees decreased $5.1 million due to lower
acquisition-related consulting expenses of $2.5 million, lower recruiting fees
of $1.1 million, lower self-clearing consulting fees of $1.0 million and lower
other consulting expenses of $0.5 million.

General and administrative expenses increased $2.6 million primarily due to
higher travel and entertainment costs of $1.0 million, higher regulatory fees of
$0.6 million, higher director stock compensation expense of $0.4 million and
higher office-related administrative costs of $0.5 million.

                                       37
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Other income (expenses)

Our other income (expenses) for the nine months ended September 30, 2022 and 2021, and the resulting dollar and percentage changes, were as follows:

                                               Nine Months Ended September 30,
                                                                    $                 %
                                  2022            2021           Change            Change
                                                      ($ in thousands)
Investment income              $     1,746     $       322     $     1,424           442.2   %
Interest expense                      (648 )          (676 )            28            (4.1 )
Equity in earnings of
unconsolidated affiliate             1,060               -           1,060              NM
Other, net                           7,499          (1,952 )         9,451              NM
Total other income (expense)   $     9,657     $    (2,306 )   $    11,963              NM
NM - not meaningful

Investment income increased $1.4 million due to higher interest income driven by higher interest rates.

Equity in earnings of unconsolidated affiliate represents the share of net earnings of our entity that is accounted for using the equity method.

Other, net increased by $9.5 million primarily due to higher foreign exchange
gains of $12.7 million and gain of $1.3 million on the revaluation of contingent
consideration payable, offset by losses of $4.9 million on foreign exchange
forward contracts.

Provision for income taxes

Provision for income taxes and effective tax rate for the nine months ended
September 30, 2022 and 2021 were as follows:

                                    Nine Months Ended September 30,
                                                        $             %
                             2022         2021        Change        Change
                                           ($ in thousands)

Provision for income taxes $67,862 $56,645 $11,217 19.8%

Effective tax rate             26.2 %       21.6 %




The provision for income taxes reflected less than $0.1 million in excess tax
detriments and $11.4 million of excess tax benefits related to share-based
compensation awards that vested or were exercised during the nine months ended
September 30, 2022 and 2021, respectively. The provision for income taxes for
the nine months ended September 30, 2022 also reflected $3.2 million of expense
related to a settlement with the New York State tax authorities to resolve the
2010 to 2014 audits. Our consolidated effective tax rate can vary from period to
period depending on the geographic mix of our earnings, changes in tax
legislation and tax rates and the amount and timing of excess tax benefits
related to share-based payments, among other factors.

Cash and capital resources

During the nine months ended September 30, 2022, we have met our funding
requirements through cash on hand, internally generated funds and short-term
borrowings. Cash and cash equivalents and U.S Treasury investments totaled
$343.1 million as of September 30, 2022. Our investments generally consist of
U.S. Treasury securities. We limit the amounts that can be invested in any
single issuer and invest in short- to intermediate-term instruments whose fair
values are less sensitive to interest rate changes.

In October 2021, we entered into the 2021 Credit Agreement provided by a
syndicate of lenders and JPMorgan Chase Bank, N.A., as administrative agent,
that provides aggregate commitments totaling $500.0 million, consisting of a
revolving credit facility and a $5.0 million letter of credit sub-limit for
standby letters of credit. The 2021 Credit Agreement replaced the 2020 Credit
Agreement and will mature on October 15, 2024, with our option to request up to
two additional 364-day extensions at the discretion of each lender and subject
to customary conditions. As of September 30, 2022, we had no borrowings or
letters of credit outstanding and $500.0 million in available borrowing capacity
under the 2021 Credit Agreement. The 2021 Credit Agreement requires that we
satisfy certain covenants, which include a leverage ratio. We were in compliance
with all applicable covenants at September 30, 2022. See Note 11 to the
Consolidated Financial Statements for a discussion of the 2021 Credit Agreement.
                                       38
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In connection with its self-clearing operations, our U.S. broker-dealer
subsidiary entered into an agreement (the "Collateralized Agreement") with its
settlement bank to provide loans up to an aggregate of $200.0 million on an
uncommitted basis. Borrowings under the Collateralized Agreement are
collateralized by securities pledged by the U.S. broker-dealer subsidiary to the
settlement bank, subject to applicable haircuts and concentration limits. As of
September 30, 2022, the U.S. broker-dealer subsidiary had no borrowings
outstanding and $200.0 million in available borrowing capacity under the
Collateralized Agreement. See Note 11 to the Consolidated Financial Statements
for a discussion of the Collateralized Agreement.

Under arrangements with their settlement banks, some of our WE and UK
operating subsidiaries may receive day-to-day financing in the form of bank overdrafts. From September 30, 2022we had no overdraft to pay in progress.

As a result of our self-clearing and settlement activities, we are required to
finance certain transactions, maintain deposits with various clearing
organizations and clearing broker-dealers and maintain a special reserve bank
account for the benefit of customers pursuant to Rule 15c3-3 of the Exchange
Act. As of September 30, 2022, the aggregate amount of the positions financed,
deposits and customer reserve balances associated with our self-clearing and
settlement activities was $300.6 million. These requirements can fluctuate based
on trading activity, market volatility or other factors which may impact our
liquidity or require us to use our capital resources.

Our cash flows were as follows:

                                                  Nine Months Ended September 30,
                                                                      $                %
                                       2022           2021          Change           Change
                                                       ($ in thousands)
Net cash provided by operating
activities                          $  155,005     $  136,380     $   18,625           13.7   %
Net cash (used in) investing
activities                             (68,151 )      (56,295 )      (11,856 )         21.1
Net cash (used in) financing
activities                            (215,480 )     (119,614 )      (95,866 )         80.1
Effect of exchange rate changes on
cash and cash equivalents              (28,111 )       (4,720 )      (23,391 )           NM
Net decrease for the period         $ (156,737 )   $  (44,249 )   $ (112,488 )        254.2   %
NM - not meaningful


The $18.6 million increase in net cash flows from operating activities was
primarily due to a decrease in the change in net receivables from
broker-dealers, clearing organizations and customers associated with our
clearing activities of $77.0 million and higher depreciation and amortization of
$6.9 million, offset by an increase in the change in accounts receivable of
$35.8 million, higher foreign currency transaction gains of $13.6 million, lower
net income of $14.7 million and an increase in the change in accrued
compensation of $1.2 million.

The $11.9 million increase in net cash used in investing activities was
primarily due to an increase in cash used for an equity method investment of
$34.4 million and an increase in capitalization of software costs of $2.5
million, offset by a decrease in cash used for acquisitions of $17.1 and lower
purchases of furniture, equipment and leasehold improvements of $7.9 million.

The $95.9 million increase in net cash used in financing activities was
principally due to higher repurchases of common stock of $69.3 million, an
increase of $26.2 million in payments of contingent consideration related to
acquisitions, lower exercises of stock options of $6.7 million, and an increase
in cash dividends of $4.9 million, offset by a decrease in withholding tax
payments on restricted stock vesting and stock option exercises of $11.2
million.

The $23.4 million change in the effect of exchange rate changes on cash and cash
equivalents was driven by a higher cumulative translation adjustment due to the
strengthening U.S. dollar.

Past cash flow trends are not necessarily indicative of future cash flow levels. A decrease in cash flow could have a material adverse effect on our liquidity, business and financial condition.

Other factors affecting liquidity and capital resources

We believe that our current resources are adequate to meet our liquidity needs
and requirements, including commitments for capital expenditures, in the
short-term (during the next 12 months). However, our future liquidity and
capital requirements will depend on a number of factors, including liquidity
requirements associated with our self-clearing operations and expenses
associated with product development and expansion and new business opportunities
that are intended to further diversify our revenue streams. We may also acquire
or invest in technologies, business ventures or products that are complementary
to our business. In the event we require any additional financing, it will take
the form of equity or debt financing. Any additional equity offerings may result
in dilution to our stockholders. Any debt financings, if available at all, may
involve restrictive covenants with respect to dividends, issuances of additional
capital and other financial and operational matters related to our business. In
addition, in the long-term (beyond 12 months), we believe our liquidity needs
and requirements will be affected by the factors discussed above.
                                       39
--------------------------------------------------------------------------------


One of our U.S. subsidiaries is registered as a broker-dealer and therefore is
subject to the applicable rules and regulations of the SEC and FINRA. These
rules contain minimum net capital requirements, as defined in the applicable
regulations. Certain of our foreign subsidiaries are regulated by the FCA in the
U.K. or other foreign regulators and must maintain financial resources, as
defined in the applicable regulations, in excess of the applicable financial
resources requirement. As of September 30, 2022, each of our subsidiaries that
are subject to these regulations had net capital or financial resources in
excess of their minimum requirements. As of September 30, 2022, our subsidiaries
maintained aggregate net capital and financial resources that were $485.4
million in excess of the required levels of $27.2 million.

Each of our U.S. and foreign regulated subsidiaries are subject to local
regulations which generally limit, or require the prior notification to or
approval from such regulated entity's principal regular before, the repayment of
borrowings from our affiliates, paying cash dividends, making loans to our
affiliates or otherwise entering into transactions that result in a significant
reduction in regulatory net capital or financial resources. As of September 30,
2022, the amount of unrestricted cash held by our non-U.S. subsidiaries was
$160.6 million.

We execute bond transactions between our institutional investor and
broker-dealer clients on a matched principal basis by serving as counterparty to
both the buyer and the seller in trades. Our U.S. broker-dealer subsidiary
operates under a self-clearing model for the settlement of such transactions.
Our subsidiaries also settle their transactions through third-party clearing
brokers or settlement agents. Settlement typically occurs within one to two
trading days after the trade date. Cash settlement of the transaction occurs
upon receipt or delivery of the underlying instrument that was traded. Under
both the self-clearing and the third-party clearing models, we may be exposed to
credit risk in the event a counterparty does not fulfill its obligation to
complete a transaction or if there is an error in executing a matched principal
transaction. Pursuant to the terms of the securities clearing agreements, each
third-party clearing broker has the right to charge us for any losses they
suffer resulting from a counterparty's failure on any of our trades. We did not
record any liabilities or losses with regard to counterparty failures for the
nine months ended September 30, 2022 and 2021. Substantially all of our open
securities failed-to-deliver and securities failed-to-receive transactions as of
September 30, 2022 have subsequently settled at the contractual amounts.

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

We have operating leases for corporate offices with initial lease terms ranging
from one year to 15 years. We have total future contractual rent payments on
these leases of $114.4 million, with $10.7 million due within the next 12 months
and $103.7 million due beyond 12 months.

We enter into one-month foreign currency forward contracts to economically hedge
our exposure to variability in certain foreign currency transaction gains and
losses. As of September 30, 2022, the notional value of our foreign currency
forward contract outstanding was $58.6 million and the fair value of the
liability was $2.8 million.

On April 9, 2021 we acquired MuniBrokers. The purchase price consisted of $17.1
million in cash paid at closing and up to $25.0 million in contingent
consideration payable in cash within approximately two years of the closing. In
May 2022, we made a payment of $8.3 million to settle the first earn-out period
consideration. As of September 30, 2022, the remaining outstanding contingent
consideration payable was $12.2 million.

In January 2021, our Board authorized a new share repurchase program for up to
$100.0 million that commenced in April 2021 and was exhausted in January 2022.
In January 2022, our Board authorized a new share repurchase program for up to
$150.0 million that commenced in March 2022. Shares repurchased under each
program will be held in treasury for future use.

In October 2022, our Board of Directors approved a quarterly cash dividend of
$0.70 per share payable on November 16, 2022 to stockholders of record as of the
close of business on November 2, 2022. Any future declaration and payment of
dividends will be at the sole discretion of our Board of Directors. Our Board of
Directors may take into account such matters as general business conditions, our
financial results, capital requirements, contractual obligations, legal, and
regulatory restrictions on the payment of dividends to our stockholders or by
our subsidiaries to their respective parent entities, and any such other factors
as the Board of Directors may deem relevant.
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Non-GAAP Financial Measures

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

The table below provides a reconciliation of our net profit with EBITDA and EBITDA margin:

                                                                                 Nine Months Ended September
                                         Three Months Ended September 30,                    30,
                                            2022                  2021              2022             2021
                                                                 ($ in thousands)
Net income                             $        59,307       $        57,958     $  190,998       $  205,703
Add back:
Interest expense                                   138                   314            648              676
Provision for income taxes                      19,556                16,536         67,862           56,645
Depreciation and amortization                   15,302                13,964         45,716           38,840
EBITDA                                 $        94,303       $        88,772     $  305,224       $  301,864

EBITDA margin                                     54.8 %                54.8 %         56.5 %           56.5 %



The table below provides a reconciliation of our cash flow from operating activities to free cash flow:

Nine months ended September

                                       Three Months Ended September 30,                 30,
                                            2022                2021           2022             2021
                                                               ($ in thousands)
Net cash provided by operating
activities                             $        85,098       $   62,813     $  155,005       $  136,380
Exclude: Net change in trading
investments                                       (445 )              -           (445 )          5,569
Exclude: Net change in
fail-to-deliver/receive from
broker-dealers, clearing organizations
and customers                                   (2,227 )         55,195         45,939          121,969
Less: Purchases of furniture,
equipment and leasehold improvements            (3,961 )         (4,758 )       (6,642 )        (14,567 )
Less: Capitalization of software
development costs                               (8,548 )         (8,191 )      (27,109 )        (24,650 )
Free Cash Flow                         $        69,917       $  105,059     $  166,748       $  224,701





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