Q4 2021 TMX Group Ltd Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the <unk> Group Limited Q4, 2021 financial results Conference call. At this time all lines are in listen only mode. Following the presentation, we will conduct a question and answer.
Session.
So at any time during this call you require immediate assistance. Please press star zero for the operator.
This call is being recorded on Tuesday February eight 2022.
I would now like to turn the conference over to Paul Malcolmson. Please go ahead.
Thank you operator, and good morning, everyone.
That you and all of your families are staying well and safe.
Thank you for joining us this morning for the full year and fourth quarter 2021 conference call for <unk> Group Asia.
We announced our results late yesterday and a copy of our press release is available on <unk> Dot com under Investor Relations.
We have what's it's John Mckenzie, our Chief Executive Officer, and David Arnold, Our Chief Financial Officer.
Following opening remarks, we will have a question and answer session before we start I want to remind you that certain statements made on todays call. Maybe considered forward looking I refer you to the risk factors contained in our press release and in reports that we have filed with regulatory authorities and with that I'd like to turn the call over to John well. Thank you Paul and good morning, everyone. Thank you.
For joining us today for our discussion of <unk> group's Q4, and full year 2021 financial performance.
And on behalf of all of its the TNX I want to wish you the very best of health to everyone listening. This morning.
As Paul mentioned, we announced our results last night and shortly David will take you through the fourth quarter in detail, but first I would like to focus my comments. This morning on <unk> group's performance for the full year 2021.
Updating you on the progress we have made in our efforts both internally and externally to strengthen <unk> ability to drive success for our clients and to make markets better.
I also want to outline our top priorities as we continue on into 2022.
Now 2021 was a tremendous year for <unk> marked by strong performances in major accomplishments across our business areas as well as important progress and strategic initiatives.
Before I get into further into our operating results I want to acknowledge a common and crucial element in all of <unk> successes.
Our people.
Throughout the year and in every facet of our business Cms's team of professionals demonstrated an unwavering commitment to our clients and stakeholders rising to meet the increased demands and the day to day challenges of a busy market all while navigating the realities of work and home life during the pandemic conditions.
Our business achievements are people achievements and.
And speaking on behalf of <unk> Senior leadership I want to thank all of our employees for their outstanding efforts.
Now to our results for the full year.
<unk> generated record revenue of $987 million, an increase of 13% from 2020.
Our diluted earnings per share grew 22% or 21% on adjusted basis compared to the year end December 31 2020.
<unk> is important and impressive performance in 2021 reflect significant contributions from across our business areas, including capital formation derivatives trading and clearing and Shreveport and stands as powerful evidence of <unk> ability to serve the diverse needs of our dynamic and global client base.
Our total operating expenses increased 9% from 2020 and this is largely due to the inclusion of expenses related to ASC, Canada, including acquisition and integration costs.
The year over year increase in expenses also reflected higher head count and payroll costs.
<unk> merit increases as well as higher costs related to our short term employee performance incentive plan given the strong operating results for 2021.
Now moving to our business areas.
Revenue from capital formation was $257 7 million, an increase of 36% from 2020.
Largely driven by an increase in the number of issuer financings and financing dollars raised on Toronto stock exchange MTS ex venture exchange.
It was a record setting year in terms of deal, making activity and new listings on our equity markets. Our total financing dollars raised by issuers totaled $56 9 billion in 2021.
33% increase over 2020 and.
And led by continued growth in our largest sectors of technology and mining with total dollars raised up 70% and 33% respectively.
The highlights from 2021 included some new all time records, including 177, new listings on Toronto stock exchange, excluding graduates a 17% increase from 2020.
36, corporate Ipos on TSS Triple the number from 2020 and sustained momentum in the innovation sector, which includes companies and clean tech biotech and renewable energy.
With an overall record of 110, new listings on PSX, NTS expenditure and $23 billion and overall capital raised.
Inside the numbers the face of Canada's equity markets continues to change.
Are stockless has never been so diverse with companies of all sizes and stages of maturity from a broad range of sectors offering compelling opportunity for investors.
And the foundation of our market has never been stronger on <unk> venture exchange, the world's leading public venture market and the bedrock of our unique ecosystem issuers raised more than $11 billion in financing.
Cross more than 800 transactions during 2021.
Leading the way in TSS venture financings by sector, where innovation and mining with $3 billion and $6 billion range respectively.
Strong public venture market is a key element of our two tiered public company ecosystem and a differentiating feature of Canada's capital markets.
These early stage companies across all sectors are amongst the most innovative in the world.
And no market in the World does a better job of nurturing and clearing the path to long term success for small cap growth companies than the Canadian public venture market community.
We celebrated 36 graduations from TSS venture to TSS during 2021, the most since 2011.
Since 2000 and more than 700 companies have graduated from TSA venture to trial stock exchange and these Canadian grown success stories make up 21% of today's benchmark S&P <unk> composite index.
<unk> continues to expand the reach and raise the profile of our markets beyond our borders and through our targeted business development program.
On a combined basis PSX MTS adventure ranked third amongst our global exchange peers by the number of new international listings in 2021.
We welcomed 49, new issuers from the United States and other regions of Tms focus like Israel, Australia, and South America.
These companies operate in a variety of sectors, including technology mining life Sciences and renewable energy.
And the addition of new listings from large cap companies and big name Ipos to early stage Juniors and capital pool companies builds our market stronger and deeper and enhances our value proposition among global investors.
Canada's markets are among the best in the world. They are deep and diverse they are fairly liquid innovative and responsive.
But our markets are not static and must continue to evolve and Tms is committed to working in collaboration with our clients and stakeholders to innovate and adapt our offerings make markets better and ensure we retain our competitive edge into the future.
Now turning to derivatives.
Revenue from trading and clearing was $142 5 million up 13% from 2020, driven by a 14% increase in revenue from Montreal exchange and CDC.
2021 was a year of significant growth for Canadian derivative markets.
<unk> volumes on <unk> increased 29% compared to 2020 highlighted by.
Strong performances in some of our signature Canadian benchmark products, including the Bax contract, where volume grew 21% year over year.
We also saw a significant growth in the investor interest in some of our developing product areas with volumes in single share futures up 91% and equity options up 35% from 2020.
Amex continues to adapt its suite of products to meet investor demand.
In November 2021, we launched the 30 year government of Canada Bond futures contract, adding another liquidity point to our futures curve by complementing the two five and 10 year contracts.
The new 30 year contract is designed to facilitate hedging for longer maturity instruments and to create more cross market treat opportunities.
And in keeping with the cross market theme and Mexico, a major step forward in its global expansion plans with the September launch of extended trading hours to sync with the Asia Pacific time zone.
And initiatives that began in 2018 with trading on London time extended trading hours on Montreal exchange directly connects us to the world's Premier financial centers, enabling sophisticated modern investors in all time zones to trade Canada on their time.
The initial response to Asia Pacific ours has been very positive.
The challenges the pandemic poses in terms of business development halfway across the world.
And our daily volumes during the new session have averaged approximately 6000 contracts and the opening months.
And combined Imax's European and Asia Pacific extended hours sessions accounted for approximately 6% of total Nx volume traded during 2021.
Looking ahead to next year in response to growing demand for risk management products in the crypto space.
That mix is working towards introducing a cash settled futures products designed to enable investors to hedge crypto currency investments.
And our team continues to examine ways, we can enhance the overall amex client experience and augment our market, making program to attract more retail trade.
Now moving on to Triple.
We are pleased to report double digit growth during the year with revenue of $150 6 million, a 10% increase compared to 2020.
Growth was driven by a 7% increase in average number of total subscribers and also included $2 1 million in trade signal revenue from the acquisition in June .
Over the past weeks and months volatility has again gripped global global energy markets.
Natural gas supply shortages in Europe , and parts of Asia, coupled with increased demand as economies build back towards pre pandemic levels of activity have driven energy prices to record highs.
And Trey ports tailored product plays an important role in energy markets, especially in uncertain conditions equipping clients with data and analytics capabilities to make informed trading decisions.
Our network offers a key access point connecting traders portfolio managers and analysts to over 40 execution venues across power and natural gas markets.
And in response to rapidly involving global energy markets and the ongoing transition to renewables gathering momentum.
Pork continues to explore opportunities to diversify its client offering and expand into new asset classes and geographies.
In addition to a stellar year from a performance perspective 2021 was also a very important year for <unk> in terms of progress made in our fourth strategic priority areas.
Accelerating growth across the enterprise in our business areas.
Enhancing our talent and culture by investing in our people and our purpose to make markets better and empower bold ideas.
Activating Tms as a vocal proponent to advocate for smart policy measures to ensure Canada's markets, maintaining our competitive edge.
And integrating environmental and social governance, and sustainability objectives and initiatives into Tnx's, corporate and business objectives and priorities.
As discussed on our Q3 call, we appointed Michelle Tran, our respected Tms veteran with deep connections across our client community as the new president of <unk> ex data links.
And just two weeks ago, we once again tapped into the depth of expertise and wealth of experience with the organization to point, Tim Babcock as the new Vice President and head of <unk> venture exchange.
She has more than 20 years of experience with <unk> venture.
His knowledge and expertise in regards to all aspects of the business and community coupled with his leadership skills position him and the T. S X venture franchise for ongoing success.
It continues to be an exciting time for <unk>.
Filling these roles and others from inside our organization demonstrates our commitment to nurturing talent and developing exceptional leaders.
And it stands is compelling evidence that we are on the right track and establishing a high performance working culture.
Now in addition to our Q4 financial results last night, we were very pleased to announce an 8% dividend increase from 77 to <unk> 83 per share.
<unk> on March 11, 2022 to shareholders of record at the close of business on February 25 2022.
This is the fifth increase in Tms group dividend in three years and demonstrates our proven ability to generate increasing cash flows over time and over different market conditions.
We remain committed to executing an effective long term growth strategy, serving stakeholders in our markets across the world with excellence throughout all market conditions, and continuing to deliver value to our shareholders and with that let me turn the call over to David.
Thank you John good.
Morning, everyone.
It's good to be back in the office again, so let's turn to the fourth quarter results. The fourth quarter was another exceptional quarter for us with 15% revenue growth and 24% growth in both diluted and adjusted diluted earnings per share.
They were revenue increases from across all our businesses with the exception of equities and fixed income trading revenue, which was down due to lower volumes when compared to the high volumes of Q4 2020.
On the heels of our strong revenue growth operating expenses increased 20% over Q4 of 2020, mainly driven by costs related to our acquisitions of <unk>, Canada and trade signal.
After adjusting for these two acquisitions in 2021 organic revenue growth was 11% this quarter and operating expenses, excluding ASP, Canada and trade signal were up 8% driven by an increased investment in growth areas of our business and yielding yet another quarter of positive operating leverage.
Our 24% earnings per share growth in the quarter as mentioned earlier was primarily driven by higher revenue as well as an increase in our share of income from the Boston options exchange after another strong quarter and lower income tax expense in the quarter compared with Q4 of 2020.
This quarter. It was a $3 9 million reduction to income tax expenses of which $2 9 million or five cents per basic and diluted share related.
Related to a reversal of the deferred tax asset written off in 2017, which we adjusted for in 2017, so have applied consistent treatment for that this quarter, partially offsetting these earnings increases were higher expenses in the quarter, which included integration costs related to a S. T Canada of $2 8 million or four cents per basic and.
<unk> share as.
As well as higher net finance costs, driven by the higher interest expense related to the issuance of our series F debentures back in Q1 of 2021.
Turning now to our businesses and I'll start with those that saw revenue increases in the quarter.
Revenue in capital formation grew by 33% this quarter, including approximately $8 6 million of revenue related to <unk>, Canada, which accounts for approximately half of the growth.
Excluding ASC, Canada revenue in the quarter grew 16% in capital formation and was primarily driven by higher initial listing fees in the quarter when compared with Q4 of last year.
Sustaining listing fees increased in the quarter, reflecting an increase in the market capitalization of issuers as at December 31, 2020.
Additional listing fees also increased in the quarter due to increases in both the total number of financings and the total financing dollars raised the increase or the increases on T. S X reflected at 52% increase in the number of additional listing transactions billed at the maximum listing fee of 250000, partially offset by a 6% decrease.
And the number of transactions billed below the maximum fee when compared to Q4 of last year.
Now looking forward to 2022, the market capitalization of issuers listed on PSX increased from three four trillion at the end of 2020 to $4 two trillion at the end of 2021.
Total market capitalization of all issuers on <unk> venture exchange increased from 78 billion to over 102 billion over the same period.
Now we estimate that these increases in market capitalization on T. S X N T. S expenditure should result in an increase in sustaining listing fee revenue of approximately $3 million in 2022, or a 4% increase compared to last year since the vast majority of the increase in market capitalization came from.
Those issuers at or above the maximum sustaining listing fee on T. S X.
Turning to derivatives trading and clearing this quarters revenue grew by 24% when compared to Q4 of 2020.
While volumes on the Montreal exchange increased by 46% compared to Q4 of last year. It was lower revenue per contract, reflecting changes in both client and product mix in.
In the past quarter, there was an increase in high volume traders trading activity, which yields a lower revenue per contract. In addition volume increases was partially driven by contracts with low yields including single stock futures, which made up 15% of total volumes in the quarter compared with 7% a year ago.
Revenue in our global solutions insights and analytics segment was up 8% of the Q4 of 2020 with increases from both trade port and data links revenue from trade pork was up 10% in Canadian dollar terms with 11% in pound Sterling.
The increase was driven by 9% growth in total subscribers in the quarter compared with a year ago and an $800000 of revenue contribution from trade signal, which was acquired on June 1st.
Ganic revenue growth in <unk> and Canadian dollars was therefore, 8% when compared to Q4 of 2020.
Revenue in our traditional data business grew by 6% driven by increases in usage based quotes professional and unprofessional subscribers co location feeds benchmarks and indices.
The average number of professional market data subscribers.
Subscriptions for T S X and T ethics venture products grew 7% in the quarter compared with last year and subscriptions on the Montreal exchange were also up by 7%.
The higher revenue was partially offset by an unfavorable impact of approximately $700000 on a stronger Canadian dollar relative to the U S. Dollar over Q4 of 2020.
Revenue from Cds was up 11% in the quarter, reflecting higher depository event management fee international as well as clearing and settlement revenue when compared with Q4 a year ago.
The increases in revenue were partially offset by higher rebates and lower network fees.
The revenue increases in the aforementioned businesses were partially offset by equity and fixed income trading revenue, which decreased 4% in the quarter compared with Q4 of 2020.
The Street decrease was driven by a 9% decline in the overall volume of securities traded on our equities marketplaces trading volumes at PSX securities decreased by 6% in the quarter.
Volumes on Tia fixed venture exchange in <unk> L for exchange decreased by 17% and 6% respectively.
There was also a decrease in fixed income trading revenue, reflecting lower activity in swaps in the quarter.
These decreases were partially offset by higher yields on all of our equities market cases in the quarter when compared with Q4 of 2020.
So turning now to our expenses operating expenses in the fourth quarter increased by 20% compared to Q4 of last year.
They were approximately $13 3 million of expenses in Q4 relating to a S T, Canada, including $2 $8 million of integration costs $1 5 million related to the amortization of acquired intangibles $1 3 million related to the transition services agreement with a S T and $900000 of acquisition and related costs.
Operating expenses, excluding ASC, Canada increased by 8% in the quarter compared with Q4 of last year.
The higher expenses reflected higher head count and payroll costs increased short term employee incentive plan costs higher legal fees as well as increased recoverable expenses. These increases in costs were partially offset by lower severance costs of $2 million lower long term employee performance incentive plan costs of 900000.
In dollars and $400000 of acquisition related costs related to ASC, Canada in Q4 of 2020.
We expect integration costs up Asps, Canada of approximately $20 million over the 12 months period from September one 2021 to August 31 of 2022.
Integration costs are expected to generate total revenue and cost synergies of approximately $8 million, which will be substantially achieved by the end of 2024 in.
In addition, we expect at least $2 million of these cost synergies in fiscal 2022.
Looking at our results sequentially revenue increased $21 1 billion or 9% from Q3 2021 to Q4 of 2021.
This was driven by higher revenue and capital formation equities and fixed income trading and clearing C. D S derivatives trading and clearing and global solutions insights and analytics, partially offset by slightly lower other revenue.
Operating expenses increased $14 3 million or 12% from Q3 due to higher severance of $2 8 million higher software license and maintenance costs of $1 8 million in higher short term employee incentive performance plan costs of $1 2 million.
There was also approximately $13 3 million of expenses included in Q4 2021 related to ASC, Canada as mentioned earlier.
These increases in operating expenses were partially offset by lower long term employee incentive plan costs, when comparing Q3 to Q4.
Commenting on our balance sheet in the fourth quarter of 2021, we spent $18 6 million repurchasing 140000 of our common shares under our normal course issuer bid program.
A debt to adjusted EBITDA ratio was one <unk> times at the end of the quarter and he also held over $341 million in cash and marketable securities at the end of the quarter, which is about $156 million in excess of the $205 million, we target to retain for regulatory and credit facility purposes.
Now as John mentioned earlier, our board approved a quarterly dividend of <unk> 83 per common share payable on March 11th to all shareholders of record as of February 25.
In 2021, we paid out 42% of our adjusted earnings per share, which is at the low end of our targeted payout ratio of 40% to 50%.
With the increased to 83 cents in Q4, we will pay up 47% of our adjusted Q4, EPS, which is slightly above the midpoint of our target payout ratios and positions us well within our range as we look forward to 2022.
And now I'd like to turn the call back to Paul.
Thanks, David Operator could you. Please outline the process for the question and answer session.
Thank you, ladies and gentlemen will now begin the question and answer session.
Did you have any questions. Please press star followed by one or you touched on film you'll he had three Tom Brown acknowledging your request and Youre question Lee bulb in the order they received should.
Should you wish to decline from the billing process. Please press star followed by two if you're using a speaker phone. Please lift that has suddenly for breast and any keys. One moment. Please for your first question.
Your first question comes from Nick Priebe with CIBC capital markets. Please go ahead.
Yes.
Okay. Thanks.
So one thing that stood out in the quarter was that it looked like it abnormally strong period for subscriber growth, particularly trader subscribers at trade port.
Is there any additional color you can provide just on what you saw specifically in Q4.
And whether you see that momentum carrying into 2022.
Yes, good morning, Nick and it's a great question. So I don't know if you recall this but this is certainly something that we've talked about in the past, sometimes you can see quarter by quarter a disconnect between subscriber numbers and the revenue impact as we signed new agreements or as we renew or extend and as we've talked for the last number of quarters, we've been continuing.
To add new clients to trade port over all through 2021 and that client demand for trade Port has continued to be strong.
I mean, you can expect that the market conditions around energy and energy trading is actually a strong demand driver for more people to use trader trade port.
So not it's not a surprise to us that we're seeing that lift in subscribers and look for that to drive revenue in the future as those contracts renew as we see the full revenue impact things like that so that's the way to think about it as continued strong growth in demand for the <unk> platform.
Okay got it.
And then just one other question for me as we continue to see year over year earnings growth you continue to structurally delever as well. So I guess in that context can you give us a bit of a read or an update on what you're seeing if anything on the M&A landscape.
Yeah, we're happy to so I mean strategically it all drives from what we're doing in terms of trying to grow those core parts of our franchise and you know we've talked about growing data and analytics trade port more services for issuers et cetera et cetera. So we continue to be very active in terms of looking at new opportunities.
And even in 2021 when you think about what we actually executed while they were smaller in size in a tray port our execution of trade signal or execution of ASD, Canada.
Were meaningful in terms of moving those strategies along in and we did some comparisons to our ourselves to other exchanges around the world and we were at pace or better in terms of the numbers of deals we actually executed and closed. So we are actively continuing to look at those kind of opportunities our balance sheets and a very strong position to execute on them and expect us to continue to actively look for things that will act.
Celebrate the strategy that way.
Okay. That's good for me I'll pass the line. Thank you.
Thank you. Your next question comes from Tien Records with BMO capital markets. Please go ahead.
Good morning Jed.
Thank you and good morning.
First on on the Montreal Exchange could you comment on initial market reception to.
The launch of the 30 year interest rate product as well as.
Trading volumes in early 'twenty two.
Given the recent.
Rising bond yield backdrop.
Yes, Im happy tunes and certainly the reception to the 30 year product has been strong because keep in mind, when we're bringing a product like that to market, we're doing it with client demand upfront.
One of the approaches we're doing to all product launch around amex is interacting with clients and so it's always there to solve a problem for clients. So that we know there is actually going to be active issuing it.
<unk> hand, I don't know directly in terms of the volumes, we're seeing in the early stage, but we're positive in terms of the launch so far.
And the overall client support I actually think we just released our amex volumes for January in the last day, so let us get back to that in terms of what that actually looks like for January but I believe it's continuing that same positive trend.
Okay.
On trade Port So an interesting development in Q4 seems to be the shift.
Its exchange traded products and European natural gas trading.
So I guess my question is do you see it.
It's an exchange shift is permanent.
And the second part is.
Should natural gas trading become.
Increasingly consolidated how do you make sure to subscribers remain engaged with the triplet platform.
I'm. So glad you asked that question because it really is a is an area that we want to give a lot more clarity to the users into the investors.
As a background piece the largest natural gas contract in the world of Henry hub contract, which is exchange traded primarily through ice and CME.
Trade port subscribers actually use trade port to get access to U S pricing. So they can actually do benchmarks for other products at price off them and so what you've seen in this period of real high gas volatility is not a shift in trading two things that are on exchange, but strong growth in those contracts that also have a big exchange component to them.
But that's also where we wanted to remind people that trade port provides access to about 40 different venues.
And aid any trader that's trading through trade port is often trading both contracts that may be exchange traded brokered a combination or both so it's not just to access a single product on exchange or in our brokerage world. So that's what the value of the trade Port solution is it's really aggregating multiple products around multiple markets and the increase.
Liquidity in some of these products only to brings more people to the market.
Even for a client whose primary objective was to potentially treat a product on a an exchange trade port as a front end still provides an important service to them in terms of being able to provide that data that front end connectivity the access to clearing and things like that so really appreciate you asking that because I think it's it's a bit of a mythology that if something is just exchange traded theres not.
At the same value for trade Port where trade port actually continues to provide value because it gives access to all the other products in the ecosystem now that trader cares about.
Great and then lastly, just on again on capital deployment.
Given the recent pullback to tack valuations.
Are you seeing more opportunities that could match your.
Return hurdles relative to three months ago.
We were seeing opportunities all through 2021 and into 2022 as well and certainly we are looking at things that are right now and I remember, it's going be a combination of both value to shareholders appropriate return hurdles, but also quality of the business our ability to integrate it scale it up and drive growth with it and those are really key.
Factors. So you know one of the biggest limiters on any transaction is is it a quality business that we can scale up and grow just because it's it's technology or data doesn't mean, it's going to drive our strategy. That's the number one thing that we're looking at is it is it going to drive our strategy.
David anything you want to add to that in terms of our capital deployment.
The only thing I'd add John is as we continue to stress and this is key H N has been looking for.
Inorganic and organic growth and at the same time things that we can invest in internally and you've seen that with <unk>.
Some of our initiatives around Asia hours, adding additional products to city area. As an example, which you asked about.
And then yeah, we're looking for.
Value, but also things that obviously accelerate the growth of our strategy as John said.
Great. Thank you for your comments.
Thank you. Your next question comes from Graham Ryding with TD Securities. Please go ahead.
Hi, good morning, good morning.
Graham.
Maybe just some color.
David probably for you just on the expense.
Outlook, just how much ability do you have.
On the expense side.
To manage any inflationary pressures.
And also.
Any of your business lines normalized in 2022, I'm thinking capital formation and maybe.
Equity volumes and whatnot, how much of an ability do you have to manage expenses to sort of.
Offset and maintain.
Or push against negative operating leverage.
Yeah. So it's a great question and thanks for asking it grants so fast.
Start with where you ended all state right. It's for US it's about positive operating leverage growing revenue at a higher rate than we're gonna grow our expenses.
Obviously, we've indicated in the past and we are really trying to keep our expenses flat plus inflation, and it's really kind of a guidepost, but and.
As we always show when we show you our numbers, we have to adjust for acquisitions in Euro ASP, Canada is a good example, and capital formation looking at those numbers in absolute reported perspective there.
Higher year over year, when you adjust for that it gets into that into the more normal range. So I'm not going to be able to guide you anymore. Other than we do have several levers within the business and we look to.
Organize our operations in the most effective manner and from time to time, we take a pretty opportunistic moves to manage expenses to either be flat or slightly up with inflation.
Okay.
Understood and then.
Good.
Referenced John about a cash settled crypto futures product.
I guess.
You would probably need regulatory approval for that as that process is currently underway and just any color estimate at one.
When this product could potentially be rolled out.
Yes, Unfortunately, I can't give you a time estimate today, because it's something that we're actively in the works with and it is like other products on M exits based on where we see demand and client interest for products that they are looking at anytime we bring a new product to market on the amex, we do have a regulatory process, but it's quite streamlined.
In terms of the the regulator the MF has worked well with us over the year to create a process, where we can effectively bring market products to market quickly.
With the appropriate client demand and clearing regime and risk management tools around that so that's all the basics in terms of how we launch products, but it is really based on getting the product right with the needs of the client.
There is another area and you know just for an FYI because we've heard and we'll get this question from from other folks as well.
We are seeing it with the large dealer community as well in the Canadian market that are looking at how do I provide crypto tools or crypto assets to their investor base and so that's part of our active dialogue as well as what can we do within the the capabilities of the exchange the capabilities of our clearing system our trusted.
Franchise to be able to provide more of those products and services to the the broker dealer clients. So they can extend them to their investors. So.
I think that it should come as no surprise. This is where we've generally been on the front end of innovation in the marketplace. You know first market to launch crypto Etfs as well and expand those usage. So this is a natural place for us to be active so I mean at this stage because we're at those product discussions I can't give you firm timelines as to when we would come to market, but wanted to know that it's something that we're actively working on.
Okay.
And just my last question, then I think you mentioned.
We're looking at renewable opportunities of trade or what can you elaborate there or is that bringing in products onto the platform or launching new products what have you.
Or is that an M&A perspective, what are you what are you looking at the other I mean, there's two things mobile side, there's two things. So I mean, we actually do already make renewable power available in the platform and we're always looking to continue to expand that and that again is driven by client demand. So it's trading renewable powerpoints.
You know with within the mix of the energy mix that we trade, but the interesting piece that we're working on is is other things around clients being able to manage their environmental footprint. Their voluntary then really this is a voluntary carbon market. We're talking about so you think about <unk> as an example, we committed last year to be net neutral.
Net zero, we achieved that in 2021 through carbon offsets, but when you look to how do you do that on a more permanent future basis, you get into where can you create the market for buyers and sellers of carbon offsets so that firms like us can manage their exposures down a net zero and then how do you create the capability of the facility.
<unk> to trade those exposures to balance your load balancer need things like that so that's actually what we're working towards.
With trade port to be able to put that on screen with key partners that are the experts in the industry around voluntary carbon and we think that it's both in our product extension that helps both trade port clients that are deep in the energy market, but quite frankly issuers on T. S X and T. S adventure, who are some of the biggest both producers and consumers of carbon credits.
So it's an area, where we want to continue to be on the front end in terms of being a marketplace leader in supporting environmental products and sustainability for our issuers and our clients.
Excellent.
That's it for me thank you.
Thank you. Your next question comes from Geoff Kwan with RBC capital markets. Please go ahead.
Hi, Good morning, just first question was on the Amex.
You talked about I guess the impact of high frequency traders in terms of on the revenue per contract traded just wondering what that.
Proportion of.
Volumes are coming from that kind of constituency in Q4, and how that would have compared to the year prior period.
Sorry, Jeff we're not in the same room. So we're always looking to who's taking the question first.
Don't have that period comparison off hand, so it actually will follow up on that piece for you.
And any pieces in terms of the mix, it's both that combination though of high frequency trading activity, but also just the product mix.
If you if you look at what were the largest product growth areas for amex in 2020 , one over 30% in equity options, 90% in single stock futures those are lower price products than the large fixed income futures are index based futures. So it is that combination, but we'll follow up on the datasets what in terms of the high frequency impact in terms of year over year.
<unk>.
Okay, and then just maybe within that are there certain products within the <unk> platform that they tend to trade more.
Relative to others.
Well certainly I mean, some of the highest volume traded products are things like the Canada government bond the backs futures those large fixed income products and we've got very large growing volume in things like the five year to year now and we expect a 30 year as well those fixed income products tend to be higher premium products, but as you know.
We've talked about this in the past to bring new products to market and really drive growth, we will use rebate incentives to drive them they've been extremely successful in terms of adding liquidity to the platform and creating the position for long term growth. So that does in the short term or quarter by quarter impact some of the pricing of those products themselves.
To the earlier question, we had earlier on around strength in demand for fixed income product given that thinks they can products are tending to be more premium priced products and you look at rate volatility coming demand for more trading there. That's an area that we would anticipate being strong in 2022.
You get more rate trading bank of Canada, making changes et cetera, et cetera that will lead to more trading growth in those products, which tend to be the premium price products.
Okay and just my other question was just on the new issue pipeline you know how you feel about it today or what youre seeing today and how that's trended over the last quarter or two.
I mean, certainly what we've seen in January activity was was you know a.
A little softer than where we came out of December but the new issue pipeline continues to be very strong.
So we still continue to have about 1500 ish now issuers.
Potential issuers in our pipeline that we're active in dialogue with and and one of the data points I'll share with you in terms of the success around 2021 is of that new issue activity in 2021, approximately 50% of it was companies that came from our pipeline. So of companies that we had been building relationships with over years before they came to market.
So with our deal team our deal team through a capital formation, who has worked extensively through this period. They continue to be an active dialogue with potential new listed issuers to come forward.
And even if you look at the statistics for January alone, while we're not seeing the same level of financing dollars that we had in say December we're actually still continue to see growth in new issues on Toronto stock exchange. So that demand continues to be there what I would anticipate as we go through into 2022 with no with changes in market values is some.
Continued shift in terms of where are some of the sectors that are getting the biggest activity and so while we all realize that values in the tech sector have come off from their highs last year. There is still strength in other sectors like financial services diversified industrials.
Mining and actually renewed in niche and strength in the energy sector, given the strong pricing around gas and oil. So there's a lot of positive indicators for financing across a number of sectors in and this candidly the emphasis but what's been really positive for our marketplace over the last number of years, it's become so much more diversified that we can have.
Strength in capital raising in different market conditions because of different strengths in different sectors.
And sorry, if I just had one final one.
Clarifying when you use the word pipeline you talked about 1500 issuers and active dialogue about passes.
Issues I think it was the half.
The issues in 2021 or ones that came from the pipeline.
When you say pipeline are you referring to companies that are non issuers right. Now that you know me on appeal or essentially list at some point or are absolutely.
Yes, okay. So when you talk about its not including existing issuers, where I know you don't have as much line of sight and when they may look to do capital markets transaction.
No.
This is around net new issuers.
Okay. Okay got it thank you.
Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Your next question comes from Jamie glowing with National Bank. Please go ahead.
Yeah. Thanks, good morning.
Good morning, Jamie first first question is around the <unk> platform and the.
The growth in trader subscribers, you mentioned that.
The increased attention to it.
Gaston.
In energy markets has driven or in part driven some of that increase does.
How would you respond to the view that perhaps that increases maybe some cyclicality in the platform.
Should these markets come off again.
They tend to swing in volatile direction. So is there should we look at Shreveport as being a more cyclical business at this point or how would you respond to that.
I think Jay if you if you look at the history of trade port over time, as we bring on new clients.
It's largely it's largely sticky so as clients start to deploy the platform throughout it and see the value of using it across or trader community.
You don't generally see material drop off from that what we normally we will see is as clients renew with US I know you know they know of clients on multi year agreements when clients renew their usually adding.
It's as opposed to just to stepping back now we did have two years ago. As we came into Covid, we had some client renewals, where they actually trimmed some of the excess seats and if you recall, we had as you know some some moderation in terms of the actual trader growth, but didn't impact our revenue because these are all enterprise agreed.
<unk>.
So while we've you know we've expanded with some clients. We may have been adding more seats. If there is more than they need in terms of a change in the mix that doesn't necessarily mean, a material change from revenue standpoint, because it is all about what's the enterprise value to that client.
The history on trade board would suggest that it's actually fairly sticky in multiple market cycles.
Okay, Great I appreciate that.
Looking at the ASP transaction results seem like they're pretty down the fairway from my from what we would've expected.
Can you dig into that business and a little bit more detail what was driving some of the revenues this quarter.
Customer acquisition.
Penetration of that market in terms of like market share, what what marketing costs about the Asti transaction then.
In Q4.
Oh, so in terms of Q4 as to you I'm going to let me start in terms of the business pieces in and David can jump in on some of the transactional elements, but yeah. The integration and during the business together is going positively and the client what you're seeing is the strong client participation in the products. So we've had clients.
With under our ownership now we're happy to extend with us.
Material clients doing multi year extension, it's very early stage to talk about kind of net new blue chip client acquisition, there because we really need to complete our integration work, which we're going to get largely done middle of next year in terms of being able to operate on shared systems and go out to clients with shared capabilities shared call Center.
All of those types of things in terms of selling the combined value proposition.
So you'll have a couple of quarters patients with us on that piece as we put the businesses together, but the value proposition is there. It's very strong we're seeing the client renewals, we expect and what we are seeing in terms of the potential as we go into next year is the opportunity for rate moves.
So if you recall, we've talked in the past that there's been very there has been very limited revenue within both the AST business that we acquired in 2021 and even in the core T. S X Trust business, we build in terms of the net interest income that we would generate from holding cash for participants corporate actions transactions those types of things.
In the near zero rate environment. So as we start to see rates move and I think David you can talk to this or that I believe we provided some sensitivities around this to give you. Some guidance. This is a meaningful upside to the business in 2022 go ahead David.
Yeah. So I think the key thing for me Jamie is that.
Couple of things in our disclosure that.
To pick up on is one is we anticipate.
Getting all of our cost synergies substantially would've been by the end of 2024.
Last quarter, we had we had earmarked for 2025.
So that's positive news. The other thing is as we were going to realize $2 million at least of all of our synergy savings this year and 2022 integrations going well.
As John mentioned.
B that there that the client set.
Satisfaction at which we measure internally.
Has continued to rise and which is a good indication of any integration great well.
Okay great.
Next question is a bit more I guess, you can answer it two different ways, but just thinking about <unk>.
<unk> power and.
And your latest thoughts around that in terms of.
Looking at the sustaining listing fees.
Only a 3% bump there despite the much larger increase in in market cap of the companies and then.
Also on the <unk>.
Capital formation.
Additional listing side, the Max lift in fees and budgeted for.
Here is what are your what are your updated views on on addressing pricing power in some of these transactional.
Transactional elements.
It's an area that I believe we've got more opportunity Jim.
And certainly if you think about the different parts of the franchise we are.
Where we are priced competitively and things like capital formation, if you benchmark us against other marketplaces around the world. So it's an area we're going to continue to look for op, both opportunities and risks if we have any in there and I would expect to see us do more in that space in other parts of the franchise like you know equity trading.
That really is market competitive theres multiple marketplaces in Canada, and the U S. Our pricing as comparative with those so I wouldn't see the same type of opportunity areas in that area, but even in some things where we've historically not had changes in the past we are making changes in either we have in 2021 and nor will in 'twenty two are doing too around some of our.
Market data products.
We do some pricing when we do renewals on Shreveport. So there are areas throughout the franchise, where I believe we continue to have pricing opportunity, but I do want to be strategic about how we execute it we're not going to do broad base X percent increase across franchise. We're looking at where do we have competitive opportunities that fits with our value proposition to make change and we are actively looking across our franchise.
For what those are.
Okay, great and that and in that context of competitive dynamics that are there.
Can you share any initial views or any thoughts around the <unk>.
Entry of CBOE into the Canadian marketplace.
Now a couple of transactions over the last year have you have you noticed any changes in the competitive dynamics that they're bringing into the Canadian marketplace.
No candidly no and but at this point they need they'll still need to file with commissions what their intentions are in terms of being an exchange operator in Canada.
What we expect and we will be quite active in this is that when when small markets start in Canada. They they often have kind of a lighter touch from a regulatory standpoint marketplaces like CBOE or NASDAQ before that are large sophisticated global players. We do expect them to be held to the same regulatory standards that we hold to.
We hold for market quality in Canada, and we expect that for these competitors as well and and and on that basis. We expect we can compete very well with these we've got a great product and service offering that and then we are very close to the client. So I expect we will be a very strong competitor.
Okay.
Last one for me also sort of thinking about the exchanges.
<unk> has.
Recently announced a new new exchanges and block Tech blockchain technology B S. Tx.
Are you able to talk about your <unk> interest in box holdings and what are your views of that marketplace in the U S. As there is some opportunities to bring that to Canada. Other further capital.
Allocation possibilities for that for that business, maybe some broad comments.
Round, what you see for for that New exchange down so.
Yeah. So for I mean, you would've seen from our disclosure that we are you know our position in box is expanding in terms of our overall ownership are voting position. So we really are at the early stages of moving from being a portfolio investor in the business to having a larger role in the strategic direction that we would do through the board.
A box because it is an independent entity with multiple shareholders engage in it.
So that is something that we're going to be looking at in 2022 through the box board, where we participate the management of box in terms of what's the strategic direction in terms of continuing to capitalize on our success in the U S market and its been successful I mean this is a business that over the last number of years has grown from kind of 2% to 3% share of the U S option trading market to five to six.
Sent and Youre seeing that flow through in our share of those results.
<unk> digital offering is one that's actually been active in the works with the team there for a year plus in terms of looking for a model to expand into digital that fits with what the FCC is comfortable in kind of a regulated token space.
So it is still early stage.
I would say I would classify it almost says this is experimental to see if we can actually use the capabilities of an exchange with the emergence of some demand on digital offerings.
Create marketplace opportunities and and that's the way I would think about this this is actually a exploratory and it's something that we can build on a if there is client success around it now within our Canadian market as well.
Continuing to look at opportunities to how do you reach deeper into companies that are privately financed companies and so that could be in digital offerings in the future, but it also can be in services. So the services that we provide through trust are ones that we've talked about our extensible to private companies.
And then the service we launched last year hone <unk> links our partnership between ourselves and catapult is a digitization or an electron vacation of private placements for private companies. So it's another way to servicing those companies. So it is an area that we're actively looking at.
I expect over time that digital tokens or digital securities are going to fall into the realm of.
Regulated securities just like anything on exchanges.
That's going to be the purview of where the SEC is likely to go where the OSC. They are likely to go to ensure that investors are getting the same protections regardless of the instrument. They are using to invest in and we are well set up to support that so whatever it is that issuers are going to want to list in the future and traders are going to want to trade, we will be able to do it through our platform one way or another.
Great. Thanks, very much for the color.
My pleasure.
Thank you we have a following question from Graham Ryding with TD Securities. Please go ahead.
David the $8 million in ASC synergies by 2024 are those all cost savings or is that a mix of cost and revenue.
It's both.
50, 50, or youre not in a position that sort of flush out what's what.
It's a good question Graham but.
Listen to just flesh that out for you right now.
Okay. That's it for me thank you.
Thank you there are no further questions at this time Mr. Malcolmson you May proceed.
Well. Thank you operator, and thank you everyone for listening today, if you have any further questions to contact information for media as well as for Investor Relations is in our press release and we'd be happy to get back to you stay well and stay safe everyone.
Ladies and gentlemen, this concludes your conference call for today, we thank you for D. C banning and ask you. Please disconnect your lines have a great day.
Okay.