Q2 2022 TMX Group Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the <unk> Group Limited Q2, 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.
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This call is being recorded on Wednesday July 29 2022.
I would now like to turn the conference over to Paul Malcolmson, VP Enterprise sustainability and Investor Relations. Please go ahead.
Well, thank you Michelle and good morning, everyone I hope that you and all your families are staying well and enjoying the summer.
Thank you for joining us this morning for the second quarter 2022 conference call for <unk> Group as you know we announced our results late yesterday afternoon, 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'll have a question and answer session before we start I want to remind you that certain statements made on today's call may be considered forward looking I refer you to the risk factors contained in our press release today and our reports 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 so much for joining us today to discuss <unk> group's financial performance for the second quarter and for the first six months of the year.
And let me start by echoing Paul's comments in terms of wishing everyone an excellent summer well deserved good summer after two years that have been more challenging.
Now David will join us in a few minutes to take you through the second quarter results in detail, but before he does my comments. This morning will really focus on <unk> group's performance throughout the first half of the year.
Progress that we're making on our enterprise growth initiatives.
And the proactive measures <unk> has undertaken in an effort to address the needs of our broad and diverse stakeholder group and to help push the evolution of our capital markets ecosystem to ensure we maintain our competitive edge into the future.
Now in many respects and this is no secret to anyone listening the 2022 business or environment looks very different from the same time last year.
Macroeconomic conditions geopolitical events, including the conflict in Ukraine, rising interest rates and inflation concerns have negatively impacted global markets.
And it is a stark reality for our clients and peers across the financial industry and people around the world.
But before we begin to examine the business impacts I want to take a moment to pause and send our thoughts out to support all of those people who are directly and indirectly affected by these global challenges.
Now turning to our performance.
Overall <unk> continues to deliver positive results both for the second quarter and the first six months of the year. Despite the impact of significant and persistent headwinds on some of our key businesses, including capital raising and equity trading activity.
<unk> reported revenue of $573 2 million for the first six months of the year, which is a 15% increase from the same period of 2021 due to higher revenue from derivatives trading and clearing Shreveport and capital formation.
Increased revenue was partially offset by lower revenue from equities and fixed income trading and clearing due to lower trading volumes on the Toronto stock exchange NTS ex venture exchange.
Now about your revenue included $63 million in revenue from box, which was consolidated in January 2022, as well as revenue from our 2021 acquisitions $21 1 million from ASD, Canada acquired in August 2021, and zero point $8 million from trade signal acquired in June 21, and 2021.
Now excluding revenue from last year's acquisitions revenue was down 1% from the first six months of 2021.
On adjusted basis diluted earnings per share was $3 71 in the first six months a decrease of 2% from 2021.
Total operating expenses increased 27% compared to last year or 4% when you exclude expenses related to box ASD, Canada and trade signal.
And <unk> performance in the first half of 2022 again highlights the power of our resilient business model and underscores the efficacy of our adaptive long term diversification strategy.
<unk> corporate purpose is to make the mark.
It's better than Powerball ideas, and it's a central and guiding theme in that strategy.
Our pledge to our vast and very group of stakeholders and we never lose sight of the importance of our role at the center of the market and what this ecosystem of opportunity means to the country's economy and the people and the communities from coast to coast.
Now turning to each of our business areas.
Revenue from capital formation in the first six months of 2022 was $137 2 million or 5% increase from last year and the year over year increase reflected the inclusion of revenue from ASD, Canada and higher revenue from initial and sustaining listing fees, partially offset by lower additional listing fees, reflecting a decrease in the number of financing.
<unk> in dollars raised on T S X and <unk> venture.
And coming off a record setting 2021 global conditions have been less favorable for capital raising in 2022 due to inflation concerns rising interest rates and increased volatility.
And while the IPO market has slowed year over year, we proudly welcome new listings to the market in the first half of 2022, including Bausch and Lomb Ivanhoe Electric Dream residential REIT and two large Florida based Spacs aggregate <unk> acquisition Corp, and <unk> acquisition Corp.
And we remain actively engaged with potential IPO candidates in all sectors as well as dealmakers from across the interconnected ecosystem.
And we also continue to see evidence of the strength of <unk> unique value proposition for companies looking to access public markets.
T S X ventures, Cigna signature capital Pool Company program is thriving and despite the overall challenging capital raising conditions.
T S X venture added 46, new Cpc's and the first half of 2022 or 24% increase over the first half of 2021.
Now consistent with Tms as corporate purpose, our work to ensure we remain a market of choice for the next wave of great companies poised to come to market is proactive and it's an always on campaign.
So in June <unk> ventured launched venture forward, it's a new community driven program focused on strengthening Canada's crucial public venture market.
This collaborative long term initiative is designed to engage our public venture stakeholders, including entrepreneurs investors financiers lawyers and advisors to help identify a priority challenges and friction points and map out a plan to pursue workable solutions.
We have begun to reach out to stakeholders to help frame the issues in our next steps include developing near and longer term plans and we intend to publish highlights of our findings and feedback along the way with planned next steps by the end of the year.
June also marked the in person returned to the prospectors and developers Association of Canada or Pete at Convention.
For years, our exchanges have proudly supported this massively popular an annual event, which brings mining companies investors and policymakers from all over the world together into Toronto.
And it makes good sense <unk> is the worlds premier marketplace for resource companies to raise capital more than 40% of the world's public mining companies are listed on T. S X and T S X venture.
And we were honored this year to participate in the international mines Minister Summit at <unk> 2022.
The theme of this year's summit, an annual meeting of leading mining and representatives and governments from around the world was ESG and emissions reductions and the increased production of lithium nickel copper and other essential middle of minerals and the global efforts to achieve net zero.
And we shared Tms's perspectives with the ministers on how governments can help support a thriving mining sector by.
By minimizing regulatory burden, where appropriate by committing to make the necessary infrastructure investments and to fostering collaboration with local communities and specifically indigenous communities.
My name is a rapidly evolving industry and as the transition to a low carbon economy continues to gain momentum investors are paying close attention.
And so we recently launched a new benchmark to serve the needs of investors seeking increased exposure to and deeper insights into the clean tech and energy transition story.
The new S&P T. S X battery metals index measures the performance of T. S X MTS ex venture listed companies focused on the exploration development and production of select commodities that serve as significant inputs and the decarbonization of the transportation sector.
Now I'd like to turn to derivatives.
Excluding box revenue from derivatives trading and clearing was $75 3 million in the first six months of 2022, an increase of 5% from last year.
Now the increase was driven by 15% higher revenue from CDC due to repo dealer activity and fee changes and a 2% increase in revenue from Montreal exchange, reflecting higher overall volumes and fee changes on the X S X F.
Particularly offset by a slightly unfavorable product and client mix.
Total volume increased 2% over the first half of 2022 with strong growth in overall open interest at June 30th 2022 up 25% as compared to the same point last year.
Now in the midst of a volatile and turbulent market environment investor demand for tools to effectively and efficiently manage risk increased year over year vol.
Volumes traded in options grew 21% over the first half of 2021 led by trading in the energy and financial sectors, and reflecting increased activity from our institution institutional investors as well as our retail client base.
Trading in an ETF options also gained strong momentum, particularly in the second quarter amongst institutional investors with volumes up 11% compared to the first six months of 2021.
And volume in index futures trading was up 19% in the first half of the year compared to 2021 as clients moved to manage exposure to volatility in equity markets.
The first half of the year was also marked by sustained growth in our newer government of Canada bond futures contracts with 38% increase in the volume traded in the <unk> or the five year contract and 155% increase in volumes traded in the C. G Z or two year contract.
These recent additions to our product suite are proving effective in creating efficient cross market trader opportunities and continue to gain and profile among global investors now.
Now the maturation of the CGM product itself is a definitive success story. It is now as it has now reached levels of liquidity, where introductory incentives are no longer required to sustain its growth.
Moving now to trade port.
Revenue in the first half of the year was $79 2 million a 7% increase from the first half of 2021.
14% in common currency or pound Sterling and driven by an 18% increase in trader subscribers annual price adjustments and consultants to revenues.
Now the conflict in the Ukraine, and the impact of the corresponding sanctions continue to drive increased volatility in global energy trading markets.
And Trey parts core network of dynamic tools and solutions supports the needs of traders across the European energy markets and connect clients to execution venues and clearinghouses across key power and natural gas markets.
Now, while primarily focused on meeting the demands of a robust market. During the first half of 2022 trade part also lease also successfully advance on its global strategy to diversify and to move into new asset classes and geographies.
In June <unk> announced a minority investment in ventricular a cloud data technology company that offers a platform for data acquisition integration and business intelligence.
And under our new partnership agreement Shreveport will further expand its product offering to meet the growing client demand for data and analytics the.
<unk> solution complements <unk> existing suite of data automated and algorithmic trading tools and will further enhance decision, making and improve the overall trading experience.
In closing today I want to commend as always our people for the work that they do in their everyday contribution to <unk> success.
And specifically to thank our team of professionals for their efforts this summer and transitioning <unk> into a hybrid working environment.
I am very confident that the new balance of virtual and in person work will ultimately prove more stimulating engaging in productive for all of us.
And we don't have to look too far for compelling and relevant examples of the value of renewed in person engagements.
In June our team hosted two annual trading conferences in person for the first time since 2019, the Tms equity conference in Toronto, and the Canadian annual derivatives contracts or see ADC in Montreal.
Each of these signature events brings together as professionals and industry experts our partners across the capital markets ecosystems to share perspectives on the current and future state of our markets and to exchange ideas on challenges and opportunities across the Canadian equities fixed income and derivatives landscape.
So I'd like to thank everyone in the markets division to our stellar marketing and support teams for pulling together to extremely successful and well attended events.
In addition last week. We also took an important step forward towards Tnx's reconciliation journey.
A diverse group of business leaders from across the Amex gathered and when Darkey first nation in Quebec to participate in an immersive shared learning experience to develop Tms as foundational principles and philosophies for reconciliation.
This two day session featured a productive open exchange of ideas and perspectives highlighted by invaluable insights and experience shared by members of our host community the Huron when destination.
The efforts of the team and the contribution from our generous hosts will help to define the long term vision and tactics for how Tms can contribute to our future of shared prosperity for indigenous businesses and communities.
This should be no surprise. This is what we do with T M X <unk>.
<unk> is a purpose driven people driven organization employees across the enterprise are unified by our unwavering commitment to make markets better and empower bold ideas.
And this mindset fuels all of our client and stakeholder engagements and guides, our business and corporate initiatives during robust.
Thriving markets and even more importantly, when challenging conditions negatively impacted key components of our ecosystem.
In all market conditions, the pursuit of meaningful ways to do better to be better is constant and.
And for T M X, making markets better includes ensuring that we have the most resilient robust and reliable operating systems and protocols.
Constantly striving to adapt our products and services across the franchise to meet the evolving need of the modern marketplace.
And our increasingly global client base.
And activating T. M. <unk> is a leading voice for measures to create conditions for our enduring success.
So with that let me say, thank you and I'll turn the call over to David.
Thank you John and good morning, everyone.
As John mentioned, our results for the second quarter reflect the continued resiliency of our diverse business model with overall revenue growth of 17%.
Including increases across all of our business segments revenue, excluding the Boston options exchange a box for short, which we consolidated on January 3rd this year, ASC, Canada, which we acquired on August 12, 2021, and trade signal, which trade Port acquired on June <unk> 2021 was up 1% in the quarter compared.
With last year.
We managed our cost increases to below the current rate of inflation in Canada in the second quarter with operating expenses, excluding box ASD, Canada trade signal up 7% compared with Q2 of 2021 and year to date when compared with the same six month period, a year ago, our costs only up 4% well below the current rate of inflation.
Canada.
We reported an increase of 20% and our diluted earnings per share. This past quarter benefiting from a decrease in income tax expense compared to Q2 of 2021, where we incurred a $19 8 million charge due to a U K corporate income tax rate change as well as an increase in income from operations of $5 4 million compared with Q2.
2021 hour.
Our adjusted diluted earnings per share decreased slightly by 1% largely driven by higher operating expenses, partially offset by higher revenue.
Turning now to our businesses, we saw year over year revenue increases in all of our segments and I'll start with the businesses that saw the largest year over year increases.
Revenue in derivatives trading and clearing grew by 89% this quarter compared to Q2 of 2021 since we now consolidate box and that represents $27 3 million of revenue, which is included in this segment for Q2.
Volumes on box increased by 20% compared to Q2 of last year and boxes market share in equity options grew two 6% up 1% from Q2 of 2021.
Derivatives trading and clearing revenue excluding box was up 9% in the quarter driven by a 16% increase in CDC see revenue and a 6% increase in revenue from the Montreal exchange. The Montreal exchange revenue increase reflected first a 2% 2% volume increase this quarter compared with Q2 of 2021.
Second a favorable product and client mix and third positive impact on trading fees on the heels of the pricing changes for our S&P, TSA 60 index and futures or S excess which came into effect in January of this year.
Turning to capital formation.
Revenue grew by 6% this quarter, which included approximately $12 2 million of revenue related to <unk>, Canada.
Excluding a S T Canada revenue in the quarter decreased 12% in capital formation, primarily on the heels of lower additional listing fees in the quarter due to decreases in both the total number of financings and the total financing dollars raised and a slight decrease in initial listings fees the.
The additional listing fees decrease on T. S X reflected a 27% decrease in the number of additional listing transactions billed at the maximum listing fee of 250000, and a 16% decrease in the number of transactions billed below the maximum fee.
When compared to very strong levels of activity in Q2 of last year.
This decrease was partially offset by higher sustaining listing fees in the quarter, reflecting an increase in the market capitalization of T. S X and T. S X venture issuers at December 31, 2021 over the prior year.
Revenue in our global solutions insights and analytics segment was up 5% over Q2 of 2021 with.
With increases from both <unk> and <unk> and.
The next data links revenue from trade Port was up 5% in Canadian dollars or 14% in pound Sterling a 14% increase in pound Sterling was primarily driven by a 17% increase in trader subscribers annual price adjustments and a onetime consultancy revenue for development services.
Revenue in our <unk> data links business, including co location grew 5% driven by increases in data feeds co location as well as benchmarks and indices.
Partially offset by a reduction in revenue from lower usage based quotes.
There was a favorable foreign exchange impact of approximately $1 million from a weaker Canadian dollar relative to the U S. Dollar this quarter when compared with Q2 of 2021, which accounts for roughly 2% of the 5% year over year increase.
The average number of professional market data subscriptions for T. S X and T. S expenditure products decreased by 3% in the quarter compared with last year, where subscriptions on the Montreal exchange were up 3%.
Revenue from equities and fixed income trading and clearing segment was up 3% in the quarter within this segment equities and fixed income trading revenue increased 7% in the quarter compared with Q2 of last year. Despite a 9% decline in overall volumes of securities traded on our equities marketplaces, reflecting a favorable product mix.
Within T S X and the impact of April 2022 price changes on continuous trading for securities with the share price below a dollar.
While trading volumes in T. S X securities increased by 9% in the quarter volumes on T. S expansion exchange in TSS, Elfa exchange decreased by 39% and 11% respectively. When compared with Q2 last year, which is why our overall volumes of securities traders on equities marketplaces is down 9% to.
Spite overall volumes of securities traded on equities marketplaces being down our market share increased by 5%.
On the fixed income trading side revenue increased by <unk>.
Revenue increased versus Q2, a year ago, reflecting higher activity in government of Canada bonds and swaps revenue from our Cds business was down 2%, reflecting lower issuer services and corporate action revenue, partially offset by higher revenue from custodial fees and standby liquidity facilities compared with Q2 a year ago.
Turning to our expenses operating expenses in the second quarter increased by 32% compared to Q2 last year included in this increase are the costs associated with Fox, which we now consolidate as well as the two acquisitions, namely a S T, Canada and trade signal as well as costs associated with those transactions.
Namely a S T integration costs amortization of acquired intangibles for ASD, Canada and box and the transition services agreement with a S T all of which in aggregate.
The $28 7 million of expenses in Q2 of 2022 excluding.
Excluding the aggregate amount of expenses associated with box ADT, Canada, and trade signal, which I just mentioned this translates into a year over year increase of 7% for operating expenses compared with Q2 of last year, the higher expenses reflected higher head count and payroll costs increased long term employee incentive plan costs as well as increased expense.
For travel and entertainment, including hosting our conferences and events, which are returning to in person. After a hiatus. During the last few years. In addition expenses were reduced in the second quarter of last year due to due to a release of a provision for restoration costs for our data center.
These increases in costs were partially offset by lower short term employee incentive plan costs lowest severance and acquisition related costs related to a S. T candidate in Q2 of 2021.
Turning to our integration of ADT, Canada, our integration of AAC, Canada continues to progress very well, we expect total revenue and expense synergies of approximately $10 million, which is up 25% versus our previous estimate of $8 million, which will be substantially achieved by the end of 2024.
As it relates to 2022, we now expect at least three and a half million of these cost synergies in 2022, which is up from our original estimate of $2 million for 2022.
We continue to expect integration costs related to ASD, Canada of approximately $20 million over the 16 month period from September 1st of last year to the end of this fiscal year December 31.
Looking at our results sequentially revenue only decreased $1 million from Q1 of 2022 to Q1 of 2022 Q2 of 2022, which reflected lower equities and fixed income trading and derivatives trading and clearing revenue, which is primarily driven by lower box volumes in the quarter.
This was mostly offset by higher capital formation revenue driven by higher other issue services revenue and additional listing fees revenue from Q1 to Q2 of this year.
Operating expenses increased $2 5 million or 2% from Q1, including an increase of $3 7 million related to <unk> integration.
There were also increases in technology spending director fees travel and performance incentives. These are partially offset by lower salaries and payroll taxes of $3 2 million lower legal fees and lower termination allowances.
Turning now to our balance sheet in the second quarter of 2022, we spent $61 3 million repurchasing 460000 of our common shares under our normal course issuer bid program.
I did to adjusted EBITDA ratio was one seven times at the end of the quarter and we also held of a $432 million in cash and marketable securities at the end of the quarter, which is approximately $227 million in excess of the $205 million, we target to attain for regulatory and credit facility purposes.
Last night last night, our board of Directors approved a quarterly dividend of 83 cents per common share payable on August 26th to shareholders of record as of August 12.
In the second quarter, we paid out 44% of our adjusted earnings per share, which is marginally below the midpoint of our target payout ratio of 40% to 50%.
So that concludes my formal remarks, and I'd now like to turn the call back to pull for our Q&A period.
Thanks, David Michelle could you. Please outline the process for the question and answer session.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.
You'll hear a three tone prompt acknowledging your request and your questions will be pulled in the order they are received.
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If you are 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 of RBC capital markets. Please go ahead.
Hi, good morning.
John you were talking earlier, just being engaged on the issuer side and the pipeline is just wondering if you can expand on that a little bit.
Just how it's changed in recent months both on the IPO, but also also the follow on.
For whatever visibility you have just trying to get a sense as to if things are looking a little bit better.
Yes, I'm happy to do that Geoff Thanks for the question.
It's an interesting dynamic when you look at the activity in 2022, because when you look at it simply in reference to 2021, it looks quite challenging but interesting and if you actually have a look back and look at our 2022 activity.
Across the senior market in the venture market as compared to call. It the four years before 'twenty, one you're going to find this was actually one of the strongest markets that we've had so I think that's why I actually some folks were surprised that we're not seeing larger revenue challenges and they would have expected in this marketplace. So with respect to your pipeline question the pipeline actually for new issues continues to grow.
It's difficult to give guidance in terms of when companies can come to market because it really is around market conditions for them to do their financing, but that's why we wanted to reflect.
Some of the names that actually got public financing done because those are ones that actually become benchmarks for other transactions to build off in the future. So.
So we do see that positive momentum in terms of potential listings, but it's hard to say what time, they would come to market.
The other silver lining that we talked about a bit in the comments was the activity that you see in venture around particularly around CPC. So capital pool accompany programs because they are founder base, they're less sensitive to what's going on in both market volumes in valuation and volatility and so those transactions are getting done even in difficult markets and I think I said earlier.
They're up about 24% year over year, and we've listed almost 50 new ones this year.
So that gives you a bit of context, we are continuing to see financing transactions you see that in the transaction data that the transaction activity is still robust, but just at a smaller size than you would've seen last year. So in another way that actually impacts our revenue because we're actually seeing fewer transactions that are capping out at the caps because they are smaller size deals so or.
We're all all thing if it wasn't for 2020, one we would be talking about what a healthy market. This is and it's only in reference to last year that you're seeing the delta.
Okay. Thanks for that and my next question was on the T X Trust ASC, Canada, you've talked about that sensitivity 25 basis points higher rates is roughly about $2 5 million of additional annual revenue.
They can't over overnight rates up 225 basis points. So far this year now is that interest rate sensitivity based on the overnight rate or is there another interest rate benchmark.
Because if we use the overnight rate.
That would imply kind of like $22 5 million.
Revenue and just wondering how much of that would.
It would have been captured them.
In the Q2 revenues.
So thanks, Jeff, It's David I'll start and maybe John can add any extra color. The it's not as strimple as monitoring a bank of Canada overnight rate change and then extrapolating it fully to the crest revenue line on net interest income primarily because it really a couple of factors one is us.
Not not all of the deposits that we receive.
Generate the same level of net interest income on some of our arrangements the arrangements with our clients have us passing on some of the rate hikes to them.
Not as easy as doing that and then what I would say in Q2 is given the timing of the rate hikes.
Had a modest impact it will have a more material impact in Q3, and then the third thing which is very important is his balances right.
The balances fluctuate depending on various corporate actions and.
We we struggle internally to predict those.
Because it's like predicting capital formation or derivatives trading revenue, which is pretty much a market driven so those would be the variables at play, but the key takeaways it isn't a straight line and we.
We would look to anywhere between four to 5 million of net interest income over the.
The course of this year, given where rates are but once again banks, Canada have a rate right meeting coming in September . So we'll have to stay tuned on that too.
Alright, that's $4 million to $5 million, that's what you're saying I guess relative to what we saw in Q2 that would be the annual lift given where rate yesterday I'm just okay.
Okay.
And then just my last question was just on trade port.
The average total subscribers I think it was down very slightly kind of quarter over quarter. Obviously it had a very good gradual increase since you acquired it just wondering if theres any color you can give on that.
Great. So quickly before we do that John just Jeff I wanted to make sure I heard your question or answer that correctly. So when I said the four to 5 million that's for the balance of this year right.
Think it's about $8 million for the full year.
Hopefully that helps.
And I'm laughing a bit Geoff on the question on trade port because it's.
We only ever get asked about the sequential if the sequential is down or the year over year of the year over year is down because I think I'm going to remind everyone that year over year were up 17%, so I'm going to take that opportunity to do that on.
The sequential piece all you're actually seeing there is a restructuring in terms of one of the activities in a single broker that offset what otherwise would have been subscriber growth sequentially.
And so what I mean by that is a broker had an underperforming desk that they chose to wind down. It would have had some dedicated traders associated with it. So those trader subscriptions are no longer there because that business of that broker isn't there anymore and that offset what otherwise would have been growth in the quarter. So.
It's nothing too.
Take any concern too in terms of the overall strength of the health of the business I think we indicated in Davids notes about nine new net paying clients in the quarter as well, which will contribute to subscriber growth in the future quarters, but that was the step down in terms of that sequential impact.
Okay perfect. Thank you.
Thank you.
The next question comes from Ian <unk> of.
BMO capital markets. Please go ahead.
Thank you and good morning.
Good morning.
On equity trading could you could you please comment on <unk>.
How competitive dynamics have changed since CBOE close on the acquisition of Neo back in June if at all.
Yes to be candidate they really haven't changed in any material way.
So CBOE was already active in Canada with their their ownership of match now.
Oh already inactive player.
So we haven't seen material changes or material changes in the business model.
And you'll see that in terms of our overall market share continues to be pretty much either flat to up from where we are a year ago. So it's something that we are constantly monitoring and constantly engaging with clients to make sure that we are meeting their needs. We talked earlier about the actual trade conference. So we just initiated in June that was extremely effective in term.
Bringing other trading community understanding what their their pain points are there net needs are and also the stress test some of our ideas in terms of market reform and get real life feedback from the trading community. So our competitive position here continues to be to focus on what the client needs are so they don't need to trade anywhere else.
Understood.
PSX Trust.
Given you had previously noted this business.
Has the higher growth potential over time.
Could you could you comment on what led to lower transfer agency fees on a on an organic basis year over year.
I mean that would be a comp and a combination of all of the fees within trustful transfusions and trust activities are very much like the the other parts of the T. S X and T. S X venture financing area. When we have lower transaction activity. There are also lower trust or transfer of corporate actions. So the overall book.
Of business. The overall client base continues to grow and trust and transfer, but you have lower activity levels in the first half of the year as compared to a year ago.
Okay great.
I think you've been buying back stock more actively in Q2.
Looking forward should we expect you to become more meaningful acquirers of your stock.
Good question Etienne.
You're right we did purchase.
A substantial amount of our normal course issuer bid authorized allotment this quarter and it is in a.
Something that we actually direct we have a standing order it at based on on a ratio and a broker of record and execute accordingly.
We have about 5000 of our normal course issuer bid outstanding and we are evaluating various different capital deployment strategy is right and one of the things we have to obviously do is look to the organic growth initiatives that we have underway as well as.
In a sense hitting some of our very large initiatives like our post trade modernization, which as you know now goes into industry testing.
And so given the the opportunities.
We have for capital deployment, whether it be for organic growth, whether it be for dividend increases increased share buybacks or M&A activity.
As we monitor what transpires on the pricing front in the marketplace I would stay tuned but right now we're we've got about 5000 domain, meaning to go.
No My my my simple summary of David's comments as we are remaining and keeping our flexibility in what has been a bit more of an unsettling marketplace. So we are evaluating all tools and want to maintain maximum flexibility and the strength of our balance sheet. So that we can actually take advantage of opportunities as they come.
Thank you very much.
Thank you. Your next question comes from Graham Ryding of TD. Please go ahead.
Hi, Good morning, we saw a nice lift quarter over quarter in ESG revenue was that largely higher margin income or what would you attribute that to.
Got it.
And margin income was part of it but there were a couple of other parts of the business that did well and so.
I wouldn't say it is all margin income at all Graham.
Okay.
I know you don't give specific expense growth, but maybe you could just.
Let us think about.
The growth we saw this quarter, if you strip out the acquisitions was 7% year over year.
I think it was 2% year over year last quarter.
So how should we be thinking about what's a reasonable mix.
Growth expectations should we be.
Thinking closer to sort of a 4% you've done year to date or is that 7% growth.
In this quarter potentially.
Our run rate for expense growth.
Yeah, I would guide you towards closer to the first half of the year cumulative so the 4% to 5% kind of range.
Okay. That's helpful.
On the derivative side.
Interest rate derivative volumes are actually down year over year.
Surprises and somewhat I just thought in this environment.
Rising rates it might actually foster higher interest rate derivatives activity could you provide any any color there John yes.
Yes, Im happy too so in the long term you're absolutely right Graham.
And so when you actually you see growth or in terms of other parts of the interest rate curve. The challenge in the short term and particularly the challenge. This year is the biggest impact year over year, it's been in the products like the backs of the that the short term 30 day product and when we're in an environment, where there are rapidly changing bank of Canada rates and they are not.
Predictable in terms of timing or amounts that's difficult for speculators or hedgers or other people to use those products. So it's.
What I would call. It is it's not constructive volatility in the short term when there's not good predictability about those rate changes so as that normalizes in a higher rate environment, you're absolutely right that or give more.
Tailwind to support the product but.
But in the short term when the timing and size of bank of Canada rate changes are less predictable, it's harder for people to use those products and they take on more risk when they're doing them, which is not the intent of the product. So we do see this being as a short term issue.
As bank rates make some some some quick changes and then that'll stabilize and give more tailwind.
Okay. That's helpful and my last question, if I could just be the Cds modernization project.
I think it's on track to finish in the first half of 2023 and some potential here that this could be pushed out further in the capex could be increased again.
Are you feeling about.
That project at this stage.
I'm feeling cautiously optimistic.
Is that hedging it enough for you.
We've spent a lot of time on this on a regular basis I'm going to take the opportunity to give a shout out to the folks that are working on it because this has been an extremely challenging initiatives, especially in the backdrop of COVID-19 anytime you're doing large scale software development in multiple jurisdictions and you can't put people in the same room to solve challenges that does make the time to do things.
Like user acceptance testing and finalizing the development much more challenging to finish.
But what we had in the last couple of weeks and we've been through two different board sessions on this was that Nick of a significant milestone in terms of that we are now nearly complete all of our internal user testing and have announced to the street. When we are going to be going live in mid September for industry test and development and we've committed to the industry at least <unk>.
Nine months to do that so.
So that that gives us the higher degree of kind of cautious optimism around the timing to execute this because we are now at a place where we've got the product it meets the needs its functional and we can put it into the hands of our clients starting in September so they can do their own testing and development over the next year to be ready to go live in 'twenty.
'twenty three the estimates that we've given both around timing and around total capital or are all reflective of that and reflects some contingency that there still could be some some unknown challenges as we go through that process. So best information, we have at the time and in a reasonable degree of certainty in terms of that real milestone that's come through that.
We're going to be live in market and in the fall of this year.
Okay. That's it for me thank you.
Thank you once again, ladies and gentlemen, if you do have a question. Please press star one at this time.
The next question comes from Jim <unk>.
National Bank. Please go ahead.
Yes. Thanks.
Hey.
The.
The quarter included a lot of.
Good to see pricing increases across various businesses.
Somewhat unexpected I guess or maybe it wasn't necessarily hinted that on previous quarters is there.
Is there anything that you can share in terms of what's in the pipeline from from other price increase.
Increases that could be in proposal stages or something that you're dropping in.
In the background.
And then Jamie I appreciate the question then so.
I mean, obviously I can't share things that we haven't made public yet in terms of either filing with regulators or notices to clients, but what I will let you know is that we are actually.
Actively looking at those.
Are there businesses that weren't part of the price changes, we've already announced so businesses like like listings in capital formation that for in some cases, we haven't done pricing on the senior market I think in four years and on the venture market. In 10 years. We are looking at what are the appropriate changes. We can make there that are still consistent with maintaining a very strong competitive position, both domestically and globally.
And that's why we are actively looking at and I would expect to be communicating both with regulators and the street in the near term.
Okay great.
And then.
Just in terms of some of the new the.
New training initiatives.
I assume these are coming from that customer driven demands can you can you sort of maybe elaborate on that on what youre expecting from a.
The other market share benefits for <unk> are there should be benefits for.
<unk> what are what are the.
The knock on effects for your business by introducing some of these new products and tools.
It actually it depends on the tool. So some of them are actually about driving incremental market share incremental also strength of liquidity. So are the overall quality of the volume as well in some cases like the work that we did a market on close and the work we're doing on dark. Those are also as you said those are premium offerings that drive also a higher yield so they're more valuable.
<unk> products to the street and they command a premium in terms of the revenue impact and have you seen some of that in terms of the the revenue growth in the equity trading year over year, because while volume is off the actual yield is up and the overall revenue growth is there. So you're exactly right. It is a combination of those pieces and it's driven specifically by identified client needs of the.
<unk>.
Okay, and then if I'm thinking about it.
And maybe a bit of a modeling question I guess right now but.
We're seeing higher capture rates flowing through on equities and trading now there's some noise because fixed income is in there too but.
Is there is there more upside, let's say revenue per contract traded that.
For per equity trade.
In the last couple of quarters, given some of these new initiatives.
Or are you seeing like that is maybe more of a high watermark, just trying to get a little bit more insight into where the revenue per trade can can trend towards over the next several quarters and years.
Yeah. So you've got to look at two things, yes, we are seeing more premium revenue in terms of the mixture of revenue in terms of the amount of the volume that's in the closer in those other dark products.
It's also Jamie look at the shift in terms of the trade across higher value securities across all markets. So.
We've got trade.
Trade value growth in T. S X I think year over year, we're up about 17% and dollar value traded.
Venture is has been has declined somewhat year over year. So when you've got the higher stock prices. You also have a higher tier in terms of revenue capture because of the the lower share prices on some of the venture stocks or a different capture rate as well so you've got to look at that business mix as well.
Yes understood.
Absent any changes in business mix or certainly not so all else equal like the sustainable.
Okay good stuff.
Okay. That's it for me thank you.
No problem.
Thank you.
Once again, ladies and gentlemen, if you do have a question. Please press star one at this time.
There are no further questions at this time please continue.
Well, thank you Michelle and just before we close I want to give you two updates from the Investor Relations team Amanda.
Amanda Tang who most of you know well will be often maternity leave for the next year or so just this past Monday Amanda had a boy feel their second son, now and everyone is doing very well congratulations Amanda from all of us.
Well Amanda is op mean, massawa and we'll be filling in for Amanda. Most recently I mean was managing director for our financial planning and analysis function and I know you will all enjoy working with him in.
In closing I want to thank 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 have a good weekend everyone.
Ladies and gentlemen, this does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
Yeah.