TMX Group Limited

Ladies and gentlemen, thank you for standing by. Welcome to the TMX Group Limited Q2 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Ms. Julie Park, Manager of Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us this morning for the second quarter 2020 Compass Call for TMX Group. As you know, we announced the results late yesterday, and a copy of our press release is available on TMX.com under Investor Relations. This morning, we are once again joining virtually and have with us John McKenzie, our Interim Chief Executive Officer and Chief Financial Officer, and Paul Malcolmson, Managing Director of Investor Relations. Following opening remarks, we will have a question and answer session. Before we begin, I want to remind you that certain statements made on today's call may be considered forward-looking. I refer you to the risk factors contained in our press release and reports that we have filed with regulatory authorities. And with that, I'll turn the call over to John.

Well, thank you, Julie, and good morning, everyone, and thanks for dialing into the call today. So we're here this morning to discuss TMX Group's financial performance for the second quarter and for the first six months of 2020. But before we do, I want to start and talk about some of the business impacts of the ongoing COVID-19 pandemic. I'd like to first acknowledge the importance of the immediate and sustained day-to-day challenges faced by people across Canada and all over the world working to cope with this unprecedented crisis. To everyone listening in today, and on behalf of all of us at TMX, we hope you and your families are staying healthy and safe. Now, across the markets TMX serves, and in particular equity markets, The first quarter of 2020 was marked by severe turbulence and volatility. TMX's number one priority at all times is to ensure we provide crucial continuity to stakeholders across our core operations and fulfill our role in keeping Canada's markets running. With the help of our partners across the industry and the dedicated efforts of our employees, we were able to successfully navigate the sudden and dramatic shift to a remote working environment. And as the second quarter moved along and the realities of the new normal set in, TMX took important steps across our enterprise to adapt key processes while also striving to keep our priority initiatives on track. And despite the abrupt shift to the new virtual reality, teams in all of our business areas have worked hard to stay closely connected to our clients in order to help them adapt and overcome near-term obstacles. And the vision of our client-facing teams extends beyond seeking temporary or patchwork solutions during COVID-19. In fact, the rapid response to solving day-to-day challenges in 2020 has helped to inform and accelerate TMX's digital transformation and will ultimately enable us to better serve our markets long into the future. In a few minutes, I will update you on some of the key elements of our growth strategy and get into more detail on some of the initiatives that we have well underway and on the near-term horizon, all aimed at modernizing and enhancing our products and services. But first, let's review TMX's first half performance. Paul will join the call in a few minutes to walk you through the details. And you will see as clearly as in any other period in our history, the second quarter and the first six months of 2020 reflect the resiliency of TMX's balanced business model and a proven ability to deliver positive results in the midst of market uncertainty. Revenue in the first half of the year was $438 million, up 7% from 2019, driven by higher revenue from equities and fixed income trading and clearing, as well as trade ports and our derivatives business. While daily uncertainty and volatility dominated news headlines early in 2020, market activity, and particularly equity volumes, remained the consistent story for TNX throughout a robust first half of the year. Across all our equity venues, trading volumes were up 39% through June 30th compared to the same period last year, including a 48% increase in volumes traded on Toronto Stock Exchange, a 59% increase in TSX Alpha volumes, and another very encouraging sign, trading volumes on the TSX Venture Exchange were up 14% in the first half of 2020. Inequities trading will actively surge in the first half of the year, We continued our efforts to enhance our value proposition and ensure we remain competitive on the global stage. Last month, we introduced our TSX Market Unclosed, or MOC, modernization proposal. TSX MOC is the definitive source for equities closing pricing in Canada and serves to set industry benchmarks for mutual fund calculations, portfolio and index balancing, and index-related securities. The new and improved mock facility is the result of more than a year and a half of work by our equities trading team, working in close consultation with a wide range of participants across our client community. The proposed changes to the existing model include features designed to increase liquidity and participation at the closest market and align TSX mock with global peers. The proposal is now out and will likely be published for industry comments by Q4 of this year. I'm turning now to Tradeport. Revenue, including Visotech, was up 13% in sterling and Canadian dollar terms over the first half of 2019, with a 7% increase in average trader subscribers and a 6% increase in average total subscribers. Following on the prevailing theme in our domestic markets in 2020, market volatility drove higher activity in both the European power and gas markets. Volume through June 30, 2020, for power and gas products were up 24% and 20% respectively. Volumes were also strong in the benchmark European and Asian LNG contracts. Dutch title transfer facility volumes increased 35% in the first half of 2020 compared with the first half of 2019, and OTC cleared volumes in the Japan-Korea marker reached record levels. Algorithmic power trade in Europe intraday markets continued to gain momentum as well through the first six months of the year. Intraday volumes on the EPEX spot grew 23% compared to the same period in 2019. I want to turn now to an update on our progress on serving the needs of the evolving environmental, social, and governance, or ESG, landscape. As you will recall, our exchanges launched ESG 101 in the first quarter, a centralized resource to help TSX and TSX Venture issuers understand the fundamentals of ESG reporting. And in May, we published the inaugural TMX Group ESG report. In July of this year, TMX Data Links announced the expansion of our suite of ESG indices to better enable clients to gain exposure to ESG investments and manage associated risks. On July 27, 2020, in collaboration with S&P, we launched three new ESG indices, including indices tracking the performance of the constituent companies of the S&P TSX 60 and the S&P TSX composite, taking into account each company's ESG scores. Sustainable investing continues to gain momentum in the marketplace, and as investors of all types adopt new and increasingly sophisticated strategies, TMX will continue to evolve our approach to serve their needs. Now, in our derivatives business, overall revenues were up 6% in the first six months of 2020, driven by an 8% increase in revenue from the Montreal Exchange and CDCC. And while MX volumes were 13% higher in the first half of the year compared to 2019, The prolonged low interest rate environment had a negative impact on MX volumes and revenues in the second quarter. Looking ahead, our derivatives team delivered an important new product to market in the second quarter, a significant accomplishment in today's operating environment. Cora Futures launched on June 15th, a new three-month futures contract based on the new benchmark Canadian overnight repo rate average administered by the Bank of Canada. A key objective of our team now is to build liquidity and support the growth of the product and help to establish CORA as a key Canadian interest rate benchmark. In capital formation, high volatility during the first half of the year presented less than ideal conditions for companies to raise capital. And as a result, the number of large additional financing transactions by existing issuers decreased compared to the first six months of 2019 and contributed to a 7% decrease in overall capital formation revenue. But I think it's important to acknowledge the fact that even during unprecedented circumstances of a modern global pandemic, the entrepreneurial spirit continues to endure. We saw encouraging signs in the overall financing stats with an increase in the number of total transactions and dollars raised on TSX and TSX Venture. And last month, we were proud to welcome Diane Durham, a leading Canadian technology firm to Toronto Stock Exchange via successful initial public offerings. The value of a TSX or TSX venture listing provides to companies in all stages of maturity goes far beyond the amount of capital raised during an IPO or any other additional transaction. Our exchanges and really our entire organization work to support each phase of a public company's journey. Throughout this year, we have pursued various issuer support initiatives and spearheaded a sustained advocacy campaign to help our listed issuers and companies navigate this current crisis. In May, we were proud to usher in a new era in a long-standing TSX tradition by launching our first-ever virtual Market Open. For 20 years, the Toronto Stock Exchange Market Open Ceremony has welcomed guests, primarily listed issuers, to our headquarters to open the market in celebration of corporate milestones and in recognition of some of this country's most significant business achievements. Perhaps even more so in challenging times, we feel that it is vital to provide a platform to showcase the great companies that fuel our country's economy and to shine a brighter light on the resiliency and strength of Canada's markets. And our capital formation team continues to seek out ways to better serve our existing issuers and enhance the value of a TSX and TSX Venture listing. On the near-term horizon, we are planning to launch a centralized web-based platform to enable listers listed issuers to more efficiently interact with our exchange staff. More details to come later in the third quarter. Now, along with the release of our Q2 results last night, we announced a 6% increase in TMX's quarterly dividend from 66 to 70 cents per common share. This is our third dividend increase in the past 18 months and stands as a clear indication of our ability to generate value for clients and shareholders alike throughout challenging market conditions. Our payout ratio remains aligned with that of our global peers. And we remain confident that our continued commitment to executing our growth strategy will help to position us for long-term success into the future. In closing, I want to acknowledge the exemplary efforts of TMX employees. The collaborative spirit and relentless dedication of our people to solving challenges for clients across our business continues to fuel TMX's success. And I can say it definitively, more and more our people are invested in our success. In fact, following the latest enhancements to our employee share purchase plan in Q2, we have reached a new high with an 81% overall participation rate, including 88% in North America. And we remain excited about the opportunities in front of us. We feel strongly that TMX's ability to adapt and evolve our approach to serving companies and investors during the COVID-19 pandemic will help to push the evolution of Canada's capital markets and enhance our standing among global markets as we emerge from this crisis. With that, I will turn the call over to Paul, who will provide you additional details on our second quarter results.