MARKETAXESS HOLDINGS INC - Quarter Report: 2009 March (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

MARKETAXESS HOLDINGS INC.

Delaware		52-2230784
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
140 Broadway, 42nd Floor New York, New York		10005
(Address of principal executive offices)		(Zip Code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ      No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o      No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o      No þ

     As of April 30, 2009, the number of shares of the Registrant’s voting common stock outstanding was 31,708,160 and the number of shares of the Registrant’s non-voting common stock was 2,585,654.

 

 

MARKETAXESS HOLDINGS INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009
TABLE OF CONTENTS

		Page
PART I — Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of March 31, 2009 and December 31, 2008			3
Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008			4
Consolidated Statement of Changes in Stockholders’ Equity and Accumulated Other Comprehensive Loss for the Three Months Ended March 31, 2009			5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures			33
PART II — Other Information
Item 1. Legal Proceedings			34
Item 1A. Risk Factors			34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3. Defaults Upon Senior Securities			35
Item 4. Submission of Matters to a Vote of Security Holders			35
Item 5. Other Information			35
Item 6. Exhibits			35
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — Financial Information

Item 1. Financial Statements

MARKETAXESS HOLDINGS INC.

		As of
		March 31,				December 31,
		2009				2008
		(In thousands, except share and
		per share amounts)
ASSETS
Cash and cash equivalents		$	109,823			$	107,323
Securities available-for-sale			27,605				35,227
Securities and cash provided as collateral			4,306				4,316
Accounts receivable, including receivables from related parties of $2,671 and $1,930, respectively, net of allowance of $1,015 and $1,012 as of March 31, 2009 and December 31, 2008, respectively			17,917				13,283
Furniture, equipment and leasehold improvements, net of accumulated depreciation and amortization			4,002				3,369
Software development costs, net of accumulated amortization			4,065				4,521
Goodwill and intangible assets, net of accumulated amortization			38,706				39,546
Prepaid expenses and other assets			2,586				3,177
Deferred tax assets, net			34,212				35,666
Total assets		$	243,222			$	246,428
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Accrued employee compensation		$	2,953			$	10,439
Deferred revenue			2,230				2,303
Accounts payable, accrued expenses and other liabilities, including payables to related parties of $11 and $11 as of March 31, 2009 and December 31, 2008, respectively			8,873				8,878
Total liabilities			14,056				21,620
Commitments and Contingencies (Note 14)
Series B Preferred Stock, $0.001 par value, 35,000 shares authorized, issued and outstanding as of March 31, 2009 and December 31, 2008, liquidation preference of $1,000 per share			30,315				30,315
Stockholders’ equity
Preferred stock, $0.001 par value, 4,855,000 shares authorized, no shares issued and outstanding as of March 31, 2009 and December 31, 2008			—				—
Series A Preferred Stock, $0.001 par value, 110,000 shares authorized, no shares issued and outstanding as of March 31, 2009 and December 31, 2008			—				—
Common stock voting, $0.003 par value, 110,000,000 shares authorized as of March 31, 2009 and December 31, 2008; 34,573,124 shares and 33,971,309 shares issued as of March 31, 2009 and December 31, 2008, respectively			104				102
Common stock non-voting, $0.003 par value, 10,000,000 shares authorized and 2,585,654 shares issued and outstanding as of March 31, 2009 and December 31, 2008			9				9
Additional paid-in capital			307,067				305,508
Receivable for common stock subscribed			(951	)			(951	)
Treasury stock — Common stock voting, at cost, 2,864,120 shares as of March 31, 2009 and December 31, 2008, respectively			(40,000	)			(40,000	)
Accumulated deficit			(66,016	)			(68,855	)
Accumulated other comprehensive loss			(1,362	)			(1,320	)
Total stockholders’ equity			198,851				194,493
Total liabilities and stockholders’ equity		$	243,222			$	246,428

The accompanying notes are an integral part of these consolidated financial statements.

MARKETAXESS HOLDINGS INC.

		Three Months Ended March 31,
		2009				2008
		(In thousands, except share and per share amounts)
Revenues
Commissions
U.S. high-grade, including $1,985 and $1,920 from related parties for the three months ended March 31, 2009 and 2008, respectively		$	13,515			$	12,402
Eurobond, including $783 and $804 from related parties for the three and months ended March 31, 2009 and 2008, respectively			4,142				4,589
Other, including $302 and $429 from related parties for the three months ended March 31, 2009 and 2008, respectively			2,789				2,304
Total commissions			20,446				19,295
Technology products and services, including $9 and $15 from related parties for the three months ended March 31, 2009 and 2008, respectively			2,023				767
Information and user access fees, including $61 and $53 from related parties for the three months ended March 31, 2009 and 2008, respectively			1,655				1,481
Investment income, including $90 and $267 from related parties for the three months ended March 31, 2009 and 2008, respectively			332				991
Other, including $42 and $43 from related parties for the three months ended March 31, 2009 and 2008, respectively			176				405
Total revenues			24,632				22,939
Expenses
Employee compensation and benefits			11,442				11,018
Depreciation and amortization			1,791				1,780
Technology and communications			2,242				2,106
Professional and consulting fees			1,879				2,153
Occupancy			676				767
Marketing and advertising			645				684
General and administrative, including $18 and $7 from related parties for the three months ended March 31, 2009 and 2008, respectively			1,226				1,467
Total expenses			19,901				19,975
Income before income taxes			4,731				2,964
Provision for income taxes			1,892				1,368
Net income		$	2,839			$	1,596
Net income per common share
Basic		$	0.08			$	0.05
Diluted		$	0.08			$	0.05
Weighted average shares used to compute net income per common share
Basic			33,183,476				32,413,129
Diluted			37,516,962				33,394,866

The accompanying notes are an integral part of these consolidated financial statements.

MARKETAXESS HOLDINGS INC.

																		Treasury
						Common								Receivable				Stock								Accumu-				Total
		Common				Stock				Additional				for Common				Common				Accumu-				lated Other				Stock-
		Stock				Non-				Paid-In				Stock				Stock				lated				Comprehen-				holders’
		Voting				Voting				Capital				Subscribed				Voting				Deficit				sive Loss				Equity
		(In thousands)
Balance at December 31, 2008		$	102			$	9			$	305,508			$	(951	)		$	(40,000	)		$	(68,855	)		$	(1,320	)		$	194,493
Comprehensive income:
Net income			—				—				—				—				—				2,839				—				2,839
Cumulative translation adjustment and foreign currency exchange hedge, net of tax			—				—				—				—				—				—				(83	)			(83	)
Unrealized net gain on securities available-for-sale, net of tax			—				—				—				—				—				—				41				41
Total comprehensive income																															2,797
Stock-based compensation			—				—				2,039				—				—				—				—				2,039
Grants of restricted stock, net of withholding tax on stock vesting			2				—				(157	)			—				—				—				—				(155	)
Decrement in windfall tax benefits from stock-based compensation			—				—				(323	)			—				—				—				—				(323	)
Balance at March 31, 2009		$	104			$	9			$	307,067			$	(951	)		$	(40,000	)		$	(66,016	)		$	(1,362	)		$	198,851

The accompanying notes are an integral part of these consolidated financial statements.

MARKETAXESS HOLDINGS INC.

		Three Months Ended March 31,
		2009				2008
		(In thousands)
Cash flows from operating activities
Net income		$	2,839			$	1,596
Adjustments to reconcile net income to net cash (used in) operating activities:
Depreciation and amortization			1,791				1,780
Stock-based compensation expense			2,039				1,739
Deferred taxes			2,144				1,496
Provision for bad debts			98				288
Changes in operating assets and liabilities, net of business acquired:
(Increase) decrease in accounts receivable, including an (increase) of ($741) and a decrease of $3,402 from related parties for the three months ended March 31, 2009 and 2008, respectively			(4,732	)			2,832
Decrease (increase) in prepaid expenses and other assets			591				(38	)
(Decrease) in accrued employee compensation			(7,486	)			(11,214	)
(Decrease) increase in deferred revenue			(73	)			45
Increase (decrease) in accounts payable, accrued expenses and other liabilities, including a (decrease) of $0 and ($177) to related parties for the three months ended March 31, 2009 and 2008, respectively			459				(432	)
Net cash (used in) operating activities			(2,330	)			(1,908	)
Cash flows from investing activities
Acquisition of businesses, net of cash acquired (Note 3)			(1,368	)			(29,208	)
Securities available-for-sale:
Proceeds from maturities			7,694				21,065
Purchases			—				(3,854	)
Securities and cash provided as collateral			10				(25	)
Purchases of furniture, equipment and leasehold improvements			(485	)			(321	)
Capitalization of software development costs			(373	)			(686	)
Net cash provided by (used in) investing activities			5,478				(13,029	)
Cash flows from financing activities
Proceeds from exercise of stock options and grants of restricted stock, net of withholding tax			(155	)			(456	)
Decrement in windfall tax benefits from stock-based compensation			(323	)			(182	)
Purchase of treasury stock — common stock voting			—				(2,773	)
Other			(28	)			—
Net cash (used in) financing activities			(506	)			(3,411	)
Effect of exchange rate changes on cash			(142	)			(64	)
Cash and cash equivalents
Net increase (decrease) for the period			2,500				(18,412	)
Beginning of year			107,323				72,711
End of period		$	109,823			$	54,299
Supplemental cash flow information:
Cash paid during the year:
Income taxes paid		$	46			$	16
Non-cash activity:
Issuance of common stock in connection with business acquisition		$	—			$	5,775
Capital lease obligation		$	723			$	—

The accompanying notes are an integral part of these consolidated financial statements.

MARKETAXESS HOLDINGS INC.

1. Organization and Principal Business Activity

     MarketAxess Holdings Inc. (the “Company”) was incorporated in the State of Delaware on April 11, 2000. Through its subsidiaries, the Company operates an electronic trading platform for corporate bonds and certain other types of fixed-income securities through which the Company’s institutional investor clients can access the liquidity provided by its broker-dealer clients. The Company’s multi-dealer trading platform allows its institutional investor clients to simultaneously request competitive, executable bids or offers from multiple broker-dealers, and to execute trades with the broker-dealer of their choice. The Company offers its clients the ability to trade U.S. high-grade corporate bonds, European high-grade corporate bonds, credit default swaps, agencies, high yield and emerging markets bonds. The Company’s DealerAxess^® trading service allows dealers to trade fixed-income securities and credit default swaps with each other on its platform. The Company executes certain bond transactions between and among institutional investor and broker-dealer clients on a riskless principal basis by serving as counterparty to both the buyer and the seller in matching back-to-back trades, which then settle through a third-party clearing organization. Through its Corporate BondTicker™ service, the Company provides fixed-income market data, analytics and compliance tools that help its clients make trading decisions. In addition, the Company provides FIX (Financial Information eXchange) message management tools, connectivity solutions and ancillary technology services that facilitate the electronic communication of order information between trading counterparties.

     The Company’s stockholder broker-dealer clients as of January 1, 2009 were BNP Paribas, Credit Suisse and JPMorgan. These broker-dealer clients constitute related parties of the Company (together, the “Stockholder Broker-Dealer Clients”). For 2008, the same three dealers were considered to be Stockholder Broker-Dealer Clients. See Note 10, “Related Parties.”

2. Significant Accounting Policies

Basis of Presentation

     The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated.

     These Consolidated Financial Statements are unaudited and should be read in conjunction with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2008. The consolidated financial information as of December 31, 2008 has been derived from audited financial statements not included herein.

     These unaudited Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) with respect to Form 10-Q and reflect all adjustments that, in the opinion of management, are normal and recurring, and which are necessary for a fair statement of the results for the interim periods presented. In accordance with such rules and regulations, certain disclosures that are normally included in annual financial statements have been omitted. Interim period operating results may not be indicative of the operating results for a full year.

Cash and Cash Equivalents

     Cash and cash equivalents include cash maintained at U.S. and U.K. banks and in money market funds. The Company defines cash equivalents as short-term interest-bearing investments with maturities at the time of purchase of three months or less.

Securities Available-for-Sale

     The Company classifies its marketable securities as available-for-sale securities. Unrealized marketable securities gains and losses, net of taxes, are reflected as a net amount under the caption of accumulated other comprehensive loss in the Consolidated Statements of Financial Condition. Realized gains and losses are recorded in the Consolidated Statements of Operations in other revenues. For the purpose of computing realized gains and losses, cost is determined on a specific identification basis.

MARKETAXESS HOLDINGS INC.

     The Company assesses whether an other-than-temporary impairment loss on the investments has occurred due to declines in fair value or other market conditions. Declines in fair values that are considered other-than-temporary are recorded as charges in the Consolidated Statements of Operations. No charges for other-than-temporary declines were recorded during 2009 and 2008.

Securities and Cash Provided as Collateral

     Securities provided as collateral consist of U.S. government obligations and cash. Collectively, these amounts are used as collateral for standby letters of credit, electronic bank settlements, foreign currency forward contracts to hedge the Company’s net investments in certain foreign subsidiaries and a broker-dealer clearance account.

Allowance for Doubtful Accounts

     The Company continually monitors collections and payments from its clients and maintains an allowance for doubtful accounts. The allowance for doubtful accounts is based upon the historical collection experience and specific collection issues that have been identified. Additions to the allowance for doubtful accounts are charged to bad debt expense, which is included in general and administrative expense in the Company’s Consolidated Statements of Operations.

Depreciation and Amortization

     Fixed assets are carried at cost less accumulated depreciation. The Company uses the straight-line method of depreciation over three or five years. Leasehold improvements are stated at cost and are amortized using the straight-line method over the lesser of the life of the improvement or the remaining term of the lease.

Software Development Costs

     The Company capitalizes certain costs associated with the development of internal use software at the point at which the conceptual formulation, design and testing of possible software project alternatives have been completed. The Company capitalizes employee compensation and related benefits and third party consulting costs incurred during the preliminary software project stage. Once the product is ready for its intended use, such costs are amortized on a straight-line basis over three years. The Company reviews the amounts capitalized for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable.

Foreign Currency Translation and Forward Contracts

     Assets and liabilities denominated in foreign currencies are translated using exchange rates at the end of the period; revenues and expenses are translated at average monthly rates. Gains and losses on foreign currency translation are a component of accumulated other comprehensive loss in the Consolidated Statements of Financial Condition. Transaction gains and losses are recorded in general and administrative expense in the Consolidated Statements of Operations.

     The Company enters into foreign currency forward contracts to hedge its net investment in its U.K. subsidiary. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” gains and losses on these transactions are deferred and included in accumulated other comprehensive loss in the Consolidated Statements of Financial Condition.

Revenue Recognition

     The majority of the Company’s revenues are derived from monthly distribution fees and commissions for trades executed on its platform that are billed to its broker-dealer clients on a monthly basis. The Company also derives revenues from technology products and services, information and user access fees, investment income and other income.

     Commission revenue. Commissions are generally calculated as a percentage of the notional dollar volume of bonds traded on the platform and vary based on the type and maturity of the bond traded. Under the Company’s transaction fee plans, 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 trades that the Company executes between and among institutional investor and broker-dealer clients on a riskless principal basis by serving as counterparty to both the buyer and the seller, the Company earns the commission through the difference in price between the two back-to-back trades.

MARKETAXESS HOLDINGS INC.

     Technology products and services. The Company recognizes revenues from technology software licenses, maintenance and support services (referred to as post-contract technical support or “PCS”) and professional consulting services in accordance with the provisions of the American Institute of Certified Public Accountants’ Statement of Position (“SOP”) 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended by SOP 98-4 and SOP 98-9 and clarified by Staff Accounting Bulletin (“SAB”) 101, SAB No. 104 and Emerging Issues Task Force (“EITF”) 00-21 and SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (“SOP 81-1”). Revenue is generally recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection is considered probable. The Company generally sells software licenses and services together as part of multiple-element arrangements. The Company also enters into contracts for technology integration consulting services unrelated to any software product. When the Company enters into a multiple-element arrangement, it uses the residual method to allocate the total fee among the elements of the arrangement. Under the residual method, license revenue is recognized upon delivery when vendor-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more of the delivered elements in the arrangement. Each license arrangement requires that the Company analyze the individual elements in the transaction and estimate the fair value of each undelivered element, which typically includes PCS and professional services. License revenue consists of license fees charged for the use of the Company’s products under perpetual and, to a lesser extent, term license arrangements. License revenue from a perpetual arrangement is generally recognized upon delivery while license revenue from a term arrangement is recognized ratably over the duration of the arrangement on a straight-line basis. If the professional services are essential to the functionality of the software product, the license revenue is recognized upon customer acceptance or satisfaction of the service obligation.

     Professional services are generally separately priced, are available from a number of suppliers and are typically not essential to the functionality of the Company’s software products. Revenues from these services are recognized separately from the license fee if the arrangements qualify as “service transactions” as defined by SOP 97-2. Generally, revenue from time-and-materials consulting contracts is recognized as services are performed.

     PCS includes telephone support, bug fixes and unspecified rights to product upgrades and enhancements, and is recognized ratably over the term of the service period, which is generally 12 months. The Company estimates the fair value of the PCS portion of an arrangement based on the price charged for PCS when sold separately. The Company sells PCS on a separate, standalone basis when customers renew PCS.

     Revenues from contracts for technology integration consulting services are recognized on the percentage-of-completion method in accordance with SOP 81-1. Percentage-of-completion accounting involves calculating the percentage of services provided during the reporting period compared to the total estimated services to be provided over the duration of the contract. If estimates indicate that a contract loss will occur, a loss provision is recorded in the period in which the loss first becomes probable and reasonably estimable. Contract losses are determined to be the amount by which the estimated direct and indirect costs of the contract exceed the estimated total revenues that will be generated by the contract. There were no contract loss provisions recorded as of March 31, 2009 and December 31, 2008. Revenues recognized in excess of billings are recorded as unbilled services. Billings in excess of revenues recognized are recorded as deferred revenues until revenue recognition criteria are met.

Stock-Based Compensation

     The Company measures and recognizes compensation expense for all share-based payment awards in accordance with SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). This statement requires that compensation expense for all share-based awards be recognized based on their estimated fair values measured as of the grant date. These costs are recognized as an expense in the Consolidated Statements of Operations over the requisite service period, which is typically the vesting period, with an offsetting increase to additional paid-in capital.

Income Taxes

     Income taxes are accounted for using the asset and liability method in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized against deferred tax assets if it is more likely than not that such assets will not be realized in future years. The Company recognizes interest and penalties related to unrecognized tax benefits in general and administrative expenses in the Consolidated Statements of Operations.

MARKETAXESS HOLDINGS INC.

Business Combinations, Goodwill and Intangible Assets

     Business acquisitions were completed prior to December 31, 2008 and are accounted for under the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations.” The total cost of an acquisition is allocated to the underlying net assets based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of certain assets acquired and liabilities assumed is judgmental in nature and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, discount rates, growth rates and asset lives.

     In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and other intangibles with indefinite lives are no longer amortized. An impairment review of goodwill is performed on an annual basis and more frequently if circumstances change. Intangible assets with definite lives, including purchased technologies, customer relationships and other intangible assets, are amortized on a straight-line basis over their estimated useful lives, ranging from five to ten years. The Company has no intangibles with indefinite lives. Intangible assets are assessed for impairment when events or circumstances indicate a possible impairment pursuant to the provisions of SFAS No. 144, “Accounting for Long Lived Assets and for Long Lived Assets to be Disposed Of.”

Earnings Per Share

     Earnings per share (“EPS”) is calculated in accordance with SFAS No. 128, “Earnings Per Share” and EITF 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128” (“EITF 03-6”). Basic EPS is computed by dividing the net income attributable to common stock by the weighted-average number of shares of common stock outstanding for the period, including consideration of the two-class method to the extent that participating securities were outstanding during the period. Under the two-class method, undistributed net income is allocated to common stock and participating securities based on their respective right to share in dividends. The Series B Preferred Stock is convertible into shares of common stock and also includes a right whereby, upon the declaration or payment of a dividend or distribution on the common stock, a dividend or distribution must also be declared or paid on the Series B Preferred Stock based on the number of shares of common stock into which such securities were convertible at the time. Due to these rights, under EITF 03-6, the Series B Preferred Stock is considered a participating security requiring the use of the two-class method for the computation of basic EPS.

     Diluted EPS is computed using the more dilutive of the (a) if-converted method or (b) two-class method. Since the Series B Preferred Stock participates equally with the common stock in dividends and unallocated income, diluted EPS under the if-converted method is equivalent to the two-class method. Weighted-average shares outstanding of common stock reflects the dilutive effect that could occur if convertible securities or other contracts to issue common stock were converted into or exercised for common stock.

Use of Estimates

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

     In December 2007, the FASB issued SFAS No. 141 (revised), “Business Combinations” (“SFAS 141R”). The standard changes the accounting for business combinations, including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition-related transaction costs and the recognition of changes in the acquirer’s income tax valuation allowance. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 141R had no material effect on the Consolidated Statements of Financial Condition and Consolidated Statements of Operations.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 160 had no material effect on the Consolidated Statements of Financial Condition and Consolidated Statements of Operations.

MARKETAXESS HOLDINGS INC.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 expands the disclosure requirements for derivative instruments and hedging activities. SFAS 161 is effective for fiscal years beginning after November 15, 2008. The adoption of SFAS 161 had no material effect on the Consolidated Statements of Financial Condition and Consolidated Statements of Operations.

Reclassifications

     Certain reclassifications have been made to the prior periods’ financial statements in order to conform to the current period’s presentation. Such reclassifications had no effect on previously reported net income.

3. Acquisition

     On March 5, 2008, the Company acquired all of the outstanding capital stock of Greenline Financial Technologies, Inc. (“Greenline”), an Illinois-based provider of integration, testing and management solutions for FIX-related products and services designed to optimize electronic trading of fixed-income, equity and other exchange-based products, and approximately ten percent of the outstanding capital stock of TradeHelm, Inc., a Delaware corporation that was spun-out from Greenline immediately prior to the acquisition. The acquisition of Greenline broadens the range of technology services that the Company offers to institutional financial markets, provides an expansion of the Company’s client base, including global exchanges and hedge funds, and further diversifies the Company’s revenues beyond the core electronic credit trading products. The results of operations of Greenline are included in the Consolidated Financial Statements from the date of the acquisition.

     The aggregate consideration for the Greenline acquisition was $41.1 million, comprised of $34.7 million in cash, 725,923 shares of common stock valued at $5.8 million and $0.6 million of acquisition-related costs. In addition, the sellers were eligible to receive up to an aggregate of $3.0 million in cash, subject to Greenline attaining certain earn-out targets in 2008 and 2009. A total of $1.4 million was paid to the sellers in March 2009 based on the 2008 earn-out target, bringing the aggregate consideration to $42.4 million. A total of $2.0 million of the purchase price, which had been deposited into escrow to satisfy potential indemnity claims, was distributed to the sellers in March 2009. The shares of common stock to be issued to each selling shareholder of Greenline are held by the Company and were or will be released in two equal installments on December 20, 2008 and December 20, 2009, respectively. The value ascribed to the shares was discounted from the market value to reflect the non-marketability of such shares during the restriction period. The purchase price allocation is as follows (in thousands):

Cash		$	6,406
Accounts receivable			2,139
Amortizable intangibles			8,330
Goodwill			29,405
Deferred tax assets, net			3,410
Other assets, including investment in TradeHelm			1,429
Accounts payable, accrued expenses and deferred revenue			(8,701	)
Total purchase price		$	42,418

     The amortizable intangibles include $3.2 million of acquired technology, $3.3 million of customer relationships, $1.3 million of non-competition agreements and $0.5 million of tradenames. Useful lives of ten years and five years have been assigned to the customer relationships intangible and all other amortizable intangibles, respectively. The identifiable intangible assets and goodwill are not deductible for tax purposes.

     The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the three months ended March 31, 2008, as if the acquisition of Greenline had occurred as of the beginning of the period presented, after giving effect to certain purchase accounting adjustments. These pro forma results are not necessarily indicative of what the Company’s operating results would have been had the acquisition actually taken place as of the beginning of the period presented. The pro forma financial information includes the amortization charges from acquired intangible assets, adjustments to interest income and related tax effects.

MARKETAXESS HOLDINGS INC.

		Pro forma
		Three Months Ended
		March 31, 2008
		(In thousands, except
		per share amounts)
Revenues		$	24,530
Income before income taxes		$	3,287
Net income		$	1,800
Basic net income per common share		$	0.05
Diluted net income per common share		$	0.05

4. Net Capital Requirements and Customer Protection Requirements

     MarketAxess Corporation, a U.S. subsidiary, is a registered broker-dealer with the SEC and is a member of the Financial Industry Regulatory Authority (“FINRA”). MarketAxess Corporation claims exemption from SEC Rule 15c3-3, as it does not hold customer securities or funds on account, as defined. Pursuant to the Uniform Net Capital Rule under the Securities Exchange Act of 1934, MarketAxess Corporation is required to maintain minimum net capital, as defined, equal to the greater of $5,000 or 6 2/3% of aggregate indebtedness. MarketAxess Europe Limited, a U.K. subsidiary, is registered as a Multilateral Trading Facility with the Financial Services Authority (“FSA”) in the U.K. MarketAxess Canada Limited, a Canadian subsidiary, is registered as an Alternative Trading System dealer under the Securities Act of Ontario and is a member of the Investment Industry Regulatory Organization of Canada. MarketAxess Europe Limited and MarketAxess Canada Limited are subject to certain financial resource requirements of the FSA and the Ontario Securities Commission, respectively. The following table sets forth the capital requirements, as defined, that the Company’s subsidiaries were required to maintain as of March 31, 2009:

		MarketAxess				MarketAxess				MarketAxess
		Corporation				Europe Limited				Canada Limited
		(In thousands)
Net capital		$	27,660			$	19,306			$	370
Minimum net capital required			614				2,467				218
Excess net capital		$	27,046			$	16,839			$	152

     The Company’s regulated subsidiaries are subject to U.S., U.K. and Canadian regulations which prohibit repayment of borrowings from the Company or affiliates, paying cash dividends, making loans to the Company or affiliates or otherwise entering into transactions that result in a significant reduction in regulatory net capital or financial resources, respectively, without prior notification to or approval from such regulated entity’s principal regulator.

5. Fair Value Measurements

     SFAS No. 157, “Fair Value Measurements,” defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” It also establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as Level 1 (unadjusted quoted prices for identical assets or liabilities in active markets), Level 2 (inputs that are observable in the marketplace other than those inputs classified in Level 1) and Level 3 (inputs that are unobservable in the marketplace). The Company’s financial assets and liabilities measured at fair value on a recurring basis consist of its securities available-for-sale portfolio and one foreign currency forward contract. The following table summarizes the valuation of the Company’s assets and liabilities measured at fair value.

MARKETAXESS HOLDINGS INC.

		Level 1				Level 2				Level 3				Total
		(In thousands)
As of March 31, 2009
Securities available-for-sale
Municipal securities		$	—			$	25,539			$	—			$	25,539
Corporate bonds			—				2,066				—				2,066
Foreign currency forward position			—				278				—				278
		$	—			$	27,883			$	—			$	27,883
As of December 31, 2008
Securities available-for-sale
Municipal securities		$	—			$	33,177			$	—			$	33,177
Corporate bonds			—				2,050				—				2,050
Foreign currency forward position			—				264				—				264
		$	—			$	35,491			$	—			$	35,491

     Securities classified within Level 2 were valued using a market approach utilizing prices and other relevant information generated by market transactions involving comparable assets. The foreign currency forward contract is classified within Level 2 as the valuation inputs are based on quoted market prices.

     The Company enters into foreign currency forward contracts with a non-controlling stockholder broker-dealer client to hedge its exposure to variability in foreign currency cash flows resulting from the net investment in its U.K. subsidiary. The Company assesses each foreign currency forward contract to ensure that it is highly effective at reducing the exposure being hedged. The Company designates each foreign currency forward contract as a hedge, assesses the risk management objective and strategy, including identification of the hedging instrument, the hedged item and the risk exposure and how effectiveness is to be assessed prospectively and retrospectively. These hedges are for a one-month period and are used to limit exposure to foreign currency exchange rate fluctuations. The gross and net fair value asset of $0.3 million as of both March 31, 2009 and December 31, 2008, are included in accounts receivable in the Consolidated Statements of Financial Condition. Gains or losses on foreign currency forward contracts designated as hedges are included in accumulated other comprehensive loss in the Consolidated Statements of Financial Condition. A summary of the foreign currency forward contract is as follows:

		As of
		March 31, 2009				December 31, 2008
		(In thousands)
Notional value		$	20,598			$	20,041
Fair value of notional			20,320				19,777
Gross and net fair value asset		$	278			$	264

     The following is a summary of the Company’s securities available-for-sale:

						Gross				Gross				Estimated
		Amortized				unrealized				unrealized				fair
		cost				gains				losses				value
		(In thousands)
As of March 31, 2009
Municipal securities		$	25,436			$	103			$	—			$	25,539
Corporate bonds			2,061				5				—				2,066
		$	27,497			$	108			$	—			$	27,605
As of December 31, 2008
Municipal securities		$	33,138			$	55			$	(16	)		$	33,177
Corporate bonds			2,054				—				(4	)			2,050
		$	35,192			$	55			$	(20	)		$	35,227

MARKETAXESS HOLDINGS INC.

6. Furniture, Equipment and Leasehold Improvements

     Furniture, equipment and leasehold improvements, net, are comprised of the following:

		As of
		March 31, 2009				December 31, 2008
		(In thousands)
Computer hardware and related software		$	12,930			$	18,015
Office hardware			1,129				3,574
Furniture and fixtures			1,940				1,791
Leasehold improvements			2,077				2,074
Computer hardware under capital lease			1,419				696
Accumulated depreciation and amortization			(15,493	)			(22,781	)
Total furniture, equipment and leasehold improvements, net		$	4,002			$	3,369

7. Software Development Costs

     During the three months ended March 31, 2009 and 2008, software development costs totaling $0.4 million and $0.7 million, respectively, were capitalized. Non-capitalized software costs and routine maintenance costs are expensed as incurred and are included in employee compensation and benefits and professional and consulting fees in the Consolidated Statements of Operations. Software development costs, net, are comprised of the following:

		As of
		March 31, 2009				December 31, 2008
		(In thousands)
Software development costs		$	17,749			$	19,607
Accumulated amortization			(13,684	)			(15,086	)
Total software development costs, net		$	4,065			$	4,521

8. Goodwill and Intangible Assets

     Goodwill and intangible assets principally relate to the acquisitions of Trade West Systems, LLC (“TWS”), which was completed in November 2007, and Greenline. The following is a summary of goodwill:

		As of
		March 31, 2009				December 31, 2008
		(In thousands)
Goodwill from Greenline acquisition		$	29,405			$	29,853
Goodwill from TWS acquisition			2,177				2,177
Other goodwill			202				202
Total		$	31,784			$	32,232

MARKETAXESS HOLDINGS INC.

     Intangible assets that are subject to amortization, including the related accumulated amortization, are comprised of the following:

		March 31, 2009												December 31, 2008
						Accumulated				Net Carrying								Accumulated				Net Carrying
		Cost				Amortization				Amount				Cost				Amortization				Amount
		(In thousands)
Technology		$	4,010			$	(1,285	)		$	2,725			$	4,010			$	(1,110	)		$	2,900
Customer relationships			3,530				(732	)			2,798				3,530				(604	)			2,926
Non-competition agreements			1,260				(270	)			990				1,260				(207	)			1,053
Tradenames			590				(181	)			409				590				(155	)			435
Total		$	9,390			$	(2,468	)		$	6,922			$	9,390			$	(2,076	)		$	7,314

     Amortization expense associated with identifiable intangible assets was $0.4 million and $0.1 million for the three months ended March 31, 2009 and 2008, respectively. Estimated total amortization expense is $1.6 million for 2009, $1.5 million for 2010 and 2011, $1.4 million for 2012 and $0.5 million for 2013.

9. Income Taxes

     The provision for income taxes consists of the following:

		Three Months Ended March 31,
		2009				2008
		(In thousands)
Current:
Federal		$	—			$	—
State and local			—				—
Foreign			68				56
Total current provision			68				56
Deferred:
Federal			916				786
State and local			486				380
Foreign			422				146
Total deferred provision			1,824				1,312
Provision for income taxes		$	1,892			$	1,368

     The following is a summary of the Company’s net deferred tax assets:

		As of
		March 31, 2009				December 31, 2008
		(In thousands)
Deferred tax assets and liabilities		$	34,790			$	36,233
Valuation allowance			(578	)			(567	)
Deferred tax assets, net		$	34,212			$	35,666

     As of March 31, 2009, the Company had deferred tax assets associated with stock-based compensation of approximately $4.5 million. There is a risk that the ultimate tax benefit realized upon the exercise of stock options or vesting of restricted stock could be less than the tax benefit previously recognized and in a manner sufficient to exhaust the additional-paid-in-capital pool determined under SFAS 123R. If this should occur, any excess tax benefit previously recognized would be reversed, resulting in an increase in tax expense. Since the tax benefit to be realized in the future is unknown, it is not currently possible to estimate the impact on the deferred tax balance. As of March 31, 2009, the additional paid-in-capital pool was approximately $2.9 million.

     The Company or one of its subsidiaries files U.S. federal, state and foreign income tax returns. All U.S. federal, state and U.K. income tax returns have not been subject to audit, with the exception of New York city and state (through 2003) and Connecticut state (through 2003) tax returns. The Company’s New York state franchise tax returns for 2004 through 2006 are currently under examination. The Company cannot estimate when the examination will conclude.

MARKETAXESS HOLDINGS INC.

     As a result of the implementation of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109,” effective January 1, 2008, the Company recognized an increase in deferred tax assets of $3.0 million related to previously unrecognized tax benefits, which was accounted for as an increase to additional paid-in capital of $0.3 million and an increase in accrued expenses of $2.7 million. Unrecognized tax benefits as of March 31, 2009 and December 31, 2008 were $2.7 million. If recognized, this entire amount would impact the effective tax rate.

10. Related Parties

     The Company generates commissions, technology products and services revenues, information and user access fees, investment income and other income and related accounts receivable balances from Stockholder Broker-Dealer Clients or their affiliates. In addition, a Stockholder Broker-Dealer Client acts in an investment advisory, custodial and cash management capacity for the Company. The Company incurs investment advisory and bank fees in connection with this arrangement. As of the dates and for the periods indicated below, the Company had the following balances and transactions with the Stockholder Broker-Dealer Clients or their affiliates:

		As of
		March 31, 2009				December 31, 2008
		(In thousands)
Cash and cash equivalents		$	109,109			$	106,649
Securities and cash provided as collateral			3,806				3,816
Accounts receivable			2,671				1,930
Accounts payable			11				11

		Three Months Ended March 31,
		2009				2008
		(In thousands)
Commissions		$	3,070			$	3,153
Technology products and services			9				15
Information and user access fees			61				53
Investment income			90				267
Other income			42				43
General and administrative			18				7

11. Stockholders’ Equity and Preferred Stock

Common Stock

     As of March 31, 2009 and December 31, 2008, the Company had 110,000,000 authorized shares of common stock and 10,000,000 authorized shares of non-voting common stock. Common stock entitles the holder to one vote per share of common stock held. Non-voting common stock is convertible on a one-for-one basis into shares of voting common stock at any time subject to a limitation on conversion to the extent such conversion would result in a stockholder, together with its affiliates, owning more than 9.99% of the outstanding shares of common stock.

Series B Preferred Stock and Warrants

     On June 2, 2008, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with two funds managed by Technology Crossover Ventures (the “Purchasers”), pursuant to which the Company agreed to issue and sell to the Purchasers (i) 35,000 shares of the Company’s Series B Preferred Stock, which shares are convertible into an aggregate of 3,500,000 shares of common stock and (ii) warrants (the “Warrants” and, together with the Series B Preferred Stock, the “Securities”) to purchase an aggregate of 700,000 shares of common stock at an exercise price of $10.00 per share, for an aggregate purchase price of $35.0 million. The Securities were purchased in two tranches on June 3, 2008 and July 14, 2008, with the first tranche representing 28,000 shares of Series B Preferred Stock and Warrants to purchase 560,000 shares of common stock for an aggregate purchase price of $28.0 million, and the second tranche representing the remainder of the Securities for an aggregate purchase price of $7.0 million. The net proceeds, after the placement agent fee and legal fees, were $26.8 million for the first tranche and $6.8 million for the second tranche.

MARKETAXESS HOLDINGS INC.

     The Purchasers have the right to nominate one director to the Board of Directors of the Company if they beneficially own at least 1,750,000 shares of common stock. The Purchasers also have registration rights that require the Company, within six months after the closing date, to file a registration statement with the SEC to register the resale of the shares of common stock issuable upon conversion of the Series B Preferred Stock and upon exercise of the Warrants (collectively, the “Registrable Shares”), and to cause such registration statement to become effective under the Securities Act of 1933, as amended, no later than 12 months after the closing. On January 22, 2009, a registration statement on Form S-3 registering the Registrable Shares was declared effective by the SEC. The Company has also agreed to provide the Purchasers with piggyback registration rights on certain public offerings of securities by the Company.

     The purchase price of the Series B Preferred Stock was $1,000.00 per share (the “Original Series B Issue Price”). In the event of a Liquidation Event (as such term is defined in the Series B Certificate of Designation), each holder of the Series B Preferred Stock is entitled to receive, prior to any distribution to the holders of the common stock, the greater of (i) an amount per share of Series B Preferred Stock equal to the Original Series B Issue Price, plus any declared but unpaid dividends thereon, and (ii) the amount such holder would have received in connection with the Liquidation Event if the holder held the number of shares of common stock issuable upon conversion of the Series B Preferred Stock then held by such holder.

     The shares of Series B Preferred Stock are convertible at any time by the holders thereof at a conversion price of $10.00 per share, subject to anti-dilution adjustments in the event of a stock split, stock dividend, reverse stock split or similar transaction. The Series B Preferred Stock will be automatically converted into shares of common stock at the then-applicable conversion price if at any time after June 3, 2009 (the first anniversary of the original issuance of the Series B Preferred Stock), the closing price of the common stock is at least $17.50 on each trading day for a period of 65 consecutive trading days.

     The Series B Preferred Stock includes a dividend right whereby, upon the declaration or payment of a dividend or distribution on the common stock, a dividend or distribution must also be declared or paid on the Series B Preferred Stock based on the number of shares of common stock into which such shares of Series B Preferred Stock would be convertible at the time. The holders of the Series B Preferred Stock also have voting rights equal to the aggregate number of shares of common stock issuable upon conversion of such holders’ shares of Series B Preferred Stock.

     As discussed above, the Warrants entitle the Purchasers to purchase an aggregate of 700,000 shares of common stock at an exercise price of $10.00 per share. The Warrants may be exercised for cash or on a net exercise basis. The Warrants expire on the tenth anniversary of the date they were first issued and are subject to customary anti-dilution adjustments in the event of stock splits, reverse stock splits, stock dividends and similar transactions. The net proceeds from the issuance have been allocated to the Series B Preferred Stock and Warrants based on their relative fair value on the respective closing dates and resulted in $3.2 million being allocated to the Warrants. The fair value of the Warrants was computed using the Black-Scholes option pricing model.

     The Series B Preferred Stock does not contain an unconditional obligation requiring the Company to redeem the shares at a specified date or upon the occurrence of an event certain. While liability classification does not apply, there are certain liquidation scenarios not solely within the Company’s control. Therefore, the portion of the net proceeds attributable to the Series B Preferred Stock is not classified as permanent equity. The Series B Preferred Stock is not being accreted to its redemption value since the occurrence of a redemption event is not considered probable.

Stockholder Rights Agreement

     On June 2, 2008, the Board of Directors implemented a stockholders rights agreement and declared a distribution of one right (a “Right”) for each outstanding share of common stock and non-voting common stock, to stockholders of record at the close of business on June 20, 2008 and for each share of common stock and non-voting common stock issued by the Company thereafter and prior to the Distribution Date (as defined in the stockholders rights agreement). Each Right entitles the registered holder, subject to the terms of the stockholders rights agreement, to purchase from the Company one one-thousandth of a share of Series A Preferred Stock, par value $0.001 per share (a “Unit), at a price of $40.00 per Unit, subject to adjustment.

MARKETAXESS HOLDINGS INC.

12. Stock-Based Compensation Plans

     Stock-based compensation expense for the three months ended March 31, 2009 and 2008 was as follows:

		Three Months Ended March 31,
		2009				2008
		(In thousands)
Employee:
Stock options		$	772			$	925
Restricted stock			1,153				692
			1,925				1,617
Non-employee directors:
Stock options			33				37
Restricted stock			81				85
			114				122
Total stock-based compensation		$	2,039			$	1,739

     The Company records stock-based compensation for employees in employee compensation and benefits and for non-employee directors in general and administrative expenses in the Consolidated Statements of Operations.

     During the three months ended March 31, 2009, the Company granted to employees a total of 35,568 options to purchase shares of common stock, 621,918 shares of restricted stock and performance-based shares with a target pay-out of 137,776 shares of common stock. Based on the Black-Scholes option pricing model, the weighted average fair value for each option granted was $3.45 per share. The fair value of the restricted stock and performance-based share awards was based on a weighted-average grant date fair value per share of $8.06 and $7.94, respectively. As of March 31, 2009, there was $15.0 million of total unrecognized compensation costs related to non-vested awards. That cost is expected to be recognized over a weighted-average period of 1.6 years.

13. Earnings Per Share

     The following table sets forth the computation of basic and diluted earnings per common share.

		Three Months Ended March 31,
		2009				2008
		(In thousands, except share and
		per share amounts)
Basic EPS
Net income		$	2,839			$	1,596
Amount allocable to common shareholders			90.5	%			100.0	%
Net income applicable to common stock		$	2,568			$	1,596
Common stock — voting			30,597,822				29,827,475
Common stock — non-voting			2,585,654				2,585,654
Basic weighted average shares outstanding			33,183,476				32,413,129
Basic earnings per share		$	0.08			$	0.05
Diluted EPS
Net income		$	2,839			$	1,596
Basic weighted average shares outstanding			33,183,476				32,413,129
Effect of dilutive shares:
Series B Preferred Stock			3,500,000				—
Stock options and restricted stock			833,486				981,737
Diluted weighted average shares outstanding			37,516,962				33,394,866
Diluted earnings per share		$	0.08			$	0.05

MARKETAXESS HOLDINGS INC.

     Stock options, restricted stock and warrants totaling 5,174,507 shares and 4,178,681 shares for the three months ended March 31, 2009 and 2008, respectively, were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.

14. Commitments and Contingencies

     The Company leases office space and equipment under non-cancelable lease agreements expiring at various dates through 2019. Office space leases are subject to escalation based on certain costs incurred by the landlord. Minimum rental commitments under such operating and capital leases, net of sublease income, are as follows:

		Operating Leases				Capital Leases
		(In thousands)
Remainder of 2009		$	1,713			$	266
2010			1,092				336
2011			669				336
2012			613				336
2013			620				322
2014			627				28
Thereafter			1,575				—
Minimum lease payments			6,909				1,624
Less amount representing interest			—				258
		$	6,909			$	1,366

     Rental expense of $0.6 million for both the three months ended March 31, 2009 and 2008, is included in occupancy expenses in the Consolidated Statements of Operations. Rental expense has been recorded based on the total minimum lease payments after giving effect to rent abatement and concessions, which are being amortized on a straight-line basis over the life of the lease, and sublease income.

     The Company has entered into a sublease agreement on one of its leased properties through the April 2011 lease termination date. A loss on the sublease was recorded in 2001. The sublease loss accrual as of March 31, 2009 and December 31, 2008 was $0.4 million and $0.5 million, respectively. In May 2008, the Company assigned the lease agreement on another leased property to a third party. The Company is contingently liable should the assignee default on future lease obligations through the November 2015 lease termination date. The aggregate amount of future lease obligations under these two arrangements was $4.5 million as of March 31, 2009.

     The Company is contingently obligated for standby letters of credit that were issued to landlords for office space. The Company uses a U.S. government obligation as collateral for these standby letters of credit. This collateral is included with securities and cash provided as collateral in the Consolidated Statements of Financial Condition and had a fair market value of $3.3 million as of March 31, 2009 and December 31, 2008.

     MarketAxess Corporation operates an anonymous matching service for its broker-dealer clients and during 2008 extended its trading counterparty role to include the execution of certain bond transactions between and among institutional investor and broker-dealer clients. MarketAxess Corporation executes all such trades on a riskless principal basis, which are cleared and settled by an independent clearing broker. Under a securities clearing agreement with the independent third party, MarketAxess Corporation maintains a collateral deposit with the clearing broker in the form of cash or U.S. government securities. As of March 31, 2009 and December 31, 2008, the collateral deposit included in securities and cash provided as collateral in the Consolidated Statements of Financial Condition was $0.5 million. MarketAxess Corporation is exposed to credit risk in the event a counterparty does not fulfill its obligation to complete a transaction. Pursuant to the terms of the securities clearing agreement between MarketAxess Corporation and the independent clearing broker, the clearing broker has the right to charge MarketAxess Corporation for losses resulting from a counterparty’s failure to fulfill its contractual obligations. The losses are not capped at a maximum amount and apply to all trades executed through the clearing broker. At March 31, 2009, MarketAxess Corporation had not recorded any liabilities with regard to this right.

MARKETAXESS HOLDINGS INC.

     In the normal course of business, the Company enters into contracts that contain a variety of representations, warranties and general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on experience, the Company expects the risk of loss to be remote.

     In January 2007, a former employee of MarketAxess Corporation commenced an arbitration proceeding before FINRA arising out of the May 2006 termination of such individual’s employment with MarketAxess Corporation. This individual subsequently amended his statement of claim to add the Company as a party to the arbitration proceeding. FINRA consolidated all of the former employee’s claims into a single proceeding.

     The former employee alleges that the Company acted wrongfully as a result of, and in connection with, the decision by the Compensation Committee of the Company’s Board of Directors not to accede to the employee’s demand for alteration of the terms of certain stock option and restricted stock agreements in order to award the employee additional rights and benefits upon the termination of his employment, i.e., accelerated vesting of all of his then unvested options and shares of restricted stock and waiver of the 90-day time period within which he was contractually required to exercise his vested options. This former employee further alleges that he is entitled to a bonus for the approximately five months that he worked for MarketAxess Corporation during 2006. The alleged damages sought by the claimant total approximately $0.9 million, plus statutory interest, and an unstated amount of punitive damages, costs and expenses.

     The FINRA hearing, which had been scheduled for early February 2009, has been postponed until a new hearing can be rescheduled. The Company believes that these claims are wholly without merit and has vigorously defended against them. Based on currently available information, the Company believes that the likelihood of a material loss is not probable. Accordingly, no amount has been provided in the accompanying financial statements. However, arbitration is subject to inherent uncertainties and unfavorable rulings could occur.

15. Comprehensive Income

     Comprehensive income was as follows:

		Three Months Ended March 31,
		2009				2008
		(In thousands)
Net income		$	2,839			$	1,596
Cumulative translation adjustment and foreign currency exchange hedge, net of taxes			(83	)			(121	)
Unrealized net gain on securities available- for-sale, net of taxes			41				29
Total comprehensive income		$	2,797			$	1,504

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 are under no obligation to revise or update any forward-looking statements contained in this report. 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 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.”

Executive Overview

     MarketAxess operates one of the leading platforms for the electronic trading of corporate bonds and certain other types of fixed-income securities. Through our platform, institutional investor client firms can access the aggregate liquidity provided by the collective interest of our 48 broker-dealer clients in buying or selling bonds through our platform. Our 664 active institutional investor clients (firms that executed at least one trade in U.S. or European fixed-income securities through our electronic trading platform between April 2008 and March 2009) include investment advisers, mutual funds, insurance companies, public and private pension funds, bank portfolios and hedge funds. Our DealerAxess^® trading service allows dealers to trade fixed-income securities and credit default swaps with each other on our platform. We execute certain bond transactions between and among institutional investor and broker-dealer clients on a riskless principal basis by serving as counterparty to both the buyer and the seller in matching back-to-back trades, which then settle through a third-party clearing organization. Through our Corporate BondTicker™ service, we provide fixed-income market data, analytics and compliance tools that help our clients make trading decisions. In addition, we provide FIX (Financial Information eXchange) message management tools, connectivity solutions and ancillary technology services that facilitate the electronic communication of order information between trading counterparties. Our revenues are primarily generated from the trading of U.S. and European high-grade corporate bonds.

     Our multi-dealer trading platform allows our institutional investor clients to simultaneously request competing, executable bids or offers from our broker-dealer clients and execute trades with the broker-dealer of their choice from among those that choose to respond. We offer our broker-dealer clients a solution that enables them to efficiently reach our institutional investor clients for the distribution and trading of bonds. In addition to U.S. high-grade corporate bonds, European high-grade corporate bonds and emerging markets bonds, including both investment-grade and non-investment grade debt, we also offer our clients the ability to trade crossover and high-yield bonds, agency bonds and credit default swap indices.

     The majority of our revenues are derived from monthly distribution fees and commissions for trades executed on our platform that are billed to our broker-dealer clients on a monthly basis. We also derive revenues from technology products and services, information and user access fees, investment income and other income. Our expenses consist of employee compensation and benefits, depreciation and amortization, technology and communication expenses, professional and consulting fees, occupancy, marketing and advertising and other general and administrative expenses.

     We seek to grow and diversify our revenues by capitalizing on our status as the operator of a leading platform for the electronic trading of corporate bonds and certain other types of fixed-income securities. The key elements of our strategy are:

	•		to innovate and efficiently add new functionality and product offerings to the MarketAxess platform that we believe will help to increase our market share with existing clients, as well as expand our client base;
	•		to leverage our technology, as well as our strong broker-dealer and institutional investor relationships, to deploy our electronic trading platform into additional product segments within the fixed-income securities markets, deliver fixed-income securities-related technical services and products and deploy our electronic trading platform into new client segments;

	•		to continue building our existing service offerings so that our electronic trading platform is fully integrated into the workflow of our broker-dealer and institutional investor clients and to continue to add functionality to allow our clients to achieve a fully automated end-to-end straight-through processing solution (automation from trade initiation to settlement);
	•		to add new content and analytical capabilities to Corporate BondTicker™ in order to improve the value of the information we provide to our clients; and
	•		to continue to supplement our internal growth by entering into strategic alliances, or acquiring businesses or technologies that will enable us to enter new markets, provide new products or services, or otherwise enhance the value of our platform to our clients.

Critical Factors Affecting Our Industry and Our Company

Economic, Political and Market Factors

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

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 trading companies. Competitors, including companies in which some of our broker-dealer clients have invested, have developed electronic trading platforms or have announced their intention to explore the development of electronic platforms that may compete with us.

     In general, we compete on the basis of a number of key factors, including, among others, the liquidity provided on our platform, the magnitude and frequency of price improvement enabled by our platform and the quality and speed of execution. We believe that we compete favorably with respect to these factors. We continue to proactively build technology solutions that serve the needs of the credit markets.

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

Regulatory Environment

     Our industry has been and is subject to continuous regulatory changes and may become subject to new regulations or changes in the interpretation or enforcement of existing regulations, which could require us to incur significant costs.

     Our U.S. subsidiary, MarketAxess Corporation, is a registered broker-dealer with the SEC and is a member of FINRA. Our U.K. subsidiary, MarketAxess Europe Limited, is registered as a multilateral trading facility dealer with the FSA in the U.K. MarketAxess Canada Limited, a Canadian subsidiary that we incorporated in May 2003, is registered as an Alternative Trading System dealer under the Securities Act of Ontario and is a member of the Investment Industry Regulatory Organization of Canada. Relevant regulations prohibit repayment of borrowings from these subsidiaries or their affiliates, paying cash dividends, making loans to us or our affiliates or otherwise entering into transactions that result in a significant reduction in regulatory net capital or financial resources, without prior notification to or approval from such regulated entity’s principal regulator.

     As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 and NASDAQ rules promulgated in response to the Sarbanes-Oxley Act. The requirements of these rules and regulations impose legal and financial compliance costs, make some activities more difficult, time-consuming or costly and may also place a

strain on our systems and resources. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight are required.

     Rapid Technological Changes

     We must continue to enhance and improve our electronic trading platform. 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 broker-dealer and institutional investor clients and prospective clients and respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.

Trends in Our Business

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

	•		the number of institutional investor clients that participate on the platform and their willingness to originate transactions through the platform;
	•		the number of broker-dealer clients on the platform and the frequency and competitiveness of the price responses they provide to the institutional investor clients;
	•		the number of markets for which we make trading available to our clients;
	•		the overall level of activity in these markets; and
	•		the level of commissions that we collect for trades executed through the platform.

     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 platform, 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.

     The U.S. and European credit markets have been through a period of significant turmoil since the third quarter of 2007, especially in short-term funding and floating rate note instruments. A widespread retrenchment in the credit markets resulted in increased credit spreads and significantly higher credit spread volatility across a wide range of asset classes. Credit yield spreads in U.S. corporate bonds, as measured by the Credit Suisse Liquid U.S. Corporate Index (“LUCI”), increased from 1.0% over U.S Treasuries in June 2007 to 4.5% in March 2009. Credit spread volatility in U.S. corporate bonds, as measured by the LUCI Index, increased from 0.7% in June 2007 to 11.2% in March 2009. The credit markets showed modest signs of improvement in the first quarter of 2009, with net inflows to taxable bond funds and corporate and international bond exchange-traded funds. The average daily trading volume of U.S. high-grade corporate bonds for the quarter ended March 31, 2009, as measured by TRACE, increased by 32.1% compared to the quarter ended December 31, 2008.

     We believe the resultant lack of liquidity in the credit markets led institutional investors to reduce overall bond trading activity and conduct a higher percentage of their trades directly with their broker-dealer counterparties via the telephone, resulting in lower volumes on our platform. We also believe that a stabilization of credit market conditions, at higher overall levels of credit spreads, is likely to favorably impact the volume of trades conducted over our platform. The lower volumes on our platform were partially offset by higher average variable transaction fees per million of $173 for the quarter ended March 31, 2009, an increase of 68.0% from $103 for the full year 2007. The increase in average variable transaction fees per million for the quarter ended March 31, 2009 was principally the result of the introduction of our trading and execution services desk, the introduction of new dealers on the platform that pay higher variable fees per million, the longer maturity of U.S. high-grade corporate bond trades executed on our platform for which we charge higher commissions, and a larger percentage of Other volume in products that carry higher fees per million, principally high-yield bonds.

Commission Revenue

     Commissions are generally calculated as a percentage of the notional dollar volume of bonds traded on our platform and vary based on the type, size, yield and maturity of the bond traded. The commission rates are based on a number of factors, including fees charged by inter-dealer brokers in the respective markets, average bid-offer spreads in the products we offer and transaction costs through alternative channels including the telephone. Under our transaction fee plans, 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.

     U.S. High-Grade Corporate Bond Commissions. Our U.S. high-grade corporate bond fee plans for fully electronic trades generally incorporate various monthly distribution fees and variable transaction fees billed to our broker-dealer clients on a monthly basis. The fee plan incorporates volume incentives to our broker-dealer clients that are designed to increase the volume of transactions effected on our platform. Under the fee plan, we electronically add the transaction fee to the spread quoted by the broker-dealer client. For trades that we execute between and among institutional investor and broker-dealer clients on a riskless 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 back-to-back trades.

     Eurobond Commissions. Similar to the U.S. high-grade plan, our European fee plans incorporate monthly distribution fees as well as variable transaction fees and incorporate incentives to our broker-dealer clients that are designed to increase the volume of transactions effected on our platform. The variable transaction fee is dependent on the type of bond traded and the maturity of the issue.

     Other Commissions. Commissions for other bond and credit default swap trades generally vary based on the type and the maturity of the instrument traded. We generally operate using standard fee schedules that may include both transaction fees and monthly distribution fees that are charged to the participating dealers. For trades that we execute between and among institutional investor and broker-dealer clients on a riskless 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 back-to-back trades. For trades on our DealerAxess^® dealer-to-dealer electronic trading platform, we typically charge a fee to the broker-dealer clients involved in the transaction.

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

     Other Revenue

     In addition to the commissions discussed above, we earn revenue from technology products and services, information services fees paid by institutional investor and broker-dealer clients, income on investments and other income.

     Technology Products and Services. Technology products and services includes software licenses, maintenance and support services and professional consulting services, In March 2008, we acquired Greenline Financial Technologies, Inc. (“Greenline”), an Illinois-based provider of integration, testing and management solutions for FIX-related products and services.

     Information and User Access Fees. We charge information services fees for Corporate BondTicker^TM to our broker-dealer clients, institutional investor clients and data-only subscribers. The information services fee is a flat monthly fee, based on the level of service. We also generate information services fees from the sale of bulk data to certain institutional investor clients and data-only subscribers. Institutional investor clients trading U.S. high-grade corporate bonds are charged a monthly user access fee for the use of our platform. The fee, billed quarterly, is charged to the client based on the number of the client’s users. To encourage institutional investor clients to execute trades on our U.S. high-grade corporate bond platform, we reduce these information and user access fees for such clients once minimum quarterly trading volumes are attained.

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

     Other. Other revenues include fees from telecommunications line charges to broker-dealer clients and other miscellaneous revenues.

     Expenses

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

     Employee Compensation and Benefits. Employee compensation and benefits is our most significant expense and includes employee salaries, stock 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 a three-year or five-year period. 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, ranging from five to ten years. Intangible assets are assessed for impairment when events or circumstances indicate a possible impairment pursuant to the provisions of SFAS No. 144, “Accounting for Long Lived Assets and for Long Lived Assets to be Disposed Of.”

     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 and data feeds provided by outside vendors or service providers. 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 non-information technology consultants for services provided for the maintenance of our trading platform and information services products.

     Occupancy. Occupancy costs consist primarily of 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 platform and information services.

     General and Administrative. General and administrative expense consists primarily of general travel and entertainment, board of directors expenses, charitable contributions, provision for doubtful accounts, and various state franchise and U.K. value-added taxes.

     Expenses may grow in the future, primarily due to investment in new products, notably in employee compensation and benefits, professional and consulting fees, and general and administrative expense, but we believe that operating leverage can be achieved by increasing volumes in existing products and adding new products without substantial additions to our infrastructure.

Critical Accounting Policies

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States, also referred to as U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of income and expenses during the reporting periods. We base our estimates and judgments on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates under varying assumptions or conditions. Note 2 of the Notes to our Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. There were no significant changes to our critical accounting policies and estimates during the three months ended March 31, 2009, as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2008.

Segment Results

     As an electronic, multi-dealer platform for trading fixed-income securities, our operations constitute a single business segment pursuant to SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Because of the highly integrated nature of the financial markets in which we compete and the integration of our worldwide business activities, we believe that results by geographic region, products or types of clients are not necessarily meaningful in understanding our business.

Statistical Information

     Our trading volume for each of the periods presented was as follows:

		Three Months Ended March 31,
		2009				2008
Trading Volume Data (in billions)
U.S. high-grade		$	36.8			$	38.8
Eurobond			9.1				8.1
Other			14.1				17.6
Total		$	60.1			$	64.5
Number of U.S. Trading Days			61				61
Number of U.K. Trading Days			63				62

     For volume reporting purposes, transactions in foreign currencies are converted to U.S. dollars at average monthly rates. Prior to September 1, 2008, no fees were charged on U.S. high-grade single-dealer inquiries. Such single-dealer inquiry trading volume amounted to $2.4 billion for the three months ended March 31, 2008. Effective September 1, 2008, single-dealer inquiry trades are charged commissions in accordance with the U.S. high-grade corporate bond fee plan. Credit default swap trading volume data are included in Other. Trading volume data related to DealerAxess^® bond trading between broker-dealer clients are included in either U.S. high-grade or Other trading volumes, as appropriate.

     Our active institutional investor clients (firms that executed at least one trade in U.S. or European fixed-income securities through our electronic trading platform for the twelve months ended March 31, 2009 and 2008, respectively) and our broker-dealer clients as of March 31, 2009 and 2008 were as follows:

		Three Months Ended March 31,
		2009				2008
Institutional Investor Clients:
U.S. products			480				455
European products			184				201
Total			664				656
Broker-Dealer Clients			48				30

Results of Operations

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

Overview

     Total revenues increased by $1.7 million or 7.4% to $24.6 million for the three months ended March 31, 2009, from $22.9 million for the three months ended March 31, 2008. This increase in total revenues was primarily due to an increase in technology products and services revenues of $1.3 million and commissions of $1.2 million offset by a decline in investment income of $0.7 million. Technology products and services revenues reflect the impact of the Greenline acquisition in March 2008. A 27.4% change in the average exchange rate of the pound sterling compared to the U.S. dollar from the three months ended March 31, 2008 to the three months ended March 31, 2009, had the effect of reducing revenues by $1.6 million.

     Total expenses decreased by $0.1 million or 0.4% to $19.9 million for the three months ended March 31, 2009, from $20.0 million for the three months ended March 31, 2008. Total expenses for the three months ended March 31, 2009 includes $1.6 million of incremental operating expenses related to Greenline. The $0.1 million decrease in total expenses was primarily due to a decline in professional and consulting expenses of $0.3 million and general and administrative expenses of $0.2 million offset by higher employee compensation and benefits of $0.4 million. The change in the foreign currency rates had the effect of reducing European expenses by $0.9 million.

     Income before taxes increased by $1.8 million or 59.6% to $4.7 million for the three months ended March 31, 2009, from $3.0 million for the three months ended March 31, 2008. Net income increased by $1.2 million or 77.9% to $2.8 million for the three months ended March 31, 2009, from $1.6 million for three months ended March 31, 2008.

Revenues

     Our revenues for the three months ended March 31, 2009 and 2008, and the resulting dollar and percentage changes, were as follows:

		Three Months Ended March 31,
		2009								2008
						% of								% of				$				%
		$				Revenues				$				Revenues				Change				Change
										($ in thousands)
Commissions
U.S. high-grade		$	13,515				54.9	%		$	12,402				54.1	%		$	1,113				9.0	%
Eurobond			4,142				16.8				4,589				20.0				(447	)			(9.7	)
Other			2,789				11.3				2,304				10.0				485				21.1
Total commissions			20,446				83.0				19,295				84.1				1,151				6.0
Technology products and services			2,023				8.2				767				3.3				1,256				163.8
Information and user access fees			1,655				6.7				1,481				6.5				174				11.7
Investment income			332				1.3				991				4.3				(659	)			(66.5	)
Other			176				0.7				405				1.8				(229	)			(56.5	)
Total revenues		$	24,632				100.0	%		$	22,939				100.0	%		$	1,693				7.4	%

     Commissions. Total commissions increased by $1.2 million or 6.0% to $20.4 million for the three months ended March 31, 2009 from $19.3 million for the three months ended March 31, 2008. The following table shows the extent to which the increase in commissions for the three months ended March 31, 2009 was attributable to changes in transaction volumes, transaction fees per million and monthly distribution fees:

		Change from Three Months Ended March 31, 2008
		U.S.
		High-Grade				Eurobond				Other				Total
						(In thousands)
Volume (decrease) increase		$	(219	)		$	108			$	(455	)		$	(566	)
Transaction fee per million increase			2,320				191				940				3,451
Monthly distribution fees (decrease)			(988	)			(746	)			—				(1,734	)
Total commissions increase (decrease)		$	1,113			$	(447	)		$	485			$	1,151

     Our average fee per million for the three months ended March 31, 2009 and 2008 was as follows:

		Three Months Ended March 31,
		2009				2008
Average Fee Per Million
U.S. high-grade
Transaction			$175				$112
Total			$367				$320
Eurobond
Transaction			$128				$105
Total			$456				$567
Other			$197				$131
All Products
Transaction			$173				$116
Total			$340				$299

     U.S. high-grade volume decreased by 5.0% for the three months ended March 31, 2009, compared to the three months ended March 31, 2008. The decrease in U.S. high-grade volume was due to a decline in the Company’s estimated market share of total U.S. high-grade corporate bond volume as reported by the FINRA Trade Reporting and Compliance Engine (“TRACE”) from 7.3% for the three months ended March 31, 2008 to 5.7% for the three months ended March 31, 2009, offset by an increase in overall market volume as measured by FINRA TRACE. Estimated FINRA TRACE U.S. high-grade volume increased by 21.4% from $530.9 billion for the three months ended March 31, 2008 to $644.3 billion for the three months ended March 31, 2009. The U.S. high-grade distribution fees were $7.1 million for the three months ended March 31, 2009, compared to $8.1 million for the three months ended March 31, 2008. The U.S. high-grade distribution fees decreased as a result of recent merger and bankruptcy activity involving several of our broker-dealer clients. The total U.S. high-grade average fee per million is calculated for each period presented using both the transaction fees and the monthly distribution fees paid by our broker-dealer clients. The U.S. high-grade average transaction fee per million increased from $112 for the three months ended March 31, 2008 to $175 for the three months ended March 31, 2009 primarily due to the introduction of our execution services desk, the introduction of new dealers on the platform that pay higher variable fees per million and the longer maturity of trades executed on the platform, for which we charge higher commissions.

     Eurobond volume increased by 12.7% for the three months ended March 31, 2009, compared to the three months ended March 31, 2008. The Eurobond distribution fees were $3.0 million for the three months ended March 31, 2009, compared to $3.7 million for the three months ended March 31, 2008. The total Eurobond average fee per million is calculated for each period presented using both the transaction fees and the monthly distribution fees paid by our broker-dealer clients. The Eurobond average transaction fee per million increased from $105 for the three months ended March 31, 2008 to $128 for the three months ended March 31, 2009. A 27.4% change in the average exchange rate of the pound sterling compared to the U.S. dollar from the three months ended March 31, 2008 to the three months ended March 31, 2009, had the effect of reducing Eurobond commission revenues by $1.6 million.

     Other volume decreased by 19.7% for the three months ended March 31, 2009, compared to the three months ended March 31, 2008. Other average fee per million increased from $131 for the three months ended March 31, 2008 to $197 for the three months ended March 31, 2009, primarily due to a larger percentage of Other volume in products that carry higher fees per million, principally high-yield bonds.

     Technology Products and Services. Technology products and services revenues increased by $1.3 million or 163.8% to $2.0 million for the three months ended March 31, 2009 from $0.8 million for the three months ended March 31, 2008. The increase was primarily a result of the Greenline acquisition in March 2008.

     Information and User Access Fees. Information and user access fees increased by $0.2 million or 11.7% to $1.7 million for the three months ended March 31, 2009 from $1.5 million for the three months ended March 31, 2008.

     Investment Income. Investment income decreased by $0.7 million or 66.5% to $0.3 million for the three months ended March 31, 2009 from $1.0 million for the three months ended March 31, 2008. The decrease was due principally to lower interest rates.

     Other. Other revenues decreased by $0.2 million or 56.5% to $0.2 million for the three months ended March 31, 2009 from $0.4 million for the three months ended March 31, 2008.

Expenses

     Our expenses and expenses as a percentage of revenues for the three months ended March 31, 2009 and 2008, and the resulting dollar and percentage changes, were as follows:

		Three Months Ended March 31,
		2009								2008
						% of								% of				$				%
		$				Revenues				$				Revenues				Change				Change
										($ in thousands)
Employee compensation and benefits		$	11,442				46.5	%		$	11,018				48.0	%		$	424				3.8	%
Depreciation and amortization			1,791				7.3				1,780				7.8				11				0.6
Technology and communications			2,242				9.1				2,106				9.2				136				6.5
Professional and consulting fees			1,879				7.6				2,153				9.4				(274	)			(12.7	)
Occupancy			676				2.7				767				3.3				(91	)			(11.9	)
Marketing and advertising			645				2.6				684				3.0				(39	)			(5.7	)
General and administrative			1,226				5.0				1,467				6.4				(241	)			(16.4	)
Total expenses		$	19,901				80.8	%		$	19,975				87.1	%		$	(74	)			(0.4	)%

     Employee Compensation and Benefits. Employee compensation and benefits increased by $0.4 million or 3.8% to $11.4 million for the three months ended March 31, 2009 from $11.0 million for the three months ended March 31, 2008. This increase was primarily attributable to higher variable incentive compensation of $0.7 million and stock-based compensation expense of $0.3 million, partially offset by lower salary expense and severance of $0.6 million.

     Depreciation and Amortization. Depreciation and amortization was $1.8 million for both the three months ended March 31, 2009 and March 31, 2008. An increase in amortization of intangible assets of $0.3 million was offset by a decline in depreciation and amortization of hardware and software development costs of $0.3 million. The intangible asset amortization increase was due principally to the $8.3 million of definite-life intangibles recorded in 2008 in connection with the Greenline acquisition. For the three months ended March 31, 2009 and 2008, we capitalized $0.4 million and $0.7 million, respectively, of software development costs, and $0.5 million and $0.3 million, respectively, of computer and related equipment purchases.

     Technology and Communications. Technology and communications expense increased by $0.1 million or 6.5% to $2.2 million for the three months ended March 31, 2009 from $2.1 million for the three months ended March 31, 2008. This increase was attributable to an increase in the purchase of market data.

     Professional and Consulting Fees. Professional and consulting fees decreased by $0.3 million or 12.7% to $1.9 million for the three months ended March 31, 2009 from $2.2 million for the three months ended March 31, 2008. The decrease was principally due to lower technology consulting and legal expense.

     Occupancy. Occupancy costs decreased by $0.1 million or 11.9% to $0.7 million for the three months ended March 31, 2009 from $0.8 million for the three months ended March 31, 2008.

     Marketing and Advertising. Marketing and advertising expense increased by 5.7% to $0.6 million for the three months ended March 31, 2009 from $0.7 million for the three months ended March 31, 2008.

     General and Administrative. General and administrative expense decreased by $0.2 million or 16.4% to $1.2 million for the three months ended March 31, 2009 from $1.5 million for the three months ended March 31, 2008, primarily due to a decline in the provision for doubtful accounts.

     Provision for Income Tax. For the three months ended March 31, 2009 and 2008, we recorded an income tax provision of $1.9 million and $1.4 million, respectively. The increase in the tax provision was primarily attributable to the $1.8 million increase in pre-tax income for the period. With the exception of the payment of certain foreign and state and local taxes, the provision for income taxes was a non-cash expense since we had available net operating loss carryforwards and tax credits to offset the cash payment of taxes.

     Our consolidated effective tax rate for the three months ended March 31, 2009 was 40.0% compared to 46.2% for the three months ended March 31, 2008. The 2009 effective tax rate reflects a higher portion of earnings generated in lower tax rate jurisdictions combined with a reduction in the projected annual tax rate. The consolidated effective tax rate for the full year 2008 was 38.5%. Our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings and changes in tax legislation and tax rates. Due to our net deferred tax asset balance, a decrease in tax rates results in a reduction in our deferred tax balance and an increase in tax expense.

Liquidity and Capital Resources

     During the past three years, we have met our funding requirements through cash on hand, internally generated funds and the issuance of Series B Preferred Stock. Cash and cash equivalents and securities available-for-sale totaled $137.4 million at March 31, 2009. Other than equipment-related capital lease obligations amounting to $1.4 million as of March 31, 2009, we have no long-term or short-term debt and do not maintain bank lines of credit.

     Our cash flows were as follows:

		Three Months Ended March 31,
		2009				2008
		(In thousands)
Net cash (used in) operating activities		$	(2,330	)		$	(1,908	)
Net cash provided by (used in) investing activities			5,478				(13,029	)
Net cash (used in) financing activities			(506	)			(3,411	)
Effect of exchange rate changes on cash			(142	)			(64	)
Net increase (decrease) for the period		$	2,500			$	(18,412	)

Operating Activities

     Net cash used in operating activities of $2.3 million for the three months ended March 31, 2009 consisted of net income of $2.8 million, adjusted for non-cash charges, primarily consisting of depreciation and amortization of $1.8 million, stock-based compensation expense of $2.0 million and deferred taxes of $2.1 million, offset by an increase in cash used for working capital of $11.2 million. The use of working capital primarily resulted from a decrease in accrued employee compensation of $7.5 million, which included the payment of annual bonuses of $9.5 million in January 2009, and an increase in accounts receivable of $4.7 million.

     Net cash used in operating activities of $1.9 million for the three months ended March 31, 2008 consisted of net income of $1.6 million, adjusted for non-cash charges, primarily consisting of depreciation and amortization of $1.8 million, stock-based compensation expense of $1.7 million and deferred taxes of $1.5 million, offset by an increase in cash used for working capital of $8.8 million. The use of working capital primarily resulted from a decrease in accrued employee compensation of $11.2 million, which included the payment of annual bonuses of $13.4 million in January 2008, and a decrease in accounts payable, accrued expense and other liabilities of $0.4 million, offset by a decrease in accounts receivable of $2.8 million.

Investing Activities

     Net cash provided by investing activities of $5.5 million for the three months ended March 31, 2009 primarily consisted of net maturities of securities available-for-sale of $7.7 million, offset by $1.4 million for an earn-out payment related to the acquisition of Greenline.

     Net cash used in investing activities of $13.0 million for the three months ended March 31, 2008 primarily consisted of $29.2 million for the acquisition of Greenline, net maturities of securities available-for-sale of $17.2 million, purchases of furniture, equipment and leasehold improvements of $0.3 million and capitalization of software development costs of $0.7 million.

Financing Activities

     Net cash used in financing activities for the three months ended March 31, 2009 was $0.5 million consisted principally of a decrement in windfall tax benefits from stock-based compensation of $0.3 million.

     Net cash used in financing activities of $3.4 million for the three months ended March 31, 2008 consisted principally of the purchase of treasury stock of $2.8 million.

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

Other Factors Influencing Liquidity and Capital Resources

     We are dependent on our broker-dealer clients, three of which are also our stockholders, who are not restricted from buying and selling fixed-income securities, directly or through their own proprietary or third-party platforms, with institutional investors. None of our broker-dealer clients is contractually or otherwise obligated to continue to use our electronic trading platform. The loss of, or a significant reduction in the use of our electronic platform by, our broker-dealer clients could reduce our cash flows, affect our liquidity and have a material adverse effect on our business, financial condition and results of operations.

     We believe that our current resources are adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months. However, our future liquidity and capital requirements will depend on a number of factors, including expenses associated with product development and expansion and new business opportunities that are intended to further diversify our revenue stream. We may also acquire or invest in technologies, business ventures or products that are complementary to our business. In the event we require any additional financing, it will take the form of equity or debt financing. Any additional equity offerings may result in dilution to our stockholders. Any debt financings may involve restrictive covenants with respect to dividends, issuances of additional capital and other financial and operational matters related to our business.

     We have three regulated subsidiaries, MarketAxess Corporation, MarketAxess Europe Limited and MarketAxess Canada Ltd. MarketAxess Corporation is a registered broker-dealer in the U.S., MarketAxess Europe Limited is a registered multilateral trading facility in the U.K. and MarketAxess Canada Ltd. is a registered Alternative Trading System in the Province of Ontario. As such, they are subject to minimum regulatory capital requirements imposed by their respective market regulators that are intended to ensure general financial soundness and liquidity based on certain minimum capital requirements. The relevant regulations prohibit a registrant from repaying borrowings from its parent or affiliates, paying cash dividends, making loans to its parent or affiliates or otherwise entering into transactions that result in a significant reduction in its regulatory net capital position without prior notification to or approval from its principal regulator. The capital structures of our subsidiaries are designed to provide each with capital and liquidity consistent with its business and regulatory requirements. The following table sets forth the capital requirements, as defined, that the Company’s subsidiaries were required to maintain as of March 31, 2009:

		MarketAxess				MarketAxess				MarketAxess
		Corporation				Europe Limited				Canada Limited
						(In thousands)
Net capital		$	27,660			$	19,306			$	370
Minimum net capital required			614				2,467				218
Excess net capital		$	27,046			$	16,839			$	152

     MarketAxess Corporation operates an anonymous matching service for its broker-dealer clients and during 2008 extended its trading counterparty role to include the execution of certain bond transactions between and among institutional investor and broker-dealer clients. MarketAxess Corporation executes all such trades on a riskless principal basis, which are cleared and settled by an independent clearing broker. Under a securities clearing agreement with the independent third party, MarketAxess Corporation maintains a collateral deposit with the clearing broker in the form of cash or U.S. government securities. As of March 31, 2009 and December 31, 2008, the collateral deposit included in securities and cash provided as collateral in the Consolidated Statements of Financial Condition was $0.5 million. MarketAxess Corporation is exposed to credit risk in the event a counterparty does not fulfill its obligation to complete a transaction. Pursuant to the terms of the securities clearing agreement between MarketAxess Corporation and the independent clearing broker, the clearing broker has the right to charge MarketAxess Corporation for losses resulting from a

counterparty’s failure to fulfill its contractual obligations. The losses are not capped at a maximum amount and apply to all trades executed through the clearing broker. At March 31, 2009, MarketAxess Corporation had not recorded any liabilities with regard to this right.

     In the ordinary course of business, we enter into contracts that contain a variety of representations, warranties and general indemnifications. 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 loss to be remote.

Effects of Inflation

     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, office leasing costs and communications expenses, which may not be readily recoverable in the prices of our services. To the extent inflation results in rising interest rates and has other adverse effects on the securities markets, it may adversely affect our financial condition and results of operations.

Contractual Obligations and Commitments

     As of March 31, 2009, we had the contractual obligations and commitments detailed in the following table:

		Payments due by period
						Less than												More than
		Total				1 year				1 - 3 years				3 - 5 years				5 years
										(In thousands)
Operating leases		$	6,909			$	1,713			$	1,761			$	1,233			$	2,202
Capital leases			1,624				266				672				658				28
Foreign currency forward contract			20,320				20,320				—				—				—
		$	28,853			$	22,299			$	2,433			$	1,891			$	2,230

     As of March 31, 2009, we had unrecognized tax benefits of $2.7 million. Due to the nature of the underlying positions, it is not currently possible to schedule the future payment obligations by period. In addition, in connection with the acquisition of Greenline, the sellers are eligible to receive up to an aggregate of $1.5 million in cash in 2010, subject to Greenline attaining certain earn-out targets in 2009. The amount of the earn-out ultimately payable, if any, is currently unknown.

Item 3. Quantitative and Qualitative Disclosures About Market Risk