TMX Group Limited

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q1 2022 Financial Results Conference Call. At this time, online is in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on May 3, 2022. I would now like to turn the conference over to Mr. Paul Malcolmson, Managing Director, Investor Relations. Please go ahead, sir.

Well, thank you, Operator, and good morning, everyone. I hope that you and all of your families are staying well and safe. Thank you for joining us this morning for the first quarter 2022 conference call for TMX Group. As you know, we announced our results late yesterday, and a copy of our press release is available on TMX.com under Investor Relations. This morning, we have with us John McKenzie, our Chief Executive Officer, and David Arnold, our Chief Financial Officer. Following opening remarks, we will have a question and answer session. Before we start, I want to remind you that certain statements made on 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'd like to turn the call over to John.

Well, thank you, Paul, and good morning, everyone. Thank you for joining us this morning for the discussion of TMX Group's financial performance for the first quarter of 2022. And I'm very pleased to be coming to you directly from the office in Toronto for the first time in two years to do this call. So on behalf of all of us at TMX, we'd like to wish you also the best of health to everyone listening this morning. Now, as Paul mentioned, we announced our results last night, and David will join us in a few minutes to take you through the first quarter numbers in more detail. But my comments this morning will focus more on our performance during the quarter, the progress we are making across the enterprise throughout 2022 to advance our global growth strategy, and the important adaptive steps TMX is taking to address the needs of the modern marketplace. to empower clients across our dynamic and diverse capital market ecosystem, and to compete every day. Now, to set the context for our discussion of the quarter ended March 31st, 2022, I want to open with a quick look a little further back. Although it may seem like yesterday to some of us, April 23rd marked the 25th anniversary of the last floor trade on the Toronto Stock Exchange, as we became the very first exchange in North America to go fully electronic. Since 1997, The digital age has transformed all aspects of our world in more ways than we could have imagined at the time. But the truth remains, our markets have a proud history of innovation. And today's TMX is dedicated to living up to that legacy of innovation by helping to define new sectors, reaching into new asset classes and jurisdictions around the world, and delivering groundbreaking data and analytic applications. We see these as a key defining elements in fulfilling our role as an engine of opportunity at the heart of the market, serving modern issuers and participants, investors and traders in Canada and around the world. Now, turning to our first quarter results, TMX reported revenue of $287.1 million, a 14% increase from Q1 of last year. Due to higher revenue from derivatives trading and clearing, trade port and capital formation, and partially offset by lower revenue from equities and fixed income trading and clearing. The higher revenue included $33 million of revenue from Box, which we began consolidating in January 2022, as well as an $8.8 million revenue increase from revenue from ASD Canada, acquired in August 2021, and $0.6 million from Trade Signal, acquired in June 2021. Now, on an adjusted basis, diluted earnings per share was $1.82, a decrease of 3% from Q1 of 2021. And our total operating expenses increased 22% compared to Q1 of last year, or 2% when you exclude those expenses related to Box, AST Canada, and Trade Signal. Now, these are results that our team can be quite proud of, given that more challenging global capital market ecosystem that we have seen in 2022. Geopolitical events, including the ongoing conflict in the Ukraine, and macroeconomic factors have negatively impacted markets here in Canada and across the world. But as we consider how these events impact our business, let's first pause to give our thoughts and support to all those directly and indirectly affected by this conflict. Now, despite the effect of these near-term headwinds on some of our key core business drivers, including capital raising and equities trading activity, TMX, as I said earlier, delivered solid first quarter results. Overall, TMX's Q1 performance reflects the depth of strength in our business model and underscores the efficacy of our long-term diversification strategy. And as we look to the future, the capital markets ecosystem, this powerful core engine of opportunity remains strong and prospects bright when conditions again normalize. Now, moving on to our business areas. Revenue from capital formation in Q1 was 63.9 million. a 5% increase from the first quarter of last year, reflecting the inclusion of revenue from ASD Canada and higher revenue from initial and sustaining fees, partially offset by a decrease in the number of financing transactions and dollars raised on Toronto Stock Exchange and TSX Venture Exchange when compared to Q1 of 2021. It is no secret that we are in the midst of challenging conditions for capital raising. Global uncertainty around inflation and interest rates a pullback in valuations in some sectors, and increased volatility have affected the ability and appetite for companies to come to market to raise capital. And while the IPO market slowed in the first quarter, there were some encouraging signs for our unique two-tiered marketplace. Overall new listings on the TSX Venture Exchange were up 23% year over year, including 23 new capital pool companies, a 156% increase from Q1 of 2021. The most popular means of going public on TSX Venture, the CPC path, allows companies more latitude and flexibility than the traditional IPO process in terms of timing. And most importantly, from our perspective, our pipeline remains very strong. And as always, we are in regular dialogue with companies across all sectors, as well as our stakeholders across the ecosystem, including bankers, venture capitalists, or private equity firms about potential IPO candidates within their portfolios, who will come to market when the conditions are right for them. TMX markets are a proven breeding ground for the next big thing. This ecosystem has a proud history, 170-year track record of helping to build generational companies, and we are committed to doing everything in our power to help fuel that next wave of game changers. Now, turning to derivatives. Excluding Box, revenue from derivatives trading and clearing was $38.5 million in the first quarter of 2022, up 3% from Q1 last year. The increase was driven by 13% higher revenue from CDCC due to repo dealer activity and fee changes, and partially offset by a 2% decrease in revenue from the Montreal Exchange, despite higher overall volumes due to both client and product mix. Canada's derivative markets continue to build on a strong 2021 in the first three months of this year, with 3 percent growth in total volumes on MX and 20 percent growth in open interest. Volume growth was driven by sustained client interest in developing product areas and increased investor demand for tools to manage risk during turbulent market conditions. Our average daily volume traded in equity options increased 28 percent compared to Q1 2021, driven by higher activity from both institutional and retail clients, particularly in the energy and financial sectors. Volumes in MX single stock or share futures grew 28% in Q1 compared to the first quarter of last year. And as product awareness continues to grow among our client base and our business development team continues to work, we will continue building that new pipeline for more prospects. Our index futures were up 15% compared to Q1 of last year as clients moved to manage positions and exposure to markets and major indices. And MX's global expansion strategy continued to gather momentum. Trading in the extended hour session, synced with markets in the UK and Asia, currently makes up about 6% of MX's overall daily trading volumes. The extended hour session generated robust activity during February, accounting for approximately 10% of daily volumes. And in parallel with our move to make our derivatives markets available nearly around the clock, MX's efforts to attract more global participation to Canada's markets is having a positive impact. Approximately 20% of MX volume is derived from participants who have connected to our market in just the past five years. And looking ahead, we continue to explore new ways to enhance our product suite to meet investor demand, with a focus on new areas, including sector futures and crypto futures, which we expect to launch later this year. Now, revenue from Treport in the first quarter was $40.7 million, a 9% increase from the first quarter of 2021, driven by a 7% growth in the average number of total subscribers. The conflict in Ukraine and the corresponding sanctions continue to have a significant impact on global energy commodity trading markets, driving sustained volatility. And Treport's core network plays a vital role in Europe's energy trading markets, particularly during periods of extreme turbulence, providing access to more than 50 execution venues and clearinghouses across more than 20 power and 20 natural gas markets. Thus far in 2022, Trayport has also taken important steps to execute on its global strategy to diversify and expand into new asset classes and geographies. At the end of March, we announced in collaboration with Incubex the successful launch of the Voluntary Climate Marketplace, or TVCM. TVCM offers carbon offset projects from five of the leading offset registries, which are tradable with live bids and offers through Trayport's dual platform. Our teams are working together to build liquidity in the physical voluntary carbon market. And this is an important and unique initiative for Trayport and its applications across TMX's ecosystem. For companies like us, looking to achieve their ESG commitments and achieve net zero targets, the voluntary carbon market provides price discovery and efficient access for trading carbon credits. Ourselves, TMX Group, participated in the first trade on TVCM last year as we purchased credits to offset our 2020 and 2021 emissions and to enable us to meet our 2021 net zero target. And just last week, Trayport and Tradition, one of the world's largest inter-dealer brokers in OTC financial and commodity-related products, announced the successful adoption of Trayport's technology across Tradition's global refined oil operations. This move to expand Joule's refined oil trading network is squarely aligned with TradePort's strategic objective to meet the diverse needs of market participants and support the continued growth and digitalization of energy markets around the world. In closing, I want to briefly outline what I can confidently describe as TMX's decisive edge. During 2021, we laid the groundwork for the next stage of our organization's evolution. which included an in-depth, company-wide internal exercise to build a high-performance culture and define our corporate purpose. We make markets better and empower bold ideas. Those eight words define our reason for being, our reason for getting up in the morning. And while they sound great, they truly capture the spirit of the organization. They're not just words, and they cannot alone determine our future. Our people will ultimately define our success. And in any quarter, And in all market conditions, it's the dedication of our people that is the great source of pride and our perpetual driving force. They are TMX's prevailing competitive advantage. And I'd like to take the opportunity to thank our employees all around the world for their steadfast commitment to serving our clients with excellence and for bringing our purpose of life in the work every day. Now, before I turn the call over to David, I also want to thank David directly. This is his fourth quarter, and I want to thank him for the leadership over the past four quarters in terms of leading our finance team. But separately, I also want to thank David for his leadership of Team TMX as we embark on the first-ever ride to conquer cancer as an organization. And I want to thank him for bringing this unfold so we as an organization can continue to give back to causes that matter in the community. So with that, David, my finance lead and my captain, over to you.

Thank you, John, and good morning, everyone. As John said, it's good to be back in the office again. So as John mentioned, we had a solid start to 2022 in the first quarter, with revenue growth of 14%. This was driven by the inclusion of revenue from three businesses, namely the Boston Options Exchange, or as I'll refer to it throughout today as BOX, which we consolidated on January 3rd, 2022, AST Canada, which we acquired August 12th, 2021, and TradeSignal, which we acquired June 1st, 2021. Revenue excluding Box, AST Canada, and TradeSignal was down 3% in the quarter, compared with the record first quarter last year. There were revenue increases across all of our businesses, with the exception of equities and fixed income trading and clearing. We reported an increase of 179% in our diluted earnings per share this past quarter, which was largely driven by gains resulting from the revaluation of our interest in Box upon acquisition of voting control on January 3rd, while adjusted diluted earnings per share decreased by 3%. We managed costs to below the rate of inflation in the first quarter, with operating expenses excluding Box, AST Canada, and TradeSignal up 2% compared with Q1 of 2021. 179% diluted earnings per share growth in this quarter, as mentioned earlier, reflected $177.9 million with $3.16 per share gain on the revaluation of our interest in Box, as well as an increase in income from operations of $9.1 million when compared with Q1 of 2021. Turning now to our businesses, and I'll start with those that saw revenue increases this quarter. As John said earlier in his remarks, revenue and capital formation grew by 5% this quarter, which included approximately $8.8 million of revenue related to AST Canada. Excluding AST Canada, revenue in the quarter decreased 10% in capital formation, primarily driven by lower additional listing fees in the quarter due to decreases in both the total number of financings and the total financing dollars raised. The decrease on TSX reflected a 28% decrease in the number of additional listing transactions billed at the maximum listing fee of $250,000 and a 5% decrease in the number of transactions billed below the maximum fee when compared to very strong levels of activities in Q1 of last year. This decrease was partially offset by higher initial listing fees in the quarter when compared with Q1 of last year. Sustaining listing fees also increased in the quarter, reflecting an increase in the market capitalization of TSX and TSX Venture issuers at December 31, 2021, over the prior year. Turning to derivatives trading and clearings. This quarter's revenue grew by 91% when compared to Q1 of 2021. As a result of the consolidation of Box, we recognized 33 million of Box revenue in Q1 of 2022. Volumes on Box increased by 51% compared to Q1 of last year, and Box's market share in equity options grew to 6%, which is up 2% from Q1 of last year. Derivatives trading and clearing revenue, excluding Box, was up 3% in the quarter, driven by a 13% increase in CDCC revenue and partially offset by a 2% decrease in revenue from the Montreal Exchange. While volumes on MX increased by 3% compared to Q1 of last year, there was a lower revenue per contract reflecting changes in both client and product mix. In Q1 of 2022, there were higher rebates related to new commercial programs, which resulted in lower revenue per contract. In addition, the volume increase was partially driven by contracts with lower yields, such as single stock futures and equity options. Revenue in our global solutions insights and analytics segment was up 6% over Q1 of 2021, with increases from both Trayport and Datalinks. Revenue from Trayport was up 9% in Canadian dollars, or 14% in pound sterling. The increase was driven by a 7% growth in total subscribers in the quarter compared with a year ago, and $600,000 of revenue, which was a contribution from TradeSignal, which we acquired on June 1st of 2021. Organic revenue growth in TradePort in Canadian dollars was therefore 8% when compared with Q1 of 2021. Revenue in our TMX DataLinks business, including co-location, grew 3%, driven by increases in co-location, data feeds, and professional subscribers. These increases were partially offset by decreases in usage-based quotes, as well as benchmarks and indices in Q1 of 2022 compared with last year. The average number of professional market data subscriptions for TSX and TSX venture products increased slightly in the quarter compared with last year, and subscriptions on the Montreal exchange were up 5%. Revenue from our equities and fixed income trading and clearing segment were down 10% in the quarter. Equities and fixed income trading revenue decreased 15% in the quarter compared with Q1 of 2021. This decrease was driven by a 37% decline in the overall volumes of securities traded on our equities marketplaces. Trading volumes of TSX securities decreased by 17% in the quarter, while volumes on TSX Venture Exchange and TSX Alpha Exchange decreased by 62% and 40% respectively when compared with a very strong Q1 of last year. There was also a decrease in fixed income trading revenue, reflecting lower activity in swaps in the quarter, partially offset by increased activity in Government of Canada bonds. Revenue from our CDS business was down slightly, reflecting lower clearing and settlement revenue due to lower volumes and lower revenue from our account transfer online notifications product compared with Q1 a year ago. Turning now to our expenses, operating expenses in the first quarter increased by 22% compared to Q1 of last year. There were approximately $24.5 million of expenses in Q1 of 2022 related to Box, AST Canada, and TradeSignal, including $2.8 million related to amortization of acquired intangibles for AST Canada and Box, and $1.3 million related to the transitional services agreement with AST. as well as 1.2 million of AST Canada integration costs. Operating expenses excluding box, AST Canada, and trade signal increased by 2% in the quarter compared with Q1 of last year. The higher expenses reflected higher headcount and payroll costs, increased long-term employee incentive plan costs of approximately 1.5 million, higher legal fees, as well as increased expenses for travel. These increases in costs were partially offset by lower short-term employee incentive plan costs of $5.5 million, lower severance, and $600,000 of acquisition and related costs related to ASD Canada in Q1 of last year. We continue to expect integration costs related to ASD Canada of approximately $20 million over the 12-month period from September 1 last year to August 31 of this year, and expect total revenue and technology cost synergies of approximately $8 million which will be substantially achieved by the end of 2024. We now expect at least 3 million of these cost synergies in 2022, including $700,000 realized in Q1 of 2022. Looking at our results sequentially, revenue increased 34.7 million, or 14% from Q4 of 2021 to Q1 of 2022. This was mainly due to the inclusion of 33 million of revenue from box. Excluding Box, revenue increased 1% from Q4 of 2021 to Q1 of this year. This increase was driven by higher revenue in equities and fixed income trading and global solutions insights and analytics, partially offset by lower revenue in capital formation and CDS. Operating expenses increased 9.1 million, or 7%, from Q4, including an increase of $11.7 million relating to Box and AST Canada in Q1 of 2022 compared with Q4 of last year. Excluding Box, operating expenses decreased 1% from Q4 2021 to Q1 2022. This decrease was driven by lower short-term employee performance incentive plan costs of approximately $5.8 million, lower information technology spend, lower severance, lower marketing spend, and decreased consulting fees, partially offset by our highest salary and payroll taxes of $5.2 million and higher long-term employee performance incentive plan costs of $3.1 million. Turning now to our balance sheet, in the first quarter of 2022, we spent $12.4 million repurchasing 94,819 of our common shares under our normal course issuer bid program. Our debt to adjusted EBITDA ratio was 1.7 times at the end of the quarter, and we also held over $421 million in cash and marketable securities at the end of the quarter, which was about $207 million in excess of the $205 million we target to retain for regulatory and credit facility purposes. Last night, our board approved a quarterly dividend of $0.83 per common share, payable on June 3rd to shareholders of record as of May 20th. In the first quarter, we paid up 46% of our adjusted earnings per share, which is slightly above the midpoint of our target payout ratio of 40 to 50%. And now I'd like to turn the call back to Paul for the Q&A session.

Thanks, David. Operator, could you please outline the process for the question and answer session?

Thank you, sir. Ladies and gentlemen, we now conduct the question and answer session. If you'd like to ask a question, press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star two. If you're using a speakerphone, please lift the hands up before pressing any keys. One moment, please, for your first question. Your first question comes from Jeff Kwan with RBC Capital Markets. Please go ahead.

Hi, good morning. Just wondering if you can give an update on the M&A landscape. Obviously, we've seen the markets move around and sector valuations may have moved too. Just wondering if there's anything new on that front.

Thanks, Jeff, and I appreciate the question to start off. You're absolutely right there. Our team is actually quite active looking at other opportunities, but obviously I can't give any guidance in terms of the specific opportunities that we are looking at. But I will reiterate, as we've said in the past, we are looking at businesses that help accelerate our strategic growth. So ones that are focused on both expanding our presence in data analytics, expanding the capability of what we can do with Tradeport, expanding the reach of what we're doing with our issuers. So very much like AST that we closed last year, TradeSignal that we closed last year as well. So we are looking at a number of things of various sizes. And I think you are correct. that there's potentially more opportunity with some normalization of valuations, but that still takes some time to flush into the market. The other piece that David talked to is our balance sheet is an extremely good position. So relative to a lot of organizations in the industry, we've got not only the cash capacity Dave talked about, but also debt capacity and a relatively strong equity. So we've got the ability to transact in size if the right strategic opportunity presents itself with the right investment conditions for the investor.

Okay, that's helpful. And then just my second question was, on Box, when you kind of take a look at the net income profit margin, I mean, it can vary quite a bit quarter to quarter, and obviously the volumes can be variable quarter to quarter. I mean, is there a way to kind of think about the operating leverage of the business or how to kind of think about how a certain level of revenue might translate to a certain level of earnings.

Yeah, and I apologize on this, Jeff. I'm going to be a bit circumspect because we have tried to give good guidance and visibility to Box, but it is in a very competitive marketplace, so some of the Box data is more commercially sensitive. Where I'd guide you to, though, is very much like other parts of our ecosystem is It is largely a fixed-cost operation. It actually runs on technology that we built for it through the Montreal Exchange, and so it is a very scalable business. So I really guide you to looking at those U.S. option volumes and options market share as that kind of guidepost in terms of what will drive revenue in what is largely a fixed-cost operation. That's the best guidepost I can give you without giving any more commercially sensitive information.

Okay, thank you.

Thank you. Your next question comes from Etienne Rickard with BMO Capital Market. Please go ahead.

Thank you, and good morning. On pricing at TMX Data Link, can you please share what considerations went into seeking regulatory approvals for pricing increases, and should we expect this to become a more recurring development going forward?

Etienne, thank you. That's a great question. Even before thinking about regulatory approvals, anytime we think about pricing, we're actually thinking about value proposition and the value we provide to clients. And so particularly with respect to some of our data products, there are data products there that we hadn't looked at pricing in a number of years. So we looked at what is our relative pricing to the industry, global comparatives, and where can we make some changes that are justified by the value that we provide to the industry. So the pricing that we did was not broad-based. It was targeted to specific products. On average, across the overall data links business, it represents about 2% to 3% in terms of total increase, but it's actually higher on the products that are affected. And products that are already at a premium, we didn't touch those. So those are all part of the regulatory considerations and making that submission to the regulators to show that what we are doing is cost justified, it's reasonable, it's commercially fair, and it's competitively appropriate. As we go forward, we actually, throughout the organization, look at pricing consistently across all our businesses that way. I think you know in other parts of our franchise, we actually have it built in directly. So at Tradeport, we actually have it built in directly into our subscriber agreements where they have an inflationary component that works through a cost of living adjustment in those contracts. We are doing some adjustments within our derivatives franchise. We mentioned there's some pieces around the OTC markets that we did, and we are looking at other parts of the organization as we go forward. The other piece I will leave you with is there are parts of the franchise because we price based on value that actually have some kind of natural inflationary pricing built in. So within our capital formation space, because we price both sustaining fees and listing fees based on value, as those values grow over time, that generates incremental revenue opportunity for us as well. So it is a strategic approach to pricing that we're looking at right across the organization.

Understood. On capital formation, the TSX has been holding up better than most global equity indices here today, given the strong commodity markets. Looking over the rest of 2022, what is your outlook on listing scenes? In other words, should we expect a pickup in financing activity from commodity-related markets and maybe strength in that sector could offset slower capital raising technology, for example? Is that a fair description?

I think that's a really insightful comment. You half answered it for me, so I always appreciate the question that's got some of the answer in it. Our stock list between both the Venture Exchange and the TSX is actually one of the most diverse stock lists in the world. And so while last year was very much, you know, the highlights were very much around technology companies, we also saw strength in industrials and financials. So as you go into 2022, yeah, you are seeing some sectoral rotation where there's not as much capital going into technology with valuations coming off, but commodity prices are strong. Now, there's still other uncertainties around particularly the energy markets that are probably keeping capital from flowing into that sector as robustly as it could at these valuations. But there's also other sectors that have potential as well, like industrials, like life sciences. If you look to next week, we have one of the largest life science IPOs in our history going with the Bausch & Lomb IPO coming. And that's, you know, the potential to be a bit of a bellwether. If you go back two years ago to the early stage of the pandemic, when we saw a lot of volatility in the market and there wasn't financing transactions getting done, Green for Life came to market and priced their deal amidst that uncertainty. And what it did is that actually created a benchmark for other deals to come to market later on. And it created some confidence for people to price their deals. So we know our long-term pipeline is extremely strong in terms of potential new IPOs. We had a number of companies in the first quarter that we were working with that have deferred what they'd like to do because of that market uncertainty. So certainly, if conditions normalize, if we see improvement in volatility in the market, there are a number of companies that could come and finance. So unfortunately, I can't predict it in terms of the timing and impact, but the conditions are still strong and our pipeline is very good.

And just as a follow-up, I mean, relative to a year ago, are you seeing more interest in Canadian markets from non-domestic investors?

It's harder for us to see through that because the interest from international investors gets mingled with the domestic participants because it all gets amalgamated with them. But certainly when you see the amount of flow that we're getting out of both the US and the UK and Asia, that sentiment is correct. We're seeing more international flow into the Canadian market.

Thank you for your comment.

Thank you. Your next question comes from Graham Riding with TD Securities. Please go ahead.

Hi, good morning. Maybe we just start on derivatives at Montreal Exchange. I'm somewhat surprised that your volume growth is coming from equities and not sort of your interest rate products, given the movement in rates and bond yields year to date. Maybe some commentary around that. Should this not be the kind of environment that drives interest rate volume and activity trade?

Yeah, so what I'm going to do, Graham, and David can jump in and help me as well. Let me dissect it for you a bit more. The actual results in a lot of the interest rate products were actually quite good in the quarter, but they're really masked by the impact on the BACS product. If you remind everyone, that's the 30-day short-term money market product. It's actually down, it's one of our largest products, but it's down 39% versus Q4 of last year and 35% year over year. And the reason that one's down so significantly is when you've got so much really uncertain volatility or what I'll call kind of more destructive volatility with the both timing and size of short-term rate changes that we've seen and the potential for further ones without a lot of predictability about when they could happen or how big they could be, that takes some of the short-term traders out of the market. So that's been the really short-term challenge. And when you see some normalization in the rate regime, then you're exactly right. It's actually positive for the rate regime and the overall curve. Now, if you compare that to some of the other products, the CGB, which is the 10-year product, you know, it's up 11% quarter over quarter. The CGF, the five-year product, is up 9% quarter over quarter, and I think year over year it's up 27%. So we do have strength throughout the yield curve. It really is being offset by that really significant step down in the short-term product that's all about short-term rate volatility. So when that normalizes and there's more predictability there, that product should stabilize as well.

And what I'll add, John, is the real positive over here for us, Graham, is the open interest overall for MX products has remained stable around 20%, and it's in line with other product trends. And as John said, really, the majority of this backs decline has been in the first year of maturities, and it's really the geopolitical uncertainty, and it's made things more challenging for some of the investors. And We saw some pullback from the speculative accounts that seemed to be a little bit more risk-averse given the liquidity and volatility of the BACs contract. But as John said, if you look out further in the curve on the two to five-year, there's really positive volume there.

Yeah, and that's really reinforcing because those of you who remember, those were the two new products we added. Five-year in first quarter was trading 40,000 contracts a day. That's up from 31,000 on average last year, 21,000 average the year before. The two-year, the CGZ product, which we really just launched last year, did 10,000 a day last year. In the first quarter this year, it did 17,000. It was up 72%. So all kinds of strength across the curve, all being offset by that real big impact in the short-term rate product.

Okay, got it. Jumping to trust and AST, I think it was 8.8 million in revenue this quarter was from AST. Is this sort of a reasonable run rate that we should be assuming for this business before we start thinking about higher margin income in a rising rate environment? And then if so, were there any factors that are weighing on AST in the quarter?

So what I would say, Graham, is we're not going to really guide you, but what I can say is that you are correct. There is upside in the revenue line as we get increases in interest rates, so you've touched on that, so factor that in. But more importantly is the balances are growing. And as balances grow as well as the rates rise, we can see upward movement and upside potential in the ASD Canada acquisition in the trust business. But there's also a lot of other stuff that the management team are working on that's really trying to propel and leverage putting the two businesses together. So we do see upside, and that's one of the things we guide you to in our investor brochure is we see this to be a high single to low double-digit growth business. So maybe that's the best way for you to think about that. And then on the side, factor in assumptions on growth imbalances as well as interest rate hikes.

Okay, understood. And then my last question would just be on Box. The volumes are up, I think, 51% year-over-year, and their market share went from 4% to 6%. Maybe just on that last piece, what's driving the increase in market share?

Box offers a really unique product opportunity in terms of the U.S., in terms of actually how it trades, the price improvement features that the market does. and it's well regarded by some really key clients. So what you're seeing in market share is you're seeing a number of key clients, some of which are both participants and also shareholders, some of which are just participants, that are looking to take advantage of that capability that increased the order flow going to the exchange. So it is that simple in terms of a product that's tailored to the client needs, and the clients are providing more flow to it.

Great. That's it for me. Thank you.

Thank you. Your next question comes from James Glowing with National Bank Financial. Please go ahead.

Yeah, good morning. Good morning, James. First question is on the trade port. Nice to see that rebounding in terms of organic growth step up this quarter. I was hoping you could provide a little bit more color as to

uh potentially what's driving that step up this quarter if there's anything uh seasonality wise and maybe q1 2021 or uh how clean is this i i like the nature of the question at the end how clean is it um it's very clean james um yeah so you're you are seeing a number of factors in there you know we i think we talked to the overall subscriber growth being seven percent but the trader subscribers are up substantially uh in terms of double digits i think uh You know, what's it, 14% to 17%. So you're seeing a number of things. We've had really strong renewals. We've had clients expand the usage when they renew. Certainly the volatility in the energy markets often will make actually the trade port screen even more useful in terms of aggregating multiple products on a single screen. And you know from the history on that, that once people are using Tradeport, it is very sticky and the renewal rates are very high. So that's what we've seen across the board, both net new clients. So David, correct me if I'm wrong, I think we had 10 additional net new clients, as well as existing clients that renewed with us at higher rates of subscribers.

Okay, great. And those net new clients, are they coming on board for... if I'll just generalize it and call it like the core trade port platforms, or are they coming on board because of perhaps some of the new product lines that have been added recently or some of the new securities trading information that's been added recently?

Yeah, thank you for actually asking that follow-up. I think it's a great question. It's really actually on the core platform and the broad product offering that's already there. And I want to differentiate that from what we talked about in terms of the relationship with tradition and refined oil. So it's not being driven by that yet. That's still very early stage in terms of putting traditions, refined oil products on the trade port platform. Long term, that will drive additional trader subscriptions as we bring on global oil traders to trade against that product as well. So it's really more on the kind of the existing suite of energy commodities that trade port trades as opposed to some of the new ones that are still early stage.

And last, oh, sorry, go ahead, David.

What I just wanted to just add is, so John was mentioning, yeah, the number of new clients was around 13 in the quarter.

Okay, good to clarify. Last one, just to follow up on the trade port as well, from a geographic standpoint, again, same kind of question, is this coming from the core geographic areas or are you starting to see a little bit more inroads into maybe Asia or the U.S.? ?

The majority of it is still coming from the core area. The Asian, like the Japan power contract trading is strong. We are getting more traction in the U.S., but those are still a smaller piece of the pie. The bulk of that growth is coming from the core European energy market.

Okay, great. I'll leave it there for now. Thanks.

Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press star 1. Your last question comes from Brian Bedell with Dutch Bank. Please go ahead.

Great. Thanks. Good morning, folks. Maybe if I could just go back to Box. Maybe a question for you, David, just on the financials. I appreciate that, obviously, for competitive reasons, you don't want to disclose too much here. But just in terms of modeling that, I mean, is it fair to say the first quarter results for Box in the consolidated revenue and expenses were at least on the expense side, fairly normal. So we can think about that as a normal run rate to project off of. And then was there any other additional noise within the non-controlling interest? Or should we be thinking about that as the 52.1% offset to box on a modeling basis going forward? Appreciating that, of course, every quarter we need to model the volumes.

Absolutely, Brian. So pretty normal, pretty clean. So absolutely, key off of our disclosures, and as you rightfully pointed out, look to see what gets published in terms of monthly and quarterly statistics in terms of volume and market share, which is publicly available. But yes, the numbers are clean, and your interpretation of non-controlling interest at roughly 52% is correct.

Okay, great. And then maybe just more strategically, John, I guess for both Box and also just just thinking about competition broadly in the U.S. options markets and then, of course, up in Canada with SIBO, the pending acquisition of NEO. Maybe if you can just talk about what your competitive strategy might be on pricing, if you think you need to alter pricing whatsoever in Canada. And then similarly, I guess, on the offensive side in options, is there capability to or is there a desire to alter pricing within the U.S. options markets to gain more share there? Is that mostly up to the box, folks, or do you have the discretion to steer that as well?

So let me start with the latter question first. That very much is up to box. While we do have the You know, the technical consolidation in terms of the 50% voting on Box, it is operating as an independent entity with an independent board that we participate in, and they make their own operational and strategic decisions that way, which we support through the board participation. So Box would look at that in terms of what's the right strategic approach for them. It is more of a premium service in the U.S. market because, as I said earlier, it provides a unique service to the clients in more of a premium product. Within our kind of domestic competitive environment, It's all about serving the clients. I mean, our focus is making sure that we've got the product suite, the capabilities, the technology offering, and be the best marketplace to serve the clients. We do that very well. I believe that across the board that we are already priced competitively, so I don't see material competitive pressure around pricing, and particularly on the things that are the easiest to compete in, in terms of the lowest barriers of entry, like things like equity trading. Our pricing is competitive North American-wide. You know, we're not just competing with the venues here in Canada, but the venues across North America for that interlisted flow as well. So we think we're in very strong position. And when you think about the other parts of our franchise, you know, our capital formation regime, our listing regime has very strong competitive dynamics because we only trade those companies that we list. So if a company wants access to the deepest pool of liquidity, they need to list with us. We have that partnership agreement in terms of the index. So the primary index benchmark, the S&P TSX 60 and composite, you need to be listed on TSX to participate in those indices. So again, we have very strong competitive dynamics there. And then when you look at other parts of our franchise, like our domestic derivatives, you know, features and options businesses, we operate that as a vertical. So we control our own clearing, we control our own regulatory structure. And that's, you know, if someone wants to compete with that, they have to build those capabilities for themselves. So we are certainly not resting on our laurels. We look at all those pieces regularly, but it really goes back to that beginning point of ensuring that we're serving the clients the best of any of the providers out there. And I've got confidence in our team to continue to do that.

That's great, Keller. Maybe if I could speak one more, and just on the crypto futures that you mentioned, Any thoughts on timing of that? And then what you're hearing from users, I mean, typically you develop products based on user feedback. So are you seeing a ton of demand for these? And then I guess would you start pricing off, you know, typically when you start a new futures product or with anyone, does that, you know, there's low pricing to start off and then you build into that over time. Just any thoughts on that?

I got to say, this is a great closing question because this has been a suite of some of the most insightful questions that we've had on a call. So thank you for that. The crypto future, we're looking to have that launched in the back half of the year. I don't have specific timing yet because it does have to work through both the regulatory and the risk management structure. It is based on client demand. And where the client demand is coming from is I want to remind everyone that Canada was the first market to launch crypto-based ETFs. So you've got now ETF providers and fund managers that are holding crypto in their products but don't have good pricing or risk management tools around them. So the crypto product we're looking at would be based on similar index and benchmarks for crypto pricing that would allow that pricing certainty for asset managers that are holding those in their products. So that's very much the design that we're working towards and very much to that point in terms of kind of how you price it off off reliable indices that are being used in other products. So it's actually, even though it's a new area, a new sector, it's using all the same futures principles that we would have used in any other futures product we brought to bear, like the fixed income ones.

Great. Great. Thanks so much.

Our pleasure. Thank you.

Thank you. There are no further questions at this time. Mr. Malcolmson, over to you.

Thank you, everyone, for listening in today. Just a reminder that our annual and special meeting of shareholders will be taking place this afternoon at 2 o'clock. If you have any further questions, contact information for media as well as investor relations is in our press release, and we'd be happy to get back to you. Stay well and safe, everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.