TMX Group Ltd

TSX:X

Earnings Call Transcript 2023-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to the TMX Group Limited Q1 2023 Financial Results Conference Call. At this time, all lines are in a listen-only mode. [Operator Instructions]. This call is being recorded on Tuesday, May 2, 2023.

I would now like to turn your conference over to Amin Mousavian. Please go ahead.

[Amin Mousavian, VP, IR, Treasury & Administration]

Thank you, Michelle, and good morning, everyone. I hope you all doing well and enjoying the longest spring days. Thanks for joining us this morning to discuss the 2023 first quarter results for TMX Group. As you know, we announced our results late yesterday and copies of our press release and MD&A are 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 the opening remarks, we will have a question-and-answer session.

Before we begin, I would like to remind you that certain statements made in this call may relate to future events and expectations and constitute forward-looking information within the meaning of the Canadian securities law. Actual results may differ materially from those expectations. Information concerning factors that could cause actual results to differ from forward-looking information is contained in our press release and in periodic reports that we have filed with the regulatory authorities.

And with that, I turn the call over to John.

[John McKenzie, CEO]

Well, thanks, Amin, and good morning, everyone. Thank you for dialing into the call today to discuss TMX Group's financial results for the first quarter of 2023 and to everyone listening in this morning, I want to wish you the very best of health to you and your families.

Now, it is a busy day for us here at the TMX. Following the call today, we are holding our Annual and Special Shareholders Meeting this afternoon. Today's AGM our 21st as a public company will be a hybrid meeting and I'd like to personally welcome any shareholders that are interested to join us in person at the new TMX Market Center for the meeting this afternoon.

Now, as we announced in March, we are preparing for a transition in Board leadership and I will talk a little bit more about that at the conclusion of my remarks today.

Now, before we get into the details of our performance in the first three months of 2023, I want to reinforce TMX's commitment through every reported period and amidst all market conditions, we are working to build TMX stronger, more capable, and more responsive. It requires an adaptive and innovative mindset. And the truth is for all business, even one with a proud 170-plus year track record change is the only constant.

But importantly, what doesn't change is our commitment to our purpose to make markets better and empower bold ideas. And we continue to make progress in key enterprise initiatives to accelerate TMX's ongoing evolution to better serve our growing client base and broad range of stakeholders here in Canada and around the world.

Now, turning now to our performance, TMX's first quarter results are excellent, with solid revenue growth compared to the same period last year highlighted by significant momentum in some key areas despite the sustained challenge posed by macroeconomic conditions and environmental factors.

And as our purpose propels us forward, TMX continues to benefit from a stress tested diversified business model. And our Q1 results once again reflect the value of maintaining the long-term view. TMX reported record revenue of over $299.1 million, a 4% increase from Q1 of last year, driven by double-digit growth in revenue from Global Solutions Insights an d Analytics, including both TMX Datalinx and Trayport, and Derivatives trading and clearing excluding BOX. Increased revenue was partially offset by lower revenue from equities in fixed income trading due to lower trading volumes on Toronto Stock Exchange, TSX Venture Exchange, and Alpha, and lower capital raising activity on TSX and TSX Venture.

On an adjusted basis, Q1 diluted earnings per share was a $1.85, a 2% increase from Q1 2022.

Total reported operating expenses increased by 10% compared to Q1 last year, but sequentially just 3% when compared to Q4 of 2022. And David will take a closer look at these expenses in the remarks to follow.

Moving now to our business areas. Starting with Global Solutions Insights and Analytics or GSIA. Revenue from GSIA was $102.6 million, a 14% increase from Q1 2022, reflecting higher revenue from TMX Datalinx, our information services division and Trayport, our connectivity platform for European wholesale energy markets.

TMX Datalinx revenues was $56.8 million in the first quarter, an increase of 16% from last year due to higher revenue from data feeds, benchmark and indices, co-location, analytics and price adjustments, as well as a favorable FX impact from a stronger U.S. dollar. And we continue to focus our strategic expansion opportunities for TMX Datalinx, seeking out new ways to empower our clients with the advanced tools and insights they need to gain a competitive investment edge.

Q1 revenue included $1.7 million from Wall Street Horizon, a Boston-based provider of global corporate event datasets that we acquired in November 2022.

And in February of this year, we acquired SigmaLogic, a U.S. FinTech firm providing advanced analytics and portfolio tools to wealth -- to the wealth management industry. And while the revenue contribution was modest in Q1, just over 10 days ago, we completed the next step of our strategy with the sale of SigmaLogic to VettaFi. As you will recall, earlier this year, we made a strategic investment in VettaFi, a global indices and ETF service provider, which includes a commercial agreement. And this latest deal made in exchange for common equity of VettaFi builds on that initial investment and enhances the value of our partnership as we work together to bring more client-centric index and benchmark products into Canada.

Momentum here is important with enterprise-wide implications. Much of TMX's future success will be determined by our ability to build on our expertise and strengthen our capabilities to meet the needs of the modern market. And for TMX Datalinx our strategy is focused on ways to extract more value from our existing assets and the pursuit of essential innovation.

Now moving to Trayport. Revenue grew 12% or 14% in common currency pound sterling compared to Q1 2022, driven by a 9% increase in trader subscribers and annual price adjustments. Trayport's core jewel network continues to support energy market participants navigating severe market volatility with customized client-focused trading tools, insights and solutions. And that interconnected ecosystem of participants, execution venues and clearinghouses across world power and natural gas markets continues to grow. Since the beginning of 2022, Trayport has added more than 60 new clients in core and new growth areas. And beyond the strong core growth, Trayport continues to pursue its global diversification strategy, seeking out opportunities in new asset classes, as well as new geographies.

Now turning to Derivatives. Excluding BOX, revenue from Derivatives trading and clearing was $43.8 million in Q1, up 14% from Q1 of last year, driven by a 13% increase in revenue from MX, and a 15% increase in revenue from CDCC due to higher volumes traded and cleared. MX total volumes increased 15% compared to Q1 2022 and overall open interest grew substantially year-over-year, up 22% at March 31, 2023, and compared to the end of the first quarter of the last year.

MX's recent growth highlights the value of TMX balance diversified business model, and while volatility, had a negative impact on activity in the equity and fixed income markets during the first quarter, investors were very active in trading our key Derivatives products. Overall, the interest rate product line performed extremely well with volume up 19% over the first three months of 2022.

And some other key highlights included 122% growth in ETF option volumes highlighted by increased activity from institutional investors, trading the broader index, financials, REIT and crypto sectors. And pronounced growth in the short-term interest rate products year-over-year, BAX volumes traded were up 29% and volumes in the CGZ, MX’s new two-year government of Canada Bond Future contract was up 113%.

Looking to the future, Canada's primary interest rate benchmark is about to change. By next year, most of the world's jurisdictions including Canada will have fully transitioned from IBOR to a new risk-free alternative benchmark. Preparing for the industry transition from CDOR to the Canadian Overnight Repo Rate Average or CORRA ahead of the scheduled succession date in June 2024 is a key priority for the team at MX. And we're working hard to ensure a smooth transition from our signature BAX contract to the new three-month CORRA Futures or CRA contract. Volumes traded in the CRA reach an average daily volume of approximately 10,000 contracts in Q1 2023.

Now turning to capital formation. It is no surprise that global macroeconomic factors including sustained high interest rates concern over inflation and increased volatility weakened the capital raising environment in the first quarter of the year. Revenue from capital formation in Q1 2023 was $63.5 million, a 1% decrease from last year, reflecting lower revenue from additional listing fees due to a lower number of financing transactions on Toronto Stock Exchange, and a decrease in dollars raised on both TSX and the TSX Venture Exchange. Despite the impacts of these worldwide environmental challenges, our public market ecosystem remains resilient, and we are seeing positive signs within the deal making community that markets are poised for a rebound as conditions normalize.

And while the slowdown in financing activity during the first quarter had a negative impact on our results and the number of new listings on TSX and TSXV decreased year-over-year. Canada's markets remain the number one growth platform in the world for small to medium size enterprises.

And it's important to measure our performance versus those global peers. We stack up extremely well. In fact, our exchanges ranked second among global peers by the number of new listings during the first three months of the year, and third, by the number of new international listings.

New listings during the quarter included some notable success stories from across our unique two-tiered ecosystem. In March, we welcomed SP Strategic Acquisition Corp., a new capital pool company created by diversified investment management firms Sterling Partners to the TSX Venture Exchange. And what's notable is that this is marks the first Chicago-based CPC in the history of our program.

In February, Lumine Group, a spinout from Constellation Software listed on TSX Venture, one of the largest venture tech issuers ever and Lithium Royalty raised $150 million in its IPO on the Toronto Stock Exchange. The company is focused on mineral properties around the world to supply raw materials to support electrification and decarbonization.

Now, revenue from other issuer services was $24.3 million in Q1, a 42% increase compared to Q1 of 2022, reflecting strong growth in our TSX Trust business, driven by higher net interest income and slightly offset by lower transfer agent fees. TSX Trust enhanced product suite and client service capability following the successful integration of AST Canada has enhanced our position in a highly competitive market.

Now finally, I'd like to provide an update on an important long-term initiative our post-trade modernization program. Now, earlier this year, Canada's regulators in conjunction with the U.S. SEC announced the adoption of T+1, a reduction in the standard settlement cycle from two days to one day with an expected implementation date in May 2024. And while our post-trade modernization program is well on track for implementation this fall, after careful consideration and with consultation with our participants, we have decided to differ delivery from late 2023 to late 2024 to allow for the industry to seamlessly transition to T+1 settlement in a timeframe that aligns with regulatory requirements.

I personally would like to thank our participants for partnering with us and testing and developing with us thus far, and for their continued commitment towards this future implementation. In David's comments later, he will share the impacts on this deferral.

But before I turn to David, I want to thank our people here in Canada and around the world for their continued and unwavering commitment to serving our clients and our markets with excellence and for bringing TMX's corporate purpose of life in their work every day.

Now, as I mentioned a few months ago, at the outset, this afternoon's AGM marks an important milestone for TMX. Pending the results of a shareholder vote, we expect to welcome Luc Bertrand, as the new Chair of TMX Group's Board of Directors, the third in our 20-plus year history as a public company. Luc has been a Board member for more than 10 years and a friend for much, much longer. And I look forward to continuing to work with him and the entire Board as we strive to build on this institution's impressive track record and advance our long-term growth strategy.

And on finally, on behalf of our entire senior management team and the company as a whole, I want to sincerely thank Chuck Winograd, for his exemplary service to the company as Board Chair over the past 11 years. So much of the world has changed since the Maple Transaction in 2012. And during Chuck's tenure with the Board, TMX has grown into a world leader. We have expanded our global presence, sharpened our focus on serving stakeholders and clients, and advanced our long-term growth strategy. TMX has also navigated through complex challenges over the years, and we have taken important steps to strengthen the organization's culture, while defining our new purpose. Chuck's expertise, guidance, and insight have been major assets to the company and to me personally through this period of pronounced growth. As we continue to build on TMX's success, his legacy of leadership will endure.

And with that, let me pass the call to David. Thank you.

[David Arnold, CFO]

Thank you, John, and good morning, everyone.

We had an excellent start to 2023, with record revenue of $299.1 million in the first quarter, a 4% growth year-over-year on a reported basis. Revenue is up 6% compared to the first quarter last year when we exclude SigmaLogic, which we acquired the balance of the shares on February 16 of this quarter.

Wall Street Horizon, which we acquired on November 9 of last year, and BOX, which as you will recall, we started consolidation accounting based on our voting interest increasing to 51.4%, and economic interest of 47.9% on January 3 of last year.

Since John spoke to the highlights on all of our top-line and business performance this quarter when compared to last year, I will be brief in my remarks when comparing to last year's Q1, and will rather focus on how we have performed sequentially. That is to say versus Q4 of last year.

Our revenue increase versus Q1 of last year was driven by double-digit growth in Global Solutions Insights and Analytics for both Trayport and TMX Datalinx, as well as a double-digit growth in our Derivatives trading and clearing segment, excluding BOX, and finally, double-digit growth in our TSX Trust business. This was partially offset by lower listings revenue due to both lower initial and additional listings fees, lower equities, and fixed income trading and lower BOX revenue.

While I reported diluted earnings per share is down when compared to Q1 of last year, this is solely attributable to the gain we recorded in Q1 last year resulting from the reevaluation of our interest in BOX, after we obtained voting control on January 3 of last year. So looking through that, our adjusted diluted earnings per share increased by 2% to $1.85 this quarter, reflecting higher adjusted net income attributable to equity holders of TMX Group of $0.9 million and a lower share count.

Taking a closer look at our expenses. As mentioned earlier, operating expenses in the first quarter increased 10% compared to Q1 of last year. Operating expenses excluding an increase of $3.3 million related to SigmaLogic, Wall Street Horizon, and transaction-related costs, as well as Q1 2022's AST integration costs of $1.2 million were up 8% compared with the first quarter of last year. The higher expenses reflected higher cost related to BOX increases for our employee short-term performance incentive plan costs, which are reset to target at the start of each year, and favorable FX impact leading to higher expenses due to a stronger U.S. dollar and higher travel and entertainment costs due to travel restrictions still being in place this time last year. Excluding these expense items, which are driven by factors beyond business activity, operating expenses increased by 5% in the first quarter compared to last year driven by three main factors: first, higher headcount and payroll costs; related revenue-related expenses that were higher; and higher IT operating costs.

The vast majority of our higher headcount relates to investing in additional headcount in Trayport and TSX Trust, both of which are high growth businesses, justifying the investment in additional resources and the balances primarily in our other businesses to support growth with a minority related to our corporate functions who support our businesses as they grow.

Turning now to comparing our results on a sequential basis. Revenue increased $23.4 million or 8% from Q4 of 2022 to Q1 of 2023, driven by increases across all of our business segments with the largest increases from equities trading -- equities and fixed income trading, Derivatives trading, and clearing and Global Solutions Insights and Analytics.

Revenue in our equities and fixed income trading segment increased 14% in the quarter compared with Q4 of 2022. This increase was driven by higher fixed income trading revenue and a 4% increase in the overall volumes of securities traded on our equities marketplace. Trading volumes of TSX and TSX Venture both increased by 5%.

Moving to our Derivatives trading and clearing segment. Revenue grew by 13% this quarter compared to Q4 of last year, driven by a 21% increase in MX trading volumes, which peaked mid-March. In addition to higher volumes both MX and CDCC revenue benefited from pricing changes, which were effective January of this year.

Revenue in Global Solutions Insights and Analytics was up 10% this quarter compared to Q4 of last year, with increases from both Trayport and TMX Datalinx. Revenue from Trayport was up 12% in Canadian dollars or 10% in pound sterling. The increase in pound sterling was primarily driven by 9% increase in trader subscribers and annual price adjustments.

Revenue in our TMX Datalinx business, including co-location grew by 8%, driven by increases in data feeds, co-location, and the impact of 2023's price adjustments and just under a million related to our Wall Street Horizon and SigmaLogic acquisitions.

Operating expenses increased $4.6 million or 3% from Q4 of 2022. Excluding the expenses from SigmaLogic, Wall Street Horizon, transaction-related costs, and $4 million in AST integration costs in Q4 of last year, expenses were up 5% from last quarter. To make an apples-to-apples comparison, we look to four items that might typically drive these quarterly variances, namely seasonality impacts, short-term incentive compensation plan expenses, fluctuations in the FX rate, and BOX expense changes.

So starting with our first item, seasonality changes. The most notable seasonal impact is that payroll taxes always trend higher in Q1. In addition, we reset our short-term incentive compensation plan accrual rates based on performance. As you would've seen from our annual disclosures, our final scorecard percentage was 68% for 2022 and is trending higher in Q1 of this year.

Finally, we have higher Trayport and BOX expenses in Canadian dollars, primarily driven by the stronger pound sterling versus Canadian dollar on the Trayport front. Excluding the quarter-over-quarter impact of these items, our expenses were actually down 1% from Q4, as evidenced by our normal course disciplined approach to manage our expenses, while continuing to invest for long-term growth.

Moving on to changes in the post-trade modernization project. As a result of the acceleration of the implementation of T+1 to May 28 of 2024, and recognizing that it is a market priority, we'll be entering a slowdown period until after the industry transition. We are currently targeting a revised launch in Q4 of 2024. While being mindful that this timing may change if there is a significant industry-wide delay in the implementation of the move to T+1 settlement. We will continue to provide updates on timing as the project progresses. However, as we have indicated in our MD&A, we are now anticipating incurring between $130 million to $140 million in total capital expenditures related to our CDS modernization project, which is up from our previously disclosed estimates of between $125 million to $135 million in total capital expenditures.

Turning to our balance sheet. In the first quarter of 2023, we spent $12.7 million repurchasing 94,400 of our common shares under our normal course issuer bid program. Our debt to adjusted EBITDA ratio was 2x at the end of the quarter, up from 1.6x at the end of Q4, as we acquired our 21% interest in VettaFi, which we funded through existing cash and commercial paper. We also held over $432 million in cash and marketable securities at the end of the quarter, which was over $257 million in excess of the $175 million we target to retain for regulatory and credit facility purposes.

Our effective tax rate of approximately 27% for Q1 is up 1% from Q1 of last year after adjusting for the non-taxable gain from consolidation accounting of BOX recorded in Q1 of last year. The primary driver is due to an increase in the UK corporate income tax rate from 19% to 25%, which will be effective April 1 of this year. However, with the blended tax rate being applied as is the UK requirement for corporations with December 31 year-end, it is as if it is effective for us on January 1.

Last night, our Board approved a quarterly dividend of $0.87 per common share payable on June 2 to shareholders of record as of May 19. In the first quarter, we paid out 47% of our adjusted earnings per share, which is above the midpoint of our target payout ratio of 40% to 50%.

And now, I'd like to turn the call back to Amin.

[Amin Mousavian, VP, IR, Treasury & Administration]

Thank you, David. Michelle, could you please outline the process for the question-and-answer session?

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions].

The first question comes from Nik Priebe of CIBC Capital Markets. Please go ahead.

[Nik Priebe, CIBC Capital Markets]

Okay. Thanks for the question. My first question relates to pricing power across the platform. Are there any areas or business units that you've identified where you might have some flexibility to introduce pricing changes this year?

[John McKenzie, CEO]

Yes. Nik, it's a good question and good morning. What we're doing with respect to pricing is twofold, which one is every part of our franchise, every part of the business we are constantly looking at and it's part of our strategic review is what's the value equation, the value provide to clients, how do we compare competitively both domestically and globally, and where there are opportunities or changes or even risks where we want to make adjustments to. So that's the fundamental piece in terms of running our business in terms of driving growth in the core business through both that, but also product roadmap, product delivery, expanding the sales pipeline, things like that. So it is only one factor in terms of those growth pieces.

Now, with that to the crux of your question, there are certainly areas, I've even talked about Trayport in the past that, we basically build CPI in directly there on an annual basis. You're seeing some of that flow through this year already. We have got the approval on the rest of our Datalinx business for basically what we call half CPI. So we've got the ability to make changes there. But we also want to be very respectful of our position there, and so that we are not a burden on the client base in terms of our pricing structure.

We'll also continue to look at other parts of the franchise as well. So we do look at the trading opportunities. We do look at listings. You understand that we made changes on both TSX and TSX Venture earlier this year. But that doesn't preclude us from making other changes within the structure because what we don't do is do kind of a one size couple of percentage point across the Board. We look to be very strategic in terms of the price structure as to where there's opportunities. So I know I'm not giving you anything specific there because everything is done based on a strategy going forward. And as we do have things that we can bring the market, we'll make them public at the time.

[Nik Priebe, CIBC Capital Markets]

Yes. Okay. That's good color. And then you've been quite active on the corporate development front lately. Are you able to update us on your outlook regarding the M&A pipeline and what that might look like today?

[John McKenzie, CEO]

You're getting me two -- two in a row on crystal of all questions, Nik. Yes, I appreciate that. So I think that the types of thing -- the best way I would give you guidance is to look at the things we've done over the last couple of years as really good indicators of the sectors that we're looking at, the nature of the businesses and the nature of the economic those businesses. So continuing to expand in our GSIA suite in terms of more analytics datasets ability to drive more subscription-based services through that, expanding the use of our own data and broader products, global distribution around those products are all features and the types of businesses we're looking at.

Similarly with the acquisition and the full integration of AST, which we complete -- completed over a year ago in the integration last year, that gives us a much deeper set of services for issuers, we're always looking at other ways to deepen that relationship and provide a broader suite of products to the clients to enhance the value proposition with TMX.

So those are two really good areas of the types of spaces that we continue to focus on because they advance the strategy. And they advance those areas of the strategy that we've talked about of being those high growth areas. We are looking at other assets all through the franchise, but they are all again tied to the ability to grow the strategy.

The other piece I'll add to you with that is, you've seen us do things as large as Trayport and as small as a minority investment in Ventriks. And those are both good guideposts that we are looking at both small businesses that we can tuck-in and scale and large are -- larger deals that could be more transformational.

[Nik Priebe, CIBC Capital Markets]

Yes. Okay. That's good. That's all I had. Thank you.

[Operator]

Thank you. The next question comes from Etienne Ricard of BMO Capital. Please go ahead.

[Etienne Ricard, BMO Capital]

Thank you, and good morning. At the --

[John McKenzie, CEO]

Good morning, Etienne.

[Etienne Ricard, BMO Capital]

Hi, at the Montreal Exchange volumes on the two-year Government of Canada Bond Futures have picked up significantly as you noted in your remarks. At what point do you believe volumes could become self-sustaining and as a result removes introductory incentives?

[John McKenzie, CEO]

The guideposts I give you, because again these are commercial arrangements with our market making clients, but the guideposts I give you is if you look at the experience we had with the five-year and the level of sustained liquidity that we were in -- that we enjoyed in the five-year product when we made the decision with the clients to exit that market management region, it's a really good indicator of how we think about other future products like the two-year and the 30 as well.

[Etienne Ricard, BMO Capital]

Okay. Understood. And VettaFi closed on the acquisition of an index provider focused on AI, robotics and healthcare last month. What's the potential for collaboration on the index front between TMX and VettaFi as it relates to your innovation sector listings?

[John McKenzie, CEO]

Yes, it's very high. The whole thesis of our investment in VettaFi was actually along with the partnership agreement that we built together to create indices based on our datasets, our relationships, things like that, using their capabilities. So the acquisition that you referred to for the benefit of everyone else on the call is an acquisition of an organization or a business called ROBO Global that actually does exactly you said focuses on indices in the AI space and related spaces. It was actually an acquisition that was intended upon by our investment into VettaFi in the first place when we put capital in it. It was to actually fund this kind of continued growth in VettaFi and it expands the set of assets and capabilities that we can bring to bear on the partnership as well.

Now, we're still very early days in that partnership, but our teams are already collaborating on what I'll call that priority list of the benchmark opportunities that we can build together.

You would've noted as well, and both David and I talked about it, the smaller transaction that we did with SigmaLogic, and this is the ETF analytics business that we'd done with SigmaLogic, ETF logically was again part of that intention. So we already owned a little under 50% of this business. The opportunity to acquire the remainder came available and with our partnership with VettaFi, the best home for that business is actually within VettaFi, which has extensive and expansive ETF capabilities. And this is very complementary to what we can do there. So the best thing for us to do is to acquire the rest of that business, roll it into VettaFi for a larger stake, and really serve the clients better in a combined platform. So you're right on the -- you hit the nail right on the head. This is all about what we can do together to expand the services to clients.

[Operator]

Thank you. The next question comes from Geoff Kwan of RBC Capital Markets. Please go ahead.

[Geoff Kwan, RBC Capital Markets]

Good morning. Just expanding on the question on the Montreal Exchange with the trading volumes overall being strong in Q1 this year, you talked about last year, the volumes being subdued just because of the substantial increase in interest rates and that the volumes would likely improve once we solve a bit more stability predictably around the Central Bank interest rates. So in that context, do you see what the volumes in Q1 2023 as being call it relatively normal, where there seasonal or other factors that you think might explain the jump that we saw in Q1?

[John McKenzie, CEO]

Yes. I think the -- it actually was nice to see that actually come to fruition so that the guidance that we were giving last year was not hope and it was actually based on our experience in the market. So I appreciate you raising that.

When you've got periods of unconstructive volatility and interest rates, and by -- what I mean by that is when you've got really a question mark around what Central Banks will do with rates, it's very -- it's more difficult for short-term traders to trade in those products like the BAX product and even the future CRA product that we're bringing to the market. So that volatility last year was expected that step down was expected. And when rates stabilized in the first quarter, and there was a view that rates would stay at this level, you saw traders come back in the product.

Now you are seeing some pullback of that at as we get into April and Q2, because again, on the collapse of some of those banks in the U.S. some concerns around both future inflation, but also potential recession concerns. There is again volatility around rate expectations both plus and minus and that does bring some of those short-term traders out of the market again. So I think for the next period, I think you can expect to be for this product, particularly these short-term products to be a bit more volatile given that level of uncertainty in the marketplace.

[Geoff Kwan, RBC Capital Markets]

Okay. And just my second question was on the equity trading side on the call, the revenue per share traded, it seems like it's been steadily increasing over the past couple of years. I know you've made some changes on the product front and a little bit on the pricing, but just wondering from your perspective like what would be the key drivers that seem to be driving that and do you see anything that would give you a little bit further benefit as we look out over the next few quarters?

[John McKenzie, CEO]

Yes. It really -- it's primarily driven by product and the product mix. So as we've been -- if you recall the work we did to create a stronger market on close product a little over a year ago, we're seeing volume grow in the close. The close is a premium product. The expansion of our dark order trading, which has been a growth area for us again those are premium products. So even over the same levels of volume, you're getting more premium kind of revenue per share. And so that is actually part of the strategy. That's a deliberate approach in terms of building the business.

And as we've launched the consultation on two net new markets, which you have seen -- which is alpha prime, alpha dark. These are again all about providing premium features to traders that want better execution quality, want to be able to do larger transactions, want to see the broader speed bumps to take away some of the electronic trading out of those executions. So a lot of the roadmap going forward, again is around bringing more premium product to the market that solves problems for our clients. And those clients are willing to pay a premium over the basic execution fees that you'd see in the open market. And so that's a deliberate strategy and you're seeing that play out in the average rates.

[Operator]

Thank you. The next question comes from Graham Ryding. Please go ahead.

[Graham Ryding, TD Securities]

Hi, good morning. The share of equity account investments, I think that's where your VettaFi proceeds would come through. I thought it might have been positive this quarter just given the size of that acquisition. So maybe you could just give us some color on if this is an expected run rate or if there was any noise or anything there sort of weighing on that line item.

[David Arnold, CFO]

Hi Graham, it's David. Yes. There's a little bit of noise. So as we had mentioned when we made the acquisition, just to give people a size and scope and remembering that VettaFi is a private company, so our ability to provide in-depth details is quite limited.

But what I can share is it's a business that as we disclose when we acquired it, that's much the size and scale of Trayport with a similar kind of margin profile especially when we look at these businesses, which are technology-based or database businesses, it's all about the EBITDA contribution and very similar to Trayport when we acquired it. But as you know, VettaFi is a high growth business. And as a result there's obviously lots of acquisitions they're making, so their amortization would naturally be a higher number. Then you maybe expect in a stable or more mature business.

And then the second thing is the business has been primarily funded through debt. So it's net income contribution is less than obviously the EBITDA contribution. So that's being picked up there. The good news is as we've made our investment, it's given an ability for the VettaFi management team to look at their capital structure. I would expect a little bit more noise in the second quarter. But as we get to the third and the fourth quarter, I think we'll be in a better position to talk a little bit about what a more steady run rate is for us to pick up on that account line. Remembering as well that on that account line is Ventriks as well, a much smaller investment just in terms of share magnitude and dollar impact. And that's what I would refer to as an early stage technology business. So obviously has a very different profile, let's say to a VettaFi and then maybe a more mature business. Does that help Graham in least in terms of how you might think about it?

[Graham Ryding, TD Securities]

Yes. That's helps. Should we expect it to be trending positively Q3 forward or is that amortization still going to be enough to weigh on when --

[David Arnold, CFO]

Yes. So -- so amortization will be -- amortization and funding costs will be with these businesses for a long period of time. But the noise that I'm referring to between a Q1 and a Q2, because if they make an acquisition in a quarter, they're going to have transaction costs. And as you would expect right if we made 100% acquisition at TMX, we would adjust for it as we normally do. We disclose it in terms of our adjusted numbers.

When we pick up our percentage share of a minority investment, we don't make any adjustments for those types of items. So that's really what I'm referring to, Graham, is if they have M&A activity in the quarter, that could cause some lumpiness. But definitely as we get to Q3 and Q4, I expect that account line to trend far more positively.

[Graham Ryding, TD Securities]

Okay. That makes sense. And then, just on the Datalinx side of your business very strong growth this quarter, I think it was 9% if you exclude acquisitions and FX, maybe you could just give us some color how much of that 9% was some of the price increases that you brought in this year and how much was just growth otherwise?

[David Arnold, CFO]

Yes. So it's myself, Graham. I would say the pricing increases were less than half. The real primary drivers over here are business volume. Obviously as you know, we bill a lot of our international clients in U.S. dollars, so we had a benefit from that. So -- but the short answer is pricing is not the majority of this increase.

It's core operations and organic growth added obviously by the acquisition of Wall Street Horizon and SigmaLogic during the quarter, obviously subsequently we've now sold our SigmaLogic stake to VettaFi. But the Wall Street Horizon acquisition is really paying a lot of dividends. In fact, it's well ahead of all of our business case metrics and that's also contributing to the top-line growth for Datalinx. Anything to add there, John?

[John McKenzie, CEO]

Yes, not to pile on too much, but given the Blue Jays had a phenomenal April, I can't help, I'll take the opportunity to take the baseball reference here. This is a business where it's not home runs. We're actually hitting single after single after single. So you've got a whole list of different product growth areas that are contributing to that 9% you talked to.

So as David said, less than half of that's coming from pricing. We're getting growth from the index and benchmark piece. We're getting growth from co-location, from the expansion of feeds, the addition of new bundled products that Michelle's team has delivered. And so it really is that sequence of continuing to innovate ad products, sell products, that gives us singles and single singles and pushes the runs over the line. And that's the way we built the strategy and that's why we were confident last year to advance the guidance around this business that this was going to be a strong growth business going forward and not that kind of 1% to 2% that we had in history.

[Graham Ryding, TD Securities]

So mid-single-digits, is that your revised guidance for this line, can you remind me?

[David Arnold, CFO]

So we refer to the Datalinx business in our investor brochure as strong growth, which would be 5 plus.

[Operator]

Thank you. [Operator Instructions].

The next question comes from Jaeme Gloyn of National Bank. Please go ahead.

[Jaeme Gloyn, National Bank]

Thank you. Good morning. Maybe just to follow-up on the last question around Wall Street Horizon. You said it's running ahead of your expected metrics, and so $1.7 million in this quarter. Is that a fairly representative quarter, are there any sort of like one-time item in there seasonality? How should we think about Wall Street Horizon's contributing in the upcoming quarters?

[John McKenzie, CEO]

I'd say representative, but growing. So it's very much subscription-based. So no really one-time things that are distorting that. And it is a business we expect to continue to grow, so that's a baseline you can build off of.

[Jaeme Gloyn, National Bank]

Okay. Great. Next question or my first question was going to be around interest income. And this kind of hits in a couple of areas for the business TSX Trust obviously benefiting from higher interest rates and net interest income, but so did CDS and so the question is for both of those businesses, are you able to break out the contribution from let's call it net interest income in those lines versus let's say core products and other services?

[John McKenzie, CEO]

Let me start with the Trust piece and because the CDS piece is actually fairly limited. I'll leave that one for David afterwards. As we said in the notes and the guidance that we gave, the growth in Trust, which is essentially the other services was really about net interest income growth. And so it's really quite representative and out for that the actual transaction-related pieces of Trust were would've been slightly down in the quarter, which should not be surprising because the Trust business, I'd say is about kind of 60% recurring run rate and kind of 40% transactional. So very much like capital formation in a quarter where you've got limited market activity and not as much M&A activity, not as much corporate financing. There's limited Trust transactional activity. So that being a little softer year-over-year, the bulk of that growth was all the net interest income piece. You want to talk to the CDS piece, David.

[David Arnold, CFO]

Yes. So on the CDS piece, it's less than $1 million honestly Jaeme, so the more noticeable and meaningful impact of interest rate rises is going to be seen in the Trust business as John has indicated.

[Jaeme Gloyn, National Bank]

Yes. Okay. Great. And then last one for me, just thinking about the debt maturity schedule here, we have $250 million in October. You've got the $200 million of CP now. What's the strategy around those I guess that maturity coming up and then the CP.?

[David Arnold, CFO]

So it's a great question, Jaeme. So let me handle the CP as you know, obviously on a quarterly basis, we generate enough free cash flow for us to make a meaningful down -- downward tech or at least down payment in reducing the commercial paper as we head towards the end of Q3, which as you say a Series B debenture is coming up for redemption.

So we're spending a lot of time, as you can expect, Jaeme. So we focus on what's going on in the interest rate market, not just because it drives our Derivatives franchise and some of our other businesses, as you alluded to Trust and CDS. But also because it drives our decisions on our capital structure, right? So we haven't made any decisions yet. We continue to look at refinancing options.

And the backdrop of it is two things. One is where do we see short and long-term rates going as we near that point, and do we see an opportunity for us to either early refinance or do it as we head towards the end of Q3 when the debenture comes due. But in addition, it's -- to an earlier question, it depends on what the capital resource needs are for us in terms of M&A activity or inorganic growth. So depending on those factors you could see us continuing to pay down the commercial paper and simply refinance the long-term debt with commercial paper or any kind of short-term borrowing. Or if rates are in our view at a position where we might want to lock in both for duration and rate, we might refinance it. So stay tuned in this space with the overall backdrop is what our -- what will our capital deployment needs be in terms of any possible M&A activity.

[Jaeme Gloyn, National Bank]

Yes. Understood. And just to clarify, I think you -- it was you, David, in the -- in your prepared remarks talked about excess cash being was it $50 million or $150 million?

[David Arnold, CFO]

No. We hold excess cash in excess of $175 million and I'm just going to look at my remarks, so I don't misquote myself. It is -- which was 200 -- we have $257 million in excess of the $175 million we target to retain for regulatory purposes, so $257 million in excess.

[Jaeme Gloyn, National Bank]

In excess?

[David Arnold, CFO]

Yes.

[Jaeme Gloyn, National Bank]

Okay. So you could use that to repay some of the maturities or CP as well, I suppose. Is that fair or no?

[David Arnold, CFO]

That is fair. But it also as I said as the backdrop is what would our other capital deployment needs be, as the earlier question was I think Nik asked the question about our M&A pipeline, and as John said, it is -- it's robust, so it all depends.

[Operator]

Thank you. There are no further questions at this time. Please continue with closing remarks.

[Amin Mousavian, VP, IR, Treasury & Administration]

Thank you, everyone for listening in today, and we look forward to connecting with you throughout this year as we make progress on our strategic priorities. As John mentioned earlier, our Annual and Special Meeting of Shareholders will be taking place today in a hybrid format at 2:00 PM. If you have any further questions, contact information for Media and Investor Relations is in our press release, and we will be happy to get back to you. Until next time, goodbye.

[John McKenzie, CEO]

And I'm just going to close it by congratulating you, Amin that was your first analyst call in your new role, so congratulations.

[Amin Mousavian, VP, IR, Treasury & Administration]

Thank you.

[Operator]

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.