Q3 2019 Earnings Call
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Thank you I'd now like him the conference over to your speaker for today polling Malcolmson. Please go ahead Mr. malcolmson.
Thank you Jack and good morning, everyone. Thank you for joining us today for the third quarter 2019 conference call for TMX group.
As you know, we announced or third quarter results last evening copy of our press releases are available on the web site Pmax Dot com under Investor Relations.
Joining me on what the slew of our Chief Executive Officer, and John Mckenzie, Our Chief Financial Officer. Following my opening remarks for me when John will have a question and answer session.
Just before we start I want to remind you that certain statements we make on the call today, maybe considered forward looking I refer you to the risk factors outlined in today's press release and reports filed by TMX group with regulatory authorities now I'd like to turn the call over <unk>.
Thank you Paul good morning, everyone and thanks for dialing in.
As Paul mentioned, we reported results for the third quarter last night.
Q3 to nine 2019, CMS once again turned in solid performance.
Despite continued headwinds in some key drivers, including secondary financing activity among our Toronto stock exchange issuer base Tms delivered year over year, 2% growth in revenue and 7% broken earnings per share on a diluted basis.
The ability to achieve positive results as we get in the third quarter with both top and bottom line growth in the midst of a terminal macroeconomic environment is the core objectives of our long term strategy as we work to identify to capitalize on what we call secular trends to generate growth.
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Okay, I guess, we're ready to go again, sorry about that everyone on the line. Thanks for your patience.
I'm going to get right back into we're not sure what you heard so I'm going to start from the beginning again.
Thanks, Paul for forgetting us going and good morning, everyone.
As Paul mentioned, we reported results for the third quarter last night.
Q3, 219, Tms once again turned in a solid performance.
Despite continued headwinds in some key drivers, including secondary financing activity among our Toronto stock exchange issuer base Tms delivered year over year, 2% growth in revenue and 7% growth in earnings per share on a diluted basis.
The ability to achieve positive results as we did in the third quarter with top and Bottomline growth in the midst of a turbulent macroeconomic environment is the core objective of our long term strategy as we work to identify and capitalize on what we call secular trends generate growth.
Results for the third quarter also serve to highlight some of Pms is important early stage successes in addressing the secular trends in capital formation with new international and domestic listings as well global energy with Trayport and color derivatives with much all exchange.
As John stated in our press release last evening. This was our third best quarter in terms, our best third quarter, sorry, that's third quarter in terms of highest revenue diluted earnings per share and adjusted diluted earnings per share.
John I'll tell you more about it as he takes you want a deeper dive into the numbers in a moment, but I do want to steal some of his thunder at the outset and just briefly discuss the 6% increase in CMS is quarterly dividend that we also announced last night.
The increased from 60 to 66 cents per common share is the second increase for 2019, and the Tms scrip dividend increase in three years.
In fact, our dividend is probably 65% since 2016 when CMS the strategic transformation returned the organization to profitable growth.
The increase in our dividend over the past three years, clearly demonstrates the amex's ability to generate value for clients and shareholders alike.
We've also achieved our stated goal of aligning our payout ratio with data her global peers.
At Investor Day, just about one year ago now we laid out our roadmap for growth.
Plans to capitalize on evolving market trends around the world in our core business as well as in new areas, the strength and expanded capabilities.
This year, we have made considerable headway executing against our roadmap.
And as a result, Pemex has evolved from a regional company with global aspirations into a truly global business.
One key tenets of our global both strategies Trayport, our London based network and platform for global wholesale energy markets.
Trayport revenue from the core subscriber business, including this attack continued to grow in the third quarter up 17% in Sterling over Q3 of 2018, including a 9% increase and the average revenue per user.
Trayport also continues to make progress in its strategy to seize on structural energy market trends, including globalization and digitization of markets.
The liquid natural gas market is a prime example of a market and transition in fact, the nature of LNG transactions has completely changed.
Increase generation and the transition of LNG from a regional to global fuel has led to shorter term contracts. These more tradable products have spurt interest from traders and LNG portfolio players and contributed to a pronounced increasing liquidity.
Volumes in the signature European and Asian benchmark gas contracts accessible through transport system increased significantly year over year 2019 volume in the TTF contract through the end of August was up 53% compared with 2018 and Ajay can set an all time high Q3 in terms of all.
Okay.
Brokers using trayport us our substantial source of liquidity and this market and execute a majority the volume.
In a year mark thus far by operational SAS organic growth and high performance reports 2019 will be remember for strategic execution and accelerated growth.
And a spring the definition of visits tacky had an advanced algorithmic trading capabilities to jewel Trayport score trading screen implementation is on track for launch in the next few months.
And just last week Trayport announced another very important step forward in its global expansion strategy entering into an agreement with nodal exchange, Washington, DC based derivatives exchange serving commodities markets.
The agreement U.S. energy contracts will now be added the trayport screen and the Joel network will expand to include trading participants of nodal exchange. This is a good strategic fit for Trayport effort Cmax and establishes an entry point into the U.S. energy markets for Trayport.
Across our business TMX International presence continues to grow as we target areas to apply or expertise and depth of capabilities to add value for existing and prospective clients.
In derivatives, taking advantage of global pent up demand for Canadian products, Montreal exchanges extended hours initiative has been a success.
Serving the Broughton investor exposure to keep Canadian benchmarks, while enhancing annexes profile is a globally competitive market and boosting activity.
[noise] volume's traded during extended hours now represent approximately 5% of overall volume and that's up from 3% in the first quarter of the year.
Overall, unmatched and C.D.C.C. third quarter revenue was up 16% compared to last year.
Driven by how higher volumes in our signature products and that includes the back CGD and the success as well as higher revenue from repo clearing.
Going forward Montreal Exchange will continue its global expansion and seeks to capitalize on key trends such as a growing global Buyside the man and LTC derivatives reform in that she does that push more products towards electronic essentially cleared models.
Turning now to our capital formation business, while market conditions and volatility continued to weigh on results in the third quarter and over the first nine months of year, our long term strategy remains on track.
Capital No snowboarders global mobility of capital isn't irreversible trend aided by technology, and marketing infrastructure developments and an increasing regulatory support for growth companies.
In targeted areas around the world our business development teams are pitching the merits of listening with DSS and Tsxv entrepreneurs and companies with a heavy focus on innovation sector in Silicon Valley, Israel, UK and Latin America.
A closer look inside the numbers indicates our sustained effort has been paying off.
Although financing transactions in dollars race to the first nine months of the are down compared with last year, our markets still we're number two in new international listening and number two in new listings overall, among our global peers.
Your next is innovation franchise continues to gain momentum as well with T.S. ECS and TSS, beginning a reputation among issuers and investors as an international innovation Center.
For the overall number of new innovation listings on our markets on a global basis. We're ahead of last year eight new internationalization listings as at the end of September compared to seven in the entire year 2018.
The sector continues to outperform major benchmarks as well through the end of September the S&P TSX Tech index was up 50% started the year, which represents an attractive return for any investor and also for any companies considering the listening here.
And despite market volatility impacting the current IPO market, particularly in terms of timing, we're confident that the global pipeline remains strong.
As we look to build on that strength and facilitate growth for issuers of all sizes and across all sectors. We're proud to recognize listing a hot eight mining Corporation, a Toronto based cryptocurrency company and block chain infrastructure company, which began trading on Toronto stock exchange last month.
Hi data is not only the first cryptocurrency company on T.S., Saks and the TSX venture graduate, but it's also the first company be listed under our new TSX Sandbox program, which we launched our earlier this year.
Yes that sandboxes, new tailored solution intended to help widening existing channels for companies to access public markets and expand the scope of our engagements with issuers and potential issuers.
Within a new progressive framework, our senior market listings team work directly with companies, who have high growth potential, but who may not necessarily me all traditional criteria required for TSX list.
Sandbox is consistent with the adaptive approach and long term mindset CMS has adopted the serving our markets in recognition of evolving trends and emerging paradigms.
At Cmax and everything we do across our enterprise in every business area, we're focused on growth, helping our clients grow growing TMX and growing the value we delivered to shareholders and stakeholders I. Thank you for your attention I look forward your questions and would that I'm going to turn the call over to John .
Well, thank you very much Lou and good morning, everyone.
Now as Lou just mentioned recently, we were really pleased to report our best third quarter in terms of revenue diluted EPS and adjusted diluted EPS.
Revenue for the quarter was up 2% year over year and operating expenses were down 2% to Europe over last year, leading to a 7% increase in diluted earnings per share and a 5% increase in adjusted diluted earnings per share as compared with Q3 of 18.
The higher revenue in Q3 was largely due to an increase in revenue from derivatives trading and clearing trayport and Tds.
These increases were partially offset by decreases in capital formation as well as in equities and fixed income trading revenues.
The increase in derivatives trading and clearing revenue was driven by a 16% increase in revenue from Pemex and CDC C.
There was 7% increase in volumes on Amex as well as an increase in revenue from repo clearing and reduced rebates from the MX and Cds you see in the third quarter as compared with last year also contributed to the increased revenue.
The increases were somewhat offset by a decrease in revenue from box. Following the expiry of our agreement at the end of 2018 to provide solar technology and services to box. Although we are continuing to provide transition services to box over the near term.
Trayport continued to deliver exceptionally strong results in its core business year over year revenue at Trayport was up 5%, which included a full quarter of revenue from Vizio Tech. The increase was somewhat offset by the unfavorable impact of a stronger Canadian dollar relative to the Sterling.
Revenues in the core subscriber business, excluding contigo, which was sold in November 2018, and including video Tech grew by 17% in Sterling.
Trayport other key metrics also continued to be strong year over year trader subscriptions were up 12% total subs increased by 7%.
And the revenue per user was up 9%.
Revenue from GSK, excluding Trayport was essentially unchanged from last year.
There was higher ever for revenue from data feeds co location and a favorable impact from a weaker Canadian dollar relative to the U.S. dollar in Q3 19 compared to Q3 18.
However, these increases in revenue were all essentially offset by a decrease in revenue from benchmarks and indices versus Q3, 2018, where there was a one time increase from the source of revenue.
Well the number of real time marketing subscriptions was down 1% year over year for Ts ECS and TSS venture subscriptions were up about 5% for Amex data.
Cts also reported strong quarter with a 7% increase in revenue, reflecting were revisions to our fee schedule for issuer services and increased international revenues.
As I said earlier in the revenue increases were partially offset by a decrease in capital formation revenue, reflecting lower initial listening fee revenue.
Sustaining listing fee revenue was also down year over year, reflecting the lower capitalization of our listed issuers at the end of last year.
In Q3, we did notice an improvement and the additional listing fee revenue with only a slight decline in the quarter compared to last year, while the number of transaction build on the TSX was essentially flat from Q3 18 to Q3 19, there was a 29% decline in the number of transactions build at the maximum fee.
This decrease was largely offset by higher additional listing fees on TSX venture, where there was an increase in total financing dollars raised.
TSX Trust was also slightly lower than in 2018, reflecting decreased revenue from transfer agent fees and activity somewhat offset by higher margin income.
There was a 6% decrease in equities and fixed income trading revenue in the quarter, which was in line with a 7% decrease decrease in overall equity trading volumes.
Now turning to operating expenses operating expenses in the third quarter were down 2% from last year, reflecting continued disciplined cost management.
The decrease in costs was largely related to lower project spending including amounts paid to external consultants as well as lower short term employee performance incentive plan and severance costs.
These decreases were partially offset by an increase of approximately 3.6 million and long term employee employee performance incentive plan costs driven by the increase in our share price.
Now looking at our results compared with Q2 revenue was 196.3 million in Q3, 19 down $14 million from Q2, 19, reflecting sequential decreases in all segments, including capital formation, driven by lower additional listing fees equity and fixed income trading and clearing and global solutions insights analytics Oh This is not.
I'm expected as Q3 is generally softer quarter.
Operating expenses decreased as well in Q3 19 versus Q2 19, reflecting a reduction in strategic realignment expenses, a decrease in project spending and fees as well as it increased recoverable expenses.
These decreases were somewhat offset by an increase of approximately 3.9 billion in the long term employee performance incentive plan costs I mentioned earlier, driven by that increase in our share price.
Income from operations decreased from Q2, 19 to Q3 19 due to lower revenue and partially offset by these lower expenses.
No it to comment on our balance sheet, we reduced our commercial paper by almost 50 million from the end of 2018, and our leverage as defined by our debt to adjusted EBITDA ratio was 2.2 times as of September Thirtyth down from 2.3 times at June Thirtyth.
We also held over 240 million in cash and marketable securities at September Thirtyth over 70 million in excess of 170 million, we target to retain for regulatory and credit facility purposes.
Last night, our board declared a quarterly dividend of 66 cents per common share to be paid on December six to shareholders of record on November 22nd.
Our solid ongoing financial performance gave us the coffins to announce the second increase in the quarterly dividend for 2019.
And with this for centre, a 6% increase in our dividend our dividend payout ratio is 53% in the quarter or 47% over the past four quarters inline with our targeted payout range of 40% to 50% of adjusted diluted EPS over the long term.
At this point I will turn the call back to Paul for the question answer session.
Thanks, John Jack could you. Please outlined the process for the question and answer session.
Certainly again, if you'd like to ask your question. Please press star one on your telephone keypad.
Jeremy Campbell with Barclays. Your line is open.
Good morning. Thank you for the question one of this is Jason Weber on for Jeremy Campbell, Lou I wanted to touch on the Montreal exchange and some of the opportunities for derivatives trading you see there I know cannabis and he is she had been areas of interest, but would see me as expected launch of U.S.G. futures later in the month could you help us frame abuse GE would still be an area of potential expansion.
Going forward or if there any other upcoming launches you want to highlight thank you.
Yeah sure just I mean, it certainly could day of what we're doing right now spending a lot of time.
Looking to the market participants and understanding where the greatest demand is.
But certainly in our future as we continue expansion and look at.
Okay moving into Asia for 2021 part of the of the the transformation of growth of the module exchanges to move from as we have from a regional chains regional exchange operating globally now the next step as we start to add benchmarks that have.
Broader constituents not just Canadian constituents.
As we move out to be a true global player operating in global markets. So we're looking at obviously, there's a lot of demand and cannabis there's demand for U.S.G., but trying to get it right exactly what are their constituents, what our clients looking for what's the right makeup of those benchmarks. So we're working right now to try and address those things and figure out exactly what.
The market watch, what's the greatest demand, but certainly when you look out over the next.
One two years, we intend to launch a benchmarks with global constituents that can drive future Scott New features contracts.
Jamie balloon with National Bank financial your line is open.
Yes, I'm just.
First question just on the on the normal exchange and relationship can you just speak to the strategy how that relationship came about why notable and is this is this something that we should expect from trayport going forward with other exchanges.
Yes, Hi, Jamie I mean, it this is totally consistent with our approach and the existing model for Trayport.
We've mentioned in the past how we're looking at obviously the U.S. market you want to be in there. There is other developing markets like Japan and others. So there's a pretty healthy list of both new markets in new asset class that we've targeted this is a classic example of how are people that are folks trayport are out talking to park.
Dispensed in the market they find a need and this is exactly the kind of venture point, we want because once we've got this agreement now up and running with nodal. This gives us chance to go out to.
Brokers, who will automatically get a group of traders that are nodal clients. So thats what seeds your marketplace. So not all of the first exchange you'll get a group for traders from nodal, but then also it gives us chance to go out to the brokers in the U.S. and add other constituents just like we do on every other market.
And this is it was it was an exciting for us because I think we have been able to get into the U.S. marcon, even a little ahead of when we had hoped for so it's a great entry point for us in a chance to build out the trayport model and the U.S. and we're hopeful that other markets will be far behind.
And just following up still on not on that front, the kind of the secret sauce, which report is the relationships, where those exchanges and running the the sort of background back office functions and getting all that data is that is that going to be the case with normal as well for these contracts or is this a little bit of a different relationship.
What we're typically used to.
No I think it's consistent but I, but I will point out that our relationships with all of our then you participants is critical I mean.
The value we provide to.
To all the participants exchanges traders brokers never one of the biggest highlights so far of 2019 has been to rollout Joel for brokers.
And giving them the digital tools they need to compete in markets that went from long term contract base the spot trading base, you've got to have new tools to be able to do that so.
You will for for traders has been out now for a while and you'll see the results that as the the trade our client base keeps growing so we've got a have a a value add relationship with all the participants on the system, but this is very consistent with how we have built up our business in other markets.
Okay and last one on this topic for those of us not familiar with normal can you sort of speak to their market share and growth.
For the last or I guess, I should say over recent periods.
I don't have market share numbers in front of me on that but but nodal as you know as part of a larger network. It's owned by the Deutsche Boerse Group.
And.
It's a growing business. It's one of the newer exchanges. We can go back and get you some data around that follow up with the Jane to do that but I don't have all their market share and growth numbers in front of me, but we can certainly get to that.
Okay, and then shifting gears just to the dividend increase this quarter can you just speak to some of the parameters that that you were looking at that drove the increase for Q3.
Is this something that we should expect on a more regular basis. This kind of three quarters in recent quarters timing.
It's a little bit more color around that.
Well James I mean, the whole point of the three quarter timing as to make us So you can't guess which quarter by quarter.
No just ill joking aside.
What we're trying to do as Im sure that shareholders are participating in the profitable growth of the organization.
So as we've gone through the year and demonstrated continued profitable growth even despite a strong market conditions that gave us the confidence to make another change and really pushed to the top of our our guidance range.
And as a as an analyst it looks as you'll know that our cash flow capability, our free cash flow capability gives a lot of flexibility there.
The payout at the top into the range. So thats the thinking that went into it and we're not giving new direction around timing going forward other than the expectation is we're going to continued have shareholders and join in participating the profit growth the organization.
Okay, great. Thank you.
Hey, Prim with BMO capital markets. Your line is open.
Beyond capital markets. Your line is open.
Hi, sorry about that I wanted to start with the question on the IPO market.
There's clearly been a dearth and corporate IPO activity. This year, we went from the candidate pulled their plans to go public very recently I just wonder if I could just asked to get your read on what you're seeing in the IPO pipeline and what you're hearing from perspective candidates in terms of their interest in pursuing a public listing.
Yes, our pipeline for starters remains very strong and I think we've got to be careful not to paint the entire IPO market with.
Some large.
Potential ipos again, a lot of attention and a lot of news, there's still a very robust IPO market and in fact, we've been saying in prior quarters that we were very encouraged by the continued strength and our IPO us as we said they are on par with prior years that hasn't dropped and in fact.
We believe that some of the what John mentioned in terms of the pickup in secondary financings on venture is because there have been continued ipos and that's actually a pipeline for secondary financings. So I think the challenge that we see across the board and the IPO market is with larger.
Private companies not getting the valuations they hope for.
But that doesn't necessarily exist in every at every level.
Have a private company looking to raise public money. So there's still a very strong pipeline. It continues to grow actually.
As I mentioned in my remarks, we're second a gang globally and international listing so our team that's out on the ground in places like Silicon Valley and in London, and tell the continues to build pipeline and bringing unless things on the other handing out there isn't an issue obviously in the in the marketplace with.
Companies that they get very big and stay private for a long time, and then getting the same public valuation that they've got privately or expect that's a challenge, but it doesn't exist through the entire IPO market.
Yeah, Yeah fair enough, Okay and then.
Leverage ratio continues to move lower towards to just wondering if you could give us bit of an update them, what you're seeing on the M&A front.
Are you seeing some bolt on opportunities out there that might look attractive and and you know should we expect.
Transact over the next 612 months.
Yeah, we've been actually quite active looking at a number of things that are both bolt on size and larger.
In terms of again as we've talked in the past pieces that would drive the strategic growth areas for the firm.
So the team has been active the business folks the M&A folks in terms of looking at those things we've seen some things come to market as well.
What we what we found with a couple of we've seen so far is that that the investor metrics in terms of the quality the asset or in the price at the market wants form wouldn't have created value for our shareholders. So we are looking for those right opportunity still so I would expect Nick for us to continue to be active but disciplined in the choices that we make.
Got it Okay. That's that's helpful. And then just one last one you know very strong performance of Canadian equities on a year to date basis. I was wondering how sensitive we should expect sustaining listing fees to be in 2020, just given the strong run in equities I understand it the cap, which kind of reduces the sensitivity a total sustaining fees to equity values, but.
If Canadian equities are up 17% should we expect the growth rate of sustaining fees to be about half of that or is there a better rule of thumb to use there.
There isn't a rule of thumb because it does depend on the mix of where the companies are creating value.
If you the best thing I would guide you to is to look at some of the past performance in terms of how did Oprah overall market value increases translate into sustaining fee changes on a year by year basis in the past and certainly.
About as we get into the next quarter and we report.
We ended this year will actually give you more guidance is we'll know where the actual market values have landed and what it looks like for direction are outstanding fees, but to give just a bit more in terms of data points about 15% to 20% of the TSX companies are at that cap, so that market value increase you're seeing across the remainder them does translate into the rest of the fee structure.
Got it okay. That's helpful. Thanks for taking my questions.
Graham running with TD Securities. Your line is open.
Okay.
Good morning, just doing that.
Just sorry.
Just on that last question, there what would generally that mix between.
Sustaining fees from TSX versus TSX ventures. It 70, 520, so split is that roughly accurate.
Yes, that's roughly accurate and I believe that didn't we disclose at a more detailed the annual handy.
Okay perfect.
Trayport.
Gross number of 17% in British pounds that includes a this is the organic growth number closer to 10% if you adjust for contango.
Take that out of.
So the numbers.
Those are largely a wash so that'd be a good estimate.
Okay, great bigger picture, what's driving.
The the demand for higher LNG trading globally can you put your finger on that.
Well the biggest issue is the ability now to how did the mobile the idea that you can ship a molecule anywhere in the world.
Has made it a much more mobile market and not the kind of thing where I've got it it doesn't have to be produced locally every place, but generally the technology to ship those molecules over the world as is one of the major drivers than that drives the ability then to to traded on a much.
More frequent basis, which translates into trayport, obviously being able to provide the tools for for brokers and traders to trade more frequently.
Okay that makes sense.
Shifting to.
The listing side of your business just secondary financing.
Could I get your perspective on Theres that feels like there's some traditional sectors in Canada that might be going under secular change and that's that's an impact on your secondary financing activity.
Is that your view at all or you're viewing this sort of trough level of finance activity more cyclical in nature.
We've seen it has been more cyclical and more reactive to volatility in the marketplace. We've done some long term studies in terms of how the different sectors have been impacted and and for the majority of the sectors you're seeing.
I will strong activity or return activity, you're seeing some strength returning into the mining sector as deals start to get done again.
Clearly one of the weaker areas has been around Canadian energy, but that has been.
That's been unique to Canada, that's not a global trends. So that's why we look at it being potentially more cyclical and as those businesses continue to see value in terms of where their valuations are I think the gen. Three perspective is you're going to start to see financing in spending in that sector again because of the values of those companies now make them really quite attractive.
So we do see there'd be more cyclical and secular and we and we continue to push and that's why we're though we continue to push on the other end, which is the companies that we bring in which create the long term opportunity for new financing is also more broad based so tech sector global issues as well get much more diversified around just being impacted by one sector like.
Okay.
That's fair.
And then my last question would be on the trust side of your business. There was some measure of approval.
From Iraq.
For your trust business does that actually make.
Surely priests in your market opportunity can you speak to that.
Yes. It does what it does a couple of things for us so being in Iraq to approved I Trust company allows other dealers to utilize or recommend Ts truck TSX trust to their clients, where they wouldn't have been able to before because it's about having the right capital behind it to be able to do business. It also allows TSX Trust to act.
As trustee for broker dealers, so for dealers that have to hold their client assets and trust. We can now bid on that book of business, which was something that wasn't part of our market opportunity for.
Okay. That's it for me thank you.
Paul Holden CBC your line is open.
Hi, good morning.
Wanted to go back to the.
Action around the nodal relationship.
I guess first off help me understand.
Exactly what this means in terms of relationships with broker trade or is that gives us.
I have to go out to the broker traders that are using nodal today.
And convince them to sign up for the.
For the service or are you getting some perpetrators right off the bat plugging into putting into a trayport farm.
You'll get the beginning of this all will be that nodal will bring on traders that are that are their customers for the nodal exchange that seeks the marketplace. The screen. It puts content on the screen, so that and others will want to be there. So as we've talked about in the past for the key to this is getting a critical mass.
Yes.
Enough to launch Trayport, which means enough participants and prices on the screen to have it be a meaningful marketplace to want to be there. So what this does exceed that by nodal will bring on.
A certain number of traders and Thats part of the agreement and we've got with them, so that and Thats like every other model everywhere else in the world in every other exchange the exchange actually.
Pays for certain number of their clients to come on of the traders to come on and we go out as part of our sales efforts and bring on other participants brokers and others onto the screen other traders other brokers. So the key though is to get the market seeded and that's why we said this is a great entry point for us into the us because you've got to get that screen.
Related for others to want to be on it.
Understood.
And then as part of your agreement does it allow you to plug into other exchanges and North America similar to how you shut up and in Europe .
Yeah, Yeah, the models consistent Yep yep Okay.
And.
Question on this one is it related to both.
Power and natural gas.
In terms of well again, it's not it's not very ill start with where nodal strengths are right.
But then it's not restricted avant any other asset classes, depending on who the other participants are that we bring onto the platform.
And nodal strengths are in which which commodity.
Right now mainly power.
For their strengths, but but again as you bring on other brokers they'll post prices on their asset classes, where they trade. So that's again, it's the entry point so today.
It's where nodal a strong to start but then as you bring on other participants they'll.
We'll take they'll post prices on the asset class the day trade.
Got it okay.
Interesting okay.
Second line of questioning I guess on growth from.
Clearing this in first quarter, we've seen it but I guess I want to understand better the sustainability of the road revenue growth clearance or you cited two factors, the repo and and the lower rebates.
Lower rebates are probably more.
Transitory in nature, but maybe the repo clearing is more sustainable can you talk a little bit more about about that growth driver.
Yes, I mean, this was particularly with clearing in the CDC.
So first of all this and when the minimal growth driver. There also continues to be the the volume increases on amex because that flows right through to see DCC, so that 7% growth and volumes youre seeing that on the clearing side as well. The other two components you talked about the repo is a continued growth in participant use of that product.
So that was up about 60% in terms of the year over year impact and these are still single digit million numbers. So there's still small numbers, but large percentage changes and as I was more participants continue to use that product due to deal with road you see activities.
The rebate component as we've talked in previous calls one of the ways to seed liquidity and jumpstart new products as with stronger rebates upfront and so when you look at the comparison year over year. It was a stronger rebate regime in Q3 of last year in terms of getting some product started that have been worked their way also then you're seeing the upside in the revenues.
This year as we're not paying the same level of a rebate and we'll continue to see that in the future as we bring on new products. We've talked in the past about the work we've done to really build the liquidity in the five year product that has a strong rebate regime associated with it when it gets to a different level, we'll look to see whether or not that makes sense going forward, but that's a good example of a product but.
Programs worked really well on that we've now gone from being small dollars in terms of volume traded over 40000 contracts a day.
And.
For my benefit.
I think about your ability to continue to drive higher volumes in that repo market.
It's about product fit of what the industry needs. So the work that we've done to date in terms of building out the products that building it out from a sell side. If you remember the recent change in last year was that we modified the product and brought on key by signed players. So the buyside players in terms of large pension fund and.
And asset managers that model is one that continue to can can continue to expand to bring on other large clients as they see the value in the product, but as it matures as well you can actually use it more frequently so.
At this point, it's hard to give a lot of good indication in terms of where that can go but we'll think about that for the future. If theres better indicators, we can give to you on that yet.
But just to add to that I mean in general you've got still in early stage market here and so it's both greater use of the existing participants, but you still need more participants the comps. So that is done on have everybody participating as market. So it's both more volume from existing participants and more participants got it.
Okay.
Final question to me is on the.
Right.
So interesting can you kind of talk about.
The what the fund raising mechanism was in that situation I'm not familiar with it and.
How it may be different if at all from how TMX traditionally class fees on on listings.
So in terms of the fundraise insider the fee side it looks exactly like any other public offering on the exchange or graduate to on the exchange in this case, what's unique about the model in terms of the TSX sandbox model that we've talked about is.
You think about the rule set.
At a company that needs to comply with to do a public offering.
Terms of all the different requirements in terms of company size disclosure pieces prospectus items things like that and sometimes when you got new emerging industries or issues. They don't fit exactly into the historical mold from a rule set standpoint, so the teams able to identify what are some of those rules.
Within the rules said that we often have to give a waiver for as we go through our diligence on a company to help them with their product with their where their capital raising activity and that's what the TSX Handbook concept is is recognizing that there are some things in the rule set that are not fit for purpose for kind of next generation companies and rather than just give a waiver each time we.
Build out a capacity to take them on as public companies and over time, we either modify or they work into away where they can comply with that rule set that's what how they does in terms of how it looks from a capital raising standpoint for the from itself or from a fee model standpoint, it looks exactly like any other public offering.
Okay I understand now.
Thanks for your time.
[noise], Jeremy Campbell with Barclays. Your line is open.
Hey, Thank you for the follow up this is Jason again, just a quick one on Trayport I know trading clients make up about half the revenue here and if I back into sort of like an estimated revenue per trading client. This is increased about like 5% since the beginning of the year.
Mostly due to like seasonality at offerings or is it something with pricing just trying to get it little bit more color in the dynamic here. Thank you.
I think the the important thing is to look at what's happened with revenue per user and we've we're coming with new products, you've got as I mentioned the digital for.
Tradings screens now for traders, but I think you're looking at more growth globally.
The ever average revenue per user is a big onto I think thats up 9%. So it's it's not a seasonal issue. This is organic growth from being out there in adding more products and.
And actually just out selling more services on top of the core subscription.
Great. Thank you.
Jim with National Bank Financial your line is open.
Yes, Thanks, I feel like it's been losses are those conversations I just want to make sure we.
Just around what's going on that you asked in the and members exchange getting set to launch LTAC I think there's another Miami, one as well talk about the dynamic of new exchanges and where they're really positioning for it.
Is it against the data fees.
Issue in the U.S. talk about that in Canada. Please.
Yes, it's not as we've talked about it's it's not the same situation by any means.
We have not been in a situation where.
We've been consistently raising rates on market data.
By any stretch the imagination, it's very different situation here I think here.
In Canada the issue is much more around.
What drives fees artificially like.
Our the water protection limits appropriate do I really need to go too.
Venue Thats got such a tiny market share and pay for that.
And so those are the things that we look at what's driving the actual cost overall, because our fees are pretty consistent they're highly regulated.
And again, you can see on our website, how we compare ourselves on an apples to apples basis to other markets and we're a very inexpensive market relatively speaking so it's not the same.
Free for all I think that you see in the U.S.
And this is different market, it's a different size market. So.
That kind of fragmentation and the Canadian markets is only going to raise costs, even higher not the other way around the bigger issue for us in equity market data is trying to find ways to provide clients that are under pressure and pricing and you see that's a much more important issue for us is worrying about decline.
We don't have all the same issues.
You see in the U.S. So so we're squarely focused on how do we tried value we've talked about we're out trying that have put forth a new enterprise model that will make it easier and more amenable to clients to use more market data. So we're best we're really focused and not really on what's going on the U.S. had just it's not the same the same situation.
Great. Thank you and one one other follow up here just on the derivatives the amex trading volumes I'm looking at the last three quarters and we seem to be running around this sort of.
29.
1 billion I guess.
Level here fairly fairly flatlined.
Still good growth over 2018, but I'm, just wondering I would've expected to maybe see some sequential growth as well or more meaningful sequential growth Im just wondering if you can talk to some of that.
Dynamics or.
Between some of the contracts, what's what's going to get that sequential growth.
Going higher.
Yes, Jim it's a really good question and you've seen at a different mix in terms of activity. So when you look at that kind of sequential the last couple of quarters being relatively flat, but strong as he said year over year that mix has been changing because were what do you actually seen is what otherwise would have been softness in.
The rates regime.
Interest rates got analysis stay flat that took some of the volatility of that so you saw some actual stepped down in terms of the trading of the long term rate, but thats getting offset by the product growth in the new products that Lou talked about the expansion in the international interest from Europe and the expansion in the growth in the five year. So it's actually the the growth in the new products is also.
In some of the cyclical trends.
In terms of the go forward component.
Remember that our expansion into international hours is early stage still in terms of bringing in new international clients and what we've seen growth from a 3% to 5% of the total mix. The long term expectation is that still the benchmark of 15 to 30 that we've seen in other marketplaces.
And with the continued expansion of that as we look to how do we build out to Europe . After this how do we then build out to take the five year or other products into the international demand. Those are the things are going to create more of the long term growth that will get away from any of the sequential impact your same quarter to quarter. This year.
Great. Thank you.
Again, if you'd like to ask a question. Please press star one on your telephone.
Okay, well. Thank you Jack just before we close I want to welcome jewelry Park, who recently joined the Investor Relations team Julie's going to be filling in for Amanda will she is on maternity leave and speaking of Amanda We just had some wonderful news before the call started last late Amanda had a baby boy.
Weighing seven pounds two ounces, so a big congratulations to Amanda and Victor from all of US here in TMX.
And finally, thank you for listening today, the contact information for media as well as Investor Relations is that our press release and we'd be happy to take question strip today have a great day at a wonderful weekend. Thank you.
This concludes the TMX group third quarter 2019 financial results call. We thank you for your participation you may now disconnect.