Q2 2024 TMX Group Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the TMX Group Ltd Q2 2024 Financial Results Conference Call.
Operator: But a Q2-2024 Financial Results Conference Call. At this time, online share in a listen-only mode.
Operator: Following the presentation, we welcome back a question-and-answer session. If at any time during this call, you require immediate assistance, please express as far as zero for the operator.
Speaker Change: At this time, all lines are in a listen-only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session.
Speaker Change: If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 1, 2024.
Operator: This call is being recorded on Thursday, August 1, 2024.
Amin Mousavian: I would now like to turn the conference over to Amin the Sabian, Vice-President, Investor, Lesions, and Treasury at TMX Group. Please go ahead.
Amin Mousavian: I would now like to turn the conference over to Amin Mousavian, Vice President, Investor Relations and Treasury at TMX Group. Please go ahead.
John Mckenzie: Thank you, and good morning, everyone. Live from New York, it's Thursday morning. We're hosting today's call from our TMX Letify office in New York. Thanks for joining us to discuss the 2024 second quarter results for TMX Group. We announce our results for another strong quarter late yesterday, and copies of our press release and MDNA are available on TMX.com under Investor Relations.
Amin Mousavian: Thank you and good morning everyone.
Unknown Executive: We're hosting today's call from our TMX Verify office in New York. Thanks for joining us to discuss the 2024 second quarter results for TMX Group. Before we begin, let's cover our forward-looking legal disclosure. Certain statements made during this call may relate to future events and expectations and constitute forward-looking information within the meaning of the Canadian Securities Act. Actual results may differ materially from these expectations, and additional information is contained in our press release and periodic reports that we have filed with the regulatory authority. Now, I will turn the call over to Jaeme.
Amin Mousavian: Live from New York, it's Thursday morning. We're hosting today's call from our TMX Verify office in New York. Thanks for joining us to discuss the 2024 second quarter results for TMX Group.
Speaker Change: We announced our results for another strong quarter late yesterday and copies of our press release and MD&A are available on TMX.com under Investor Relations.
John Mckenzie: This morning we have with us, John McKenzie, our Chief Executive Officer, and David Arnold, our Chief Financial Officer. Following the opening remarks, we will have a question-and-answer session.
Speaker Change: This morning we have with us John McKenzie, our Chief Executive Officer, and David Arnold, our Chief Financial Officer.
Speaker Change: Following the opening remarks, we will have a question and answer session.
John Mckenzie: Before we begin, let's cover our forward-looking legal disclosure. Certain statements made during this call may relate to future events and expectations and constitute forward-looking information within the meaning of the Canadian Securities Law. Our actual results may defer materially from these expectations, and additional information is contained in our press release and priority reports that we have filed with the regulatory authorities.
Speaker Change: Before we begin, let's cover our forward-looking legal disclosure.
Speaker Change: Certain statements made during this call may relate to future events and expectations.
Speaker Change: and constitute forward-looking information within the meaning of the Canadian Securities Law. Actual results may differ materially from these expectations and additional information is contained in our press release and periodic reports that we have filed with the regulatory authorities. Now, I will turn the call over to John .
John Mckenzie: Now we'll turn the call over to John. Thanks, Amin, and good morning, everyone. Thank you all for joining us today.
John Mckenzie: Discussed TMX Group's financial results for the second quarter and the first half of 2024. And as Amin said, we are set up here for the very first time in the Vetify office in Manhattan. It's certainly been great to be here and engage with all the team. And as a clear indicator of our growing global presence.
John Mckenzie: Thanks Amin and good morning everyone. Thank you all for joining us today to discuss TMX Group's financial results for the second quarter and the first half of 2024. And as Amin said, we are set up here for the very first time in the Vetify office in Manhattan. It's certainly been great to be here and engage with all the team and as a clear indicator of our growing global presence.
John Mckenzie: Now, before we turn to business, on behalf of all of us on TMX, and particularly with regards to our teams in both Calgary and Edmonton, I do want to send out a quick message of support from all of us to those that have been impacted by the devastating wildfires of summer in Alberta. We are so very grateful for the efforts of those in the front lines who are working to provide the essential relief needed and the resources to people affected. Our thoughts are with you.
Jaeme: Now, before we turn to business, on behalf of all of us in TMX, and particularly with regard to our teams in both Calgary and Edmonton, I do want to send out a quick message of support from all of us to those that have been impacted by the devastating wildfires this summer in Alberta. We are so very grateful for the efforts of those on the front lines who are working to provide the essential relief needed and resources to people affected. Our thoughts are with you.
John Mckenzie: Now, before we turn to business,
John Mckenzie: On behalf of all of us in TMX, and particularly with regards to our teams in both Calgary and Edmonton, I do want to send out a quick message of support.
John Mckenzie: From all of us to those that have been impacted by the devastating wildfires this summer in Alberta, we are so very grateful for the efforts of those on the front lines who are working to provide the essential relief needed and the resources to people affected. Our thoughts are with you.
Jaeme: Next, I'd also like to thank all of you, particularly those who took the time to attend either in person or virtually our 2024 Investor Day Accelerating Growth last month at the TMX Market Centre in Toronto. We will go deeper into the year-over-year analysis in a few moments, but I want to start by emphasizing TMX's core winning traits that fuel our success.
John Mckenzie: Next, I’d also like to thank all of you, particularly those who took the time to attend either in person or virtually our 2024 Investor Day, Accelerating Growth, last month at the TMX Market Center in Toronto. Now, based on the caliber of the conversations that we had in the room, our interactions with many of you, and the feedback received by the IR team, this was a big success. And particularly the exceptionally strong level of engagement from all of you, our analysts and investors. Candidly, we drive a ton of value from your informed and thought-provoking questions. And I want to thank you again for bringing your A games to TMX's Investor Day.
Speaker Change: Next, I'd also like to thank all of you particularly who took the time to attend either in person or virtually our 2024 Investor Day Accelerating Growth last month at the TMX Market Centre in Toronto.
Speaker Change: Now, based on the caliber of the conversations that we had in the room, our interactions with many of you and the feedback received by the IR team, this was a big success, and particularly the exceptionally strong level of engagement from all of you, our analysts and investors.
Speaker Change: Candidly, we drive a ton of value from your informed and thought-provoking questions, and I want to thank you again for bringing your A-games to TMX's Investor Day. And for those that haven't, I would encourage all of you to watch the event. You can review the recorded webcast on investorday.tmx.com.
John Mckenzie: And for those that happened, I would encourage all of you to watch the event. You can review the recorded webcast on investorday.tmx.com.
John Mckenzie: Now, in executing against that plan, TMX delivered excellent results for the second quarter and the first six months of 2024, highlighted by strong performances across the franchise. We will go deeper into the year-over-year analysis in a few moments, but I want to start by emphasizing TMX's core winning traits that fuel our success. One, a dynamic, high-performance business model made up of complementary assets built to perform and endure. Two, a strong balance sheet to enable growth acceleration via acquisitions like the recent editions of ASD Canada and TMX-Vetify. Three, a proven strategy, and a track record of strategic execution.
Speaker Change: Now, in executing against that plan, TMX delivered excellent results for the second quarter and the first six months of 2024, highlighted by strong performances across the franchise.
Speaker Change: We will go deeper into the year-over-year analysis in a few moments, but I want to start by emphasizing TMX's core winning traits that fuel our success.
Jaeme: A dynamic, high-performance business model made up of complementary assets built to perform and endure. And a strong balance sheet to enable growth acceleration via acquisitions like the recent additions of ASD Canada and TMX Vetify. Our people are driven by a unified purpose to make markets better and empower bold ideas. With a little bit of history here, it took us 14 years to build this business from generating $500 million in revenue to over $1 billion. And we're well on our way. And these year-over-year revenue gains were only offset by a modest shortfall in capital formation.
Speaker Change: 1. A dynamic, high-performance business model made up of complementary assets built to perform and endure.
Speaker Change: 2. A strong balance sheet to enable growth acceleration via acquisitions like the recent additions of ASD Canada and TMX Vetify.
Speaker Change: 3. A proven strategy and a track record of strategic execution.
John Mckenzie: Four, which is underpinned by leading in edge technology and are winning this trade. In TMX's most powerful asset, number five are people. Our people are driven by a unified purpose to make markets better and empower bold ideas.
Speaker Change: Four, which is underpinned by leading-edge technology and are winning this trade in TMX's most powerful asset, number five, our people. Our people are driven by a unified purpose to make markets better and empower bold ideas.
John Mckenzie: And in Investor Day, we also introduced a new concept, an internal rallying cry in a lens which we see the landscape evolving in front of us, TM2X. We're a little bit of history here. It took us 14 years to build the business from generating 500 million revenue to over 1 billion. And now we set our objective on doubling that number, doubling to 2 billion, but doing it twice as fast. And any successful strategy is about making good choices. We have a powerful and resilient core business that is growing. And in pursuit of our TMX, TM2X objective, we are focused squarely on four key priority areas to leverage the strength, strong foundation, and accelerate our growth trajectory.
Speaker Change: At Investor Day, we also introduced a new concept, an internal rallying cry in a lens which we see the landscape evolving in front of us, TM2X.
Speaker Change: And with a little bit of history here, it took us 14 years to build the business from generating $500 million in revenue to over $1 billion. And now we set our objective on doubling that number, doubling to $2 billion, but doing it twice as fast.
Speaker Change: And any successful strategy is about making good choices. We have a powerful and resilient core business that is growing.
Speaker Change: And in pursuit of our TM2X objective, we are focused squarely on four key priority areas to leverage the strong foundation and accelerate our growth trajectory, listings and beyond, beyond traders, and beyond market data, and getting beyond our borders. And we're well on our way.
John Mckenzie: Listings and beyond, beyond traders, and beyond market data, and getting beyond our borders. And we're well on our way.
John Mckenzie: Our results for the first six months of 2024 stand as compelling evidence of the strategy and action. Overall revenue increased 18% from the first half of 2023 due to the inclusion of 69.9 million from TMX-Vetify following the close of the acquisition on January 2nd. And increased revenues from TMX-Tradeport, drew this trading clearing, equities in fixed income trading, and clearing. And these year-over-year revenue gains were only offset by a modest short fall in capital formation. Organic revenue, excluding TMX-Vetify, increased 6% year-over-year, and diluted earnings per share on an adjusted basis increased 8% from the first six months of last year.
Speaker Change: Our results for the first six months of 2024 stand as compelling evidence of the strategy in action.
Speaker Change: Overall, revenue increased 18% from the first half of 2023.
Speaker Change: Due to the inclusion of $69.9 million from TMX Vetify following the close of the acquisition on January 2nd, and increased revenues from TMX Tradeport, derivatives trading and clearing, equities and fixed income trading, and clearing. And these year-over-year revenue gains were only offset by a modest shortfall in capital formation.
Jaeme: Organic revenue, excluding TMX Verify, increased 6% year over year, and diluted earnings per share on an adjusted basis increased 8% from the first six months of last year. In fact, June was the strongest financing month yet, with just under $4 billion raised on the TSX and TSX Venture. And we have seen really encouraging signs from the mining sector, which is rebounding from financing lows last year. Over 50% of the financing dollars raised on both exchanges this year were raised by mining issuers. And sometimes, one big deal can also act as a catalyst.
Speaker Change: Organic revenue, excluding TMX Vetify, increased 6% year-over-year, and diluted earnings per share on an adjusted basis increased 8% from the first six months of last year.
John Mckenzie: And while total operating expenses increased from the first half of 2023 as well, this is largely due to the inclusion of TMX-Vetify.
Speaker Change: And while total operating expenses increased from the first half of 2023 as well, this is largely due to the inclusion of TMX Vetify. And David will take a closer look at these expenses in his remarks to follow.
David Arnold: And David will take a closer look at these expenses in his remarks to follow.
John Mckenzie: Now moving on to our business areas. I want to start with a crucial core element, not only of TMX's global franchise, but of Canada’s economy, and that is capital formation, featuring our listing businesses on the Toronto Stock Exchange and TSX Venture Exchange. Revenue was 138.4 million, a 4% decrease from the source for six months of 2023, reflecting lower revenue from additional listing fees due to a decrease in the number of financing transactions and dollars raised on the TSX Venture Exchange, but partially offset by an increase in the transactions and dollars raised on the Toronto Stock Exchange.
Speaker Change: Now, moving on to our business areas, I want to start with a crucial core element, not only of TMX's global franchise, but of Canada's economy, and that is capital formation, featuring our listing businesses on the Toronto Stock Exchange and TSX Venture Exchange.
David Arnold: Revenue was $138.4 million, a 4% decrease from the first six months of 2023, reflecting lower revenue from additional listing fees due to a decrease in the number of financing transactions and dollars raised on the TSX Venture Exchange.
Speaker Change: But partially offset by an increase in the transactions and dollars raised on Toronto Stock Exchange.
John Mckenzie: And while global macroeconomic factors have created challenging capital market conditions over the last two and a half years, we are seeing important signs of recovery and upward momentum within our ecosystem, particularly in the second quarter of the year. In fact, June was the strongest financing month yet, with just under 4 billion raised on TSX and TSX Venture. And we have seen really encouraging signs from the mining sector, which has rebounded from financing lows last year to over 50% of the financing dollars raised on both exchanges this year were raised by mining issuers. And while new mining listings, particularly larger IPOs, have yet to return to average levels, the industry consensus is that the continued reduction of interest rates may just be the catalyst that we've needed.
Speaker Change: And now, while global macroeconomic factors have created challenging capital market conditions over the last two and a half years, we are seeing important signs of recovery and upward momentum within our ecosystem, particularly in the second quarter of the year.
David Arnold: In fact, June was the strongest financing month yet, with just under $4 billion raised on TSX and TSX Venture.
David Arnold: And we have seen really encouraging signs from the mining sector, which is rebalancing from financing lows last year to over 50% of the financing dollars raised on both exchanges this year were raised by mining issuers.
Speaker Change: And while new mining listings, particularly larger IPOs, have yet to return to average levels, the industry consensus is that the continued reduction of interest rates may just be the catalyst that we've needed. And sometimes, one big deal can also act as a spark.
John Mckenzie: And sometimes one big deal can also act as a spark. In June, Paladin Energy, a Western Australia-based uranium producer, announced the $1.14 billion acquisition of Fission Uranium Corp and announced its intention to list on the TSX. This deal is expected to close in September of this year. The first half of the year also featured positive signs in the technology sector. Overall, financing for 417 million, which is a 228% increase from the first half of last year. Some of the new listing highlights include a diverse range of senior and junior companies. Sprought Physical Copper Trust, $151 million IPO by Sprought Asset Management joined the Toronto Stock Exchange in June.
Speaker Change: In June , Paladin Energy, a Western Australia-based Uranium producer, announced the $1.14B acquisition of Fission Uranium Corp. and announced its intention to list on the TSX. This deal is expected to close in September of this year.
Speaker Change: The first half of the year also featured positive signs in the technology sector. Overall financings were $417 million, which is a 228% increase from the first half of last year.
Speaker Change: Some of the new listing highlights include a diverse range of senior and junior companies.
Speaker Change: Sprott Physical Copper Trust, $151 million IPO by Sprott Asset Management, joined the Toronto Stock Exchange in June .
John Mckenzie: And nation's royalty corporation lists on TSX Venture in June. This is the largest majority indigenous owned public company in the world, specializing in indigenous owned royalties and revenue streams, and precious metals, and critical minerals, oil and gas, and renewable energy. And we continue to make important progress in expanding our listing franchise beyond Canada, with now over 230 international companies calling TSX or TSX Venture home. Our team is promoting the benefits of our unique two-tier ecosystem around the world, and we've built a well-defined pipeline of private companies that we are nurturing and preparing for our markets.
Speaker Change: And Nations Royalty Corporation listed on TSX Venture in June . This is the largest majority Indigenous-owned public company in the world, specializing in Indigenous-owned royalties and revenue streams in precious metals and critical minerals, oil and gas, and renewable energy.
Jaeme: And we continue to make important progress in expanding our listing franchise beyond Canada. Our team is promoting the benefits of our unique two-tiered ecosystem around the world, and we've built a well-defined pipeline of private companies that we are nurturing and preparing for our market. And looking beyond the corporates, it was a very strong first half of the year for exchange-traded funds, with 67 new ETFs from 18 different providers listing on the TSX.
Speaker Change: And we continue to make important progress in expanding our listing franchise beyond Canada, with now over 230 international companies calling TSX or TSX Venture home.
Speaker Change: Our team is promoting the benefits of our unique two-tiered ecosystem around the world, and we've built a well-defined pipeline of private companies that we are nurturing and preparing for our markets.
John Mckenzie: It's part of our global growth plan, and 55% of the companies in our pipeline are international. Roughly 60% are technology companies. Recent new international entrants to a market include AugMegaMetals, an ASX-listed mining company which recently added a TSX Venture listing to raise its profile in North America and expand its access to capital. And Shikane Capital II, a CPC or capital pool company that completed an IPO on the TSX Venture Exchange. Shikane is a unique partnership between a Chicago deal maker and Forefront Capital, an established Canadian CPC group.
Speaker Change: It's part of our global growth plan, and 55% of the companies in our pipeline are international, and roughly 60% are technology companies.
Speaker Change: Recent new international entrants to our market include AugMega Metals, an ASX-listed mining company which recently added a TSX Venture listing to raise its profile in North America and expand its access to capital.
Speaker Change: And Chicane Capital II, a CPC or capital pool company that completed an IPO on the TSX Venture Exchange. Chicane is a unique partnership between a Chicago dealmaker and Forefront Capital, an established Canadian CPC group.
John Mckenzie: And looking beyond the corporates, it was a very strong first half of the year for exchange traded funds, with 67 new ETFs from 18 different providers listing on the TSX, from thematics to factors and commodities to income-oriented funds. And with the addition of TMX-Vetify, we have bolstered our ability to service the needs of the industry with a new suite of solutions, including digital distribution and profile services. TMX is more embedded and invested in the enduring success of the ETF industry than ever. Now revenue from our GSIA segment in the first half of 2024 increased 44% from 2023, or 10% if you exclude TMX-Vetify.
Speaker Change: And looking beyond the corporates, it was a very strong first half of the year for exchange-traded funds, with 67 new ETFs from 18 different providers listing on the TSX, from thematics to factors and commodities to income-oriented funds.
Speaker Change: And with the addition of TMX Vetify, we have bolstered our ability to service the needs of the industry with a new suite of solutions, including digital distribution and profile services.
Speaker Change: TMX is more embedded and invested in the enduring success of the ETF industry than ever.
Speaker Change: Now, revenue from our GSIA segment in the first half of 2024 increased 44% from 2023, or 10% if you exclude TMX Vetify.
John Mckenzie: TMX-Vetify's revenue was 24% higher in US dollars compared to the same period last year prior to acquisition. And year-over-year growth was primarily driven by higher indexing revenue, reflecting organic growth in assets under management, and revenue from your global Global and EQM indices, which were acquired in 2023. TMX-Vetify revenue also reported higher revenues related to events, which included their flagship annual exchange conference in February.
Speaker Change: TMX Vetify's revenue was 24% higher in U.S. dollars compared to the same period last year prior to acquisition.
Jaeme: Year-over-year growth was primarily driven by higher indexing revenue, reflecting organic growth in assets under management and revenue from RoboGlobal and EQM indices, which were acquired in 2023. TMX Vetify also reported higher revenues related to events, which included their flagship annual exchange conference in February.
Speaker Change: And year-over-year growth was primarily driven by higher indexing revenue, reflecting organic growth in assets under management and revenue from RoboGlobal and EQM indices, which were acquired in 2023.
Speaker Change: TMX Vetify Revenue also reported higher revenues related to events, which included their flagship annual exchange conference in February .
John Mckenzie: From the announcement of the deal late last year, we've been clear in framing how the addition of TMX-Vetify accelerates TMX's strategic financial and transformational objectives. Increasing the proportion of revenue derived from recurring sources, which total 55% in the first half compared to 53% last year, adding to our fastest growing business area, and increasing our global footprint, with 49% of TMX's total first half revenue derived from outside of Canada from 41% in 2023. But the most exciting prospect of all is what it means for our clients. TMX verifies strengths and sorbility to serve the needs of the indexing in the ETF community.
Jaeme: From the announcement of the deal late last year, we've been clear in framing how the addition of TMXVetify accelerates TMX's strategic financial and transformational objectives. But the most exciting prospect of all is what it means for our clients. Then, supporting the ETF launch with data analytics and campaigns through our various web properties, webcasts, and symposia. And since the launch, TMX Vetify helps support product growth, providing sales lead lists for asset managers using our digital distribution tools, digital marketing, and continued product awareness and education through the exchange conference.
Speaker Change: From the announcement of the deal late last year, we've been clear in framing how the addition of TMX ZFI accelerates TMX's strategic financial and transformational objectives.
Speaker Change: Increasing the proportion of revenue derived from recurring sources.
Speaker Change: which totaled 55% in the first half compared to 53% last year.
Speaker Change: Adding to our fastest growing business area and increasing our global footprint with 49% of TMX's total first half revenue derived from outside of Canada up from 41% in 2023.
Speaker Change: But the most exciting prospect of all is what it means for our clients.
Speaker Change: TMX VETIFY strengthens our ability to serve the needs of the indexing and the ETF community, an important and growing client base here in Canada and around the world.
John Mckenzie: An important and growing client-based era here in Canada and around the world. And TMX verifies supports clients throughout the entire ETF product life cycle, using digital properties and tools to gather user behavior, intelligence to inform ETF-ish work and client needs, applying the expertise of our index team in various sectors and thematics to assist with index design and prototyping, then supporting the ETF launch with data analytics and campaigns through our various web properties, webcasts, and symposia. And from the launch, TMX Vetify helps support product growth, providing sales lead lists for asset managers using our digital distribution tools, digital marketing, and continued product awareness and education of the exchange conference.
Speaker Change: And TMXVetify supports clients throughout the entire ETF product lifecycle, using digital properties and tools to gather user behavior, intelligence to inform ETF issuer and client needs.
Speaker Change: Applying the expertise of our index team in various sectors and thematics to assist with index design and prototyping.
Speaker Change: Then supporting the ETF launch with data analytics and campaigns through our various web properties, webcasts and symposia.
Speaker Change: And from the launch, TMXVetify helps support product growth, providing sales lead lists for asset managers using our digital distribution tools, digital marketing, and continued product awareness and education of the Exchange Conference.
John Mckenzie: Now turning to another important part of GSA and a key driver, rent or price growth, TMX Trayport continued to deliver strong results through the first half of the year. Revenue grew 19%, compared to the first half of last year, or 16% in pound sterling, driven by a 24% increase in total licenses, annual price adjustments, and higher revenue from data analytics and other trade to products. TMX Trayport's powerful core dual network continues to grow, augmenting tools, insights, and analytic capabilities to enhance the overall experience for the energy market client participants. We have over 9,000 licensees, the end user applications that utilize tire technology, and over 26,000 connections to venues.
Speaker Change: Now turning to another important part of GSA and a key driver of enterprise growth, TMX Trayport continued to deliver strong results through the first half of the year.
Jaeme: Revenue grew 19% compared to the first half of last year, or 16% in pounds sterling, driven by a 24% increase in total licenses, annual price adjustments, and higher revenue from data analytics and other traded products. In data and analytics, clients are increasingly seeking out data analytics to support their businesses.
Speaker Change: Revenue grew 19% compared to the first half of last year, or 16% in pound sterling, driven by a 24% increase in total licenses, annual price adjustments, and higher revenue from data analytics and other traded products.
Speaker Change: TMX Trayford's powerful CoreJUUL network continues to grow, augmenting tools, insights, and analytic capabilities to enhance the overall experience for the energy market client participants.
Speaker Change: We have over 9,000 licensees, the end-user applications that utilize TIR technology, and over 26,000 connections to venues.
John Mckenzie: Now getting beyond that core, TMX Trayport is pursuing opportunities to leverage its proven expertise in modernizing markets to new asset classes and new geographies, aligning our strategy to capitalize on emerging trends, including new markets. TMX Trayport's hybrid solution is ideal for markets looking to evolve from paper and telephone, including the Japanese power market. We estimate that this market to be the size of the German and French markets combined, where over 30% of trade licensees are active. In data analytics, clients are increasingly seeking out data analytics to support their businesses. The acquisitions of Trade Signal and Visit Tech advanced the strategy for us, and today our data analytics segment represents over 11% of Trayport revenue and is fast growing.
Speaker Change: Now, getting beyond that core, TMX Trade Board is pursuing opportunities to leverage its proven expertise in modernizing markets to new asset classes and new geographies.
Speaker Change: Aligning our strategy to capitalize on emerging trends, including new markets,
Speaker Change: TMX Tradeport's hybrid solution is ideal for markets looking to evolve from paper and telephone, including the Japanese power market. We estimate this market to be the size of the German and French markets combined, where over 30% of Tradeport's licensees are active.
Jaeme: The acquisitions of TradeSignal and Visotech advanced the strategy for us, and today, our data and analytics segment represents over 11% of trade port revenue and is fast growing. And on technology, TMX Trayport continues to invest in core technology, including a major architecture project over the next two years that will support the long-term growth of our subscriber base in both core and new markets. Revenue from CDCC increased 22% due to the positive impact of pricing changes which came into effect on January 2024 and higher clearing and repo volume.
Speaker Change: In data and analytics, clients are increasingly seeking out data analytics to support their businesses. The acquisitions of TradeSignal and Visotech advanced the strategy for us and today our data and analytics segment represents over 11% of trade port revenue and fast growing.
John Mckenzie: And on technology, TMX Trayport continues to invest in the core technology, including a major architecture project over the next two years that will support the long-term growth of our subscriber base in both core and new markets.
Speaker Change: And on technology, TMX Trayport continues to invest in the core technology, including a major architecture project over the next two years that will support the long-term growth of our subscriber base in both core and new markets.
John Mckenzie: Now turning to derivatives, drew to trading and clearing revenue, excluding box increased 8% year by year. This increase was driven by 1% higher revenue from MX due to an 8% increase in overall volume in the first half of 2024, somewhat offset, though, by product mix and introductory incentives. Revenue from CDC increased 22% due to the positive impact of pricing changes, which came into effect on January 2024, and higher clearing and repo volume. Investors continue to turn to our derivative markets in the first six months of the year, resulting in higher activity and increased liquidity across many of MX's key products.
Speaker Change: Now turning to derivatives, derivatives trading and clearing revenue, excluding box, increased 8% year-over-year.
Speaker Change: This increase was driven by a 1% higher revenue from MX due to an 8% increase in overall volume in the first half of 2024, somewhat offset though by product mix and introductory incentives.
Speaker Change: Revenue from CDCC increased 22% due to the positive impact of pricing changes which came into effect on January 2024 and higher clearing and repo volumes.
Jaeme: Investors continue to turn to our derivative markets in the first six months of the year, resulting in higher activity and increased liquidity across many of MX's key products. Trading in the CRA continued to gain momentum, reaching nearly 1 million contracts and open interest mid-year and with growing trading activity and extended hours.
Speaker Change: Investors continue to turn to our derivative markets in the first six months of the year, resulting in higher activity and increased liquidity across many of MX's key products.
John Mckenzie: Some of the key MX year-to-year highlights include a 23% higher volume in interest rate products compared to last year, 5% growth in ETF options, 5% higher volumes in single share futures, and a record period for our Government of Canada bond future products. Specifically, volumes in our two-year, five-year, and 10-year contracts grew by 65%, 31%, and 13%, respectively, compared to the first half of last year. And in addition to all this, we had a 17% increase in overall open interest at June 30th compared to the same time last year.
Speaker Change: Some of the key MX year-over-year highlights include a 23% higher volume in interest rate products compared to last year, 5% growth in ETF options.
Speaker Change: 5% Higher Volumes in Single Share Futures.
Speaker Change: In a record period for our Government of Canada bond future products, specifically volumes in our 2, our 5 and our 10-year contracts grew by 65%, 31% and 13% respectively compared to the first half of last year.
Speaker Change: And in addition to all this, we had a 17% increase in overall operant interest on June 30th compared to the same time last year.
John Mckenzie: The first half of the year also marked the end of the seedore era, and the industry transition to the Canadian overnight repo rate average or Cora. The back contract was retired in June and the new three-month Cora futures contract or CRA is now established as the product of reference for short-term interest rate derivatives management. Trading in the CRA continued to gain momentum, reaching nearly one million contracts in open interest mid-year and with growing trading activity and extended hours.
Speaker Change: The first half of the year also marked the end of the CDOR era and the industry transition to the Canadian Overnight Reporate Average, or CORA.
Speaker Change: The BACS contract was retired in June and the new 3-month CORA Futures Contract, or CRA, is now established as the product of reference for short-term interest rate derivatives management.
Speaker Change: Trading in the CRA continued to gain momentum, reaching nearly 1 million contracts in open interest mid-year and with growing trading activity and extended hours.
John Mckenzie: 2024 has been a tremendous year also for TMX's post-trade business, CDS and CDC. And this has been marked by a significant progress in several key initiatives in partnership with our stakeholders across Canada's capital markets and exciting new products launched in the service to service the evolving needs of our clients. On April 30th, we launched the Canadian Collateral Management Service, or CCMS, a collaboration with Clearstream that is modernizing Canada's funding markets and providing the first tri-party repo capability in the country. Our teams continue to work to innovate and push the evolution of markets to create efficiencies and competitive advantage for our clients.
Jaeme: 2024 has been a tremendous year also for TMX's post-trade business, and this has been marked by significant progress on several key initiatives in partnership with our stakeholders across Canada's capital markets and exciting new products launched in the service to meet the evolving needs of our clients. Our teams continue to work to innovate and push the evolution of markets to create efficiencies and competitive advantage for our clients. On June 10th, the CDCC announced the launch of SGC Notes, an innovative money market instrument designed to meet institutional investor demand for bankers' acceptances following the CDOR cessation on June 24th.
Speaker Change: 2024 has been a tremendous year also for TMX's post-trade business, CDS and CDCC, and this has been marked by significant progress in several key initiatives in partnership with our stakeholders across Canada's capital markets and exciting new products launched in the service to service the evolving needs of our clients.
Speaker Change: On April 30th, we launched the Canadian Collateral Management Service, or CCMS, a collaboration with Clearstream that is modernizing Canada's funding markets and providing the first tri-party repo capability in the country.
Speaker Change: Our teams continue to work to innovate and push the evolution of markets to create efficiencies and competitive advantage for our clients.
John Mckenzie: On June 10th, CDC announced the launch of SGC Notes, an innovative money market instrument designed to meet the institutional investor demand for bankers' acceptances following the seedore cessation on June 24th. SGC Notes are linked to the same highly rated Canadian bank credit exposures as BA's, but are secured with a basket of high-quality debt securities. The program is in its early days, a unique in the world, an asset-backed service offered through a regulated central counterparty, clearinghouse, and we are excited about the prospects of the future expansion into other marketplaces.
Speaker Change: On June 10th, the CDCC announced the launch of SGC Notes, an innovative money market instrument designed to meet the institutional investor demand for bankers' acceptances following the CDOR cessation on June 24th.
Speaker Change: SGC notes are linked to the same highly rated Canadian bank credit exposures as BAs, but are secured with a basket of high quality debt securities.
Jaeme: The program is in its early days, but it is unique in the world, an asset-backed service offered through a regulated central counterparty clearinghouse, and we are excited about the prospects of its future expansion into other marketplaces. As with so many of TMX's efforts to make markets better, transformational steps of this magnitude cannot be taken alone, and we are grateful for the continued partnership of our entire stakeholder community. Important milestone achievements and continued momentum in our Key Growth Initiative, both when we include and exclude TMX Verify. This is truly a remarkable achievement for our team, which continues to punch well above its weight, delivering strong and repeatable results.
Speaker Change: The program is in its early days, but unique in the world, an asset-backed service offered through a regulated central counterparty, Clearinghouse, and we are excited about the prospects of the future expansion into other marketplaces.
John Mckenzie: Now, I'd like to take a moment to thank our client participants for the collaboration, particularly closely with our post-trade team, to ensure that we get a critical milestone in May. And this was the successful transition of Canada's market to T-plus-1 settlement, the reduction of standard settlement from two days to one day. As with so many of TMX's efforts to make markets better, transformational steps of this magnitude cannot be taken alone, and we are grateful for the continued partnership of our entire stakeholder community.
Speaker Change: Now, I'd like to take a moment to thank our client participants for the collaboration, particularly closely with us and our post-trade team, to ensure that we hit a critical milestone in May. And this was the successful transition of Canada's market to T plus one settlement, the reduction of standard settlement from two days to one day.
Speaker Change: As with so many of TMX's efforts to make markets better, transformational steps of this magnitude cannot be taken alone, and we are grateful for the continued partnership of our entire stakeholder community.
John Mckenzie: Similarly, as we move forward, our post-trade modernization program is on track for implementation, pending industry readiness, and we began the initial participant testing phase in mid-July, and we'll look to go live in the first quarter of 2025.
Speaker Change: Similarly, as we move forward, our post-trade modernization program is on track for implementation, pending industry readiness, and we began the initial participant testing phase in mid-July and will look to go live in the first quarter of 2025.
John Mckenzie: Now, in closing, TMX's first half of the year was marked by strong performances across the business. Thomas, important milestone achievements and continuing momentum in our key growth initiatives. It is a testament to the intrinsic power of the enterprise and the benefits of staying true to our long-term strategy. And over time, TMX was sustained growth through dramatic shifts in market dynamics, and we've risen to every challenge. And now we are poised and determined to pick up the pace to accelerate that growth. We do have the right model.
Speaker Change: Now in closing, TMX's first half of the year was marked by strong performances across the business, important milestone achievements, and continued momentum in our key growth initiatives.
Speaker Change: It is a testament to the intrinsic power of the enterprise and the benefits of staying true to our long-term strategy.
Speaker Change: And over time, TMX has sustained growth through dramatic shifts in market dynamics, and we've risen to every challenge. And now we are poised and determined to pick up the pace to accelerate that growth.
John Mckenzie: We've got the right strategy, the financial capacity, the right technology, and most importantly, the right people to get it done.
Speaker Change: We do have the right model. We've got the right strategy, the financial capacity, the right technology, and most importantly, the right people to get it done. And with that, I'll pass the call over to David. Thank you.
David Arnold: And with that, I'll pass the call over to David. Thank you.
David Arnold: Thank you, John, and good morning, everyone. We are pleased to report another strong quarter, setting a record for revenue, both when we include and exclude TMX benefit. This is truly a remarkable achievement for our team, which continues to punch well above our weight, delivering strong and repeatable results. The strong results in the second quarter, reflected robust trading volumes in equity and derivatives. And as John mentioned, towards the end of Q2, we saw important signs of recovery and capital raising activity. Now, while we are not yet back to our peak levels, these signs are both positive and reassuring that capital raising may be on the way back.
David Arnold: Thank you, John , and good morning, everyone.
David Arnold: We are pleased to report another strong quarter, setting a record for revenue.
David Arnold: Both when we include and exclude TMX Verify. This is truly a remarkable achievement for our team, which continues to punch well above our weight, delivering strong and repeatable results.
John: The strong results in the second quarter reflected robust trading volumes in equity and derivatives, and as John mentioned, towards the end of Q2, we saw important signs of recovery in capital-raising activity. But today is all about speaking about the second quarter that we closed a month ago. So let me turn to that.
Speaker Change: The strong results in the second quarter reflected robust trading volumes in equity and derivatives, and as John mentioned, towards the end of Q2, we saw important signs of recovery in capital-raising activity.
John: Now, while we are not yet back to our peak levels, these signs are both positive and reassuring that capital raising may be on the way back.
David Arnold: Our team is already hard at work on our Q3 opportunities and pipeline. But today is all about speaking to the second quarter that we closed a month ago. So let me turn to that. Our revenue of 367.1 million increased 20% compared with Q2 last year, and organic revenue grew 9% over the same period. Both of these figures are at the higher end of our long-term financial objectives, and we're incredibly proud of what we have achieved this quarter. Turning to our earnings per share, while we reported an increase of 3% in our diluted earnings per share, our adjusted diluted earnings per share grew by 13%.
Speaker Change: Our team is already hard at work on our Q3 opportunities and pipeline. But today is all about speaking to the second quarter that we closed a month ago. So let me turn to that.
David: A revenue of $367.1 million increased 20% compared with Q2 last year, and organic revenue grew 9% over the same period. Turning now to our businesses, I will start with the segments that saw the largest year-over-year increase. The revenue increase in Q2 also reflected our annual price adjustment.
Speaker Change: Our revenue of $367.1 million increased 20% compared with Q2 last year, and organic revenue grew 9% over the same period.
Speaker Change: Both of these figures are at the higher end of our long-term financial objectives, and we're incredibly proud of what we have achieved this quarter.
Speaker Change: Turning to our Earnings Per Share, while we reported an increase of 3% in our Diluted Earnings Per Share, our Adjusted Diluted Earnings Per Share grew by 13%.
David Arnold: Driven by 17.1 million in higher income from operations compared to Q2 of last year, partially offset by higher net finance costs related to the acquisition of TMX Benefit. Now, while our net finance costs a higher year of a year, it is simply due to our higher than normal debt levels as we funded the TMX Benefit acquisition at the beginning of the year. While I will touch on it later, I thought it important to set up this upfront that despite higher debt levels, we have secured market-competitive rates on our long-term funding, which are well ahead of our internal forecasts to fund our acquisition of TMX benefit.
Speaker Change: driven by $17.1 million in higher income from operations compared to Q2 of last year, partially offset by higher net finance costs related to the acquisition of TMX Betafine.
Speaker Change: Now, while our net finance costs are higher year-over-year, that is simply due to our higher-than-normal debt levels as we funded the TMX Verify acquisition at the beginning of the year.
Speaker Change: While I will touch on it later, I thought it important to set this up front that despite higher debt levels, we have secured market competitive rates on our long-term funding, which are well ahead of our internal forecasts to fund our acquisition of TMX Verify.
David Arnold: Turning now to our businesses, I will start with the segments that saw the largest year-over-year increase. Revenue in our global solutions insights in an analytic segment grew by 40% this quarter, reflecting 32 million for the inclusion of TMX benefit. Excluding TMX benefit, revenue grew by 9% over the same period, driven mostly by growth from TMX airport. Revenue in TMX benefit was up 18% in Canadian dollars or 15% higher in US dollars in the second quarter compared to the same period last year prior to the acquisition. The 15% increase in US dollars was driven by higher indexing revenue, reflecting organic growth in asset-funded management and revenue contribution from the 2023 acquisition of EQM Indices.
Speaker Change: Turning now to our businesses, I will start with the segments that saw the largest year-over-year increase.
Speaker Change: Revenue in our Global Solutions, Insights and Analytics segment grew by 40% this quarter, reflecting $32 million for the inclusion of TMX Verify. Excluding TMX Verify, revenue grew by 9% over the same period, driven mostly by growth from TMX Crateport.
Speaker Change: Revenue in TMX Verify was up 18% in Canadian dollars, or 15% higher in U.S. dollars in the second quarter, compared to the same period last year prior to the acquisition.
Speaker Change: The 15% increase in U.S. dollars was driven by higher indexing revenue, reflecting organic growth in assets under management and revenue contribution from the 2023 acquisition of EQM indices.
David Arnold: As well as higher analytics revenue, somewhat offset by lower revenue from digital distribution. TMX verifies assets under management to continue to show robust growth, ending the second quarter at $35.9 billion US dollars. Revenue from TMX Trayport was at 18% in Canadian dollars, or 16% in town sterling this quarter, primarily driven by a 24% increase in total licensees, which represent the count of unique chargeable licensees of core TMX Trayport products across our customer segments, including traders, brokers, and exchanges. The revenue increase in Q2 also reflected our annual price adjustments, incremental revenue from our premium product offerings, and, most notably, data analytics and other trader products, and a favorable effects impact of 1.3 million compared to last year.
Speaker Change: as well as higher analytics revenue, somewhat offset by lower revenue from digital distribution.
Speaker Change: TMX verifies assets under management continue to show robust growth ending the second quarter at US$35.9 billion.
Speaker Change: Revenue from TMX Trayport was up 18% in Canadian Dollars, or 16% in Pound Sterling this quarter.
Speaker Change: primarily driven by a 24% increase in total licensees, which represent the count of unique, chargeable licensees of core TMX trade port products across our customer segments, including traders, brokers, and exchanges.
Speaker Change: The revenue increase in Q2 also reflected our annual price adjustments, incremental revenue from our premium product offerings, and most notably data analytics and other trader products and a favorable FX impact of $1.3 million compared to last year.
David Arnold: TMX Trayport ended the quarter with an annual recurring revenue of $220.1 million Canadian dollars, or 127.2 in town sterling, which represents the average recurring revenue for the quarter on an annualized basis. Turning to TMX data links, revenue in the business grew by 2%, reflecting higher revenue from benchmarking indices driven by the new term core of benchmark, as well as higher revenue from data feeds and co-location. In addition, it was a positive impact from the price adjustments it took place earlier this year, and a favorable effects impact of $400,000 due to a stronger US dollar. Somewhat offsetting the growth was lower subscriber and usage-based revenue due to a client-specific reduction in an enterprise agreement renewal.
Speaker Change: TMX Trayport ended the quarter with an annual recurring revenue of CAD$220.1M, or £127.2 sterling, which represents the average recurring revenue for the quarter on an annualized basis.
Speaker Change: Turning to TMX data links, revenue in the business grew by 2%, reflecting higher revenue from benchmarking indices, driven by the new term Quora benchmark, as well as higher revenue from data feeds and co-location.
Speaker Change: In addition, there was a positive impact from the price adjustments that took place earlier this year, and a favorable FX impact of $400,000 due to a stronger US dollar.
Speaker Change: Somewhat offsetting the growth was lower subscriber and usage-based revenue due to a client-specific reduction in an enterprise agreement renewal.
David Arnold: Derivatives trading and clearing revenue, excluding box, had very strong results in the quarter, which was up 20%, primarily driven by a 21% increase in Montreal Exchange and CDCC volumes. The revenue increase also benefited from the impact of pricing changes, which came into effect in January of this year. Somewhat offset by a favorable product mix, partially due to lower volumes from banks, which was sunset in June following the transition to Cora. We are very pleased with the adoption of the Cora futures product, which have an average daily volume of over 108,000 contracts this year and continue to grow.
David: Derivatives Trading and Clearing revenue, excluding BOXX, had very strong results in the quarter, which was up 20%, primarily driven by a 21% increase in Montreal Exchange and CDCC volume. In addition, Box's equity options market share was 7% this quarter, a 1% increase from Q2 of last year. In our equity and fixed income trading and clearing segment, revenue was up 14% in the quarter, driven by an increase of 18% from equity and fixed income trading and 10% from our CDS business.
Speaker Change: Derivatives Trading and Clearing Revenue, excluding BOXX, had very strong results in the quarter, which was up 20%, primarily driven by a 21% increase in Montreal Exchange and CDCC volumes.
Speaker Change: The revenue increase also benefited from the impact of pricing changes which came into effect in January of this year.
Speaker Change: Somewhat offset by a favorable product mix partially due to lower volumes from BAX, which was sunset in June following the transition to Cora. We are very pleased with the adoption of the Cora Futures product.
Speaker Change: Which have an average daily volume of over 108,000 contracts this year and continue to grow.
David Arnold: Looking ahead, we anticipate an increase in the rate per contract, all else being equal, as we conclude the market-making incentives related to the five-year Government of Canada bond futures at the end of June. Revenue from box increased 29% this quarter, driven by higher volumes, which increased 20% from Q2 of last year, as well as higher rate per contract, as well as a higher rate per contract reflecting a favorable product mix. In addition, boxes' equity options market share was 7% this quarter, a 1% increase from Q2 of last year.
Speaker Change: Looking ahead, we anticipate an increase in the rate per contract, all else being equal, as we conclude the market-making incentives related to the five-year Government of Canada bond futures at the end of June .
Speaker Change: Revenue from Box increased 29% this quarter, driven by higher volumes, which increased 20% from Q2 of last year, as well as a higher rate per contract reflecting a favourable product mix.
Speaker Change: In addition, Box's equity options market share was 7% this quarter, a 1% increase from Q2 of last year.
David Arnold: In our equities and fixed income trading and clearing segment, revenue is up 14% in the quarter, driven by an increase of 18% from equities and fixed income trading and 10% from our CDS business. The revenue increase in our equities and fixed income trading business reflected an 18% increase in the overall volumes of securities paid on our equities marketplace. Trading volumes were up across all of our marketplaces, namely 15% on TSX, 28% on TSX Venture Exchange, and 10% on Alpha Exchange. Our combined equities trading market share for TSX and TSX VE listed issues was approximately 64% this quarter, down 2% from Q2 of last year, but notably at 1% sequentially versus Q1 of this year.
Speaker Change: In our equities and fixed income trading and clearing segment, revenue is up 14% in the quarter, driven by an increase of 18% from equities and fixed income trading, and 10% from our CDS business.
Speaker Change: The revenue increase in our equities and fixed income trading business reflected an 18% increase in the overall volumes of securities traded on our equities marketplaces.
David: Trading volumes were up across all of our marketplaces, namely 15% on TSX, 28% on TSX Venture Exchange, and 10% on Alpha Exchange. Our combined equities trading market share for TSX and TSXV listed issues was approximately 64% this quarter, down 2% from Q2 of last year, but notably up 1% sequentially versus Q1 of this year. Equity trading activity showed important signs of recovery this quarter, with trading volume and value growing by double digits compared to last year.
Speaker Change: Trading volumes were up across all of our marketplaces, namely 15% on TSX, 28% on TSX Venture Exchange, and 10% on Alpha Exchange.
Speaker Change: Our combined equities trading market share for TSX and TSX-V listed issues was approximately 64% this quarter, down 2% from Q2 of last year, but notably up 1% sequentially versus Q1 of this year.
David Arnold: The equity trading activity showed important signs of recovery this quarter, with trading volume and value growing in double digits compared to last year. On the fixed income trading side, revenue increased versus Q2 a year ago, primarily reflecting increased activity in Government of Canada bonds. The CDS double digit revenue increase was driven by higher issuer event management fees, higher interest income on short term deposits, increased eligibility assessment services, and higher exchange-created volumes. This was somewhat offset by higher rebates.
Speaker Change: The equity trading activity showed important signs of recovery this quarter, with trading volume and value growing in double digits compared to last year.
David: On the fixed income trading side, revenue increased versus Q2 a year ago, primarily reflecting increased activity in Government of Canada bonds. However, this was somewhat offset by higher rebates. Turning now to Capital Formation. Revenue from Box increased 7%, driven by a 4% increase in volumes, as well as a higher rate per contract, reflecting a favorable product. Operating expenses in Q2 were down approximately $1 million from the first quarter, primarily reflecting decreases of $7.2 million related to TMX Verify, largely due to the annual exchange conference in Q1, as well as lower acquisition and related expenses of $6 million.
Speaker Change: On the fixed income trading side, revenue increased versus Q2 a year ago, primarily reflecting increased activity in Government of Canada bonds.
Speaker Change: The CDS double-digit revenue increase was driven by higher issuer event management fees, higher interest income on short-term deposits, increased eligibility assessment services, and higher exchange-traded volumes. This was somewhat offset by higher rebates.
David Arnold: Turning to capital formation. Revenue in the segment declined 4% in the quarter, primarily due to lower revenue from TSX Trust. Now, as you'll recall, in the second quarter of last year, we had record TSX Trust revenue driven by significantly higher net interest income, reflecting above-average corporate actions activity in that quarter. And despite a strong quarter this year, there was a decline year over year compared to that high watermark. The sustaining fees and initial listing fees decreased slightly compared to last year, due to lower activity on TSX Venture Exchange, partially offset by increases on TSX. Despite additional listing fees remaining flat year over year, due to lower average fees, we had strong financing activity this quarter, with over 7.7 billion dollars raised on our exchanges, and a 9% higher number of trends in actions compared to last year.
Speaker Change: Turning to Capital Formation.
Speaker Change: Revenue in the segment declined 4% in the quarter, primarily due to lower revenue from TSX Trust.
Speaker Change: Now, as you'll recall, in the second quarter of last year, we had record TSX trust revenue, driven by significantly higher net interest income, reflecting above-average corporate actions activity in that quarter.
Speaker Change: And despite a strong quarter this year, there was a decline year over year compared to that high watermark.
Speaker Change: The sustaining fees and initial listing fees decreased slightly compared to last year due to lower activity on TSX Venture Exchange, partially offset by increases on TSX.
Speaker Change: Despite additional listing fees remaining flat year-over-year due to lower average fees, we had strong financing activity this quarter with over $7.7 billion raised on our exchanges and 9% higher number of transactions compared to last year.
David Arnold: Turning now to our expenses. Operating expenses or operating costs in the second quarter increased by 27% compared to Q2 of last year on a reported basis, driven by the following items. First, an additional 28.7 million relating to the inclusion of TMX Verify, which is now part of the group results, namely 12.8 million of operating expenses relating to TMX Verify. 11.9 million relating to the amortization of acquired TMX Verify intangibles, and finally 4 million of integration costs. So, after adjusting for these, a quarter of a quarter increase would be approximately 10%. Second, we incurred 1.7 million of expenses in the second quarter related to our US expansion initiative.
David: These decreases were partially offset by higher box-related expenses of $2.5 million, higher integration costs of $2.1 million, and increases in Q2 related to employee performance incentive plan costs, IT operating costs, and revenue-related expenses. You may recall from our Q1 remarks that we repaid the Term A credit facility relating to the TMX Verify transaction in full with the proceeds of our Series G, H, and I debentures back in February. Proceeds from this debenture were mainly used for the full repayment of our Term B and C facilities.
Speaker Change: Turning now to our expenses.
Speaker Change: Operating expenses or operating costs in the second quarter increased by 27% compared to Q2 of last year on a reported basis, driven by the following items. First, an additional $28.7 million relating to the inclusion of TMX Verify, which is now part of the Group Results.
Speaker Change: Namely, $12.8 million of operating expenses relating to TMX Verify, $11.9 million relating to the amortization of acquired TMX Verify intangibles, and finally $4 million of integration costs.
Speaker Change: So, after adjusting for these, our quarter-over-quarter increase would be approximately 10%.
Speaker Change: Second, we incurred $1.7 million of expenses in the second quarter related to our U.S. expansion initiative. And lastly, there was a $2.3 million increase in BOXX's market regulatory-related expenses.
David Arnold: And lastly, there was a 2.3 million increase in boxes, boxes, market regulatory related expenses. So excluding these items, our operating expenses increased by approximately 7% on a comparable basis, reflecting increased employee performance incentive plan costs, largely driven by the increase in our share price, and higher revenue-related expenses. Somewhat offsetting the increases, Q2 of last year included 700,000 of higher severance and 300,000 related to Sigma Light.
Speaker Change: So excluding these items, our operating expenses increased by approximately 7% on a comparable basis, reflecting increased employee performance incentive plan costs, largely driven by the increase in our share price.
Speaker Change: And, higher revenue related expenses.
Speaker Change: So excluding these items, second quarter operating expenses increased approximately 4% compared to last year. Somewhat offsetting the increases, Q2 of last year included $700,000 of higher severance and $300,000 related to SigmaLogic.
David Arnold: Now looking at our results sequentially, revenue increased 21.2 million from the first to the second quarter, reflecting higher revenue across all of our key operating segments with the exception of global solutions in science and analytics, which included revenue from TMX Vetifies annual exchange conference in Q1 of 24. And, as I noted last quarter, this will be an annual variance when comparing Q2 to Q1 and Q1 to Q4. Capital formation revenue increased sequentially from early, reflecting higher additional listings revenue, to more transactions and more dollars raised on exchanges, and higher transfer agency and net interest income revenue in TSX Trust.
Speaker Change: Now looking at our results sequentially.
Speaker Change: Revenue increased $21.2 million from the 1st to the 2nd quarter.
Speaker Change: Reflecting higher revenue across all of our key operating segments, with the exception of global solutions, insights, and analytics.
Speaker Change: which included revenue from TMX Vetify's annual exchange conference in Q1 of 24. And as I noted last quarter, this will be an annual variance when comparing Q2 to Q1 and Q1 to Q4.
Speaker Change: Capital formation revenue increased sequentially, primarily reflecting higher additional listings revenue to more transactions and more dollars raised on our exchanges, and higher transfer agency and net interest income revenue in TSX Trust.
David Arnold: Equities and derivatives trading volume grew by 10% and 11% respectively, which drove revenue increases in equity trading CDS. As well as derivatives trading and clearing revenue from box increased 7%, driven by a 4% increase in volumes, as well as a higher rate per contract reflecting a favorable product mix. Operating expenses in Q2 were down approximately 1 million from the first quarter, primarily reflecting decreases of 7.2 million related to TMX vetifies, largely due to the annual exchange conference in Q1, as well as lower acquisition and related expenses of 6 million. These decreases were partially or step by higher box related expenses of 2.5 million, higher integration costs of 2.1 million, and increases in Q2 related to employee performance incentive plan costs, IT operating costs, and revenue related expenses.
Speaker Change: Equities and derivatives trading volume grew by 10% and 11% respectively, which drove revenue increases in equity trading, CDS, as well as derivatives trading and clearing.
Speaker Change: Revenue from Vox increased 7%, driven by a 4% increase in volumes, as well as a higher rate per contract, reflecting a favorable product mix.
Speaker Change: Operating expenses in Q2 were down approximately $1M from the first quarter.
Speaker Change: primarily reflecting decreases of $7.2 million related to TMX Verify.
Speaker Change: Largely due to the annual exchange conference in Q1, as well as lower acquisition and related expenses of $6 million.
Speaker Change: These decreases were partially offset by higher box-related expenses of $2.5 million, higher integration costs of $2.1 million, and increases in Q2 related to employee performance incentive plan costs, IT operating costs, and revenue-related expenses.
David Arnold: Turning now to our balance sheet, you may recall from Q1 remarks that we repaid the term A credit facility relating to the TMX vetifies transaction in full with the proceeds of our series G, H, and I debentures back in February. Now, on May 24, we completed a Canadian private placement offering of 300 million in our Series G debenture. The proceeds from this debenture were mainly used for the full repayment of our Term B and C facilities. So, since we have now termed out all three credit facilities at lower rates, all things being equal, the net financing costs incurred in the second half of the year should be lower than the first half.
Speaker Change: Turning now to our balance sheet, you may recall from our Q1 remarks that we repaid the Term A credit facility relating to the TMX Verify transaction in full with the proceeds of our Series G, H and I debentures back in February .
Speaker Change: Now, on May 24th, we completed a Canadian private placement offering of $300 million in our Series J debenture.
Speaker Change: The proceeds from this debenture were mainly used for the full repayment of our Term B and C facilities.
Speaker Change: So, since we have now termed out all three credit facilities at lower rates, all things being equal, the net financing costs incurred in the second half of the year should be lower than the first half.
David Arnold: The weighted average interest rate of our total outstanding debt of $2.25 billion was approximately 4.17% as at June 30th. Now, on June 30th, our pro-former debt to adjusted EBITDA ratio was 3.2 times. We also held over 491 million in cash and marketable securities, which was 286 million in excess of the 205 million we target to retain for regulatory and related purposes. Net of excess cash, our leverage was 2.8 times. We remain well on track to deliver our deleveraging plan to return to our target range of 1.5 to 2.5 times by the end of 2025.
David: The weighted average interest rate of our total upstanding debt of $2.25 billion was approximately 4.17% as of June 30. Now, as of June 30th, our pro forma debt-to-adjusted EBITDA ratio was 3.2 times. We also held over $491 million in cash and marketable securities, which was $286 million in excess of the $205 million we target to retain for regulatory and related purposes. Net of excess cash, our leverage was 2.8 times.
Speaker Change: The weighted average interest rate of our total upstanding debt of $2.25 billion was approximately 4.17% as at June 30th.
Speaker Change: Now, on June 30th, our pro forma debt-to-adjusted EBITDA ratio was 3.2 times. We also held over $491 million in cash and marketable securities, which was $286 million in excess of the $205 million we target to retain for regulatory and related purposes.
Speaker Change: Net of excess cash, our leverage was 2.8 times.
Speaker Change: We remain well on track to deliver our deleveraging plan to return to our target range of 1.5 to 2.5 times by the end of 2025.
David Arnold: Now last night our board approved a quarterly dividend of 19 cents per common share, payable on August 30th to shareholders of record as of August 16th. In the second quarter, we will pay out 44% of our adjusted earnings per share, while our last 12 months power ratio is around 48%, which remains at the higher end of our target power ratio of 40 to 50%.
Speaker Change: Now, last night, our board approved a quarterly dividend of $0.19 per common share, payable on August 30th to shareholders of record as of August 16th.
David: In the second quarter, we will pay out 44% of our adjusted earnings per share, while our last 12 months payout ratio is around 48%, which remains at the higher end of our target payout ratio of 40 to 50%. That now concludes my formal remarks. I'd like to turn the call back to Amin for our Q&A period. Thank you, David.
Speaker Change: In the second quarter, we will pay out 44% of our adjusted earnings per share, while our last 12-month payout ratio is around 48%, which remains at the higher end of our target payout ratio of 40-50%.
David Arnold: That now concludes my formal remarks.
Amin Mousavian: I'd like to turn the call back to Ameen for our Q&A period. Thank you, David.
Speaker Change: That now concludes my formal remarks. I'd like to turn the call back to Amin for our Q&A period.
Operator: Operator, would you please outline the process for the Q&A session? Sure. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, simply press the star followed by the number one on your telephone keypad.
Operator: Operator, would you please outline the process for the Q&A session? Sure. And ladies and gentlemen, we will now begin the question-and-answer session to ask the questions. Your first question: please press a star, followed by the number two. One moment, please, for your first question.
Amin Mousavian: Thank you, David. Operator, would you please outline the process for the Q&A session?
Amin Mousavian: Sure.
Speaker Change: And ladies and gentlemen, we will now begin the question and answer session. To ask a question, simply press star followed by the number 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing any keys.
Operator: If you're using a speakerphone, please pick up your handset before pressing any keys. And to withdraw your question, please press star followed by the number two. One moment, please, for your first question. If we put aside changes in market value, in your discussions with asset managers that have transitioned to Vetify, What's the key reason? They've made this.
Speaker Change: And to withdraw your question, please press star followed by the number two. One moment please for your first question.
Etienne Ricard: And your first question comes from the line of Etienne Ricard with BMO Capital Markets. Please go ahead.
Speaker Change: And your first question comes from the line of Etienne Ricard with BMO Capital Markets. Please go ahead.
John Mckenzie: Thank you, and good morning. On the vetify, it's great to see you this closure on AUM this quarter. If we put aside changes in market values, can you please share details on your long-term expectations for net flow growth as well as the potential for market share gains from other index providers?
Etienne Ricord: Thank you and good morning. On Vedify, it's great to see new disclosure on AUM this quarter.
Etienne Ricord: If we put aside changes in market values, can you please share details on your long-term expectations for net flow growth, as well as the potential for market share gains from other index providers?
John Mckenzie: Unfortunately, we're not going to be able to break down into that detail for Etienne. I appreciate the question. We're going to continue to guide you on the overall long-term growth for the franchise, which is in the high-growth category, the highest single, low-double-digit growth rates. We're completely delivering on that right now, so what you're seeing in terms of the vetify results for the first quarter, for six months, we are exactly in line with what we were hoping to when we acquired it. And in line with the guidance that we provided. Now, as you said, in terms of the AUM, we are trying to provide more guidance that growth is a combination of both market value and inflows into those funds, as well as an expansion of the number of funds that we provide.
Speaker Change: Unfortunately, we're not going to be able to break it down into that kind of detail for you, Etienne. I appreciate the question. We're going to continue to guide you on the overall long-term growth for the franchise, which is in the high-growth category, the highest single, low double-digit growth rates. We're completely delivering on that right now. What you're seeing in terms of the Vetify results for the first
Speaker Change: Amin Mousavian, David Arnold
John Mckenzie: So we are constantly adding new funds as well. We'll think about how we provide more insight into that in terms of new funds that are underpinned by a Vetify indices. But that's what you'd expect going forward. That'll be a component of that long-term growth in terms of that high single, low-double.
Speaker Change: As well as an expansion of the number of funds that we provide, so we are constantly adding new funds as well. We'll think about how we provide more insights into that in terms of new funds that are underpinned by VETIFY indices. But that's what you should expect going forward, that'll be a component of that long-term growth in terms of that high single low double.
John Mckenzie: In your discussions with asset managers that have transitioned to Vetify, what's the key reason they've made this change? Yeah, the amazing thing is there's so many key reasons. There's a lot of different reasons, and because we have the ability to bring that kind of full suite of services that I talked about earlier, what we're able to do with asset managers with a team here at a vetify is actually work on not just areas where we can convert. So some of the new assets that are mentioned are areas where we've actually converted an index they were previously using to one that is a Vetify index, where we can actually do one that's actually more efficient, lower cost, better tracking those types of things.
Speaker Change: In your discussions with asset managers that have transitioned to Vetify, what's the key reason they've made this change?
Speaker Change: There are a lot of different reasons and because we have the ability to bring that full suite of services that I talked about earlier.
John Mckenzie: Excuse me. We can also work on ideation with the firms, with the strength of our index factory capability. We can bring a new idea to an ETF manager or build on an idea they have and then ideate it with them and look at how it compares to other benchmarks. So that's quite powerful. And then when you combine that with the intelligence we can do through our network and the distribution tools, we can bring them a range of solutions that helps bring them over. Sorry, I just had a call, so I had to go mute for a second.
Speaker Change: Shabbat Shalom.
Speaker Change: But we can also work on ideation with the firms with the strength of our index factory capability We can bring a new idea to an ETF manager or build on an idea They have and then ideate it with them and look at how it compares to other benchmarks
Unknown Executive: And then when you combine that with the intelligence we can do through our network and the distribution tools, we can bring them a range of solutions that help to bring them over. Yeah, John's just having a sip of water.
Speaker Change: Sorry, I just had a cough, so I had to go mute for a second.
John Mckenzie: Okay, all good? Yep, just John just having a sip of water.
Speaker Change: Okay, all good?
Unknown Executive: So Etienne, did that give you enough, or would you like to follow? Now, thank you. And your next question comes from the line of Benjamin Budish with Barclays. Please go ahead. Yeah, happy to.
John Mckenzie: So, Etienne, did that give you enough, or would you like to follow?
Etienne Ricard: That's great.
John Mckenzie: And on the topic of digital distribution, how's the integration between Vetiply and Dowlings going? In other words, what's the roadmap over the next year in terms of monetizing the Vetiply data? Yeah, I mean, that integration is well underway. Most of that integration is actually around the sales and distribution side, so that we can move to common sales capability with clients, and that's not just with Dowlings; we're actually trying to do so that same capability with the folks on the capital formation side that are interacting with ETF and other fund managers as well, because if we can also provide then the listing activity later on for a new fund, we actually then have an even more complete solution.
Speaker Change: Verify endowments.
Speaker Change: going? In other words, what's the road map over the next year in terms of
Speaker Change: monetizing the VEDIFY data.
Speaker Change: Yes, that integration is well underway. Most of that integration is around the sales and distribution side so that we can move to common sales capability with clients. It's not just with data links, we're actually trying to do some of that same capability with the folks on the capital formation side that are interacting with.
Speaker Change: ETF and other fund managers as well, because if we can also provide them the listing activity later on for a new fund, we actually then have an even more complete solution.
John Mckenzie: So that's all well underway. The utilization of data sets is underway as well. The creativity in the team here is looking at data sets, not just within the data links franchise, but also within our transport franchise as well. In terms of data, we can potentially utilize to build new funds there as well. And as we bring in new data sets and new geographies and funds as well, that's going to add to the things that we can do.
Speaker Change: New data sets and new geographies and funds as well, that's going to add to the things that we can do.
John Mckenzie: Great.
Etienne Ricard: Appreciate the answers. No, thank you.
Speaker Change: Great, appreciate the answers.
Benjamin Budish: And your next question comes from the line of Benjamin Buddhist with Barclays. Please go ahead.
Speaker Change: And your next question comes from the line of Benjamin Budish with Barclays, please go ahead.
David Arnold: And Benjamin, you might be on mute. Sorry about that. I certainly was. Good morning, and thank you for taking the question. I wanted to come back to Vetify for a moment. It's helpful to have the enhanced disclosure, but I was wondering if you could kind of go back and remind us about the revenue mix between fees and AUM and the other pieces. It just looks like the AUM sort of more than doubled since the beginning of '23, but the revenues are up quite a bit less than that. So just trying to understand how that all works.
David Arnold: Yeah, happy to. So, on the overall pie, first of all, the majority, more than half the revenue comes from the indexing side. So fees that would be tied to AUM, but not all products are the same. And so, depending on the product, depending on the contract, that could be a range in terms of the kind of the fee per AUM that are in that. So some of the longer held products that are really, really well established, like the ones that are midstream pipeline products, things like that, have higher rates per AUM built in them. When we're adding some new products, sometimes you're building at lower rates until they grow in, and then you can expand them over time.
Unknown Executive: So on the overall pie, first of all, the majority, more than half the revenue comes from the indexing side, so fees that would be tied to AUM. But not all products are the same. And so depending on the product, depending on the contract, that could be a range in terms of the kind of fee per AUM that is in that. So some of the longer-held products that are really, really well established, like the ones that are, you know, midstream pipeline products, things like that, have higher rates per AUM built in them. When we're adding some new products, sometimes you build them at lower rates until they grow in, and then you can expand them over time. So there is a mix there.
Speaker Change: So, on the overall pie, first of all, the majority, more than half the revenue comes from the indexing side, so fees that would be tied to AUM, but not all products are the same.
Unknown Executive: And then over time, as a product gets more strong, more dominant, and more utilized by a broader base, you can have pricing changes associated with it. So that's the way to think about it, just more than half of the revenue that's indexed in the AUM base, but within there, you've got a broad mix of things that are very kind of unique IP versus products that are kind of more the market, benchmarks that would be much lower cost, and you've got a whole range.
David Arnold: So there is a mixture there. And then, over time, as a product gets more strong, more dominant, more utilized in a broader base, you can have increasing changes associated with it. So that's the way to think about it. Just more than half of the revenue that's indexing AUM base, but within there, you've got a broad mix of things that are very kind of unique IP versus products that are kind of more kind of market benchmarks that would be much lower cost. And you've got a whole range in there.
Speaker Change: Strong, more dominant, more utilized and a broader base, you can have pricing changes associated with it.
Speaker Change: So that's the way to think about it, just more than half of the revenue that's indexed and AUM based, but within there, you've got a broad mix of things that are very kind of unique IP versus products that are kind of more kind of market benchmarks that would be much lower cost, and you've got a whole range in there.
David Arnold: Got it. And it's on the same topic. Can you, I think your constant currency growth was 15% in the quarter. What was the contribution from Robo Global and EQM? I guess Robo Global was acquired in April, so maybe that would be similar on a like-for-like, but can you quantify how much EQM would have added or how additive that would have been to that number? A couple of points. A couple of points, one, two, a cent.
Speaker Change: I think your constant currency growth was 15% in the quarter. What was the contribution from RoboGlobal and EQM? I guess RoboGlobal was acquired in April , so maybe that would be similar on a like for a like. But can you quantify how much EQM would have added or how additive that would have been to that number? A couple of points.
David Arnold: Okay. And then maybe one final one for me, just on data links, so you called out a client's specific reduction renewals, but it looks like the growth rate there has been sort of slowing since the beginning of 23. Just curious, is there anything else to call out? Anything else sort of going on? It looks like the number of market data subs has been kind of flatish. I know that's one of your expected higher growth targets. So anything else to be aware of there in terms of the recent revenue growth deceleration?
Unknown Executive: And then maybe one final one from me, just on data links, so you called out client-specific reduction renewals, but it looks like the growth rate there has been sort of slowing since the beginning of 2023. I'm just curious, is there anything else to call out, anything else sort of going on? It looks like the number of market data subscribers has been kind of flattish. I know that's one of your expected higher growth targets, so anything else to be aware of there in terms of the recent revenue growth deceleration? Got it.
Speaker Change: Okay.
Speaker Change: And then maybe one final one from me, just on data links, so you called out a client-specific reduction renewals, but it looks like the growth rate there has been sort of slowing since the beginning of 2023. I'm just curious, is there anything else to call out? Anything else sort of going on? It looks like the number of market data subs has been kind of flattish, I know that's one of your expected higher growth targets, so anything else to be aware of there in terms of the recent revenue growth deceleration?
David Arnold: No, not really. I mean, we were looking to do this in terms of the mid-singles in terms of that piece over the long term. I knew you remember that we also had a period before that we were up over double digit. And so there are some pluses and minuses that when you look at the subscriptions, we're actually continuing to grow on the derivative sides. We're getting new derivative pickup and subscriptions. And we did have a shortfall on more of the equity side. And that is related to a client issue. So we've got a client with an expense challenge.
Speaker Change: No, not really. We were looking to do this in terms of the mid-singles, in terms of that piece over the long term. You remember that we also had a period before that we were up over double-digit, and so there are some pluses and minuses to that. When you look at the subscriptions, we're actually continuing to grow on the derivative side. We're getting new derivative pickup and subscriptions. We did have a shortfall on more of the equity side, and that is related to a client issue. We've got a client with an expense challenge that curtailed their usage, but it is not indicative of the broad business.
David Arnold: And that curtailed their usage, but it is not indicative of the broad business.
David Arnold: And so it does put a bit of a, you know, a head went on that business in 2024, but it's not indicative of the long term. God, great.
Speaker Change: And so it does put a bit of a, you know, a headwind on that business in 2024, but it's not indicative of the long term.
David Arnold: Well, thank you for taking my questions.
Unknown Executive: Great. Well, thank you for taking my questions. Good morning.
Unknown Executive: I'll pleasure. And your next question comes from the line of our vendor, Galafati Govind, Ketakor.
Speaker Change: A pleasure.
Speaker Change: And your next question comes from the line of Aravinda Galappatthige with Canaccord, please go ahead.
Unknown Executive: Please go ahead. Good morning. Thanks for taking my question. A couple for me. Firstly, on the trade port. Obviously, continue to see sort of great numbers there. With respect to sort of your growth initiatives on the geographic side, I was in Japan and the US, and then on the product side. So what you developed on an investor day with respect to oil, how should we see that pacing? I mean, when we think about timeline, when should we expect to see those initiatives that have impact the numbers. The goal of the next year or two, just wanted to get a sense for that.
Unknown Executive: Thanks for taking my question. Questions, a couple for me. Firstly, on Shreveport. Obviously, great numbers there.
Aravindo Galapathegui: Good morning. Thanks for taking my questions. A couple for me.
Unknown Executive: With respect to sort of your growth initiatives, the geographic side, obviously Japan and the U.S., and then on the product side, sort of what you developed on Investor Day with respect to oil, how should we see that pacing? I mean, when you think about timelines, when should we expect to see those initiatives sort of impact the numbers over the next, you know, year or two? Just wanted to get a sense of that.
Aravinda Galappatthige: On the geographic side, obviously Japan and the U.S., and then on the product side.
Aravinda Galappatthige: I just wanted to get a sense of that.
John Mckenzie: And secondly, on the derivative side, you know, as you pointed out, there's a little bit of a gap between sort of the volume growth and the revenue growth. That gap, I know David, you mentioned it would start to ease. If that's something that will be sort of, you know, be sequential or should be sort of expect that gap to be largely closed by the second off, I wanted to get a sense of the pacing there as well. Thank you.
Unknown Executive: Secondly, on the derivative side, you know, as you pointed out, there's a little bit of a gap between sort of the volume growth at MX and revenue growth. [inaudible] The marketplace of index providers seems dominated by a select few competitors where brand equity actually matters a lot to the commercial viability of financial products that are tracking the index. For fund sponsors that have created products based on VETIFY indices, what has drawn them to Vetify rather than a larger competitor like an S&P or an MSCI? I just wanted your view on what differentiates Vetify in that context from some of the larger incumbents.
Speaker Change: That gap I know David you mentioned it would start to ease. Is that something that will be sort of you know be sequential or should we sort of expect that gap to be largely closed by the second half? I wanted to get a sense of the pacing there as well. Thank you.
David Arnold: I always, you know, joke, this is always a challenge of having chats every quarters and then actually having an investor day in between them is, I apologize, we haven't moved those and trade port initiatives as much in the six weeks since we saw you laugh. To be candid, though, I mean, they are; those are multi-year initiatives. So you're kind of time from you talked about made a lot of sense in terms of kind of that period. They are different in terms of the ones that are product related versus the ones that are new geographies. So the new geographies like in Japan is a little different because, as that market deregulates.
John Mckenzie: That is actually part of the key piece in terms of the expansion of the usage. And so we've actually been there and tested with that market earlier on before anybody else. So we're kind of ready to go, and as that market opens up. Trade port has already engaged. We've already got product connectivity. We're already connected to some clients. So it's really just about the opening up in the market, and we're ready to go. The US market is already an open market. So that's when we're actually trying to change behaviors and transition clients over. And you're seeing it in the results.
Speaker Change: That is actually part of the key piece in terms of the expansion of the usage. And so we've actually been there and tested with that market earlier on before anybody else.
Speaker Change: So we're kind of ready to go. And as that market opens up, Trayport is already engaged, we've already got product connectivity, we're already connected to some of the clients.
Speaker Change: The U.S. market is already an open market, so that's when we're actually trying to change behaviors and transition clients over, and you're seeing it in the results. It's still early stage, but we've gone from a million pound a year out of the U.S. to closer to six.
John Mckenzie: You know, it's still early stage, but we've gone from kind of a million pounds a year out of the US to closer to six. Over the last couple of years, as we bring it on, both a combination of exchanges, new traders, new market makers, new brokers, and we've got a sales team here that is working on a pipeline of other clients to move across. So you're going to keep seeing that step up and building critical mass in the US. And the other area is around kind of asset classes themselves. So we didn't talk about it as much in this call.
Speaker Change: only in the last couple of years as we bring it on both a combination of exchanges, new traders
John Mckenzie: We talked about it more in the session at the investor day, but we are looking at other parts along the spectrum in terms of building out more on the renewable side on the carbon credit side, but really also looking at how we tackle the oil markets. We're in active discussions with a number of participants that would work towards converting the oil market from a phone-based market to a trade port-based market. And so that's another one we're going to potentially open up a large market; these are programs that do take time. They take a lot of heavy lifting and handholding because we are changing, you know, very much like the US changing how the business has been done.
Speaker Change: So, we didn't talk about it as much in this call, we talked about it more in the session at the investor day, but we are looking at other parts along the spectrum in terms of building out more on the renewable side, on the carbon credit side, but really also looking at how we tackle the oil market. So, we're in active discussions with a number of participants.
Speaker Change: That would work towards converting the oil market from a phone-based market to a trade port-based market.
Speaker Change: And so that's another one we're going to potentially open up a large market, but these are programs that do take time. They take a lot of heavy lifting and handholding because we are changing, you know, very much like the U.S.
John Mckenzie: So that kind of time frame, you know, the kind of one to two years in terms of getting to kind of steady state progress, makes a lot of sense. And we'll keep updating as we go, but it is hard to show it quarter by quarter.
David Arnold: I'm going to let David talk to the DMX. Yeah, so on the MX one are vendors. So all else being equal, we should see a positive revenue per contract in Q3 as the five-year rolls off. So, unlike our long term initiatives in trade port that you're on, was touching on, which will take longer to show like noticeable financial benefits. This one should be as early as Q3, all things being equal. Yeah, and I want to know with that I'm going to add to it. You know, we did we put incentives on the two years. Well, when we brought that to market, those incentives that we can't give you the time on it, but they will run off as well.
Speaker Change: I'm going to let David talk to the DMX.
Speaker Change: Yeah.
David Arnold: And I want to know with that, I'm going to add to it, you know, we did, we put incentives on the two-year as well, when we brought that to market, those incentives, we can't give you the time on it, but they will run off as well.
David Arnold: And they have been very successful. So if you actually look at the volume on the two year through the first six months of this year, it's actually exceeding the five year now. And so it's at that kind of level, 60,000 plus contracts a day. This has been an extremely successful product launch. So that's another one that will eventually wind down. And we did put in incentives on the Cora product. And that was a very deliberate choice because the importance of having back to Cora transition seamlessly and not having that activity then slip into the over-the-counter market where it would be hard to bring it back on exchange was so important.
Speaker Change: They have been very successful. So, if you actually look at the volume on the two-year through the first six months of this year, it's actually exceeding the five-year now. And so, it's at that kind of level, 60,000 plus contracts a day. This has been an extremely successful product launch. So, that's another one that will eventually wind down. And we did put incentives on the Cora product. And that was a very deliberate choice.
Speaker Change: Because the importance of having backs to Cora transition seamlessly and not having that activity then slip into the overhead counter market, where it would be hard to bring it back on exchange was so important, we made sure those incentives were in there. So, that is part of that mixed impact in this year, but over time, that's going to wear off as well. So, these are, you know, think about it as a step down, as David said, we've got the five-year coming up, but in the future, we will also have the two-year coming off and the Cora coming off as well. Thank you. Thank you.
David Arnold: We made sure those incentives were in there. So that is part of that mixed impact in this year, but over time, that's going to wear off as well. So these are, you know, think about as a step down. As David said, we've got the five year coming up in the future. We will also have the two year coming off from the Cora coming off as well.
Unknown Executive: Thank you.
Speaker Change: Thank you.
Graham Viding: And your next question comes from the line up, Nick Fried with CIBC.
Speaker Change: Your next question comes from the line of Nik Priebe with CIBC. Please go ahead.
Graham Viding: Please go ahead. Thanks. One to bring the conversation back to verify and continue to drill into that in a big greater depth.
Nick Preeb: Thanks. I wanted to bring the conversation back to Vetify and continue to drill into that in a bit greater depth.
John Mckenzie: But the marketplace of index providers seemed dominated by select few competitors, where brand equity actually matters a lot to the commercial viability of financial products that are cracking the index for fund sponsors that have created products based on Vetify indices. What has drawn them to verify rather than a larger competitor like an S&P or an MSCI. I just wanted to review on what differentiates, Verify in that context from some of the larger incumbents. Yeah, there's a number of pieces there. One is, you know, and I think S&P is a great provider. They're a partner with us, as you know, in terms of the large equity indices, the composite, the TSX S&P 60.
Speaker Change: There's a number of pieces there. I think S&P is a great provider. They're a partner with us, as you know, in terms of the large equity indices, the composite, the TSX S&P 60.
John Mckenzie: But they're less designed to do bespoke custom indices for unique providers. So we can work with a provider and do something custom for them at scale that meets the specific needs of what they're trying to target for their funds. And that's very difficult for a large player to do in terms of both the scale compliance; the challenges around that are even the technology. So that's one of the big advantages. And then what I mentioned earlier on in our capabilities that we have there unique to us, we can ideate kind of with them and show them how a product will benchmark against a number of those other global benchmarks and show historical performance, those types of things.
Speaker Change: But they're less designed to do bespoke custom indices for unique providers, so we can work with a provider and do something custom for them at scale that meets the specific needs of what they're trying to target for their funds.
Unknown Executive: And then, as I mentioned earlier, in our capabilities that we have that are unique to us, we can ideate kind of with them and show them how a product will benchmark against a number of those other global benchmarks and show historical outperformance, those types of things. When you compare that also and add it to the capabilities we've built with the data sets, so the ETF analytics, the distribution tools, the network we've got of advisors, it actually really is a unique advantage that some of those even larger firms don't have. So we actually do network out to 200,000 plus advisors.
Speaker Change: And then what I mentioned earlier on, in our capabilities that we have that are unique to us, we can ideate kind of with them and show them how a product will benchmark against a number of those other global benchmarks and show historical outperformance, those types of things.
John Mckenzie: When you compare that also and add it into the capabilities we built with the data sets, the ETF analytics, the distribution tools, and the network we've got of advisors. It actually really is a unique advantage that some of those even larger firms don't have. So we actually do network out to 200,000 plus advisors. So we can actually give a fun company really early analysis of when you put a new fund out there, who's looking at it, what's the interest level, who do you market it to, those types of things. So it is an end-to-end solution with providing.
Speaker Change: When you compare that also and add it into the capabilities we've built with the data sets, so the ETF analytics,
Speaker Change: The distribution tools, the network we've got of advisors.
Speaker Change: It actually really is a unique advantage that some of those even larger firms don't have.
Speaker Change: So, we actually do network out to 200,000-plus advisors, so we can actually give…
Unknown Executive: So we can actually give a fund company really early analysis of when you put a new fund out there, who's looking at it, what's the interest level, who you market it to, those types of things. So it is an end-to-end solution we're providing, and I think you've got to be able to do that to create that compelling value proposition when you are competing with those large players. Now that being said, the other additional piece is... Okay, that's great, Keller.
John Mckenzie: And I think you've got to be able to do that to create that compelling value proposition when you are competing with those large players.
John Mckenzie: Now that being said, the other additional pieces are. Because of our nimbleness-size scale, we can also be more cost-effective. So when we're creating new benchmarks, even broad-based benchmarks, we can be more cost-effective than a large player can because if they made a change, they would have to do it for substantial funds that already have assets under management. And so that's one of the benefits of being a strong, nimble-growing player as opposed to an incumbent.
Speaker Change: Now, that being said, the other additional piece is...
Speaker Change: Because of our, you know, kind of nimbleness size scale, we can also be more cost effective.
Speaker Change: And so that's kind of one of the benefits of being a strong, nimble, growing player as opposed to an incumbent.
Unknown Executive: Okay, that's a great color.
Unknown Executive: And can you also tell us a bit more about how the non-indexing component of that business grows over time? Like, it's easier to understand the indexing business and some of the key drivers there, but what about, like, digital distribution as an example? Is that all about driving more traffic to your digital properties? And can you talk a little bit about how you get paid in that business?
John Mckenzie: And can you also tell us a bit more about how the non-indexing component of that business grows over time? Like, it's easier to understand the indexing business and some of the key drivers there. But what about digital distribution as an example? Is that all about driving more traffic to your digital properties? And can you talk a little bit about how you get paid in that business? Like a mostly sponsored content? Just anything you could share on the non-indexing pieces will be helpful as well. Yeah, there's two components. I mean, those are all largely subscription-based. So subscription-based services, and we build out the network with the advisors that can use the content for free, but both we produce and we do sponsored content with issuers, with fund creators, and that's all through subscription model.
Speaker Change: Okay, that's great, Culler. And can you also tell us a bit more about how the non-indexing component of that business grows over time? Like, it's easier to understand the indexing business and some of the key drivers there, but what about, like, digital distribution as an example? Is that all about driving more traffic to your digital properties? And can you talk a little bit about how you get paid in that business? Like, is it mostly sponsored content? Just anything you could share on the non-indexing pieces would be helpful as well.
Unknown Executive: Like, is it mostly sponsored content? Just anything you could share on the non-indexing pieces would be helpful as well. Yeah, there are there are two components. So I mean, those are all largely subscription based. So subscription-based services, we build out the network with advisors that can use the content for free, but both we produce and we do sponsored content with issuers and fund creators. And that's all through the subscription model. So both on the distribution side, on the webcast side, the learning side, but also on the ETF and the analytics side, the data analysis is all subscription-based.
Culler: Yeah, there's two composites. I mean, those are all largely subscription-based.
John Mckenzie: So both on the distribution side, on the webcast side, the learning side, but also on the ETF and the analytic side, the data analysis are all subscription-based pieces. So, in some cases, we may have a client that takes one of those products. They may take multiple products. So we've got an opportunity to actually sell deeper into them. As we had a question earlier on about some of the kind of integration with our sales team, we are actually now selling those products into multiple Canadian dealers now for use in their fund programs. And so we've got multiple new sales that we've actually either closed or in the process of closing, again, in subscription models for distribution and analytic tools.
Speaker Change: So, both on the distribution side, on the webcast side, the learning side, but also on the ETF and the analytics side, the data analysis are all subscription-based pieces. So, in some cases, we may have a client that takes one of those products, they may take multiple products, so we've got an opportunity to actually sell deeper into them. As, you know, we had a question earlier on about some of the kind of integration with our sales team. So, we are actually now...
Unknown Executive: So in some cases, we may have a client that takes one of those products; they may take multiple products, so we've got an opportunity to actually sell deeper into them. As you know, we had a question earlier about some of the kind of integration with our sales team; we are actually now selling those products to multiple Canadian dealers now for use in their fund programs. And so we've got multiple new sales that we've actually either closed or in the process of closing, again, in subscription models for distribution analytic tools. But besides that, it's pretty much business as usual.
Speaker Change: selling those products into multiple Canadian dealers now for use in their fund programs. And so we've got multiple new sales that we've actually either closed or in the process of closing again in subscription models for distribution analytic tools.
Unknown Executive: Yeah, I'll pass the line.
Speaker Change: I'll pass the line. Thank you.
Jayakumar Rajarathinam: And your next question comes from the line of chain-blowing with National Bank Financial. Please go ahead. Yeah, thanks. I just wanted to touch on opX for a second.
Speaker Change: Thanks. I just wanted to touch on OpEx for a second. In terms of this quarter and thinking about the upcoming quarters,
David Arnold: In terms of this quarter and thinking about the upcoming quarters, some of the, let's say, non-recurring items like integration of, identify the incentive compensation this quarter with the share price. How much should we be thinking about in terms of those costs while one time in nature still recurring in the next quarter?
Speaker Change: Some of the, let's say, non-recurring items like integration of Betify, the incentive compensation this quarter with the share price,
David Arnold: Hi, James. It's David. As you know, we don't really provide the kind of long-term or at least outlook expense guidance, but where we are right now, and that's why I kind of showed you the core is if you look through some of these anomalous items, you know, the US expansion. Adding better fire when it's not in the prior period. You know, the share price movement is very, very positive this quarter. So obviously it has a knock-on effect to our share-based compensation programs. When we look at all of that, it's around 4%, right? And that's a pretty good number in my mind for kind of where we are through these anomalous items, if you will.
Speaker Change: And that's a pretty good number in my mind for kind of where we are through these anomalous items, if you will.
David Arnold: Obviously, the place of the most pressure continues to be in the technology sector; you know, contract renewals and supplier agreement renewals. There's a lot of pricing pressure in that space. But besides that, it's pretty much business as usual. We continue to expand, though, and invest in growth, right? So we do have more team members at TMX, you know, this quarter than we had a year ago, and that will continue to provide some upward pressure on some of the cost numbers. The other thing that we did, and we touched on it prior in some of our annual disclosure and stuff, is we're really trying to motivate and incentivize our employees with more long-term incentive compensation versus let their pure short-term incentive compensation.
Speaker Change: Obviously, the place of the most pressure continues to be in the technology sector. Contract renewals and supplier agreement renewals, there's a lot of pricing pressure in that space.
Speaker Change: But besides that, it's pretty much business as usual. We continue to expand though and invest in growth, right? So we do have more team members at TMX, you know, this quarter than we had a year ago and that that'll continue to provide some upward pressure on some of the cost numbers. The other thing that we did, we did, and we touched on it, you know, prior in some of our annual disclosure and stuff is
Unknown Executive: We continue to expand and invest in growth, so we do have more team members at TMX this quarter than we had a year ago, and that'll continue to put some upward pressure on some of the cost numbers. The other thing that we did, and we touched on it previously in some of our annual disclosure and stuff, is we're really trying to motivate and incentivize our employees with more long-term incentive compensation versus, let's say, pure short-term incentive compensation.
David Arnold: And obviously, when we have the share price run up like we've seen in the last six months, that does obviously have a knock-on effect to the compensation of benefits. So it's both an absolute number, but also the breadth and depth of the long-term incentive through the organization.
Speaker Change: This is a pure short-term incentive compensation.
Unknown Executive: Obviously, when we have the share price run up like we've seen in the last 6-months, that obviously has a knock-on effect on the compensation of benefits. It's both an absolute number but also the breadth and depth of the long-term incentive through the organization. Yeah, let's be fair. Let's call that a high class problem for this quarter.
Speaker Change: And obviously, when we have the share price run up, like we've seen in the last 6-months, that does obviously have a knock-on effect to the compensation of benefits. So it's both an absolute number, but also the breadth and depth of the long-term incentive through the organisation.
David Arnold: Yeah, let's be fair; let's call that a high-class problem for this quarter. I always want to guide, and we'll have to figure out if we can do better disclosure for this. But if you go back to our circular where we actually show our programs, one of the particularly changes that they was just talking to is we've moved, you know, eventually essentially all of our executives to what I'll call a 60 40 mix of incentives, we're 60% of the mixes in long-term incentives. And in our long-term incentive program, our LTI program, about 60% of that is in performance share units.
Unknown Executive: I've always wanted to guide them, and we'll have to figure out if we can do any better disclosure for this. But if you go back to our circular, where we actually show our programs, one of the particular changes that David was just talking about is we've moved, you know, eventually, essentially all of our executives to what I'll call a 60-40 mix of incentives, where 60% of the mix is in long-term incentives.
Speaker Change: Let's be fair, let's call that a high-class problem for this quarter. I always want a guide, and we'll have to figure out if we can do a better disclosure for this, but if you go back to our circular where we actually show our programs,
Dave: One of the particular changes that Dave was just talking to is we've moved essentially all of our executives to what I'll call a 60-40 mix.
Unknown Executive: And in our long-term incentive program, our LTIP program, about 60% of that is in performance share units. And so to be a bit specific, those performance share units, while we hedge all our RSUs, we hedge our underlying share price impacts in our units, they have multipliers in terms of, you know, how the TMX performs compared to the underlying index.
David Arnold: And so to be a bit specific, those performance share units, while we hedge all our RSUs, we hedge our underlying share price impacts and our units, they have multipliers in terms of, you know, how does the TMX perform compared to the underlying index. And with our share prices being up kind of actually 30% this year and the index up eight, we're way outperforming the market. So that's a big market adjustment in the quarter. And if you want, if you're going to see that again in the back half, we need to go up another 30%. And, you know, I'm happy for you and to encourage that to happen, but obviously we wouldn't predict that.
Dave: And so to be a bit specific, those performance share units, while we hedge all our RSUs, we hedge our underlying share price impacts in our units.
Speaker Change: They have multipliers in terms of how does the TMX perform compared to the underlying index and with our share prices being up kind of actually 30-ish percent this year and the index up 8, we're way outperforming the market so that's a big mark to market adjustment in the quarter.
Unknown Executive: And with our share prices being up kind of actually 30-ish percent this year, and the index up eight, we're way outperforming the market. So that's a big mark to market adjustment for the quarter. And if you want to see that again, in the back half, we need to go up another 30%. And you know, I'm happy for you to encourage that to happen. But obviously, we wouldn't predict that.
Speaker Change: I'm happy for you to encourage that to happen, but obviously, we wouldn't predict that. It isn't indicative of the future. Those intensive plans are tracking high now, and they're mark-to-market in there. It doesn't mean there won't be a little bit more, but I think you've largely got it in now.
David Arnold: And so it isn't indicative of the future where, you know, those incentive plans are tracking high now, and they're marked to market in there. And it doesn't mean there won't be a little bit more, but I think you've largely got it in now.
Jayakumar Rajarathinam: Okay, understood.
Unknown Executive: So it isn't indicative of the future, you know, those incentive plans are tracking high now, and they're mark to market in there. And it doesn't mean there won't be a little bit more, but I think you've largely got it in. Okay, understood. On the TSX Trust, I just wanted to go back and just verify the sensitivity to interest rates. If we're thinking about the two Bank of Canada rate cuts that have come through, and we compare Q3 this year versus Q3 next year, we would expect to see some pullback activity and, otherwise, all else equal. Can you just refresh us on that impact?
Jayakumar Rajarathinam: On the TSX Trust just wanted to go back and just verify the sense of activity to interest rates if we're thinking about the two Bank of Canada rate cuts that have come through and we compare Q3 this year versus Q3 next year, we would expect to see some pullback activity and otherwise all else equal.
Speaker Change: I just wanted to go back and just verify the sensitivity to interest rates if we're thinking about the two Bank of Canada rate cuts that have come through, and we compare Q3 and Q4.
Speaker Change: So, some pullback activity and otherwise all else equal, can you just refresh us on that impact and then also maybe a quick look and see how volumes and other factors in TSX Trust might be treading relative to last year's Q3.
David Arnold: Can you just refresh us on that impact and then also maybe a quick look and see how the how volumes and other factors in TSX Trust might be trading relative to last year's Q3.
Unknown Executive: And then also maybe a quick look and see how volumes and other factors in TSX Trust might be performing relative to last year? Thank you. On the other side, the SGC notes, those collateral notes, and again, this has just been launched, so it's not actually driving revenue at all at this point. It has multiple points of revenue drivers as it gets successful. On the issuance side, the clearing activity, which would run through CDCC, and also the backdrop in terms of the securitization of the product, the trustee is TSX Trust.
David Arnold: Let me handle the first part quickly, Jay, and then I'm John, and I can kind of, you know, flip between the two of us for the second part. So for every 25 basis points, it's approximately two million right now. And, as you've seen, we've updated our disclosure every once in a while because there is a mix component. That really does cause that to kind of fluctuate, but right now the really good benchmark is 25 basis points is roughly two million on an annualized basis. The key point with the cross business this year versus last year is, as you will call last year in Q2, we had some large corporate action activity where we were actually the named, you know, person on record.
Speaker Change: As you've seen, we've updated our disclosure every once in a while because there is a mixed component that really does cause that to kind of fluctuate, but right now, a really good benchmark is 25 basis points is roughly 2M on an annualized basis. The key point with the trust business this year versus last year is, as you recall, last year in Q2, we had
Speaker Change: Some large corporate action activity where we were actually the named person on record and there were some large balances and we were able to earn outsized net interest income relative to this quarter where we did also participate in some larger corporate actions but not quite the size of a year ago. So that's really resulted in.
David Arnold: And there were some large balances, and we were able to earn, you know, outsized net interest income. Relative to this quarter, where we did also participate in some larger corporate actions, but not quite the size of a year ago. So that's really resulted in the year of your delta. But the sensitivity piece for sure is every 25 basis points, roughly two million.
Speaker Change: in the year-over-year Delta, but the sensitivity piece for sure is every 25 basis points, roughly 2 million. John , you can talk a little bit about the...
John Mckenzie: John, you can talk a little bit about the. Yeah, but that's actually the exciting pieces, you know, as a table, even though it's the delta versus last year actually exceeded expectations for us in Q2. Because, you know, that like you said, the net interest income is not just the rates, it's the amount of activity there, the, you know, the cash on balance, which gets impacted by transactions. And we had some really good transactions in Q2, not like the like another large single when we had last year, but some really good transaction. So, as that continues, when you see M and A activity, corporate action continuing more, more action, the pipeline.
Joanne: Like you said, net interest income is not just the rates, it's the amount of activity there, the cash on balance, which gets impacted by transactions.
John Mckenzie: So, as those interest rates come down, yes, you have the NIA impact, but we do expect to see more transaction activity coming out of that. And we will get some of these NII bumps from transaction activity that are unrelated to what's going on with interest rates.
Joanne: So, as those interest rates come down, yes, you have the NII impact, but we do expect to see more transaction activity coming out of that. And we will get some of these NII bumps from transaction activity that are unrelated to what's going on with interest rates. So that's it.
John Mckenzie: So that's, you know, that's why we're in the business. One of our kind of hypothesis is when we end as with the bigger rebuild the client base out. And we've got almost 1,400 transfer agency clients in there in a growing number of trust clients. The more we can do trust activity for them, always going to be harder to predict and going to be a lumpier. But as we get more experience in there, we're going to be able to give better long-term guidance as to what a typical year will look like. But the positive piece is indicated as we are seeing higher levels of activity.
Speaker Change: That's why we were in the business is one of our kind of hypothesis is the bigger we build the client base out and we've got almost 1,400 transfer agency clients in there and a growing number of trust clients.
Speaker Change: The more we can do trust activity for them, always going to be harder to predict and going to be a bit lumpier. But as we get more experience in there, we're going to be able to give better long term guidance as to what a typical year will look like. But the positive piece as you indicated is, is we are seeing higher levels of activity.
Unknown Executive: Good, great.
Jayakumar Rajarathinam: And the last one, just the CDS, equity trading, equity, economic trading, CDS, actually. Surprising, in terms of its growth, like this is the last several quarters have been running high single digits. I think your guys would be more around like low to mid for that business.
David Arnold: Because what I guess is in the numbers in the last several quarters that is driving that higher growth rate, and is it something that we should think has been sustainable, or is it some of these new initiatives that are hitting the run rate already?
Speaker Change: What is in the numbers in the last several quarters that is driving that higher growth rate and is it something that we should think of as being sustainable or is it some new initiatives that are hitting the run rate already?
David Arnold: Yeah, so I'll start on this one, and then I'll hand it to John. So one of the things we covered at the investor day is post-posed trade is really a growth engine for us at TMX. Obviously, CDS is part of our equities trading and fixed income clearing kind of segments. So when we show that in our long term financial objectives, as you've seen, James, we basically say that that's going to grow as the market grows. But our CDS business, as you have rightfully pointed out, has outperformed the market. And that's because of a lot of these initiatives that we have underway that are really not our gramped up kind of hypothesis.
Speaker Change: Yes, so I'll start on this one and then I'll hand to John .
John: One of the things we covered at the investor day is post-trade is really a growth engine for us at TMX.
John: When we show that in our long-term financial objectives, as you've seen Jaeme, we basically say that that's going to grow as the market grows, but our CDS business, as you have rightfully pointed out,
Speaker Change: has outperformed the market. And that's because of a lot of these initiatives that we have underway, that are really not our dreamt up kind of hypothesis. They're really in response to client needs, where clients are very interested in additional post trade services. So we're building solutions that are actually meeting their needs.
David Arnold: They're really in response to client needs. We're clients are very interested in additional post-trade services. And so we're building solutions that are actually meeting their needs.
John Mckenzie: So stay tuned, because at some point John and I discussed that there might be a need for us to kind of break out CDS and CDC from the kind of long-term financial objectives, because they might actually be vectoring slightly more than the other parts that they're included with, for example, equities and fixed income trading. Yeah, and the other piece, well, the growth that you've seen in the first half of the year with both CDS and CDC really are not yet impacted by the two major programs we just launched. So the fact we launched the CCMS service on CDS and the SGC note service on CDC both have upside potential for both those businesses.
Speaker Change: So, stay tuned because, you know, at some point John and I discussed, you know, there might be a need for us to kind of break out, you know, CDS and CDCC from the kind of, you know, long-term financial objectives, because they might actually be vectoring slightly more than...
Speaker Change: Amin Mousavian, David Arnold
John Mckenzie: And interesting on both of them, they have upside potential across different parts of the franchise as well. And let me explain that for a second. You know, the more we can do collateral management services for the clients, the more we free up also collateral in their system that can then be deployed in more trading activity through it. You know, if you think about it as the fuel for trading, what we're doing is giving more of that fuel back. So there's the revenue for buying the service, and then there's the extra liquidity that can come into the market.
Speaker Change: So if you think about it as the fuel for trading, what we're doing is giving more of that fuel back. So there's the revenue for buying the service, and then there's the extra liquidity that can come into the market.
John Mckenzie: On the other side, the SGC notes those collateral notes. And again, this has just been launched. So it's not actually driving revenue at all of this point. It has multiple points of revenue drivers as that gets successful. The issue inside the clearing activity, which would run through CDC and also the backdrop in terms of the securitization of the product.
Speaker Change: On the other side, the SGC notes, those collateral notes, and again, this has just been launched, so it's not actually driving revenue at all at this point.
Speaker Change: It has multiple points of revenue drivers as that gets successful. The issue inside
John Mckenzie: The trustee is TSX Trust. So this is another example of using kind of, you know, the enterprise power of TMX and multiple parts of the franchise to deliver a solution for the clients, and you'll see that revenue across multiple parts.
Unknown Executive: So this is another example of using kind of the enterprise power of TMX and multiple parts of the franchise to deliver a solution for the clients, and you'll see that revenue across multiple parts. Thank you. And your next question comes from the line of Graham Ryding with TD Securities. Please go ahead. Graham, you might be on mute.
Unknown Executive: Thank you.
Graham Viding: And your next question comes from the line of Graham Viding with TD Securities.
Graham Viding: Go ahead. I just want to touch on the post-trade modernization initiative. I think CapEx spend was increased there again.
Speaker Change: Graham, you might be on mute.
Unknown Executive: Yeah, apologies. I just want to touch on the post-trade modernization initiative. I think CapEx spend was increased there again. So maybe just what's your visibility or confidence level that this revised budget should capture this sort of timing? Both are excellent questions.
Graham: Apologies. I just want to touch on the post-trade modernization initiative.
Speaker Change: I think CapEx spend was increased there again, so maybe just what's your visibility or confidence level that this revised budget should capture this sort of timing and
John Mckenzie: So maybe just what's your visibility or confidence level that this revised budget should capture to the timing and investment required, and then secondly, coming out of this, one of the benefits and the payback that you're looking to generate. Yeah, both are excellent questions. So, Kenley, first of all, the change in the estimates is really just a factor of time. It's the fact that we've now set the actual go-live date in key one of next year. So the time in terms of development work over that period continues to crew there. And the time before we can sunset the existing system at the same time.
Speaker Change: And the investment required. And then secondly, you know, coming out of this, what are the benefits and the payback that you're that you're looking to generate?
Unknown Executive: So, candidly, first of all, the change in the estimates is really just a factor of time. It's the fact that we've now set the actual go-live date in Q1 of next year. So, the time in terms of development work over that period continues to accrue there, and the time before we can sunset the existing system at the same time. This was our expectation.
Speaker Change: Candidly, the change in the estimates is really just a factor of time. It's the fact that we've now set the actual go-live date in Q1 of next year, so the time in terms of development work over that period continues to accrue there.
Speaker Change: and the time before we can sunset the existing system at the same time. This was our expectation, so our intention was to be ready to go live at the end of this year. We will be. The really important milestone was that two weeks ago we launched the industry-wide testing. That couldn't start until T plus one was done and settled and the industry was ready to go. So, we have the participants connected to the system. We've got a long-term test program in it to test all of it because this is core to everyone's systems.
John Mckenzie: This was our expectation. So our intention was to be ready to go live at the end of this year. We will be. The really important milestone was that two weeks ago we launched the industry-wide testing. That couldn't start until T-plus-1 was done and settled, and the industry was ready to go. So we have the participants connected to the system. We've got a long-term test program in it to test all of it because this is core to everyone's systems, and so that will run for a number of months. And then you've got, as you would expect, for a major program, kind of shake down, dress rehearsal, testing like that.
Speaker Change: And so that'll run for a number of months. And then you've got, you know, as you would expect for a major program, kind of shakedown, dress rehearsal, testing like that.
Unknown Executive: So, our intention was to be ready to go live at the end of this year. And we will be. The challenge is that because of the timing of T plus one and when we could restart, that would push into what could be a go-live near the end of 2024. That's a high-risk factor to try to push a go-live of a major system at the end of the year when you're hitting code freezes for major participants, banks, things like that. So, we made the decision that we would do this at the beginning of 2025. And so, it just doesn't mean we run the program a little longer. And that's what's reflected in the estimates.
John Mckenzie: The challenge is that because of the timing of T-plus-1 and when we could restart, that would push into what could be a go-live at near the end of 2024. That's a high-risk factor to try to push a go-live of a major system at the end of the year when you're hitting code freezes for major participants, banks, things like that. So we made the decision that we would do this in the beginning of 2025, and so it just doesn't mean that we run the program a little longer, and that's what's reflected in the estimates. Now, in terms of the payback and the benefits, obviously, you're going to see the amortization of the program that will come into our economics when we go live.
Speaker Change: The challenge is that because of the timing of T-plus-1 and when we could restart, that would push into what could be a go-live near the end of 2024. That's a high-risk factor to try to push a go-live of a major system at the end of the year when you're hitting
Speaker Change: Code freezes for major participants, banks, things like that. So we made the decision that we would do this in the beginning of 2025. And so it just doesn't mean that we run the program a little longer. And that's what's reflected in the estimates.
John Mckenzie: But we are going to sunset the older system, which is a higher-cost system to run. So that, in terms of main frame and the all the pieces around it, that system caused more to run. We're going to be able to shut that down. We're going to be able to shut down the expense side of the program or redeploy that expense of the other development program from the company. And we are going to be refiling our pricing program for the removal of the rebate. Now, that's already on the public record, and so we will be pushing that forward once we demonstrate to the street that we've got a working product here that's going to meet their needs.
Speaker Change: And we are going to be refiling our pricing program for the removal of the rebates. Now, that's already on the public record. And so we will be pushing that forward once we demonstrate to the street that we've got a working product here that's going to meet their needs. So all those pieces are part of the program.
John Mckenzie: All those pieces are part of the program. The additional piece is that the new system, once live, is going to be a better system for the industry. Better reporting, better usability should help them manage their positions better as well. And in addition, it sets us up to do more things like things like CCMS, SGC notes, and kind of the next page of where we can take those two. So that's the way to think about it, in terms of enabling our future growth, but also some direct benefits as well.
Speaker Change: The additional piece is that the new system, once live, is going to be a better system for the industry, better reporting, better usability, should help them manage their positions better as well.
David Arnold: Okay. Yeah, I mean, it can have some lumpiness to it because, while it is subscription based, you know, this is often the marketing departments of funds that are actually using some of those services. And so you can get some, some like anything else, you can have areas where a company has they don't have budget left. So they're going to do it the next year, or they've got access budget and they want to get something done for a certain time period that works with their year end or their budget. So you do have some client budget pieces that will drive some lumpiness there.
Unknown Executive: understood. On Vetify, the revenue that you get from the digital distribution side of your business, like how consistent or recurring is that? Should we think about it as being more lumpier and episodic, or is that it can have some lumpiness to it because while it is subscription-based, this is often the marketing departments of funds that are actually using some of those services? Like anything else, you can have areas where a company doesn't have budget left, so they're going to do it the next year, or they've got excess budget, and they want to get something done for a certain time period that works with their year-end or their budget.
Unknown Executive: We do have some client budget pieces that will drive some lumpiness there, and as we get more experience with it, we'll be able to give more guidance as to what the long-term run rates look like. Thank you, and that is all the time we have for questions. I would like to turn it back to Amin Mousavian for closing remarks. Thank you, everyone, for joining our call today. If you have any further questions, contact information for Investor Relations, as well as media contact information in our press release, and we'd be more than happy to get back to you.
Speaker Change: On VETIFY, the revenue that you get from the digital distribution side of your business, how consistent or recurring is that? Should we think about it as being more lumpier and episodic or is that...
Speaker Change: And so you can get some, like anything else, you can have areas where a company has, they don't have budget left. So they're going to do it the next year or they've got excess budget and they want to get something done for a certain time period that works with their year end or their budget. So you do have some client budget pieces that will drive some lumpiness there. And as we get more experience with it, we'll be able to give more guidance as to what the long-term run rates look like.
David Arnold: And as we get more experience with it, we'll be able to give more guidance as to what the long-term run rates look like. Thank you.
Amin Mousavian: And that is all the time we have for questions.
Amin Mousavian: I would like to turn it back to me, the stadium for closing remarks. Thank you, everyone, for joining our call today. If you have any further questions, contact information for investor relations as well as media is not press release and be more than happy to get back to you.
Speaker Change: Thank you and that is all the time we have for questions. I would like to turn it back to Amin Mousavian for closing remarks.
Amin Mousavian: Until next time, goodbye. Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect. You have been removed from the call. Goodbye.
Operator: Until next time, goodbye. Thank you, presenters.
Operator: And ladies and gentlemen, this concludes today's conference call. Thank you all for participating.
Amin Mousavian: Thank you presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.
Operator: You may now disconnect. You have been removed from the call.
Operator: Goodbye.