Q1 2022 TMX Group Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the <unk> Group Limited Q1, 2022 financial results conference call. At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time during this call. It quite immediate assistance. Please press star zero for the operator this call is being heard.
Third 2022.
I'd like to turn the conference over to Mr. Paul Malcolmson, managing director of Investor Relations. Please go ahead Sir.
Well, thank you operator, and good morning, everyone I hope that you and all of your families are staying well and safe. Thank you for joining US. This morning for the first quarter 2022 conference call for Mexico.
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.
We have with US 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 filed with Reg.
Inventory 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. This morning for the discussion of Tms group's financial performance for the first quarter of 2022, and I'm very pleased to be coming to you directly from the office in Toronto for the first time in two years to do this call. So bill on behalf of all of Us with Tms, we'd like to wish you also the best of health.
One listening this morning.
Now as Paul mentioned, we announced our results last night and David will join US in a few minutes to take you through the first quarter numbers in more detail, where my comments. This morning will focus more on our performance during the quarter.
The progress we are making across the enterprise throughout 2022 add to advance our global growth strategy.
And the important adaptive steps Tms is taking to address the needs of the modern marketplace to empower clients across our dynamic and diverse capital markets ecosystem and to compete every day.
Now to set the context for a discussion of the quarter ended March 31, 2022, I want to open with a quick look a little further back.
Although it may seem like yesterday to some of US April 23rd Mark the 25th anniversary of the last floor trade on the Toronto stock exchange as we became the very first exchange North America to go fully electronic.
Since 1997, the digital age is transformed all aspects of our world in more ways than we could have imagined at the time, but.
But the truth remains our markets have a proud history of innovation.
And today's Tms is dedicated to living up to that legacy of innovation by helping to define new sectors, reaching into new asset classes in jurisdictions around the world and delivering groundbreaking data and analytic applications.
We see these as a key defining elements and fulfilling our role as an engine of opportunity at the heart of the market, serving modern issuers and participants investors and traders in Canada and around the world.
Now turning to our first quarter results.
<unk> reported revenue of $287 1 million, a 14% increase from Q1 of last year due to higher revenue from derivatives trading and clearing trade port and capital formation, and partially offset by lower revenue from equities and fixed income trading and clearing.
The higher revenue included $33 million of revenue from box, which we began consolidating <unk> in January 2022 as.
As well as an $8 8 million revenue increase from revenue from ASD, Canada acquired in August 2021, and zero point $6 million from trade signal acquired in June 2021.
Now on adjusted basis diluted earnings per share was $1 82, a decrease of 3% from Q1 of 2021.
And our total operating expenses increased 22% compared to Q1 of last year or 2%. When you exclude those expenses related to box ASD, Canada and trade signal.
Now these are results that our team can be quite proud of given that more challenging global capital market ecosystem that we have seen in 2022.
Geopolitical events, including the ongoing conflict in the Ukraine and macroeconomic factors have negatively impacted markets here in Canada and across the world.
But as we consider how these events impact our business, let's first pause to give our thoughts and support to all of those directly and indirectly affected by this conflict.
Now despite the effect of these near term headwinds on some of our key core business drivers, including capital raising in equities trading activity Tms as I said earlier delivered solid first quarter results.
Overall Tms as Q1 performance reflects the depth of strength in our business model and underscores the efficacy of our long term diversification strategy.
And as we look to the future the capital markets ecosystem. This powerful core engine of opportunity remains strong and prospects bright when conditions again normalize.
Now moving onto our business areas revenue.
Revenue from capital formation in Q1 was $63 9 million a 5% increase from the first quarter of last year, reflecting the inclusion of revenue from <unk>, Canada and higher revenue from initial and sustaining fees, partially offset by a decrease in the number of financing transactions and dollars raised on Toronto stock exchange.
<unk> venture exchange when compared to Q1 2021.
It is no secret that we are in the midst of a challenging conditions for capital raising.
Global uncertainty around inflation and interest rates a pullback in valuations in some sectors and increased volatility have affected the ability and appetite for companies to come to market to raise capital.
And while the IPO market slowed in the first quarter there were some encouraging signs for our unique two tiered marketplace.
Overall, new listings on the <unk> venture exchange were up 23% year over year, including 23, New capital pool companies, a 156% increase from Q1 of 2021.
The most popular means of going public on Tsi adventure, the CPC path allows companies more latitude and flexibility than the traditional IPO process in terms of timing.
And most importantly from RPX back perspective, our pipeline remains very strong.
And as always we are in regular dialogue with companies across all sectors as well as our stakeholders across the ecosystem, including bankers venture capitalists or private equity firms about potential IPO candidates within their portfolios, who will come to market when the conditions are right for them.
Tms markets are a proven breeding ground for the next big thing.
Its ecosystem has a proud history of 170 year track record of helping to build generational companies and we are committed to doing everything in our power to help fuel that next wave of game changers.
Now turning to derivatives, excluding box revenue from derivatives trading and clearing was $38 5 million in the first quarter of 2022 up 3% from Q1 last year.
The increase was driven by 13% higher revenue from CDC due to repo dealer activity and fee changes and partially offset by a 2% decrease in revenue from the Montreal exchange, despite higher overall volumes due to both client and product mix.
Candidates derivative markets continue to build on our strong 2021 in the first three months of this year with 3% growth in total volumes on ethics, and 20% growth in open interest.
Volume growth was driven by sustained client interest in developing product areas and increased investor demand for tools to manage risk during turbulent market conditions.
Our average daily volume traded in equity options increased 28% compared to Q1 2021, driven.
Driven by higher activity from both institutional and retail clients, particularly in the energy and financial sectors.
Volumes in Amex single stock or share futures grew 28% in Q1 compared to the first quarter of last year.
And as product awareness continues to grow among our client base and our business development team continues to work we will can keep building that new pipeline for more prospects.
Our index futures were up 15% compared to Q1 of last year as clients moved to managed positions and exposure to markets and major indices.
In Mx's global expansion strategy continued to gather momentum.
Trading in the extended hours session synced with markets in the UK and Asia currently makes up about 6% of Mx's overall daily trading volumes.
The extended hours session generate a robust activity during February accounting for approximately 10% of daily volumes.
And in parallel with our move to make our derivatives markets available nearly around the clock.
<unk> efforts to attract more global participation to Canada's markets is having a positive impact of.
Approximately 20% of Nx volume is derived from participants who are connected to our market in just the past five years.
And looking ahead, we continue to explore new ways to enhance our product suite to meet investor demand with a focus on new areas, including sector futures and crypto futures, which we expect to launch later this year.
Now revenue from <unk> in the first quarter was $40 7 million a 9% increase from the first quarter of 2021, driven by a 7% growth in the average number of total subscribers.
The conflict in Ukraine, and the corresponding sanctions continue to have a significant impact on global energy commodity trading markets driving sustained volatility.
And <unk> core network plays a vital role in Europe's energy trading markets, particularly during periods of extreme turbulence, providing access to more than 50 execution venues and clearinghouses across more than 20 power and 20 natural gas markets.
Thus far in 2022 transport has also taken important steps to execute on its global strategy to diversify and expand into new asset classes and geographies.
At the end of March we announced in collaboration with <unk>. The successful launch of the voluntary climate marketplace or television C. M <unk>.
<unk> offers carbon offset projects from five of the leading offset registries, which are tradable with live bids and offers through trade ports Joule platform.
Our teams are working together to build liquidity and the physical voluntary carbon market.
And this is an important and unique initiative for trade port and as applications across Tms as ecosystem.
For companies like us looking to achieve their ESG commitments and achieves that net zero targets. The voluntary carbon market provides price discovery and efficient exit access for trading carbon credits.
Our cells Tms group participated in the first trade on <unk> last year as we purchase credits to offset our 2020 and 2021 emissions and to enable us to meet our 2021 net zero target.
And just last week tree port and tradition, one of the world's largest interdealer brokers and OTC financial and commodity related products announced the successful adoption of <unk> technology across traditions global refined oil operations.
This move to expand Jules refined oil trading network is squarely aligned with <unk> strategic objective to meet the diverse needs of market participants and support the continued growth and digitalization of energy markets around the world.
Now in closing I want to briefly outline what I can confidently described as Tms as decisive edge.
During 2021, we laid the groundwork for the next stage of our organizations evolution.
Which included an in depth companywide internal exercise to build a high performance culture and define our corporate purpose.
We make markets better and empower bold ideas.
Those eight words define our reason for being a reason for getting up in the morning, and while they sound great. They truly capture the spirit of the organization. They are not just words and they cannot alone determine our future.
Our people will ultimately define our success.
And in any quarter and and you know in all market conditions. It's the dedication of our people that is the great source of pride in our perpetual driving force they.
<unk> is prevailing competitive advantage and I'd like to take the opportunity to thank our employees all around the world for their steadfast commitment to serving our clients with excellence and for bringing our purpose to life and the work every day.
Now before I turn the call over to David I also want to thank David directly. This is his fourth quarter and I want to thank him for the leadership over the past four quarters in terms of our leading our finance team, but separately also want to thank David for his leadership of team Tms as we embark on the first ever ride to conquer cancer as an organization and I want to thank them for bring into the fold. So we as.
The organization can continue to continue to give back the causes that matter in the community. So with that David My Finance leader My Captain over to you. Thank you John and good morning, everyone.
As John said, it's good to be back in the office again so.
So as John mentioned, we had a solid start to 2022 in the first quarter with revenue growth of 14%.
This was driven by the inclusion of revenue from three businesses, namely the Boston options exchange, whereas I'll refer to it throughout today as box, which we consolidated on January <unk> 2020 to ASP.
Asps, Canada, which we acquired August 12, 2021, and trade signal, which we acquired June <unk> 2021.
<unk> revenue, excluding box Asps, Canada trade signal was down 3% in the quarter compared with a record first quarter last year.
They were revenue increases across all of our businesses with the exception of equities and fixed income trading and clearing.
We reported an increase of 179% and our diluted earnings per share this past quarter, which was largely driven by gains resulting from the revaluation of our interest in box upon acquisition of voting control on January 3rd while adjusted diluted earnings per share decreased by 3%.
We manage costs to below the rate of inflation in the first quarter with operating expenses, excluding box ASD, Canada and trade signal up 2% compared with Q1 of 2021.
179% diluted earnings per share growth in this quarter as mentioned earlier reflected a $177 9 million with $3 16 per share gain on the revaluation of our interest in box as well as an increase in income from operations of $9 1 million when compared with Q1 of 2021.
Turning now to our businesses and I'll start with those that saw revenue increases this quarter.
As John said earlier in his remarks revenue in capital formation grew by 5% this quarter, which included approximately $8 8 million of revenue related to ASC, Canada <unk>.
Excluding ASC, Canada revenue in the quarter decreased 10% and capital formation, primarily driven by lower additional listing fees in the quarter due to decreases in both the total number of financings and the total financing dollars raised.
The decrease on TSA ex reflected a 28% decrease in the number of additional listing transactions billed at the maximum listing fee of 250000, and a 5% decrease in the number of transactions.
The maximum fee when compared to very strong levels of activities in Q1 of last year.
This decrease was partially offset by higher initial listing fees in the quarter when compared with Q1 of last year.
Sustaining listing fees also increased in the quarter, reflecting an increase in the market capitalization of <unk> and TSH venture issuers at December 31, 2021 over the prior year.
Turning to derivatives trading and clearing this quarters revenue grew by 91% when compared to Q1 of 2021.
As a result of the consolidation of box, we recognized $33 million a box revenue in Q1 of 2022.
Volumes on box increased by 51% compared to Q1 of last year and boxes market share in equity options grew two 6%, which is up 2% from Q1 of last year.
Derivatives trading and clearing revenue excluding box was up 3% in the quarter driven by a 13% increase in <unk> revenue and partially offset by a 2% decrease in revenue from the Montreal exchange.
While volumes on Amex increased by 3% compared to Q1 of last year.
There was a lower revenue per contract, reflecting changes in both client and product mix in Q1 of 2022, there were higher rebates related to new commercial programs, which resulted in lower revenue per contract. In addition, the volume increase was partially driven by contracts with lower yields such as single stock futures and equity options.
<unk>.
Revenue in our global solutions insights and analytics segment was up 6% over Q1 of 2021 with increases from both trade port and data links revenue from trade Port was up 9% in Canadian dollars or 14% in pound Sterling. The increase was driven by a 7% growth in total subscribers in the quarter compared with the euro.
And $600000 of revenue, which was contribution from trade trade signal, which we acquired on June <unk> of 2021.
<unk> revenue growth in <unk> and Canadian dollars was therefore, 8% when compared with Q1 of 2021.
Revenue in our Tms data links business, including co location grew 3% driven by increases in co location data feeds and professional subscribers. These.
These increases were partially offset by decreases in usage based quotes as well as benchmarks and indices in Q1 or two or of 2022 compared with last year.
The average number of professional market data subscriptions for TSA exit TSA expansion products increased slightly in the quarter compared with last year and subscriptions on the Montreal exchange were up 5%.
Revenue from equities and fixed income trading and clearing segment were down 10% in the quarter equities and fixed income trading revenue decreased 15% in the quarter compared with Q1 of 2021. This decrease was driven by 37% decline in the overall volumes of securities traded on our equities marketplaces trading volumes.
Of TSA ex securities decreased by 17% in the quarter, while volumes on <unk> venture exchange in <unk> Alpha exchange decreased by 62% and 40%, respectively, when compared with a very strong Q1 of last year.
There was also a decrease in fixed income trading revenue, reflecting lower activity in swaps in the quarter, partially offset by increased activity in government of Canada bonds.
Revenue from our Cvs business was down slightly reflecting lower clearing and settlement revenue due to lower volumes and lower revenue from account transfers online from our account transfer online notifications product compared with Q1 a year ago.
Turning now to expenses operating expenses in the first quarter increased by 22% compared to Q1 of last year. There were approximately $24 5 million of expenses in Q1 of 2022 related to box ASD, Canada, and trade signal, including $2 8 million related to amortization of acquired into.
<unk> for ASD, Canada, and box and $1 3 million related to transit to the transitional services agreement with Asps as.
As well as $1 2 million of ASD candidate integration cost.
<unk> expenses, excluding box ASC, Canada, and trade signal increased by 2% in the quarter compared with Q1 of last year, the higher expenses reflected higher head count and payroll costs increased long term employee incentive plan costs of approximately one 5 million higher legal fees as well as increased expenses for <unk>.
Travel.
These increases in costs were partially offset by lower short term employee incentive plan costs of $5 5 million lower severance and $600000 of acquisition related costs related to ASC candidate in Q1 of last year.
We continue to expect integration cost related to ASD, Canada of approximately $20 million over the 12 months period from September one last year to October to August 31 of this year and expect total revenue in technology cost synergies of approximately $8 million, which will be substantially achieved by the end of 2024.
We now expect at least $3 million of these cost synergies in 2022, including $700000 realized in Q1 of 2022.
Looking at our results sequentially revenue increased $34 7 million or 14% from Q4 of 2021 to Q1 of 2022. This was mainly due to the inclusion of $33 million of revenue from box. Excluding box revenue increased 1% from Q4 of 2021 to Q1 of.
This year.
This increase was driven by higher revenue in equities and fixed income trading and global solutions insights and analytics, partially offset by lower revenue in capital formation and Cts.
Operating expenses increased $9 1 million or 7% from Q4, including an increase of $11 7 million relating to box and ASD, Canada in Q1 of 2022 compared with Q4 of last year excluding.
Excluding box operating expenses decreased 1% from Q4 2021 to Q1 2022.
This decrease was driven by lower short term employee performance incentive plan costs of approximately $5 8 million lower information technology spend lower severance lower marketing spend and decreased consulting fees, partially offset by higher salary and payroll taxes of $5 2 million and higher long term employee performance.
Plant costs of $3 1 million.
Turning now to our balance sheet in the first quarter of 2020 tune. We spent $12 4 million repurchasing 94819 of our common shares under our normal course issuer bid program.
Debt to adjusted EBITDA ratio was one seven times at the end of the quarter and we also held over $421 million in cash and marketable securities at the end of the quarter, which was about $207 million in excess of the 205 million, we target to retain for regulatory and credit facility purposes.
Last night, our board approved a quarterly dividend of <unk> 83 per common share payable on June 30 to shareholders of record as of May 20th.
In the first quarter, we paid out 46% of our adjusted earnings per share, which is slightly above the midpoint of our target payout ratio of 40% to 50%.
And now I'd like to turn the call back to Paul for the Q&A session.
Thanks, David Operator could you. Please outline the process for the question and answer session.
Thank you, Sir ladies and gentlemen, we will now conduct the question and answer session. If you'd like to ask a question Press Star then the number one on your telephone keypad, if you'd like to withdraw your question Press Star two if you.
Using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question. Your first question comes from Geoff Kwan with RBC capital markets. Please go ahead.
Hi, Good morning, just wondering if you can give an update on the M&A landscape.
Obviously, we've seen the markets move around.
Check your valuations may have moved to just wondering if there's any.
Anything new on that front.
Thanks, Jeff and I appreciate the question to start off.
You're absolutely right. There we have got our team is actually quite active looking at another opportunities, but obviously I can't give any guidance in terms of the.
The specific opportunities that we're looking at but I will reiterate as we've said in the past. We are we are looking at businesses that help accelerate our strategic growth. So ones that are focused on both expanding our presence in and data analytics expanding the capability of what we can do with trade port and expanding the reach of what we're doing with our issuers so very much like <unk>.
We closed last year trade Similarly closed last year as well. So we are looking at a number of things of various sizes and I think you are correct.
That there is potentially more opportunity with some normalization of evaluations, but that'll take some time to flush into the market. The other pieces David talked to is our balance sheet is an extremely good position so relative to a lot of organizations in the industry. We've got no not only the cash capacity, Dave talked about but all.
So that capacity in a relatively strong equity. So we've got the ability to transact in size, if the right strategic opportunity presents itself with the right investment conditions for the Investor.
Okay. That's helpful. And then just my second question was on box when you kind of take a look at the net income profit margin.
And when it can vary quite a bit quarter to quarter and obviously the volumes can be.
And variable quarter to quarter.
Is there a way to kind of think about.
The operating leverage of the business or how to kind of think about.
A certain level of revenue might translate to a certain level of earnings.
Yes.
I apologize on this Jeff I'm going to be a bit circumspect, because we have tried to give good guidance and visibility to box, but it is in a very competitive marketplace. So with some of the box data is more commercially sensitive where I would guide you to though is very much like other parts of our ecosystem.
It is largely a fixed cost operation and actually runs on technology that we built for it through the Montreal exchange and so it is a very scalable business. So really guide you to looking at those U S option volumes and options market share is that kind of guideposts in terms of what will drive revenue in what is largely a fixed cost operation that's not the best Guy.
So I can give you without giving any more commercially sensitive information.
Okay. Thank you.
Thank you.
Our next question comes from <unk> with BMO capital markets. Please go ahead.
Thank you and good morning.
On pricing it.
At Tms.
Can you please share what considerations went into <unk>.
Seeking regulatory approvals for pricing increases and should we expect.
To become a more recurring.
And then going forward.
Yes. Thank you that's a great question, so even before thinking about regulatory approvals anytime we think about pricing, we're actually thinking about value proposition and the value we provide to clients and so particularly with respect to some of our data products. There are data products. There that we hadn't looked at pricing in a number of years. So we looked at what is our relative pricing to the industry.
<unk> global comparative and where can we make some changes that are that are justified by the value that we provide to the industry. So the pricing that we did was not broad based it was targeted to the specific products.
On average across the overall data links business. It represents about 2% to 3% in terms of total increase but its actually higher on the products that are affected and products that are already at a premium we didn't touch those so those are all part of the regulatory considerations and making that submission to the regulators to show that what we're doing is is cost justified its reasonable.
Commercially fair and it's competitively appropriate.
As we go forward, we actually throughout the organization look at pricing consistently across all our businesses that way I think you know in other parts of our franchise, we actually have it built indirectly. So a trade part we actually have a built in directly into our subscriber agreements where they have a.
An inflationary component that works through your cost of living adjustment and in those contracts.
We are doing some adjustments within our derivatives franchise. We mentioned there are some pieces around.
The OTC markets that we did and we are looking at other parts of the organization as we go forward.
The other piece I will leave you with is there are parts of the franchise because we price based on value that actually have some kind of natural inflationary pricing built in so within our our capital formation space, because we price both sustaining fees.
And listing fees based on value as those values grow over time that generates incremental revenue opportunity for us as well so.
Is a strategic approach to pricing that we're looking at right across the organization.
Understood.
On capital formation.
<unk> has been holding up better than most global equity indices.
Given the.
The commodity the strong commodity markets.
Looking over the rest of 2022.
What is your outlook on listing fees.
In other words should we expect.
Pick up in financing activity from.
Commodity related markets.
And may be strength in that in that sector could offset.
Slower capital raising technology for example.
That's a fair description.
I think that's a really insightful comment.
You have answered it for me so I always appreciate the question that's got some of the answer in it.
Our are stockless between both the venture exchange and the <unk> is actually one of the most diverse stockless in the world and so while last year was very much. The highlights we're very much around technology companies. We also saw strength in industrials and financials. So as you go into 2022, yes, you are seeing some sector rotation where.
Where theres not as much capital going into technology with valuations coming off but commodity prices are strong now theres still other other uncertainties around particularly the energy markets that are probably keeping capital from flowing into that sector is as robustly as it could at these valuations, but there's also other sectors that have potential as well like industrials like life Sciences.
If you look to next week, we have one of the largest life science Ipos in our history going with the Bausch and Lomb IPO coming.
Thats.
The potential to be a bit of a bellwether. If you go back two years ago to the early stage of the pandemic. When we saw a lot of volatility in the market and there wasn't financing transactions getting done green for life came to market and price their deal admits that uncertainty and what data is that actually created a benchmark for other the other deals to come to market later on in <unk>.
Some confidence for people to price or deals. So we know our long term pipeline is extremely strong in terms of the potential new Ipos, we had a number of companies in the first quarter that we were working with that have deferred what they'd like to do because of that market uncertainty. So certainly if conditions normalize as we see improvement in volatility in the market. There are a number of companies that could come in <unk>.
So unfortunately, I can't I can't predict it in terms of the timing and impact, but the conditions are still strong and our pipeline is very good.
And just as a follow up I mean relative to a year ago, but have you seen are you seeing more interest in Canadian markets from non domestic investors.
It's harder for us to see through that because the interest from international investors gets mingled with the.
Domestic participants because it all gets amalgamate with them, but certainly when you see the amount of flow that we're getting out of both the U S and the U K and Asia that sentiment is correct, we're seeing more international flow into the Canadian market.
Thank you for your comment.
Thank you.
Your next question comes from Graham Ryding with TD Securities. Please go ahead.
Hi, good morning.
Maybe just start on.
<unk> is at Montreal exchange.
I'm somewhat surprised at your volume growth is coming from equities and not sort of your interest rate products, given the movement in rates and bond yields year to date.
Maybe some commentary around that should this not be the kind of environment that drives.
Interest rate volume and activity trading.
Yeah, So we're going to do Graham and David can jump in and help me as well, let me dissect it for you a bit more.
The actual.
Results in a lot of the interest rate products were actually quite good in the quarter, but they are really masked by the impact on the <unk> product. If you remind everyone Thats. The 30 day short term money market products.
It's actually down it's one of our largest products, but it's down 39%.
<unk> Q4 of last year, and 35% year over year and the reason that one's down so significantly is when you've got so much really uncertain volatility of Royal Cole kind of more destructive volatility with the both timing and size of short term rate changes that we've seen and the potential for further ones without a lot of predictable.
<unk> about when they could happen or how big that could be that takes some of the short term traders out of the market.
So that's been the really short term challenge and when you see some normalization in the rate regime, then you're exactly right. It's actually positive for the rate regime and the overall curve now if you compare that to some of the other products. The <unk>, which is the 10 year product, it's up 11% quarter over quarter the CGS.
The five year product.
9% quarter over quarter, and I think in year over year was up 27%.
So we do have strength throughout the yield curve at really is being offset by that really significant step down in the short term product. That's all about short term rate volatility so when that normalizes and theres more predictability, there that product should stabilize as well and what I would add John is the real positive over here for US Graham is the open interest.
Overall for Nx products has remained stable around 20% and it's in line with other product trends and as John said really the majority of this backs decline has been in the first year of maturities and it's really the geopolitical uncertainty and it's made things more challenging for some of the investors.
We saw some pullback from the speculative accounts and that seemed to be a little bit more risk averse, given the liquidity and volatility of the bax contract, but as John said, if you look at further in the curve on the two to five year Theres really positive volume there.
Yes, that's worth reinforcing because those of you remember those are the two new products we added.
Five year in first quarter was trading 40000 contracts a day that's up from 31000 on average last year 21000 average the year before.
The two year, the CG <unk> product, which we really just launched last year did 10000, a day last year in the first quarter of this year. It did 17000 it was up 72%.
So all kinds of strength across the curve, all being offset by that real big impact in the short term rate product.
Okay got it.
Jumping to <unk>.
Just in <unk> I think it was $8 8 million in revenue. This quarter was from ESG is is this sort of a reasonable run rate that we should be assuming for this business before we start thinking about higher margin income.
Rising rate environment and then.
If so were there any factors that are weighing on him as seen in the quarter.
So what I would say Graham is.
We're not going to really guide you, but what I can say is that you are correct.
There is upside in the revenue line as we get increases in interest rates. So that you've touched on that's a factor that in but more importantly, as the balances are growing and as balances grow as well as the rates rise.
We can see upward movement and upside potential and in the ASD, Canada acquisition and the trust business, but there's also a lot of other stuff that on the management team. We're working on that's really I'm trying to propel and leverage and putting the two businesses together. So we do see upside and Thats one of the things. We guide you to in our Investor broke.
Sure as we see this to be a high single to low double digit growth business.
Maybe that's the best way for you to think about that and then on the side factor in assumptions on growth in balances as well as some interest rate hikes.
Okay.
And then my last question just be on box volumes are up.
51% year over year and their market share went from 4% to 6% maybe.
Maybe just on that last piece, what's what's driving the increase.
The increase in market share.
The box offers a really.
Unique product opportunity in terms of the U S. In terms of actually how it trades the price improvement features that the market does and its well regarded by some really key clients. So what youre seeing in market share as you've seen a number of key clients. Some of which are both participants and also shareholders similar to or just participants.
That they are looking to take advantage of that capability that increase the order flow going to the exchange. So it is it is that simple in terms of a product that's tailored to the client needs and the clients are primarily more flow to it.
Great. That's it for me thank you.
Okay.
Thank you. Your next question comes from James <unk> with National Bank Financial. Please go ahead.
Yes, good morning.
Yeah.
Good morning. James question first question is on the on trade Port Nice nice to see that rebounding in terms of organic growth step up this quarter I was hoping you could provide a little bit more color as to.
Potentially whats driving that step up this quarter, if there is anything.
Seasonality wise, and maybe Q1 2021 or how.
How clean is this.
Yeah.
I like the nature of that question again, how clean is it it's very clean Jamie.
Yes. So you are seeing a number of factors in there.
We talked to the overall subscriber growth being 7% with the trader subscribers are up substantially in terms of double digits I think.
With a 14% to 17%.
So you're seeing a number of things we've had really strong renewals, we've got clients expand the usage when they renew.
Certainly the volatility in the energy markets, often when what makes actually the trade port screen, even more useful in terms of aggregating multiple products on a single screen.
You know from the history on that that once people are using Shreveport. It is very sticky and the renewal rates are very high. So that's what we've seen across the board both net new clients with David Correct Me, if I'm wrong I think we had 10 additional net new clients.
And as well as existing clients that renewed with us at higher rates of subscribers.
Okay, great and those net new clients are they are they coming on onboard or.
I think I'll, just generalizing a call it like the core trade port platforms or are they coming onboard because of.
Perhaps some of the new the new product lines that have been added recently or some of the new.
New Securities trading information that's been added recently, yes.
Thank you for actually asking that follow up I think it's a great question.
It's really actually on the core platform and the broad product offering thats already there and I want to differentiate that from the but what we talked about in terms of the relationship with tradition and refined oil. So it's not being driven by that yet that's still very early stage in terms of putting traditions refined oil products on the <unk> platform long term that'll do.
Drive additional training trader subscriptions as we bring on global oil traders to trade against that product as well. So it's really more on the kind of the existing suite of energy commodities that trade port trades as opposed to some of the new ones that are still early stage.
And just on that sorry.
Sorry go ahead, David but I just wanted to just add as John was mentioning the number of new clients was around 13 in the quarter.
Okay good to clarify.
Last one just to follow up on the trade port as well from a geographic standpoint again same kind of question is coming from the core.
Geographic areas or are you starting to see a little bit more.
Inroads into maybe Asia or the U S.
The majority of it is still coming from the core area.
The agent.
Japan power contract trading is strong we are getting more traction in the U S. But those are still a smaller piece of the pie the bulk of that growth is coming from the European energy market.
Okay, Great I'll leave it there for now thanks.
Okay.
Thank you, ladies and gentlemen, as a reminder, if you have any questions. Please press star one.
Your last question comes from Brian Bedell with Deutsche Bank. Please go ahead.
Great. Thanks, good morning folks.
Yes, maybe if I could just go back to your box maybe a question for you David on just on the financials I appreciate that obviously for competitive reasons, you don't want to disclose.
Too much here, but just in terms of modeling that I mean is it fair to say the first quarter.
Results for box and the consolidated revenue and expenses were at least on the expense side fairly normal. So we can think about that as a normal run rate to project off of and then was there any other additional noise within the non controlling interest or should we be thinking about that is the 52, 1%.
Offset to box on a modeling basis going forward appreciating that of course every quarter, we need to model the volumes.
Absolutely Brian so.
Pretty normal pretty clean.
Absolutely key will have our disclosures and as you rightfully pointed out.
Look to see what gets.
Published in terms of.
Monthly and quarterly statistics in terms of volume and market share, which is publicly available but yes. The numbers are are clean in your interpretation of noncontrolling interest at roughly 52% is correct. Okay.
Okay, Great and then maybe just more strategically John I guess for both box and also just thinking of a competition broadly.
In the U S options markets, and then of course up in Canada with <unk>.
Depending acquisition of Neo.
Maybe if you can just talk about what.
Your competitive strategy might be on pricing. If you think you need to alter pricing whatsoever in Canada, and then similarly, I guess on the offensive side.
In.
Options.
Is there a capability too.
Or is there a desire to alter pricing.
Within the U S options markets to gain more share there.
Is that mostly up to the box folks or do you have the discretion to do to steer that as well.
So let me start with the latter question first so that very much is up to box.
While we do have the.
Technical consolidation in terms of the 50% voting on box. It is operating as an independent entity with an independent board that we participate in and they make their own an operational and strategic decisions that way, which we support through the board participation. So.
So the box would look at that in terms of what's the right strategic approach to them.
It is more of a premium service in the U S market because as I said earlier. It provides a unique service to the clients and more of a premium product within our kind of domestic competitive environment. It's all about serving the clients I mean, our focus is making sure that we've got the product suite.
Capabilities, the technology offering and be the best marketplace to serve the clients, we do that very well I believe that across the board that we are already priced competitively. So I don't see material competitive pressure around pricing and particularly on the things that are the easiest to compete in them in terms of the lowest barriers to entry like things like equity trading R. R.
Pricing is competitive North American wide, we're not just competing with the venues here in Canada, but the venues across North America for that inter listed flow as well. So we think we're in very strong position and then when you think about the other parts of our franchise.
Our capital formation regime, our listener Jim has very strong competitive dynamics, because we only trade those companies that we list. So if a company wants access to the deepest pool liquidity they need to lead list with us.
That partnership agreements in terms of the the index of the primary index benchmark. The S&P ETS X 60 in composite you need to be listed on TSS to participate in those indices. So again, we've got very strong competitive dynamics. There and then when you look at other parts of our franchise like our domestic derivatives futures and options businesses, we operate that as <unk>.
So we control our own clearing we control our own regulatory structure.
And Thats if someone wants to compete with us they have to build those capabilities for themselves. So we are certainly not resting on our laurels. We look at all of those pieces regularly but it really goes back to that beginning point of ensuring that we're serving the clients. The best of any of the providers out there and I've got confidence our team continue to do that.
That's great color and maybe if I could sneak one more in just on the crypto futures that you mentioned.
Any thoughts on timing of that and then what you are hearing from users I mean, typically you develop products based on user feedback.
Two are you seeing a ton of demand for these and then I guess would you start pricing off typically.
Typically when you start a new futures product or with anyone does that there is.
Low pricing to start off and then you build into that over time, just any thoughts on that.
I got to say this is a great closing question. Because this has been a suite of some of the most insightful questions that we've had on a call. So thank you for that.
The the crypto future, we're looking to have that launched in the back half of the year I don't have specific timing yet because it does have to work through both the regulatory and the risk management structure.
Is based on client demand and where the client demand is coming from is I want to remind everyone that Canada was the first market to launch crypto based Etfs. So you've got now ETF providers and fund managers that are holding crypto in their products, but don't have good pricing or risk management tools around them. So the crypto product, we're looking at would be <unk>.
Just on similar index and benchmarks for crypto pricing that would allow that pricing certainty for asset managers that are holding those in their products. So that's very much the design that we're working towards and very much to that point in terms of kind of how you price it off of reliable indices that are being used in other products. So it's actually.
Even though it's a new area a new sector. It's using all the same futures principles that we would have used in any other futures product, we brought to bear like the fixed income ones.
Great great. Thanks, so much.
Pleasure. Thank you.
Thank you.
The questions at this time, Mr Malcolmson over to you.
Well. Thank you everyone for listening in today, just a reminder, that our annual excuse me and special meeting of shareholders will be taking place. This afternoon at two o'clock. If you have any further questions contact information for media as well as Investor Relations is in our press release and we'd be happy to get back to you stay well and safe everyone.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a great day.