Q1 2020 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the TMX Group Inc. first quarter 2020 financial results call.
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I would now like to hand, the conference over to your Speaker today jewelry Park manager Investor Relations TMX Group. Please go ahead.
Thank you operator, and good morning, everyone.
Thank you for joining us this morning for the first quarter 2020 conference call for Tms crew.
As you know we announced a result late yesterday and a copy ever pest belief is available on cannot Qualcomm under investor relation.
Hey, we're all joining originally from at home and habit that dynamic on the or in General Chief Executive Officer, and Chief Financial Officer, and Paul Malcolmson, managing director of Investor Relations.
Oh hang opening remarks, you'll have a question answer session.
Before we begin I would remind you that certain statements made on todays call maybe considered forward looking.
I'm afraid that risk factors contained in our press release them apart, but we have filed with regulatory authorities.
Okay, and the call over to John.
Thank you Julie and good morning, everyone and thanks for dialing into the call. This morning.
I want to certainly wishing everyone. The very best is listening today and hope that you have your families are staying healthy in seed.
As Julie mentioned, we're virtually here this morning to discuss TMX is groups financial performance for the first quarter 2020.
Well. This is Dave has been loan Mark your calendar for T., an exit for everyone. Joining us it's more in almost nothing about these last few weeks, we characterize as business as usual.
As a cope with 19 pandemic has drastically changed the world in which we live and work.
Before we get into the detailed color results. This morning on behalf of all of US the TMX I want to send a message it will constrain to all those listening to the cold the whose families that affected by this terrible virus our thoughts are with you.
I also want to sincerely. Thank all the healthcare workers first responders and others, providing essential services across our communities here in Canada and around the world.
What we humbly salute goes on the front line. The fact is that even from our homes and remember a remote work spaces. We all played a role in the fight against coded 19.
The response from our capital markets community to this unprecedented credit crisis has been impressive.
Your next applaud the efforts of our stakeholders, including listed issuers as well as our trading and clearing participants to help our communities cope for men manufacturing, a safety products or healthcare workers to generously duty funds and voluntary and time to support agencies.
From a broader economic standpoint, well the impacts of cobot 19 pandemic will be deeply felt for some time the resiliency of candidates financial industry has something to be proud of and bodes well for the future measures to reopen the company the country and we're invigorated the economy taking shape.
Peter Nexus for and it's clear eyed is ever in our commitment to fulfill our core mission operating candidates capital markets.
We feel strongly that is both in the public interest and in the best interest of all of our stakeholders that at all times and especially in kinds of crisis markets must remain open and available.
Our markets are functioning well and doing what they were designed to do provide investors with liquidity and ensure issuers have a world class venue to raise capital.
And while much of the economy have been put on hold.
We're not at all it completes answer.
Businesses of all sizes across the country are up and running and working as hard as ever to adapt to the realities of evolving operating landscape, while preparing for a future that have yet to be clearly defined.
And as the broader cover it begins to take shape TMX remain steadfast partner and helping to ensure the future her entire market ecosystem is as bright as possible.
Now, let me turn to our first quarter performance.
TMX achieved strong financial results compared to Q1 of 2019, reflecting the extreme volatility and a surgeon activity as markets reacted to the cobot 19 pandemic.
Our revenue was 220 million a 12% increase over Q1 2019.
Earnings per share was $1.24 on a diluted basis up 14% and $1.53 on adjusted basis, and 18% increase from Q1 90.
And cash flows from operating activities were 79 million, reflecting a 50% increase compared to Q1 of last year.
The increase in revenue was somewhat offset by a small increase in operating court costs in the quarter.
Threed statistics for Q1, and particularly for the most of our month of March indicates a degree of turbulence across the marketplace.
Volume traded on Toronto stock exchange in the first quarter was up 36% over last year and much TSX volumes more than doubled in comparison to March of 2019.
Across all of our equity markets trading volumes were up 20% in the quarter, 73% in March compared to last year.
And on Montreal Exchange overall derivatives volume traded in Q1, 2020 was up 27% compared with Q1 of 2019 with a 33% increase during the month of March compared with last year.
In a quarter marked by Unprecedent event, we did see some consistency in terms of the impact marketplace trends have another area of our balanced business model.
Volatility had a negative impact on capital raising conditions in Q1 compared to Q1 of last year.
Additional financing activity on the Toronto stock exchange decreased compared with Q1 between 19.
Typically the number of larger transactions as issuers chose to avoid unpredictable and severe swings in the market.
As a result revenue from a capital formation business was down $1.7 million were 4% year over year somewhat offsetting the increase in the overall revenue in the quarter.
That's a world begins to emerge from the initial phase of the cobot 19 pandemic than contemplates the next important steps to recovery the future, it's harder to predict than ever.
What I want to ensure all of our stakeholders that even as the company has taken mesquite necessary measures to adapt how we work in the new business World TMX is roadmap for growth remains in place.
Our comprehensive digital capabilities have enabled us to keep markets running and allowed us to stay connected to our clients despite physical dislocation.
All of our trading platforms and the vast majority of our client offerings and processes are fully electronics.
And as we surveyed the still evolving and uncertain business landscape timeline specific initiatives may require some tweaking.
But TMX as corporate strategy and competitive value proposition fundamental to our success has not changed.
The next remains focused on executing our comprehensive and cohesive long term global strategy centered around our growth champions capital formation derivatives and trade port.
In the capital formation business, while capital May remain on the sidelines to some degree over the near term. We continue to target specific regions were TMX is unique ecosystem and sectoral expertise give us a competitive edge.
By necessity, our immediate focus is on supporting this crucial and core element of our business.
History has shown public markets fuel progress.
And we're confident that public markets will again played a leading goal and the economy find its feet.
The capital formation process is critical in the funding a lump bridge entrepreneurship and innovation, while creating jobs for Canadians and fueling economic growth.
Over the past two months pxs undertaken various issuer support initiatives, including relief measures and successful government policy advocacy campaign and we continue to work together with all this accompanies and all of our stakeholders to weather the cobot 19 crisis and lay the groundwork for future success.
Perhaps now more than ever sustainability is a priority topic for all companies.
With an eye on helping issuers meet evolving investor standards and build their company stronger and more resilient in the future we launched SG one on one in March.
This new centralize some features resources design designed to help TSX and TSX venture issuers understand the fundamentals of environmental social and governance, where we get you reported.
Over the last few years ESG factors have become priority criteria for investors and asset owners and sustainability practices have become increasingly important considerations for companies across all sectors.
And we are proud to announce today that TMX has reached a new mile. So their own DSG reporting the inaugural TMX group environmental social and governments report will be made bill will shortly on our website.
Okay.
The goal of this refers to inform all of our stakeholders of our progress of incorporating SG matters into the TMX groups corporate strategy of process and operations.
It's an important first step for TMX and we look forward to hearing your feedback.
No the turn to our derivative business. Our team is moving forward on our strategy to capitalize on the growing global demand, particularly on the buy side for derivative products by expanding annexes presence in foreign markets.
Initiatives previously announced remain on track at this point, including the launch of a new Canadian overnight repo rate average where core of future products planned for mid June and the next phase of MX is extended hours initiative to sync with market in Asia scheduled for 2021.
And on to transport revenue from the core subscriber business, including visitation was up 16% in Sterling over Q1 2019.
With a 10% increase in trader subscribers and then 8% increase in total subscribers.
Activity in the signature European and Asian benchmark LNG contracts was strong in the first quarter volumes in the Tcf contract increased 44% in the first quarter of 2020 compared to the same period in 2019 and record average daily volume headed for the through the vacate and contract in recent months.
The increase in volumes in these markets results in the expansion of the market participants, which drives growth in a number of subscribers connecting with Trayport to these products.
The trend of algorithmic power treated year intraday markets continues to grow in in the first quarter intraday volumes on the E. Pdx spot grew by 37% over the same period and 29.9.
In closing I wanted to share a quick observation and plus long one more very important thank you.
For TMX answer many of our issuers early may is typically a very busy time, both operationally and for our corporate reported functions like.
I can tell you from personal experience the escalating pace of work during the days, leading up to results is a familiar and near tangible elements of a public companies reporting process.
To suffice to say the Q1 2020 reporting has been a very different experience.
Buzz around the office has been replaced by new virtual working reality.
And over 95% of all TMX employees are working from home and have been for almost two months now.
At the outset of this pandemic necessary precautions were taken to protect our critical operation staff and they have been onsite as needed.
Half of our senior leadership team I want to thank TMX employees for their perseverance adaptability and above all exemplary dedication to the company throughout the last two months.
Youre consistent focus on maintaining continuity and service excellence to our clients across the marketplace is most appreciated.
And while we're fortunate to be able do our jobs remotely and maintain high operational standards. We look forward to the days ahead when the offices once again up close and we can enjoy face to face interactions with our co workers and our friends.
In closing I want to emphasize that as its recovery measures begin to take shape.
TMX remains firmly focused on serving clients across all of our markets with excellence and executing against our global growth strategy.
And with that I will turn the call over to Paul who will provide further color on our first hurdle Corp first quarter results. Thank you.
Thank you John before commenting on the financial results I want to Echo John's comments and extend my sincere gratitude to healthcare providers first responders and essential service workers fighting the co that 19 pandemic on the front lines.
On behalf of Julie as well I want to send our best wishes to everyone listening on the call.
We are fortunate to have gotten to know sell many of our shareholders and the analysts who cover TMX where over the years and we hope that you and your families are keeping safe and healthy.
Now turning to our results as John said revenues were up 12% from Q1 of last year.
This was driven by significant increases in trading and clearing revenue with the high volatility, particularly in the month of March.
We also continued to see strong revenue growth from Trayport as was the case in 2019.
Operating expenses were up 2% over Q1 up night team.
With our operating leverage we saw 23% increase and income from operations over last year, an EBITDA margin of 59%.
To recap diluted EPS was $1.24 up 14% for last year.
The growth was somewhat reduced by a tax adjustment over 7 million or 13 cents per common share related to a change in the UK tax rate.
Our adjusted EPS, excluding this tax item and the amortization of acquired intangibles was $1.53 at up 18% over last year.
Looking at revenue the high market volatility during Q1 and extreme volatility in March drove substantially higher trading and clearing volumes. The average of X was over 31 in Q1 of 28 compared with 16 at a half in Q1 of 19 and in March 20, a low 2020 alone the average.
Each of X was over 57 versus 14 in half in March of 19.
In equities and fixed income trading there was a 27% increase in revenue in Q1 2008, compared with last year driven by the substantially higher volumes on both TX Act and Alpha.
As John said, the overall volume of security straight at other equity marketplaces increased by 24%.
CBS revenue increased by 12% from Q1 at night team, reflecting higher clearing and settlement revenue due to the higher volumes.
Increased custodial and event management fees as well as higher international revenue.
In addition, recoverable costs of 1.1 million related to Cvs has clearing operation that we are netted last year were included in both Cts revenue and SGN expenses in the first quarter.
The increases in revenue were partially offset by higher rebates.
The 24% increase in derivatives trading and clearing revenue was also driven by substantially higher market volatility and also by uncertainty around interest rates, particularly in the month of March.
As John indicated there was a 27% increase in volumes on Alex.
The impact from the higher volumes was somewhat offset by lower revenue per contract due to an unfavorable client mix. There was also an increase in revenue from repo clearing in Q1 compared with last year.
Now looking at global solutions insights and analytics or GSI a revenue in Q1 20 was up 7% over 2019, driven by increased revenue from Trayport.
Revenue from Trayport, including video tack, which was acquired in May of 2019 was up 16% in both Canadian dollars and in Sterling curves.
As John mentioned this was driven by a 10% increase in the trainer subscribers and an 8% increase in the total subscribers.
Revenue from TMX data links increased by 1% from Q1 19 to 20, driven by higher revenues related to benchmarks and indices as well as co location.
This was partially offset by lower revenues related to under reported usage of real time quotes and prior periods as well as advertising.
In addition, there was a favorable impact from a weaker Canadian dollar relative to the U.S. dollar this past quarter compared with 2019.
This also drove the increase in the other revenue line, but we recognize net foreign exchange gains on net monetary assets.
Really the only area of revenue decline was in capital formation as John mentioned that trend. We saw in 2019 around lower secondary market activity has continued into 2020, particularly noticeable in March with the extreme market volatility.
The decline in English initial pardon me additional listing fee revenue TSX in Q1 was the largest factor driving the decrease on capital formation revenue of 4%.
The number of transactions buildup. The maximum listing fee of 250000 on trauma stock exchange declined from 27 to 18 or by 33% from last year.
The decline was somewhat offset by an increase in additional listing fee revenue on TSX venture, where there was an increase in both the total number of financings and total financing installers raised.
There was also a decrease in sustaining listing fees, reflecting a decline in revenue from issuers TSX venture and also next which has a board for issuers that have fallen below TSX venture listing standards. This decline was attributable to a decrease in the amount of annual sustaining listing fees from an.
Increased number of suspended issuers and a small decline in the market cap of issuers from the end of 2018 to the end of 2019.
Somewhat offsetting the decrease there was a slight increase in sustaining listing fees on Toronto stock exchange as we expected due to the increase in the market cap from the end of 2018 to the end to 2019.
Initial listing fees in the quarter decrease year over year, primarily due to decline in the amount of deferred initial listing fees recognized in Q1 up 20, compared with Q1 up 19, and well actual IPO activity was slightly lower in Q1, we were still number two globally in terms of new lease.
Systems, According to the World Federation of exchanges.
Revenue from GSX Trust increased slightly compared to 2019, reflecting higher revenue from transfer agent fees somewhat offset by lower corporate trust fees and recoverable revenue.
As I mentioned operating expenses were up 2% through Q1 up 19.
The increase in costs was partially due to higher employee performance incentive plan costs.
In addition, there was an increase in SGN expenses related to projects and recoverable costs related to Cdss clearing operations as well as higher expenses related to this attack.
Offsetting these increases there were a strategic realignment expenses of 3.3 million in Q1 of 19 with no similar costs in Q1, 20, as well as a reduction in travel and entertainment costs.
Looking at our results of the sequential basis revenue was up 9% from Q1 up 19.
Largely attributable to increases from equities and fixed income trading derivatives trading and clearing GSI, a including trade for as well as other revenue.
Operating expenses in Q1, 20 were up 3% from Q1 night team.
The increase in costs, we've largely related to higher employee performance incentive plan costs of 8.1 million.
There was also an increase in payroll taxes of 3 million.
Offsetting these increases the recoverable costs related to Cvs is clearing operations that were reclassified to west DNA expenses were 5.3 million for Q4 of light team compared with only 1.1 million in Q1 up 20.
This is what drove the sequential declines GDS revenue as well.
In addition, there was also a decrease in travel and entertainment expenses as well as in recruitment costs from Q1 night team to Q1 20.
Income from operations increased by 15% from Q1 19 to Q1 20, largely due to the higher revenue and somewhat offset by the higher operating expenses.
Just a comment briefly on the month of April our market stats varied as you might expect with our diversified business model, we saw 50% increase in equity volumes compared with April of 2019.
Which was not surprising that the average mix being 42 for the month.
And our derivatives business with current interest rates being so low and less uncertainty around rates. We did experience at 4% decline in volumes in April compared with the same month last year.
And finally for secondaries, and our capital formation business additional listing fees build on travel stock exchange were relatively unchanged on a year over year basis for April. However, there was a decline in financing dollars raise and the number of financings on TSX adventure compared with April of last year.
Turning to Capex, we just want to give you a brief update on the modernization of our clearing platforms specific way on phase two related to Cvs.
As you know we spend almost 44 million after the end of 2019, our capital expenditures related to phase two.
An additional $7.4 million capex spend in Q1 of this year.
Overall, we now expect to incur between 100, and 110 million and capital expenditures.
Over the previous range, which was 95 to 105 million.
We still plan to complete this project by the end of 2021, and we'll continue to provide updates on the Capex and also on the timing.
Just to comment on the balance sheet, we reduced our debt by about 8 million from the end of 2019 to March 30, Onest. We also spent tenant a half million dollars to repurchase 100000 of our common shares under our normal course issuer bid through to the end of March.
With the strong even Q1, our debt to adjusted EBITDA ratio was exactly to at March 31 down slightly from 2.1 at the end of 2019.
We also held 267 million in cash and marketable securities at the ended the quarter, which was 82 million in excess of the 185 million, we target to retain for regulatory and credit facility purposes.
Yesterday, our board declared a dividend of 66 cents per common share payable on June 12 to shareholders of record on May 29 at 43% of our adjusted EPS. This is well within our target payout ratio of 40% to 50% and now I'd like to turn the call back to Julie Thank Paul.
Operator could you. Please outline the process for that question and answer session.
Certainly as a reminder to ask a question you will need to press star one on your phone in order to queue for your question.
We do ask you limit yourself to one question.
Our first question. This morning comes from Nick pre from BMO capital markets. Please go ahead.
Okay. Thanks, good morning.
Just wanted to ask you to talk a little bit of how you'd expect your data business to be impacted by the elevated market volatility as well as this transition to a virtual work environment if at all.
Perhaps both risk with respect to Trayport as well as professional market data subs for your core trading venues.
Well good morning, Thanks, Nick for the question Thats a great later start with that one today. So let me take those two pieces in part with respect to our more traditional market data business in the market data subscriptions.
Really isn't impacted by weather not people are working physically in office or mode. It's more of a subscription based model based on users. So there there are two things in this market activity.
That can drive change there over the long term one is when we go through spikes and valleys and activity that can lead to.
Usage base quotes.
Being picked up higher when there's more retail activity from from non per users now a lot of those reduction we got enterprise contracts to take some of that volatility out.
But over the long term at nearly as a factor of industry employment, so as long as industry employment remains robust weathered out there in officer remote.
That would drive what the subscription base will be for that business.
On the on the Trayport side again, it's a similar model and triplets clients are largely working remote as well.
So it is again subscription base its enterprise agreements more so with trayport. So it's less subject to kind of the ins and outs of day to day activity and those contracts are generated longer term over multiple years.
Even during this this dislocation joined the board or multi port has actually been continuing to where new contracts with long term clients.
Multi year agreements, so thats really positive, but now when we when you think about trayport hitting on what worries you in this market. It's just certainly it's the help of some of the clients because the energy sector is cut them some of the most volatility in it but as we've seen so far because you can monitor the clients usage of the Trayport system.
We see 90% to 95% of those treated as our continued to be active on the platform. So at this stage everything looks very positive going forward.
Okay Thats great. Thank you.
Our next question comes from Melinda O'brien from Deutsche Bank. Please go ahead.
Hi, Good morning, everyone and thank you for taking my question.
Could you talk a little bit about the outlook for the capital formation that again, and we'll near term. So how long do you expect secondary financing levels to remain depressed.
Hi, TNT necessary or IP has to come back into that market and substantial line.
Well that's a.
Tacit questionable into it and if I could answer that with accuracy I would probably be the most popular person on the street right now.
Candidly, we in terms of when we think about the marketing we think about how to model going forward.
We look back to previous market dislocations. So 2000 17008 in terms of financial crash other market downturns like that where you see a step down and capital raising activity.
And then what usually follows and we've got all this historical information. If you don't have that we can provide it offline and it's a substantial uptick in capital raising become later and if you think about the fundamental is really about what's going on with the clients themselves balance sheets that are already stretched already stress through 29 team because with the down Mark.
For capital raising from equity standpoint, and a lot of low cost debt. We go into this crisis and companies are adding more debt onto the books and there will be a need across the board for equity refinancing on these companies the challenges I can't give you guidance in terms of when that can happen.
Can give you guidance and look to the other periods in the past and see what those recoveries have been whether they've been three months or six months or 12 months, but I would guide you to is that some of the best capital raising markets come after downturns.
Hi, Thank you appreciate it.
Our next question comes from Jamie's line from National Bank National Bank Financial. Please go ahead.
Thank you good morning.
I want to buy.
Questions related to.
The balance sheet than that and and capital management.
Look for the remainder of the year.
She obviously in a very good spot with leverage at the lower end of your targets and cash flows are really solid I. Just hoping you can give us a commentary around how you're thinking about capital deployment than that and specifically.
As we as we think about other large large cap Canadian financials were dividend and share buybacks are restricted.
Everything about dividend increase going into the ended the year.
Yes, so a couple of components that are emerging number what we do recognize that we're a company that is in a strong position in this marketplace. Our balance sheet is a strong positions and our strategy is intact. So.
Look for us to continue to have a priority around using capital to advance our strategy. So we're going to be actively looking for investment opportunities that make sense to accelerate strategy continuing with all the same discipline. We've had the Boston notes, making sure that create value for shareholders.
But we're not going to step away from the market in terms of.
Looking at investments in this period now in the abundance of caution near term from a balance sheet priority standpoint on a use of free cash flow.
I'm going to prioritize keeping our debt level low over things like executing in the buyback in terms of where we prioritize first I think thats just prudence in this environment.
Do you don't see any change in our approach to dividend going forward, we would expect team to maintain our target range and as earnings continue to grow we would expect given the go with it.
Thank you.
Our next question comes from Jeremy Campbell from Barclays. Please go ahead.
Hi, guys. This is Jason lever on for Jeremy.
The color around adjacent so far.
I was down.
The concentrate court so far has been very helpful.
And I believe you guys are about six months into your partnership with the nodal exchanged given all the volatility that we've seen in the energy markets can you talk about how this has impacted your partnership for going forward. Thanks.
Yes. Thanks, it's a great question. The I mean this the partnership going forward is in strong and we will continue as is.
Clearly there are some disruption does as you have.
What people being as laws in terms of the timing of rolling things out.
But that being said one of the the the silver linings as when we've had.
Middle traders at home working remotely there have been capacity to do things like test the transport system. So that rollout continues we continue to work on that expansion. It's one of the important pieces of expanded into us and I believe I don't have you sets on me that normalized performed quite well in the U.S market. During this disruption so.
All things continue forward, but like any other initiatives there we could see some months pushy or they're just because of the availability and access to people when they are disruption at home, but no change the partnership.
Perfect. Thank you.
Okay.
Our next question comes from Jeff Kwan from RBC capital markets. Please go ahead.
Hi, Good morning, I'm, just wondering if there's any update on the CEO search and is kind of covered 19 market environment impacting the timeline.
Yes, Thanks, Jeff.
No update today.
The board is apps I mean, you can imagine there quite active on this is as the number one file for the board Theres search committee process was fully underway at the beginning of this year.
Looking at embedding both the internal and external candidates. There there is some impact around timeline as respect to covert 19, just in terms of availability access to people, but they are working through that and doesnt expected to be any long term hurdles associated with it. So I don't have an update for you have on timeframe other than but the process continues you well underway.
Okay. Thank you.
Our next question comes from Paul Holden from CBC. Please go ahead.
Thank you good morning.
A little bit of the FX trading engine and the.
Disruptions that happened in Q1, there was a result like in volumes so sort of two parts. The question one is.
What actions have you implemented in turn only to prevent.
A repeat of that occurrence too.
Increase capacity and two has there been any regulatory response conversations.
In light of in light of the trading engine.
And Thats, a really important question Paul so.
Please stay on if I don't get all this for you.
Free to clarify anything on the end of it.
Going back to the disruption we had on February 27th them and we can talk in a bit more about what caused that that disruption was caused by a spike in messaging levels, but not just daily messaging messaging that was coming in on a per second basis at levels not only not seen before in our marketplace, but not even scale to our tested to.
So we build our systems.
Multiples of previous peaks and previous avatar messaging, but a bit but 70 million transaction today are so our message as per day, what we saw in fed 27 by the time, we needed to close of market was 170 million messages, but spiking in more than 10000, the second across all the politicians that we operate and Thats what created.
Backlog in our and our messaging layer. So the we never want to be close I want to make sure. That's that's a clear from the outset and our commitment to our clients is that we are there and we're opening reliable. So this was not what we wanted to be but we do take a lot of pride in the way that the team rallied around immediately was able to three onto up that issue.
It was and put a fix in place that night to substantially expand the capacity of the disk space or messaging layer that handles all that throughput of messaging.
The after effect of that is twofold, and I'll talk about performance and margin that we'll talk about also what we're doing it the systems.
Performance in March when with the volatility we saw days that were in excess of two X. What we saw that 27. So in terms of the fixed being in place more that substantial capacity to manage everything we saw in March which was more than we even seen in February. So the fix was right to do what we needed to do.
In addition to that we've added a lot more monitoring capacity in terms of reporting availability.
Capacity utilization in Houston, Texas every shareable broadly throughout the organization and with the board we were doing that before we upped that as well.
Now we would that have caught something that has happened in February 2007, not likely because accelerated in terms of market activity. So quickly from the periods averages that it wouldn't have been an indicator regardless now long term we already have a team that's working on what are the next steps on modernization. This platform. So priorities on 2020 include both.
Capacity in capital upgrades that will be doing to that system as well. Some design changes that we've identified from an engineering standpoint to to look for later all those types of choke points and take them out of the architecture in reorganize around it. So there will be more changes will be going into the systems. Throughout later. This year. We are we're not doing that right now in the midst.
Of this environment, because it would be a high degree of risk in terms of executing that both when the markets were so volatile, but we're in the distributed work environment, but that will be a focus going forward Paulette deposit seat does that cover off what you're looking for is there any follow up questions on it I want to make sure we get this right.
Yes that makes.
I think all of that makes sense from an internal.
Internal response standpoint, and then just finally, I guess was there any kind of conversation or or response from our from regulators on this right.
Yeah from a regulatory standpoint, I mean this in the kind of thing what we treat regulators like partners. So all throughout this way from beginning we're betting regulators know what the issue is what we're doing about it.
And there are actively responding asking questions Theres no regulatory action, that's coming out of this the proactive actions on our part to ensure that we can operate the market's effectively and and reliably and as we continue to do that will keep the regulators updated our progress.
Thank you think that covers it.
Our next question comes from Graham riding from TD Securities. Please go ahead.
Hi, good morning Ram.
Can I am just touch on expenses healing when I look at sort of the pieces that were.
Driving the expenses this quarter it doesn't seem like.
Anything in there has to onetime in nature, it seems like stuff like on CBS and.
Compensation on higher share based competition et cetera could be a recurring theme can you maybe just speak too.
If there was any any seasonality or anything.
And why expenses would deviate from that what we saw this quarter.
Yes, the only seasonal pieces Q1 is generally a higher quarter for us because that's when we see higher payroll expenses.
Second payroll taxes those types of things. So there is always a a spike in Q1 and I'll leave it with polling Julie Offloading that should give more color on that.
Other than that there is no kind of material one times in the quarter, it's a really reasonable clean quarter. The uptick that we saw in terms of compensation costs are a reflection of obviously performance in the quarter.
And the performance of the stock price as compared to year ago as it affects our long term plans.
But no significant one times.
Maybe I'll just add in that number John talked about on the payroll taxes was $3 million.
The other thing to think about in Q2 in Q3 is just the the treatment we've had around the recovery recoverable expenses, and Cvs, where you're going to see them showing up.
Both in revenue and also in SGN a expenses for Q2 in Q3, and then and then come back to normal Q4 would be maybe adjustment last year.
That's helpful. Thank you.
Our final question today comes from Jamie Glenn from National Bank Financial. Please go ahead.
Yeah. Thanks.
Slots to follow up on.
Some of the activity in the last from the FCC around that market data and.
And there.
Meanwhile, the more controls on line do you have a add any commentary on.
What's going on the U.S. and I just.
Confirmed to us that things are still.
In a very stable place here in Canada or surrounding that topic.
Yes, Jim I'm happy to I prefer never to commentary on things are going on us and lots of reasons.
But with respect to market data it does seem to be they're getting into some closure on that file we did actually see some of the pieces that the FCC was objecting to that they've actually relented on in terms of some of the access fees, especially in that go through now.
They certainly put more scrutiny now around future data changes across the marketplaces.
I don't see that as having any material impact on the Canadian market at all.
We already have a fairly robust regulatory regime around both market data fees, how they're priced how they shared amongst the marketplaces. So we will only farther along in that regime and the rest was.
So I don't see anything there that indicates any change for us and we're not getting any feedback from regular that regulators that would look at anything different from MRO market data business at this point.
Yes.
Our next question comes from writing from TD Securities. Please go ahead.
Hi, just done.
Throw one more question if I could on the CBS fee increases that you mentioned that you are going to the regulator.
Last quarter I believe just could you give us an update there on perhaps does that does that process get delayed because of the.
The remote backdrop that we're operating in but more importantly, given any sort of feedback from the industry, how you're feeling on how likely.
It is and you get these tds fee increases.
So with respect to the way, but starting the question in terms of the regulatory backdrop. That's a reasonable expectation. This is going to take a while to work through the process and the priorities for for ourselves in the regulators are more on continuity of operations, ensuring both insurers and participants can continue to operate in this market environments.
These are files that are are difficult to advance in the near term we.
We certainly didn't get feedback from the industry.
In terms of the public commentary process, you can imagine that if you're making a recommendation to to change fee structure that you don't usually get clients or write letters of support.
There are two themes that came back from the feedback that we got one was around whether or not this technology innovation and infrastructure investment needs to get done at all there theres. Some industry participants that we'll be happy to stay on the type of system that we're on already and then the other feedback been is just the right piece for for participants to pay so we think we're in a very.
Strong position in terms of the reasonableness of their approach we operate with some of the lowest clearing fees in the world and we're putting in modern technology. So it's a win win for the participant so nodes at sea change. We're looking forward modest in that regard and so and we're going to continue to push out ahead with the regulators over time.
On the the earlier piece of feedback about whether or not this is really a within that the industry needs to do.
Merchants prove that out for us.
We talked early in the call around disruption around the trading systems. What we haven't talked about is other piece of those systems that are also critical for the marketplace. Tom declaring system is while it's very reliable is extremely robust. It does operate on mainframe technology, that's up to 20 years old in terms of of that type of technology and it it frankly.
Isn't scalable the way the trading system and so.
Really that we had to go into our Trxs didn't expand capacity and all those real time basis, you can't do that with the clearing system and to give you. Some examples of how important. This is our clean system was originally designed and scaled for about 7 million transaction today.
In March we hit a peak day of 5.7 million so to closer comfort.
Now the team has been quite responsive to that going back in the system de prioritizing some processes and virtually expanding the capacity in that so we can actually get more like 10 million message or transaction today out of it but it does reinforce the need for modernization that for a system that so critical to the underpinnings of the flow of capital.
Country, and the risk management systems that we rely on it media market Madonna production. So I think that argument has now passed in terms of why does need to be done and we'll keep looking through with the regulators on on how to funded.
That's it for me thank you.
This concludes the came in a portion of our comp and I would like to turn it back to Chile Park for final comments.
Thanks, Carol and thanks to everyone. Thank you for listening in today.
I have any further questions contact information media Broughton Investor Relations and then our pathways and I'd be happy to get back to you.
This is also just a reminder that are annual on special meeting of shareholders will take place and our personal format. It's more classic opinion.
Right all of you could join us via the webcast.
And finally in closing I should a very bad please stay low Andy.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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