Tony DeLise – Chief Financial Officer
Thank you, Rick. Please turn to Slide 8 for a summary of our trading volume across product categories. U.S. high-grade volumes were $231 billion for the quarter, up 13% year-over-year, primarily due to 11% increase in U.S. high-grade TRACE market volume. We completed approximately 5,200 block trades during the second quarter. However, the tailwinds from major short data paper selling programs experienced in the first quarter did not repeat in the second quarter and new issuance was fairly robust in 2Q.
Volumes in the other credit category were up 23% year-over-year, while estimated aggregate market volumes for emerging markets high yield and Eurobonds was down 7%.
Market share gains was the main driver behind the 32% growth in Eurobond volume and 27% growth in emerging markets volume. Healthy growth in client engagement is evidenced across each of our core products. We now have over 1,450 client firms active on the platform, an increase of over 300 in just the past two years, and we have almost 850 clients trading in three or more products. With five important trading days remaining in July, estimated U.S. high-grade market share is running slightly below the second quarter level and estimated high-yield market share is running well ahead of the second quarter level.
On Slide 9, we provide a summary of our quarterly earnings performance. Overall revenue was up 11% year-over-year. The 16% increase in trading volume drove commissions 10% higher. The $1.1 million uplift in post-trade services revenue is primarily due to a combination of new MiFID II services and the new customers. Expenses were up 16% year- over-year, leading to a 6% increase in operating income. Excluding duplicate rent expense recognized during the build-out phase of the Companys new corporate offices in New York City, operating income was up 10%. The effective tax rate was 23.9% in the second quarter and 22.6% year-to-date. We expect the effective tax rate for full year 2018 will be within the 23% to 25% guidance range.
Our diluted EPS was $1.07 on a fairly stable diluted share count of 37.9 million shares.
On Slide 10, we have laid out our commission revenue, trading volumes and fees per million. Total variable transaction fees were up 2% year-over-year as the 16% increase in trading volume was offset by the impact of our new high-yield fee plan implemented in the third quarter and revisions to the Eurobond fee plan together with the mix shift within certain products.
U.S. high-grade fee per million was up $4, compared to the first quarter of 2018, as the mix shift paper and smaller trade size under our tiered fee more plan more than offset lower duration. The $1 million sequential increase in U.S. high-grade distribution fees was principally due to one market maker moving to distribution fee plan. A portion of the distribution fees recognized in the second quarter related to a prior period. We expect that third quarter high-grade distribution fees will be roughly $500,000 lower than the second quarter level.
Our other credit category fee capture was down $6 on a sequential basis. At a granular level, fees per million for emerging market incorporates and emerging market sovereigns, European high-grade and high yield and U.S. high-yield, that trades on either a price or spread protocol, were all consistent with the first quarter. That said, there was a mix shift among products with a greater percentage of volume derived from Eurobonds and emerging markets resulting in lower sequential fee capture in the other credit category.
Slide 11 provides you with the expense detail. Sequentially, expenses were flat as lower compensation and benefit costs were offset by increases in several other line items, most notably, marketing and advertising. A reduction in the variable bonus accruals which is tied directly to operating performance and seasonally lower employment taxes and benefits accounted for the $2.6 million drop in compensation and benefits costs.
The timing of various programs and events greatly influences the quarterly marketing and advertising expense. We believe the second quarter level is more indicative of the run rate for marketing and advertising expenses for the next two quarters. Our full year 2018 expenses are projected to fall in the lower half of the guidance range of $220 million to $232 million, inclusive of approximately $8 million in duplicate rent expense.
On Slide 12 we provide balance sheet information. Cash and investments as of June 30 were $420 million, compared to $407 million at year-end 2017. During the second quarter, we paid a quarterly cash dividend of $16 million and repurchased 32,000 shares at a cost of $3.6 million. We also spent $9 million on construction associated with the build-out of the New York City office space.
Trailing 12 months pretax flow was a record $169 million. Based on these results, our board has approved a $0.42 regular quarterly dividend.
MarketAxess' (MKTX) CEO Rick McVey on Q2 2018 Results - Earnings Call Transcript | Seeking Alpha
