Q4 2020 TMX Group Ltd Earnings Call
[music].
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Cm X Group Ltd. Q for 2020 financial results Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised today's conference is being recorded.
You require any further assistance please press star zero.
I would now like to hand, the conference over to your speaker for today.
Mr. Paul Malcolmson. Thank you.
Please go ahead Sir.
Thank you operator, and good morning, everyone I hope that you and all your families continue to be staying safe and well.
Thank you for joining us this morning for the fourth quarter 2020 conference call for GM expert.
As you know we announced our results late yesterday and a copy of our press release is available on <unk> Dot com under Investor Relations.
This morning, we are once again, joining virtually and have with us John Mckenzie, Our Chief Executive Officer, and Frank <unk>, Our interim Chief Financial Officer.
Following opening remarks, we will have a question and answer session.
Before we begin I want to remind you that certain statements made on today's call may be considered forward looking I refer you to the risk factors contained in our press release and reports that we file with regulatory authorities.
And with that I'll turn the call over to John.
Well, thank you Paul and good morning, everyone. Thanks for dialing into the call today to discuss <unk> group's financial performance for the fourth quarter and the full year 2020, a year largely marked by the COVID-19 pandemic and the disruption it has wrought on all business as usual and indeed everyday life as usual for people all over the world.
And behalf of all of us at <unk> I want to send sincere. Thanks to all the brave people, who have been working on the frontlines throughout this crisis.
Including health care workers, first responders and others, providing essential services and crucial support the people and our communities.
During the course of this call we will discuss how our company and our industry has worked to adapt to the virtual environment and persevere to overcome challenges brought on by the pandemic conditions.
But to be clear our number one priority remains the health and wellbeing of our people and their families.
And we wish the best to everyone listening and this morning, as we all navigate through the weeks and months ahead and work towards a safe return to a more familiar way of life.
As Paul mentioned, we are frankly, lethal Tms interim CFO, joining us on the call to walk us through the fourth quarter results in detail.
My comments today will focus on <unk> results for the full year. The progress we have made and our ongoing initiatives to.
And to innovate for clients across our markets and I will close with an update on <unk> corporate strategy and our enterprise wide priorities going forward as we execute the next important phase of our long term growth plan.
Now turning to <unk> operating results and business performance.
As much as any period and our history 2000, Twenty's served as a compelling evidence of the benefits of our diversified and stress tested business model revenue for the full year was $865 1 million and increase of 7% from 2019 and earnings per share was up 12% or 11% on an adjusted <unk>.
<unk>.
The year over year growth was driven by increased revenue from equities and fixed income trading and clearing Shreveport and capital formation slightly offset by lower revenue from our derivatives business.
Operating expenses were up 6% from 2019, largely due to net litigation settlement costs of $12 4 million and incurred in Q2 of 2020.
And also higher costs related to our short term employee performance incentive plan given the strength of <unk> performance from 2020.
And taking a closer look now at the performance of our business areas revenue from equities and fixed income trading was $127 million and 2020 up $29 million or 30% compared to 2019, driven by significantly higher activity.
Equity markets took off and a turbulent and early months of 2020 and remained robust throughout the year and.
In fact 2020 marked the second highest trading volume on Toronto stock exchange history with over 115 billion securities traded trailing only from 2019.
On a combined basis volumes on our equity markets, including Toronto stock Exchange <unk> venture exchange and Alpha we're up 42% compared to the previous year with dramatic spikes and messaging activity, particularly during the first half.
Canada's market wide circuit breakers for triggered for times in 2020, a milestone we hadn't seen since 1997.
And we are grateful to our stakeholders, including marketplaces regulators and participants for their partnership and ensuring our markets remained resilient and functioning well.
And b elevated investor and industry demand.
The ability and <unk> equity exchanges to perform are critical for core functions provide and issuers and investors access to capital group of vital stabilizing force and the nation's economy and a supremely challenging year.
And further to that and we have undertaken a program of technology and process improvements and investments to support the continued resilience and exchanges operating and supporting systems.
Now within the volumes the proportion of retail trading and Canada increased in 2020, reaching peak levels as high as 43% of total <unk> volume traded in July and December 2020, compared with an average of only 35% from 2019.
The pace of retail trading and shows few signs of letting up anytime soon in fact January saw 45% as discount brokerages offer low cost trading and hence choice and improved technology platforms to a growing work from home retail client base.
While 2020 approved a demanding year, our equities team advanced on key initiatives designed to enhance the trade and experience for our broad client base, including our dark trading solution and our facility designed to enhance liquidity at the close of the lit markets.
And <unk> dark Canada's fastest growing dark pool continues to expand its offering with new features designed to increase market share, including a new liquidity program launched in July of 2020.
<unk> share of Canadian Dark trading was approximately 27% and Q4 2020 up from 22% and the fourth quarter of 2019.
And most recently the <unk>.
And if our market on close or Mark facility, a coal market used to set the price for eligible Toronto stock exchange and select PSX and venture exchange listed issues.
The revamp Mark facility better aligns with the models of our global peers and is designed to provide clients with increased transparency and consistency of execution in January. The proposal was approved by the OSC and has been backed by broad industry support.
Now turning to derivatives.
While market conditions, and boosted activity and equity markets overall revenue and our derivatives trading and clearing businesses was $126 2.002 million 20 down $7 million or 5% from 2019 driven.
Driven by a 3% decrease and the revenue from Nx and CCC and reduced revenue from box as our agreement to provide transitional services ended last June.
While overall index volumes and 2020 were flat year over year revenue was down slightly due to unfavorable product mix. The historically low interest rate environment had a negative impacts on volumes and some other Montreal exchange's key products, particularly short term interest rate products during the second and third quarter of 2020.
But we have seen encouraging signs recently as FX volumes grew 30% sequentially from Q3 to Q4 2020, and Frank will go into this a bit more in detail later.
For the result for the first quarter and a few minutes.
Now as we look further into 2021 Amex has plans to rollout our extended hours initiative into Asia remain on track.
Last week, we announced the launch date of May 32021, subject to completion of the self certification process and final regulatory approvals.
And we have seen strong engagement from investors and participants in the region to date as investors in Asia for the benefits of having direct access to training and excess products and their own time zone for managing both exposure against the flows theyre seeing and handling already.
Additionally, the available to other products during Asia's business hours will enable investors and risk managers to trade Canada.
Such as the Canadian yield curve on a relative value basis against other markets like Australia and Japan.
Recently, many agent pension funds, such as the <unk>, Japan, and <unk>, the Australian Superannuation fund industry, and the career and Korea, and NPS has significantly increased their international exposures and Canada.
Our compelling value proposition.
And maybe somewhat biased, but I am a strong believer and Canada's markets.
What appeals to investors and Asia is what and investment in Canada and means to investors all over the world access to a highly liquid.
Market and a leading global economy.
Now turning to our European markets and trade for US we saw continued strong revenue growth and 2020.
Revenue, including video Tech was $136 $7 million, and 2020 and increase of $17 1 million or 14% from 2019, with a 6% increase and average trader subscribers and a and increased and average total subscribers vol.
Volume and the European power and gas markets were up 10% and 14% respectively over 2019.
In addition to strong performance and Shreveport core business, we continued to see positive results from expansion initiatives, including with natural gas and algorithmic powertrain and <unk>.
Trading on each of the European and Asian, LNG benchmark was up significantly from 2019 and volumes and the intra day <unk> spot grew at 14% when compared with 2019.
Demand for algorithmic trading solutions across European Energy markets also continues to grow.
And <unk> has recently launched a data analytics tool.
Net with positive client feedback and expanded the functionality of its auto trader algo product to cover other markets and products as they continue to emerge.
And our capital formation business revenue was $189 million up $8 3 million or 5% from 2019, primarily driven by increased revenue from additional listing fees on both T. FX MTS next venture companies of all sizes, and and all sectors benefits from access to public markets to grow.
From early stage companies on PSX venture exchange to large cap companies and the S&P <unk> composite index.
The 'twenty and 'twenty performance of our capital formation business is strong proof of the efficacy of our ecosystem and illustrates the fundamental role of healthy public markets play and maintaining the viability and vitality of the Canadian economy comps.
Companies continue to turn to our markets to access the capital they need to keep their businesses running the growth objectives on track and and reach and there are people employed financing activity on <unk> venture exchange was particularly strong in 2020 with a 25% increase and the total number of financings and a 57% increase and total dollars raise.
From 2019.
And Canada Tech sector continue to thrive and 2020 and.
And 2020 technology companies listed on our exchanges raised a record $8 1 billion and the year was marked by some landmark ipos.
The trend that has continued into 2021 and last week, we celebrated another major milestone.
And as Telus International began trading on Toronto stock exchange, representing the largest technology, IPO and TSS history, and one of the largest ipos and our collective history.
Telus International is a leading digital customer experience innovator and yet another great Canadian technology company with global aspirations to come to market.
And TSA venture it recently welcomed <unk> dot com, a spinout of constellation software, which completed the largest IPO and <unk> venture exchange here.
<unk> dot com as a leading pan European and provider of vertical market software and vertical market platforms to clients public and private sector markets.
While building on our strong stock list of high price profile companies, our markets and played a leading role and establishing new categories for entrepreneurs and investors across the innovation sector, including emergent and technologies.
We recently welcomed new bitcoin funds from Ci financial and nine point that each raised over $100 million.
With $9 $230 million of IPO represented the largest public crypto currency fund ever raised.
In addition to these and many other high profile Ipos, our capital formation team has recently taken important steps to adapt our services and solutions to further expand opportunities for companies to efficiently and cost effectively raise capital in December we announced important changes to <unk> ventures signature.
Capital Pool company or CPC program. The CPC program is a unique lifting vehicle exclusively offered by <unk> venture and the most popular go public vehicle for growth stage companies accounting for almost 50% of new <unk> b lifting over the past 10 years.
The changes to the program, which are designed to increase flexibility reduce regulatory burden and improve the economics and overall value proposition came into effect on January one 2021.
So overall increased demand for quick access to capital coupled with a healthy investor appetite for growth stories led to a substantial increase and private placement activity in 2020.
<unk> and <unk> venture companies raised a combined $14 5 billion and private placements in 2020, a 57% increase from 2019.
But for clients the processes manually intensive and can consume a tremendous amount of administrative resources.
So last month, we will launched TNX deal links our client focused solution to address these concerns <unk> dealings and automated private placement platform designed to provide public and private companies with an efficient process and powerful tools to manage key processes from distribution and collaboration to comply and.
To deal completion.
<unk> is committed to the long term viability of our capital markets ecosystem.
And as an industry, we need to work to identify and solve inefficiencies and help free up resources for companies to focus on business ambitions rather than administrative tasks.
Now I'd like to close my comments today with a brief update on our growth strategy.
We remain firmly committed to executing our long term strategy and advancing our roadmap for growth. The plan, we rolled out in 2018 to generate revenue growth centered around three key priority growth areas.
And so while the strategy has not changed and the past two years, so very much has changed and our and the operating environment and the world around us.
Reminding us of sustainable long term growth must be supported by and engaged team and our commitment to the broader stakeholder community.
And recognizing the central role TNF plays and the capital markets industry.
Okay.
In December 2020 represented and update to the Tms group corporate strategy to the board of directors identify and four priority areas of focus.
The first is growth acceleration.
Consistent with our proven strategy, we continue to pursue opportunities positioned TNX competitively and chosen areas of high growth potential, including our global unique PSX venture model <unk>.
<unk> trade port and data analytics.
Our second priority area is talent and culture. So much of our success has been and is driven by the exemplary efforts and and.
Wavering commitment of our people.
We have undertaken vital work to bolster employee engagement and purpose and ensure a respectful and inclusive workplace and amplify our employer brand to continue to attract and retain talent and foster our employee development.
Our third priority areas advocacy for better markets.
The global capital markets industry continues to rapidly evolve <unk> has an important role to play and advocating for measures to ensure that not only does Canada remain competitive on the world stage, but we elevate the status of our markets to our global leadership position.
We support initiatives such as the capital markets modernization task force and its efforts to identify and address key structural issues within Canada's capital markets, including corporate performance on equity diversity and inclusion.
And we are encouraged by the overall direction and Express Express and to report released last month, particularly the consideration paid to creating the necessary conditions for company to more efficiently access the capital they need to grow.
<unk> has taken on and active role and the important work to update corporate governance guidance for companies in Canada were.
We are co chairing a committee on the future of corporate governance, Canada, a diverse group of 12 experienced public company directors from across Canada, working together to develop and inclusive and flexible guidance designed to help boards and directors and navigate relevant risks and opportunities and the modern business landscape.
The committees preliminary report will be released later this year.
And the fourth key priority area is focusing on advancing sustainability and ESG.
We have said about the work of integrating ESG objectives, and initiatives and to <unk> core objectives, and positioning <unk> as a world leading marketplace for sustainable investment and finance with our products and services.
Sustainable investment touches virtually virtually every facet of our business and today, we have a number of key initiatives already underway, including ESG 101 day.
Portal the portal of issuer support services and resources to help listed companies navigate the fundamentals of ESG reporting.
Trading and a sustainable bonds issued by governments and quasi governmental entity entities is set to launch later this year, enabling retail investors to gain access to and otherwise opaque OTC bond market.
Tms data links and launched a set of ESG indices, and 2020, including the S&P Tsi 60, ESG index, which measures the performance of constituents and the S&P and <unk> 60 index that meet sustainability criteria.
And lastly, <unk> launched the treating of S&P and <unk> 60, ESG Index futures and December 2020 as well.
With that I want to thank you for your time today and turn call back over to Frank Thank you.
Thank you John.
Turning to our Q4 results the resiliency of our business model was reflected in our strong results for reported revenues up 8% from Q4 of 2019 and.
Excluding the impact of the reclassified Cvs for carnival costs and the prior year the increase in revenue was over 10% and the quarter.
This was driven by increases in revenues from our capital formation Global solutions insights analytics and equities fixed income trading businesses.
Partially offset by decreases and derivatives trading and clearing.
Operating expenses were up 7% over Q4, and 19, reflecting higher employee percent performance incentive costs.
Our adjusted EBITDA margin was 58%.
Diluted earnings per share increased 50%, which included a noncash impairment charge of $18 million and Q4 and 19.
Adjusted diluted earnings per share was up 9%.
There was a decrease in our share of net income from box and Q4, 'twenty driven by an increase of approximately 5 million for seven cents per basic and diluted share in our share of long term employee performance incentive costs for the full year 2020.
This was mainly driven by increased volumes and 2020 versus the prior year.
Taking a closer look at revenues the increase and capital formation segment was mostly driven by an increase and additional listing fee revenues compared with Q4 and 19.
The higher revenues on TSA adventure exchange due to an increase in both the number of financings and the total financing dollars raised.
And there was also an increase and additional listings finance revenues on the Toronto stock exchange, reflecting a 56% increase and the number of transactions billed at the maximum listing fee of 250000.
And an increase of 15% and the number of transactions billed below the maximum fee.
Going into 2021, the market capitalization of issuers listed on <unk> venture exchange increased from 45 billion at the end of 2019 278 billion at the end of 2020.
Total market capital of all issuers on TSS increase from $3 two trillion to <unk> three four trillion over the same period.
We estimate these increases and market capitalization should result, and a lift and sustain and fee revenues approximately $3 million to TSMC and approximately $2 million on TSS.
Now turning to equities trading and clearing high market volatility during the quarter continued to drive significant higher volumes.
The average VIX was over 26, and Q4, 'twenty compared with about 14, and Q4 and 19.
And equities and fixed income trading there was a 35% increase in revenues from Q4, 'twenty compared with last year, driven by a 51% increase and overall volumes treated across all of our exchanges.
The impact from the higher volumes were somewhat offset by a less favorable product mix and Q4 'twenty compared with the prior year.
There was significantly higher trading volume and <unk> B securities up, 96% and the quarter, which has a lower capture rate as compared with a 29% increase and volumes on the Toronto stock Exchange Securities.
There was also an increase and fixed income trading revenue, reflecting a net increase activity and swaps.
Cts revenue decrease from Q4, and 19 to Q4, 'twenty and Q4, and 19 recoverable costs of $5 3 million for the age of Cds clearing operation that for Prudency net and operating expenses were reclassified and included in both Cds revenue and SG&A expenses.
There were $1 3 million upbeat recoverable costs and Q4 'twenty.
Excluding the impact of recoverable costs DDS revenue was up 6% and Q4 'twenty.
In addition, there was higher international depositary clearing and settlement revenue due to higher volumes in Q4, 'twenty compared to the prior year.
Revenue in our GSI a segment was up 9% over 2019 with increases from both trade port and our traditional data business.
Revenue from trade Port was up 14% and Canadian dollars and up 13% and Sterling.
The increase in revenue was also driven by a 5% increase and total subscribers sales of additional products and enterprise license renewal.
Revenues from our traditional and data business increased by 5% from Q4, 19% for Q4 'twenty with high revenues from subscriptions usage based quotes heat benchmarks and indices.
The average number of professional market data subscriptions for TSS, and TSS and meat products was up 1% and Q4 'twenty compared with last year for our next subs were up 3%.
For industry, including revenue declined by 8% from Q4 and 19% for 'twenty.
Collecting and a 3% decrease and revenue from that mix and PVC.
This decrease in revenue was primarily due to a decline and overall volumes, particularly in the three months Canadian bankers acceptance features or box contracts.
In addition, there was a decrease of approximately $1 4 million and revenue related to our agreement to provide transitional services to box, which ended and the second quarter of 2020.
As I mentioned operating expenses increased 7% from Q4 19.
The increase and cost was primarily attributable to higher short term and long term employee performance incentive costs.
Increased severance costs and higher head count higher it costs, the write off of costs related to discontinued initiatives.
As well as increased costs related to managing our business during the COVID-19 pandemic.
The increases were somewhat offset by recoverable costs of $5 $3 million related to Cvs and.
And Q4, 19, compared with $1 3 million and Q4 'twenty.
There was also a decline in equipment costs travel and Neil expenses consulting fees and occupancy costs.
Looking at our results on a sequential basis revenue was up $11 9 million or 6% from Q3, 'twenty largely attributable to increases in revenues from equities and fixed income trading CBS.
Trading clearing and GSI eight.
Operating expenses in Q4, 'twenty were up $6 2 million or 6% from Q3.
The increase reflected higher severance costs increased short term employee performance incentive comp higher.
And <unk> it call the write off of costs related to discontinued initiatives and increased marketing costs.
These increases were somewhat offset by lower and long term employee performance incentive costs and reduce COVID-19 pandemic related expenses.
Looking at our balance sheet, we reduced our debt by over $79 million from the end of 2019 to the end of 2020. We also spent $56 8 million in the repurchase of Ford and 73000 for hundreds of our common shares under and CIB program through to the end of 'twenty and 'twenty with the continued strength of our.
Adjusted EBITDA in 2020, our debt to adjusted EBITDA ratio was one eight times at December 31 down from two one times at the end of 2019.
We also have about $278 million and cash and marketable securities at the end of the year, which is almost $115 million in excess of the $165 million, we target to retain for regulatory and credit facility purposes.
Yesterday evening, our board declared dividends and 70 per common share payable on March 12 to shareholders of record as of February 26 at.
And at 49% of our adjusted EPS. This is at the high end of our target payout ratio.
40% to 50%.
And now I would like to turn the call back over to Paul.
Thanks, Frank Operator could you. Please outline the process for the question and answer session.
Thank you at this time I would like to remind everyone in order to ask a question for Starz and the number one on your telephone keypad.
Your first question comes from Nick <unk> of CIBC capital markets. Your line is open.
Okay. Thanks.
First question just relates to Cts.
Looking back at 2020.
Equity trading volumes were up over 40%, but I noticed Cds revenue increased only 4% for the year.
And would imply relatively low sensitivity to equity turnover levels, but on the other hand Cds revenue has grown over time.
And if I can just ask you to refresh us on the revenue model at Tds and maybe some other key sensitivities there if not equity trading volumes. Please.
Yeah, well I'm happy to start that and frankly, I feel free and here.
There's a couple of components. So one thing within the Cds model is that the.
And the clearing fees the clearing fees related to equity trading are actually one of the smallest components of the model for larger components of Cds for smaller around custody and activity around entitled and processing and those types of things. In addition, and things like equity clearing is one of the pieces that subject to the historical 50 50 rebates were 50 per.
Percentage of that growth is rebated back to the participants for those and you'll see and the details of those rebates have grown over the period as well and so those are the real drivers why you don't see that direct translation of that equity volume into the overall Cds revenue because it is a smaller component of the total Cds revenue mix.
Okay, Okay makes sense.
And then just one other question on the expense side, and I noticed information and trading system costs stepped up slightly and the quarter. So it sounds like some of that related to the write off of expenses related to discontinued initiatives and I don't think that was adjusted out of earnings.
Can you just provide a bit of color media and what that related to and.
And just the size of the write offs that we shouldn't expect to reoccur there.
Yes, certainly net this is Frank here. So it was a relatively small amount roughly a $1 million for the quarter related to the write offs.
It relates to and they're.
Trying to bond initiative, and our Cds clearing portfolio.
So given the small and it was.
It was a part of our.
Ongoing investment and internal.
Internal initiatives and given the size of that but.
But we did not adjust for that.
Okay got it that's very helpful and that's it for me thanks very much.
Your next question comes from Geoff Kwan of RBC capital markets. Your line is open.
Hi, good morning I.
And I know you talked a little bit about.
Some of the deals that have been happening and and I'm just trying to get into the deal pipeline I know in the past at different points of time.
And there has been comments so that the pipeline teams.
Pretty good and based on what Youre seeing I'm, just curious based on what we're seeing today or what you're seeing today.
How does this feel versus other times and seal.
Net inventory.
Really stronger or in line with other points in time.
The pipeline has been pretty good.
Yeah, Thanks, Jeff and thanks for how you asked that question without asking me to predict the longer term future I appreciate it.
And I can give you this quite candidly because the team, particularly the team that is working on processes and managing listing files with clients is extremely busy so that trend and that strength that you saw through Q4 has very much continued into.
The start of 2021, we talked about a couple of them on the call like like tell us and top because and.
And there are a number of additional.
Tech.
Is that are in the pipeline that continues to be the one of the largest drivers of the IPO strength. This is tech sector, but also resources and other about Texas and Texas. The real leader. There. So we are continuing to see depth and that pipeline and for.
For the foreseeable future.
Okay, and then I'm just wondering is there some sensitivity you can provide in terms of thinking like operating leverage to stronger listings activity. Specifically. So for example, if we saw overall revenues increased 5% and.
And it was driven you know call it solely by higher listings activity like what type of increase in EBITDA or maybe looking at from EBITDA margin perspective.
Ballpark would.
Would you think you would see in that scenario.
Yeah. So and this is part of the business, we do have a lot of operating leverage here.
So a lot of other work so there's not a lot of variable cost in terms of managing this but we do have a lot of file support work. So we are adding resources to help the team but it's.
It's not what you would call material in terms of looking at the expense base and the really important piece to you. Jeff is that we did a lot of work over the last couple of years to digitize and automate the relationship with issuers for processing. These files.
So timely that this went live for us before Covid hit and it allows us to take the files from from new IPO or issuer clients and are raising money electronically and process that workflow electronically, it's given us a lot more scale and leverage and the model than we would have had in terms of previous.
Spikes and activity like we're having a day. So yeah, we will and we are adding some resources to help with that file load, but it's not material.
Okay and just my last question would be just the box long term comp.
I guess nuance from Q4. Thank you I appreciate 2020 was an extraordinary year in many ways, but.
Is there a way to reduce the volatility and the box compensation expense, whether or not is accruing the L tip.
And then doing a true up in Q4 or is this an issue that would likely happen. If you have another year, where box is financial results for either you know say up for down a lot relative.
For the prior year.
Yeah. It's a good question and we're going to let me give you a start on that and frankly are going to jump in as well.
And as you said it did reflect our compensation cost for the whole year. So in theory would have liked to have seen that accrued all through the year, but it is based on the valuation of boxes and entity, which candidly. We are we are a large investor and it but we're not a control investors. So we don't have control of and how those compensation agreements are are arranged for.
Let me turn it to you to add into that.
Yes, just just add and point that you need to look at that as a 2020 full year charge.
And given like as John mentioned, the sharp increase in volumes, especially in the.
And the last six months and where the valuation ended and.
And that resulted in the appropriate cool. So so on a go forward basis thing and it's more of a and annual charge.
And we see those volumes continue obviously, so it is hard and dependent upon the devaluation of box going forward.
Okay, great. Thank you.
Okay.
Your next question comes from Jeremy Campbell of Barclays. Your line is open.
Hey, Thanks, guys.
And just similar to the moves and the Canadian and U S rates curves it looks like the Montreal exchange and seeing some similar impacts to the U S market with longer term futures contracts picking up quite a bit while the short and remains pretty muted so John and maybe Frank too just one kind of wondering if you can characterize the year to date rates activity and the futures complex as it's been.
Dramatically higher down here in the U S and year to date and.
And to maybe how you think about the complex and rubbing up into 2021 as the year over year comps on the short duration. So I'd get much easier after March and then on top of that you have the two and the five year continuing to spin up organically toward a more normalized level.
Yeah, Frank do you want to start with that and then I'll jump it.
So as you mentioned we are seeing.
The strong start to the year with our derivatives volumes.
Up.
And believe around 13% month of January so far you and Steve stats come out last week relative to our Q4 levels.
We're we're optimistic we've just launched the <unk> product in Q4, that's already a roughly around 5000 contracts per day.
What we are noticing to your point some of the curve strategies involve and that product with the two and five year I believe we've already seen contracts for over 7000 and so far.
So that's that's some positive news to start for the year and.
John and I shouldn't read anything else you want add to that.
The pizza and additives.
Minor as we spoke earlier that we've announced the launch date for our agent and time zone trading as well and in terms of May 30, So a second quarter I expect to see those large benchmark products like for fixed income products.
And on that time and again, if we see the kind of lifts that we've seen out of the UK that could add substantial volume as well.
Yeah, Thanks, and John and I was actually going to ask you about as well here just maybe even more broadly on the whole futures complex around the Asian time zone, and you've laid all of the great reasons, why they should be interested and the derivatives complex complex and the Montreal exchange just kind of wondering what your sales team on the ground has been hearing from clients around the demand and maybe how quickly activity might.
Ramp off of that late May launch.
Yeah, that's a great question so.
It was a while before we can get folks back and region, but we did get people back into the region in the fall.
And the anecdotal pieces that we've been giving in terms of why it's based on that call and feedback so Tony see who's our lead in the region and working both out of Canada and book out of Hong Kong is moving doing direct sales work with those large asset managers, and and Australia, and Japan, and Hong Kong and Singapore.
And they are looking for international exposure and the challenge always around international exposures. If you don't make it easy to come to Canada, Canada is is easy to bypass for just using the U S. So.
And the evidence from that client engagement is that the demand is there once we make it easier for them to access.
How fast that wraps up.
So it ramps up I can't give you guidance on that but I would look to the experience that we had and the UK as a proxy.
Great. Thanks, a lot guys.
Your next question comes from Graham Ryding of TD Securities. Your line is open.
Good morning, guys. Thank you and good morning.
Maybe I'll sort of throughput just.
<unk> growth year over year.
And the traders and total numbers I think were up 5% or 6% year over year, but your revenue losses.
Materially higher than that so can you just provide some context on what's driving the higher revenue per subscriber.
Yes.
To take that call and I'll take that question. So you've got and remember we're only up part of our revenue is directly impacted by and what's called short term subscriber movement from quarter to quarter.
And so you rightfully pointed out the other growth and revenue is exceeding the growth and subscriptions, both AR and AR.
Year over year and sequentially, we did see a larger tranche of enterprise license renewed in the corner and that came at higher rates.
In addition to that we mentioned.
And additional.
Mount of additional product sales.
Tied with those with those subscribers.
Through our EMEA pop for customer portal and.
And some of our data analytics products as well through the quarter. So that's what you're seeing and specifically in Q4.
Okay got it.
And then on the expense side.
For the.
And it expense line I think there was some sort of arguably one time items and there, but it was a pretty noticeable uptick from sort of the run rate.
Can you give us some context maybe.
Is this are we.
And as low run rate next year is and need for higher spending on the <unk> side.
And then also on the Capex side with elevated can you give us some context for what youre expecting there.
The Capex next year for this year, sorry 2021.
Yeah, So I'll start with the other operating expenses so.
We expect to maintain consistent level of expenses going forward.
You didn't have noticed some some uptick and 90, but we also saw some some downtick in G&A and so I think you need to look at those together.
And in terms of.
We'll always continue invest and growth will have will have small pockets of new spend and then obviously cost efficiencies to offset we sold exercise obviously our expense discipline.
In terms of Capex Graham and.
Typically and I've been sort of speak towards the ongoing capex for what typically around $25 million to $35 million a year of ongoing topics and you'll see higher levels. This year related to our post trade modernization initiative.
So similar levels to what you saw in 2020.
Okay, Great and then my last question just the sustainable bonds initiative that you mentioned in your MD&A as that.
And it looks like it's targeted towards retail investors is there is it something that you think can be material and other other areas and the traditional over the counter and bond market that could be applicable here.
Resumes.
I think and this one and this is going to be time will tell we're looking at a and area of being both sustainable finance ESG sustainable bonds.
That there is tremendous level of interest right now in terms of people that want to try issuance people that want to try and investing so we don't have a good sense yet what the real demand is going to be but we're trying to take advantage of the capabilities of the mark to market day very quickly bring a product to market. So that retailers can trade. So it's it's a it's a low cost initiative to test out market appetite.
For this type of product on a retail trading basis, and we will see how it goes and build from it.
Okay understood. Thank you.
Again, if he would like to ask a question for stars on the number one on your telephone keypad your.
Your next question comes from Brian for Dell of Deutsche Bank.
And as open.
Great Thanks, and good morning folks.
Good morning benefits.
Good morning.
And maybe just to start out John you mentioned.
Some of the initiatives that you've discussed with the board about for example for growth acceleration.
For revenue growth priority can you talk a little bit more about.
And the plan too.
Bandwidth and data analytics and to help accelerate the Shreveport revenue growth and is that more on trying to get new subscribers and where is it more on a sort of a cross sell basis in terms of revenue capture.
So both within and Shreveport and within the rest of the franchise so within trade port.
Two of those key products and Frank talked to them a little bit just secondly, the data analytics solution as the deep analytic database that allows traders to to retest the strategy and things like that.
It really is a premium add on products for.
For traders in the trade Port universe. So it is one of those things over time and contributes to a higher rate per user in terms of those added subscriptions similarity with the algorithmic trading solutions. So if you recall. This is the business we acquired with <unk> and then work to integrate it into the trade port solution. So that we can provide it out as an entitlement across that platform for <unk>.
For customers.
We are also doing other additional things both with our own products, we build but also with partner products. We have a partner product entre port called trade signal that we do deploy as well as and advanced charging solution and thats been a premium that can be applied across that solution.
Really within the rest of the <unk> franchise, we are and need to look at other.
<unk> for advanced data usage and analytics on top of that.
Our product, which we call. The grapevine is a deep data analytics database that allows users to retest equity strategies, and so total cost and execution and those types of things the algo trading testing and those types of things. So we're continuing to build that out.
The applications are really targeted to some other large users today, but this is an area where we think there are more things that we can provide some useful solutions and we're looking at applications around potentially supporting Etfs and other areas and that marketplace.
Expect this to be a continuing area that we're going to be developing in 2021.
Okay, great. Thank you and then just and retail trading you as you mentioned its extremely strong 45 per cent.
Contribution in January.
Obviously, there is a huge debate and the U S as to the sustainability of free countries and we're seeing similar stats you're of course.
But maybe if you can talk about.
And your confidence level of.
Retail engagement for.
For for 'twenty, one in terms of trying to size out the portion that you think is sustainable and growing versus maybe some more episodic.
<unk>.
Early in the year and late and late in 2020 as well.
Yeah, and so I'm going to do my best to answer that question in terms of my level of confidence without predicting the future at the same time, if I can.
The things that are underlying the strength in retail trading.
Our our drivers that are going to continue for some time. So if you look at the drivers in terms of the low rate environment, how that supports market valuations.
A largely work from home and culture, right now and the continuing growth at.
Retail trading applications that are providing provided through the brokers.
All of those are supporting this elevated level of retail trading activity and we haven't seen the same degree and Canada that the U S has seen in terms of really heavy trading around specific names. So.
And that Hasnt been a day at the same degree of what's been driving ours as you've seen in the U S market.
And that may not be the same level of sustainability, but those underlying factors, we don't see those trends abating in the near term.
Okay. That's helpful. Thank you.
Your next question comes from Jamie <unk> of National Bank Financial Your line is open.
Yeah. Thanks, Good morning, I wanted to dig in and on a couple of revenue opportunities, but but first just.
With respect to comment on non trade port and a and a larger tranche of enterprise clients. I believe you said renewing at higher rates what is driving the higher rates is that a decision on the part of trade port two two.
And to increase or and a and.
And fleet pricing or what is driving that.
So part of that Jamie has built and CPI increases with our with our with our contracts.
But more than that would be.
Heavily.
Italy influenced by usage. So so as these deals that are one to two.
Three year timeframe renew.
We will look at that usage and then more of a site license that are being used and obviously more users means more revenues and more renewals at higher rates. So that's the main driver of that.
Okay, and its user utilization not trade volume utilization correct users.
Okay, Okay, great and so on some revenue opportunities a little bit of a print used on that PSX dark dark pools, and we've seen some rapid growth and market share. There can you talk about.
The revenue.
And intensity of the dark pool relative to more traditional trading and that and where do you see dark pool growing too.
Share of overall volumes and how do you see tier two effects.
Share within the dark pool growing.
Yes.
John.
I can start off and he has jumped in and so <unk>.
Jamie.
And that's been a significant increase for us this year right and 2020 large one of the main drivers why our overall share in equity trades have had have been increased.
So our dark pool and share it believes the gone from 23 percentage to 27% during the year.
And that was largely one of the nadir major factors of why we ended up at roughly 10% market share for the year.
We continue to work on the other day sort of dark initiatives that are going through we can give some color and aren't and John's opening remarks about some of the more opportunities that we see in terms of more quiddity, and then making it easier to trade through that I'm not sure. Jonathan you wanted to add anything to that as well.
Thanks Frank.
We don't really have guidance in terms of what the share of the trading market will be driven by dark solutions.
Historically, it's been around 10% I don't think we updated that with the level of retail activity, we've had and the recent terms. So I wouldn't want to guide you on where that can go our focus and spring. So it is.
Continue to have a growing share of that so competitive pricing that we put in place continue to drive the expanded dark solutions.
And we've grown to 27% of that of that component and we are looking to continue to expand that.
Okay, and maybe if I can ask a little bit differently than I believe dark pool trading and the U S is significantly higher than the 10%. It is and Canada can you talk about some of the.
Differentiating factors as to why we would see that delta and whether that delta can persist.
Yeah, one other reasons that you see that Delta and the Canadian market is because we've actually got more of the functionality that dark trading provides and the U S actually built right into the order structures. So.
The market that gives me a broker preference and built into our structure already that allows brokers to trade against their own.
<unk>.
The average price improvement components that are built into our market structure already so a lot of that features we built into the active market. So you don't need to go to a dark pool to get them. The way you did and the U S market.
Okay, great. Thanks.
Shifting to the to the market on closed quite antiquated initiative to change the.
The change the.
And the set up there.
Can you talk about are there other enhanced revenue opportunities here for for team acts with the with the new market on close structure or is that.
And determined at this time.
I'd suggest it's indeterminate at this time, the certainly improving the market on closed solution.
Bill will allow and we anticipate more liquidity into the close to that which I should add to more trading activity.
Half a day trading caps in terms of participant level caps in terms of that and as we bring the solution out to market. We will re look at the pricing and structure for it and general but I think it's early to say at this point.
Okay, great and.
A broader question then.
Around ESG and some of the initiatives that you you've launched so far within the season and.
And futures I'm, just wondering if can you.
Perhaps frame the ESG opportunity for <unk> and what type of revenues can you see generated.
Would it be associated to the ESG theme.
Yeah, but the way we are thinking about ESG and we're gonna be actually bringing more information out of this and the.
And the first and second quarter around our vision and mission in terms of and how we support the industry and this way first of all <unk> is a company ourselves as a public company.
We expect to be a leader in terms of good ESG disclosure.
No footprint those types of things and we're going to be bringing out more measure so that and the future.
The second component and really turning towards the nature of your question is as a marketplace. Operator and also thought leader. We are looking for ways that we help companies navigate ESG effectively and provide opportunities for issuers and investors. So some of the early things that we're doing around the issuer community is really sort of bolstering the strength of the issuer.
<unk> period, so it's not a discrete revenue opportunity itself. It makes those where issuer relationships stickier and makes it easier to be a public company. So that ESG reporting isn't been other barrier for someone to use the public market's access capital. So that's where we'll see it on that component and Thats, there and things like ESG, a 101 and we're also looking at reporting solutions to help it.
<unk> navigate in terms of what they reported out on the product side and again as we said these are early stage. So.
The new trading and a sustainable finance products like.
Travel bonds that is a net new revenue opportunity that we'll see what the market uptake is that in terms of how it drives.
Same thing with the index futures and the <unk>.
Indices themselves. So if you remember the and our market data revenues, we have revenues that come from our index relationships. So these net new index relationships and the assets under management with them will contribute to growth of the index revenues and and the futures that we're driving through the amex will grow in terms of those future trade and pieces. So.
I'm not going to able to guide you today in terms of what the revenue opportunities are for each of those but we are pushing on a number of different areas and it'll be about what investor demand is going to pick up and these products.
Great. Thanks, that's it for me today.
There are no further questions at this time I will now return the call to our presenters for closing remarks.
Thanks, Chris and thanks, everyone for listening today, if you have any further questions to contact information for media as well as for Investor Relations and our press release and we'd be happy to get back to you stay well and stay safe everyone.
This concludes today's conference call. Thank you for your participation you may now disconnect.
And.
Other revenue.
And.
And.
Okay.
Yes.
And then.
[music] group.
And <unk>.
[music] area, we're investing in innovation.
Okay.
[music].
And.
And then.
[music] group.
And.
And we're moving forward.
And.
[music].
And.
And then.
[music].
And.
Yes.
Okay.
[music] and.