UPDATE 2-MarketAxess Q3 results beat estimates, shares rise

* Sees '10 volumes at same level or slightly lower than Q3

* Says higher electronic trading help Q3 results * Q3 EPS $0.12 vs est $0.09

* Revenue up 32 pct, commissions up 47 pct

* Shares rise more than 7 pct (Recasts, adds CEO, analyst comments, share movement)

By Archana Shankar

BANGALORE, Oct 28 (Reuters) - MarketAxess Holdings Inc (MKTX.O), an electronic bond-trading platform operator, posted a higher-than-expected quarterly profit, helped by increased investor order flow and improved liquidity on the trading system.

The company said the improvement in credit market conditions is driving increased demand for electronic trading. Investor orders are up 78 percent year-over-year and fee capture continues to improve.

"We would expect trade volumes to be in and around current levels, or be slightly lower year-over-year in 2010," Chief Executive Richard McVey said in a conference call with analysts.

Total trading volumes rose 64 percent to $80.4 billion in the third quarter, its highest since second quarter of 2007, the company said.

McVey said trading volumes rose in October compared with September, but expects them to reduce around the holiday season in the fourth quarter.

Analyst Howard Chen of Credit Suisse said trading activity levels continued to improve so far in the fourth quarter, with U.S. high grade volumes tracking up 50 percent year-over-year, which has been supported by further firming of the fixed income markets.

The company, which saw a 47 percent rise in commission revenue at $25.3 million, said cash balances are well in excess of capital needs for organic growth.

"All options are open in front of the board including buybacks and acquisitions," McVey said.

For the third-quarter, cash balances stood at $162 million, up from $145 million in the second quarter, the company said.

MarketAxess said its effective tax rate for the third quarter was 45.7 percent, compared with 27.6 percent last year, due to the impact on its deferred tax asset of newly enacted apportionment rules in New York City.

MarketAxess, which expects the effective tax rate for the fourth quarter to be between 42 percent and 44 percent, said the new rules will reduce its overall tax rate in the future.

The company said the electronic credit default swaps (CDS) volumes are still very small but it is preparing for the potential shift in market structure.

For the latest third quarter, the company earned $4.6 million, or 12 cents a share, compared with $1.5 million, or 4 cents a share, a year earlier.

Revenue rose 32 percent to $30 million.

Analysts on average had expected earnings of 9 cents a share, before special items, on revenue of $27.4 million, according to Thomson Reuters I/B/E/S.

"Revenue growth was primarily driven by improved commissions, as healthier volumes offset a decline in pricing/revenue capture -- the latter was less severe than we had been anticipating and drove most of this quarter's upside," analyst Chen said in a note.

Shares of the company rose more than 7 percent in morning trade but pared early gains and were up 3 percent at $12.45 in late morning trade on Nasdaq. (Reporting by Archana Shankar; Editing by Gopakumar Warrier)