TMX Group Ltd

TSX:X

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q3 2021 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Tuesday, November 9, 2021. And I would like to turn the conference over to Paul Malcolmson. Please go ahead.

[Paul Malcolmson]

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 third quarter 2021 conference call for TMX group. As you know, we announced our results late yesterday, and a copy of our press releases 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. With that, I'd like to turn the call over to John.

[John D. McKenzie, CEO & Director]

Well, thank you, Paul, and thank you, everyone, for dialing in today to discuss TMX Group's financial performance for the third quarter in the first 9 months of 2021. And first, on behalf of all of us at TMX, I do want to wish the very best of health to everyone listening this morning.I'm happy to report today that I'm actually transmitting to you from the TMX headquarters here in Toronto, and that the transition to back-to-office for TMX employees is underway here in Ontario and in our offices across the country and around the world. In fact, our Trayport office in London has served as our pilot project as they've been now back in the office for some time. And while our return to the office is voluntary and many of our employees continue to work from home during this early stage. It is very encouraging to finally reach the point where we can safely resume a work-from-office life.And personally, I am grateful for the opportunity to interact with some of our people within the TMX environment, walk our halls and offices once again and get those face-to-face interactions. We also have a brand new space to explore here as well. The TMX Market Center at 120 Adelaide Street West in Toronto. It's our state-of-the-art event destination and broadcast facility. And it stands as a prominent new Toronto business landmark and a fresh distinctive presence at the core of the city's financial district, ready to be discovered. 2 weeks ago, we held our first in-person market open ceremony in the new TMX Market Center, welcoming Q4 Inc to Toronto Stock Exchange. And our market-open ceremony is a proud, longstanding tradition. The ability for us now to do that safely and host for our clients at the exchange to celebrate important milestones in their company's history and to kick off a new training day is a clear sign of a progress and return to normal.Now as Paul mentioned, we announced results for the third quarter in the first 9 months of 2021 last night, and David will walk you through the third quarter numbers in a few moments in more detail, but I'm going to focus my comments this morning on providing context as we reflect on the year-to-date through September 30, specifically TMX's performance for the first 9 months of 2021. Secondly, some key accomplishments and significant progress we have made in executing our long-term growth strategy as we strive to continue to make our markets better. And also importantly, how this shifting market dynamics over the past few years have served to reshape our client offerings in meaningful ways while also helping to inform our perspective as we move through the last weeks of the year and beyond.Now turning now to our results for the first 9 months for the year. Revenue was $728 million, an increase of 13% from the first 9 months of 2020. And diluted earnings per share grew 21% or 20% on an adjusted basis compared with the same period in 2020 and continuing the pace of our strongest year on record.TMX's positive performance for the first 9 months reflects significant contributions from across our diverse franchise, including Capital Formation, Derivatives Trading and Clearing in Trayport. Our total operating expenses increased 5% from the first 9 months of 2020, largely due to the inclusion of expenses related to AST Canada, including transaction and integration costs. The increase in expenses also reflects higher head count and payroll costs, higher cost related to our short-term employee incentive plan and increased severance as compared to a year ago.Now turning to our business areas, revenue for Capital Formation was $190.5 million, an increase of 38% from the first 9 months of 2020, largely driven by an increase in the number of issuer financings and financing dollars raised on Toronto Stock Exchange and TSX venture exchange and higher initial listing fees. Our issuers raised a combined total of $43.3 billion, a 50% increase over the first 9 months of last year, and more than the total raise during the entirety of 2020.Our largest sectors, technology and mining, continue to lead the way in terms of financing dollars. Technology issuers raised more than $11.4 billion in the first 9 months, an 86% increase over the same period last year and 42% higher than the full-year record set just last year as well. Companies in the mining sector raised almost $8 billion, a 45% increase year-over-year. And TMX's unique 2-tiered ecosystem continues to serve as an effective proving ground for businesses in all sectors to pursue the next steps in their growth trajectory. TSX Venture graduated 27 companies to Toronto Stock Exchange through September 30, more than any full year since 2011. The graduate companies represent a broad range of industries, including technology, clean tech, consumer products and services, mining and life sciences.And despite a normal slower pace during the summer months overall 2021 has been a very robust year for IPOs. We welcomed 38 corporate IPOs to Toronto Stock Exchange and TSX Venture Exchange in the first 9 months of the year, more than any full year since 2012.And over the past few weeks we've seen activity pick up significantly, particularly in tech IPOs with Copperleaf, D2L, propel holdings and Q4 all launching since the end of September. In total, we've had 309 new listings year-to-date, excluding those graduates through September 30, a 44% increase from last year. And as we pause to examine the impact of market conditions and short-term trends on IPOs financing and levels of overall going public activity in our business, it's always important to consider the effects these developments have on the complexion of our markets over the long term.The rise of the innovation economy in this country over the past decade has helped to change the face of our equity markets and redefine what an investment in Canada means. The influx of great companies and visionary entrepreneurs, builds our ecosystem stronger, growing and diversifying our stock list to the benefit of investors here in Canada and all around the world. And global investors are increasingly turning into our story and seeking exposure to these Canadian markets.According to the latest datas from Stat Can through August, net inflows into Canada equities were $28 billion, on pace to reach the highest levels since 2017. And today Canada presents a powerful, globally competitive value proposition. And we need to continuously strive to create the conditions for that enduring success to support the businesses at the foundation of this vital ecosystem, to ensure that today's wins are indicative of a long term sustainable trend and not just an anomaly.Now turning now to derivatives. Revenue from Trading and Clearing was $104.3 million, up 9% from the first 9 months of 2020, including an 11% increase in revenue for the Montreal Exchange and CDCC. MX's total volumes increased 24% compared to the same period of last year. And the revenue growth, while somewhat offset by lower revenue per contract, due to a change in product mix and incentives designed to build long-term sustainable liquidity. Performance over the first 9 months included strengths in some of MX's signature products as well as developing growth areas. Average daily volume in the BAX contract, Canada's benchmarks short-term interest rate futures product was up 12% in the first 9 months compared to last year, following the recent resurgence in global demand to deploy and manage risk.Single share futures continue to gain significant traction with domestic and international clients with 65% growth in average daily volumes compared to the first 9 months of 2020. And equity options were up 34% year-to-date compared to the same period last year with energy sector names spurring increased interest and activity for both institutional and retail traders. Across the board, overall open interest was up 46% at September 30, 2021, from last year, a strong indication of volumes to come.And the month of September also marked another important milestone, achievement in Montreal Exchange's proud history of innovation and the next phase of our globalization strategy, the successful launch of trading on Asia Pacific hours. Extended trading hours syncs us to the world's premier financial centers, enabling sophisticated, moderate investors in all time zones to trade Canada, to execute cross-market trading strategies and manage exposure on their time. Running our derivatives markets for 20 plus hours a day is no small feat. And the extended hours Asia Pacific initiative is the culmination of a ton of hard work by our teams in partnership with our stakeholders, including clients as well as regulators and government officials here in Canada, Hong Kong, and elsewhere in Asia.In the weeks and months that led up to this launch, we've seen strong engagement from investors and participants in the region. And while we are very much still in the early days, the initial response to the launch has been very positive, with average volumes, over 6,000 contracts during the new session. Now combined MX's European and Asian Pacific extended hours accounted for approximately 6% of total volumes during the first 9 months of 2021.Now moving on to Trayport. We are pleased to report double digit growth with revenue of $111.7 million, a 10% increase compared to the first 9 months of 2020. Growth was driven by a 7% increase in the average number of subscribers, and also included $1.3 million of revenue from Tradesignal. Acquired in June, Tradesignal provides advanced analytics and charting capabilities to our clients. And as the world emerges from pandemic conditions and economic recovery gains momentum, global energy markets are clearly in a state of flux. Gas supply shortages have driven a dramatic surge in energy prices across Europe and around the world. And Trayport's product suite is tailored to meet the data and analytic needs of traders, portfolio managers and analysts as is vital as ever, providing opportunities for clients with analytics and insights to make informed decisions and to pursue their short- and long-term strategies.Now in closing my comments, as we move to the final weeks of 2021, I want to thank our teams across TMX and in every facet of our business for continuing to deliver for our clients through this busy and challenging year. Our people have demonstrated time and again their commitment to serving clients across our businesses throughout the market ecosystem and around the world with excellence and along with the stress-tested ability to adapt to whatever the market throws while continuing to push us forward. And with that, we are so excited to add a new group of high-performing professionals to our ranks.In August, we completed the acquisition of ASP Canada, a leading provider of transfer agency, corporate trust and related services. And our integration is fully underway. This acquisition represents an exciting addition to our TSX Trust offering and our Capital Formation business more broadly, broadening out the range of services and solutions that we provide to listed issuers.Also, one of the people front, I am delighted to share news that we have named Michelle Tran, the new president of TMX Datalinx effective November 1, a well-respected TMX veteran, who I've had the privilege of working with for the past 20 years, who is highly regarded by her colleagues and across our client community. Michelle's mandated to lead the growth, market development and commercialization of TMX's data solutions. Her ongoing focus will be on client-centric innovation, to lead the strategic direction of the business, including the pursuit of additional revenue opportunities resulting from new client offerings, potential partnerships and expanding global sales.And with that, let me turn the call over to David.

[David Arnold, Chief Financial Officer]

Thank you, John, and good morning, everyone. I too am coming to you from our offices in Toronto, after working remotely since joining TMX in June this year. Let's turn now to our financial results.Q3 was another strong quarter with 11% revenue growth and 11% diluted earnings per share growth. They were revenue increases from Capital Formation, Derivatives Trading and Clearing, Global Solutions, Insights and Analytics, or GSIA, as we refer to it internally, and CDS, partially offset by lower equities and fixed income trading revenue.Operating expenses increased 14% over Q3 2020, mainly driven by costs related to our acquisition of AST Canada, which was acquired on August the 12th of this year as well as an increased investment in various growth areas of our business. Organic revenue growth was 9% this quarter. And operating expenses, excluding AST Canada were up 8%. Diluted earnings per share grew 11%, and adjusted diluted earnings per share grew by 12% in the quarter, reflecting the higher revenue partially offset by higher expenses, reflecting increased investment in growth areas of our business.In Q3 last year, it was a $1.3 million reduction in our commodity tax provision, or $0.02 per basic and diluted share. In Q3 of this year there were integration costs related to AST Canada of $600,000 or $0.01 per basic and diluted share. In addition, there were higher net finance costs and higher income tax expense, partially offset by an increase in our share of net income from the Boston Options Exchange in Q3 of this year compared with Q3 of last year.Turning now to revenue. Revenue and Capital Formation grew by 20% in Q3, including approximately $5.1 million of revenue related to our recently acquired AST Canada business. Revenue growth in Capital Formation, excluding AST Canada, was 10%, primarily driven by higher initial listing fees this quarter compared with Q3 of last year. Sustaining listing fees also increased in the third quarter, reflecting an increase in the market capitalization of issuers at December 31, 2020, as well as an increase in new listings in the first 9 months of this year. These increases were partially offset by lower additional listing fee revenue on TSX and TSX Venture, relating to decreases in both the total number of financings and the total financing dollars raised.The decrease on TSX reflected a 16% decrease in the number of transactions billed at the maximum listing fee of $250,000, partially offset by a 5% increase in the number of transactions billed below the maximum fee when compared to Q3 of last year.Derivatives Trading and Clearing revenue grew by 32% from Q3 last year to Q3 of this year. And as John just mentioned in his remarks, while volumes on MX increased by 62% compared to last year, there was lower revenue per contract, reflecting both a change in client and product mix. This quarter, there was an increase in high-volume traders, which resulted in lower revenue per contract.In addition, the volume increase was partially driven by contracts with lower yields, including share futures, which made up 15% of total volumes this quarter compared with 7% in Q3 last year. Revenue in our Global Solutions, Insight and Analytics segment was up 7% over Q3 last year, with increases from both Trayport and our traditional data business. Revenue from Trayport was up 11% in Canadian dollars or 12% in pound sterling. The increase was driven by 8% growth in total subscribers in Q3 compared with Q3 of last year.Revenue in our traditional data business grew by 4%, driven by increases in professional and nonprofessional subscribers, usage-based quotes, colocation, benchmarks and indices. The average number of professional market data subscriptions for TSX and TSX Venture products grew by 6% this quarter compared with last year, and the Montreal Exchange subscriptions were also up by 6%. The higher revenue was partially offset by an unfavorable impact of approximately $1.1 million from a stronger Canadian dollar relative to the U.S. dollar over Q3 of last year. Revenue from CDS was up 10% this quarter, reflecting higher depository, event management, international as well as clearing and settlement revenue compared with Q3 of last year. The increases in revenue were partially offset by higher client rebates.The revenue increases were partially offset by equities and fixed income trading revenue, which decreased 9% compared with Q3 of last year. This decrease was driven by an 18% decline in the overall volumes of securities traded on our equities marketplaces. Trading volumes on TSX securities decreased by 13% in the quarter, while volumes on TSX Venture and TSX Alpha decreased by 30% and 3% respectively. There was also a decrease in fixed income trading revenue, reflecting lower activity in swaps and Government of Canada bonds this quarter. These decreases were partially offset by higher yields on all our equity marketplaces compared with Q3 of last year.Turning now to our expenses. Operating expenses this quarter increased by 14% compared to Q3 of last year. There were approximately $7.5 million of expenses in Q3 relating to AST Canada, including $1.1 million of acquisition and related costs, $700,000 related to the transitional services agreement with AST and $600,000 relating to integration costs and $500,000 related to amortization of acquired intangibles.Operating expenses, excluding AST Canada, increased by 8% this quarter compared with Q3 of last year. The higher expenses reflected higher headcount and payroll costs, increased short-term employee incentive plan costs, higher legal fees as well as increased bad debt expenses and recoverable expenses. There was also a $1.3 million reduction in commodity tax provision in Q3 of last year. These increases in costs were partially offset by acquisition and related costs related to AST Canada announced in Q3 of last year for $1.4 million.Sequentially, revenue increased $13.7 million or 6% from Q2 to Q3 of this year, primarily attributable to lower revenue in Capital Formation, equities in Fixed Income Trading and Clearing, Derivatives Trading and Clearing, partially offset by higher revenue from Global Solutions, Insights and Analytics. Operating expenses sequentially increased $9.8 million or 9% from Q2, reflecting higher short-term employee incentive performance plan costs of $2.5 million, higher long-term incentive plan costs of $1.7 million and increased headcount and payroll costs of $1.3 million. There was also approximately $7.5 million of expenses included relating to AST Canada, as mentioned earlier.These increases in operating expenses were partially offset by lower director fees, decreased severance and bad debt expenses from last quarter to this quarter. There was also a $1.8 million decrease in expenses, largely relating to a release of a provision for restoration costs of our data center, which we spoke about in Q2 of this year.Commenting on our balance sheet this quarter, we spent $18.3 million, repurchasing 140,000 common shares under our normal course issuer bid program. Our debt to adjusted EBITDA ratio was 1.8x at the end of the quarter, and we also held almost $338 million in cash and marketable securities at the end of the quarter, which is about $173 million in excess of $165 million we target to retain for regulatory and credit facility purposes. In early October, DBRS Morningstar, our credit rating agency, reiterated our A high rating on our debentures, R-1 low rating on our commercial paper, and most notably changed our trend from stable to positive.Yesterday, our Board approved a quarterly dividend of $0.77 per common share payable on December 10 to shareholders of record as of November 26. At 49% of our adjusted earnings per share, this is at the high end of our target payout ratio of 40% to 50%.And now I'd like to take the chance to turn the call back to Paul.

[Paul Malcolmson]

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

[Operator]

[Operator Instructions] And your first question will be from Nik Priebe at CIBC Capital Markets.

[Nikolaus Priebe, Research Analyst]

Okay. I just have a pair of questions this morning related to the derivatives business. I think as you had pointed out, there are some forthcoming changes to the ownership structure of the Boston Options Exchange that is going to trigger consolidation of that business for financial reporting purposes. I was wondering if you could just explain what's happening with the ownership of that business with respect to what prompted the change and just whether there are any implications other than the accounting treatment for that investment.

[David Arnold, Chief Financial Officer]

Nik, it's David Arnold. So I'll try and summarize it as best as I can, Nik. The -- this is all public in an SEC filing, which is pending approval. So while this is pending approval, I'm going to basically talk you through it as though it is approved. If you think about it, what the document basically explains is 2 of the existing shareholders in the Boston Options Exchange were selling their interest in the Boston Options Exchange. The management team and the Board have a right of first fusel to purchase those and have elected that auction. As a result of electing that option, those shares will be purchased by the corporation and the Boston Options Exchange. And then they'll be canceled. And in so doing, all the remaining shareholders' increase will receive a corresponding or proportionate increase in both their equity interest as well as their voting interest. But here is where the trick comes in or the nuance, Nik. There is a part of the agreement that basically says no broker-dealer can own more than 20% of the exchange. In this case, one of the participants is a broker-dealer who would be exceeding the 20%. As a result, their proportionate share of voting rights, so not equity interest, but voting rights, it's proportionately allocated to everyone else, which would effectively move our voting interest from the current 46.2% to a voting interest as a member of 51.43%, thereby enabling us to exercise voting control at the Board, which then puts us into a consolidation situation, much like we were prior to 2016. Nik, I know there was a lot to digest. Does that get at kind of answering your question?

[Nikolaus Priebe, Research Analyst]

No, that's good context. That's very helpful. Helpful.

[Operator]

Next question will be from Etienne Ricard at BMO Capital Markets.

[Etienne Ricard, Analyst]

Congrats on closing the AST Canada deal. Could you comment on initial integration work and also your expectations for scaling both revenue and cost synergies by 2025?

[John D. McKenzie, CEO & Director]

Yes. That's a great question. So this is -- as you can imagine, we're very excited to get this transaction completed and get the AST team integrated in. The integration work is actually well underway. So it really performs a number of areas so that we can bring an integrated approach to the client base. So it is around integrating technology, utilizing systems that we actually acquire from AST across both TSX Trust as well, building the new client contact capability to really upscale the level of service that clients are getting when they use the combined TSX Trust and AST. So all that is well underway. In terms of the upside, and that's what we really bought this for, was the ability to grow, we do see that the capabilities that we get, both the technology, the call center capability, our connectivity with the issuers will allow us to grow this combined business at a fast rate. Because now we can actually call on larger clients than we could have with just TSX Trust because we have a broader set of capabilities to bring to bear. One of the things I'll also remind you is actually, we've talked about this in the past around TSX Trust, but this is more meaningful with the AST business we brought in. There's a portion of this business that is sensitive to interest rates because as we hold cash on behalf of clients, there's a net interest spread that the organization can earn. We're holding cash for trust activity, corporate actions, things like that. And the acquisition and the numbers you're seeing in the acquisition is based on a virtually 0 rate environment. So the -- there's 2 factors in terms of the growth we see going forward. As I talked about, we do see the potential of acquiring more clients and continuing to grow the client base and achieving that revenue upside. But also as we see a growth and a normalization in interest rates, there's substantial potential for the AST business we've acquired to see meaningful revenue coming from that interest rate spread. And historically in the past, that could have been as high as $10 million on top of the $40-plus million in terms of revenue acquired. So hopefully, that gives you a couple of context in terms of how we're thinking about some of the growth potential in it.

[Etienne Ricard, Analyst]

Okay. Great. On equity trading, regarding the new market on close facility, could you share details as to initial market reception and what percentage of your volumes are now trading at the close of market?

[John D. McKenzie, CEO & Director]

And so the initial market perception has been very good. And I'll remind you that we actually -- we did this all on the basis of consultation with the market itself. So we led a process that was integrated with clients, regulators and other market stakeholders to determine what was going to be the best model for bringing a modernization to the functionality to Canada. And so that rollout has been exactly as expected by TheStreet. I think you'd see that TheStreet feedback is that rollout was also very smooth and very little hiccup in terms of the settlement process. Now in terms of how much volume is going through that, Paul, I don't have it off hand. I don't know if you've got that available or if we can do that as a follow-up later on.

[Paul Malcolmson]

Don't have it right here. We'll do it as a follow-up, get back to you, Etienne.

[Etienne Ricard, Analyst]

Okay. And on the expense front, this is maybe a more strategic question, but I mean, TMX has set a track record for containing expense growth in the low single digits. Now looking ahead, we keep hearing about the tightness of the labor market, especially in technology, do you believe you can continue achieving low single-digit operating expense growth?

[John D. McKenzie, CEO & Director]

Yes. That is such a good question, and it's such a pressing question given the challenges. So when you think about the cost pressures going forward, certainly it is around technology contracts, finance, inflationary pressures there. And certainly, as you said, like a very tight labor market. And so we're seeing more challenges around labor, particularly in some of the areas where business for that labor is in high demand, technology development, cyber, very much also within our Capital Formation space, the professional services like the lawyers and the accountants that help bring companies to market. That being said, our approach to expense discipline is unchanged. So we do target to continue to do that. We do challenge our team members to identify savings opportunities to redeploy in terms of growth. And we would still continue to target that type of expense growth in the near term, that's more in line with inflation. But this -- you're certainly -- if you're gearing that up in terms of looking at 2022 being more inflationary pressure than we've seen in previous years, I think that's a reasonable assumption.

[Operator]

Next question will be from Geoff Kwan at RBC Capital Markets.

[Geoffrey Kwan, Analyst]

Just wanted to go back to the change in ownership on BAX. The customers that are leaving, like how much market -- or like how much of the trading volumes would they have been on BAX? And is there anything you're able to say as to why they decided to sell their stake?

[David Arnold, Chief Financial Officer]

Geoff, it's David Arnold here. So their volume contribution is de minimis, to 0. They were very small minority members. So for them, I'm speculating, it was nonstrategic for them, and something that they just felt that was a stranded asset that they needed to account for and basically rid themselves of some of that effort. So that's basically the bottom line. They did offer it to an existing member, and that existing member needed to bring it to the Board and to management for us to exercise the right of first refusal. So hopefully that gives you enough. But I would not expect this transaction, if it's approved, to impact the volumes in the Boston Options Exchange at all. What it has been is, it's very important to note is that they've been out of the options business for years, the folks that are selling. So really, really small. And the things that are driving our volume is, you can imagine, Geoff, is just the market activity in the U.S. on auction volumes as opposed to these 2 particular members selling down the interest.

[Geoffrey Kwan, Analyst]

Okay. And then on the Montreal Exchange, you made the reference to the high-volume traders, any impact? Can you talk about like what percentage of the volumes they were in the quarter and where that might have compared to a year ago?

[David Arnold, Chief Financial Officer]

So I don't have the percentage handy for me. I don't know, Paul, do you have that?

[Paul Malcolmson]

No, we can certainly get back to you on that, though.

[David Arnold, Chief Financial Officer]

Yes. It's -- I mean, as you can expect, Geoff, I mean, it's all about the products and the trades and are they at the high end of the margin or the low end of the margin. And the high-volume or high-frequency traders are obviously at the lower end of the margin.

[Geoffrey Kwan, Analyst]

And then just my last question was on the G&A expense. There was a reference to kind of higher legal and bad debt expense. Just anything, any sort of color around the year-over-year variance?

[David Arnold, Chief Financial Officer]

Yes. So if you look at SG&A, it's not complicated, Geoff, but I got to just walk you through it just to make sure that you're fine. Basically the first thing is looking at Q3 of last year we need to adjust for the $1.3 million in the commodity tax provision that we reduced. So think of last year's number as more like 17.2. And then if you look at this year's number, the 21.40, you back out AST and the related acquisition costs as well, so you're kind of at an 18.4 normalized number. And then as you say, the difference over there is some legal costs and some bad debt expenses. The bad debt expenses are just normal course with clients of ours that unfortunately delist and are insolvent, and obviously we write-off the amounts. But the legal is just a normal course. There's no litigation there. It's normal course corporate development activity as we look at various growth initiatives.

[Operator]

Next question will be from Graham Ryding at TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

Maybe you can start with your balance sheet. For over a year now I think you've remained below that 2x debt to EBITDA. And I think your target still is 2 to 3x. Is that just a reflection of you being disciplined around assessing acquisition opportunities? Or are you comfortable with this level of leverage? And should we maybe think about this as sort of the new run rate or the new level that you operate at?

[John D. McKenzie, CEO & Director]

Yes. So regardless of the kind of historical direction of range, I think I've always guided, guys, that kind of 2x is kind of the kind of target operating level. So we are below that, but we are absolutely comfortable. The balance sheet position gives us a very strong position to pursue those inorganic opportunities. We've been fairly active in the market in terms of the things that we've been looking at. Our discipline is good there. But I do believe that the balance sheet strength we've got, both in terms of cash on hand and the ability to lever up to do a larger transaction puts us in a good place to compete for things. So not a concern at all. Just gives us more flexibility.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Understood. Perhaps just the pipeline for IPOs and Capital Formation, both TSX and Venture. What's your sort of visibility like? Is it reasonable to expect that we're going to see some normalization there in 2022, just given the strength that we saw in this year?

[John D. McKenzie, CEO & Director]

The -- that's actually hard to say because the strength is continuing. So we had some abatement in the activity kind of through the summer, but that's normal and potentially a bit of market fatigue in terms of the number of deals that we're getting financed. But the activity in the fall has continued to be really strong, and the pipeline of new deals remains full. I always have to take the opportunity again to thank the staff here because I don't think people recognize how much work it goes to bring in these deals over the line. And just to give you a bit more context, I mean, we said it in the commentary earlier on, there's 38 corporate IPOs that have been done to date through 3 quarters. We did 4 more in the month of October. If I compare that to the 19 years ago when we went public ourselves, there was 4 IPOs that entire year. So this is a very strong pace, and the deals are getting well-financed and well-subscribed. And so that pipeline remains robust. So I can't predict what 2022 will bear. But the pieces I will remind people of is that the overall issuer base in terms of our client base is now substantially larger than it was a year ago. In fact, if you look at the 5-year trend, it's grown every year in the last 5 years in terms of the number of issuers. That's a larger base of issuer. It's going to drive higher sustaining fees. It's a bigger base of issuers that can do subsequent additional financing activity as well. So even if you saw some pullback in the actual IPO market, you've got a bigger base of clients that are continuing to finance and paying sustaining fees at the same time.

[Graham Ryding, Research Analyst of Financial Services]

Yes. That's a fair point. In terms of your data subscribers, they've been pretty strong in 2021. I think you're up 6% this quarter year-over-year or close to it. My number might be off. Traditionally that's been an area that's been actually, I thought, fairly mature and stagnant in terms of growth. So is there any color you can provide in terms of, is it international subscribers or are they new channels that you're penetrating? What's driving the growth in the data subscribers?

[John D. McKenzie, CEO & Director]

It's yes and yes, not to [ be cute ]. So there's more demand because of the volume growth in the business, the retail interest or the number of clients come on board. We've actually brought in some net new data clients as well. I don't have the names offhand. Paul, I believe you've got those ones in terms of new distributors that are carrying our data, both domestically and abroad. And then certainly with our expansion in terms of the continued use in Europe and the expansion in the Asian time zone, that drives particularly demand for MX subscriptions. And then some of those users will look to for equity subscriptions as well in terms of the data sets they're getting. So you are seeing a combination of demand from multiple locations as we expand the franchise.

[Operator]

Next question will be from Jaeme Gloyn at National Bank Financial.

[Jaeme Gloyn, Analyst]

Yes. Want to dig into the AST revenue first. So I think around the acquisition it was disclosed the AST last 12 months revenues were around the $46 million mark. Now it's around the $39 million mark. You talked about interest rates. Does that explain the entire, call it, $7 million decline in last 12 months revenues? Or were there any other factors that would have been at play?

[John D. McKenzie, CEO & Director]

No. That's the major impact. The rest of the core revenues were as expected for us.

[Jaeme Gloyn, Analyst]

Okay. And that's -- as we're looking at interest rates potentially normalizing, what should we be looking at, the 3-month yields per AST? Or is it some other part of the curve?

[John D. McKenzie, CEO & Director]

Yes. We're going to have to get deeper into the business to give you better guidance on that. It's certainly more in terms of the short-term rates that are driving it because it generally, it's short-term holdings of cash. But as we get more closer into that, I expect this is an area where in the future we'll actually be able to give you more direction and more sensitivities around. What I would guide you to, Jaeme, is that the, compared to the TSX Trust business and the size of clients we have on TSX Trust, the AST client base are much higher cash clients than what we had. So it is substantially bigger impact than what you would have seen with us with TSX Trust in the past.

[Jaeme Gloyn, Analyst]

Okay. Great on that front. On the Trayport side, good to see the subscriber growth continuing in Q3. Is there anything you can tell us about October and post Q3, around how subscribers are handling the European gas crisis? Are there any impacts as a result of what's going on there? And are we still seeing good momentum in that business?

[David Arnold, Chief Financial Officer]

So James, it's David. Yes, we are seeing good momentum. Early signals in -- through Q3 and now into October, there is -- we -- for example, we added, I think, 10 net new clients in Q3. So it continues to be robust. But yes, you're right. I mean the energy crisis in Europe is definitely seeing more volume going on exchange. And obviously that's less advantageous for us in Trayport. But we continue to see strong client momentum and continued engagement. So we will whether the energy crisis storm. And as you know, market dislocation and other kind of factor is actually really good for our business.

[Jaeme Gloyn, Analyst]

Okay. Great. That sounds fairly positive. On the Asian hours front, early days, but our market structure group actually noted some decent results so far. Is there anything you can tell us about activity in the Asian hours for the MX?

[John D. McKenzie, CEO & Director]

Well, you're exactly right, it is very early. So we're actually quite happy to see that early level of activity. And that's fairly limited penetration in terms of new clients coming on yet. So a lot of that is proprietary trading, dealer trading. And we are still at the very beginning of actually getting the kind of the investable real money coming into it. So that's the potential for the upside. When we think about some of the different regions in there, one of the pieces I always point to for folks, as you think about the Australian market, which we are doing more marketing into, they need to invest outside of Australia. So they are -- in terms of their pension assets, they are where Canada was 20 years ago, where 2/3 of their assets are domestic, and they are looking to internationalize more of them. So the potential that, the demand that comes out of the region is very positive. So all indicators are that this is going to be a meaningful expansion for us. And Jaeme, I mean, I'll remind you of the targets. We've talked to people in the past that up and running between Europe and Asia, we see potential for 15% to 30% of our flow coming out of those 2 time zones. So that continues to be the expectation.

[Jaeme Gloyn, Analyst]

Okay. That's great. And last one for me, just in terms of the I guess announcement about Michelle Tran, seems like a pretty positive development there. Is there anything you can say about the departure of Sarah Ryerson as it relates to that promotion?

[John D. McKenzie, CEO & Director]

No, Sarah actually chose to leave us to take on different types of opportunities. So not in the same sector that we're in today. But I do want to comment [ quick ] a little bit more on Michelle's promotion because we had actually some really strong candidates, both internal and externally for the role. What sets Michelle apart and what makes me excited about the future of that business is, coming to the table with a real plan for where she sees the opportunity for growth. And as you remember, in our historical guidance around our businesses, market data was more of a steady state business as opposed to one of our growth drivers. We are really seeing more potential to unlock more growth in this business, be it from subscribers, enhanced products, enhanced pricing opportunities. And Michelle brings that experience to the table and a plan that's ready to go. So I'm very excited about having Michelle in the role. She is an expert in this space, knows the client base and the street really well, and will hit the ground running.

[Operator]

[Operator Instructions] And your next question will be from Brian Bedell at Deutsche Bank.

[Brian Bertram Bedell, Director in Equity Research]

Great. Most of my questions were asked and answered, but maybe just to follow up on a couple of them. Back to Trayport, just in terms of -- as we move into the winter months in Europe, if we can -- if you can somehow parse what you think the traction will be from the organic efforts that you're making, the headway that you're making with bringing on more trading subscribers and rolling out JUUL to more trading desks versus the environment that we could be in, if there's a lot more energy volatility.

[John D. McKenzie, CEO & Director]

Well, again, I'm going to reiterate the comments that David is making. Energy volatility is actually strong for Trayport because volatility, particularly when it's volatility combined with high volumes, that type of dislocation just brings more traders, more active engagement into the marketplace. And if you think about the problem, the core problem that Trayport solves is aggregating all those different venues into a single screen so that the traders can actually work across the marketplaces. So that becomes just more important when there is this type of market disruption. And we saw that about 2 years ago when we saw the oil shock go the other direction. So we saw oil trader and oil pricing bottoming out and the Trayport screen just became more important for clients. So in this case where you've got price volatility and price spikes, it just adds to the demand for the product. So we think it's positive for us. We never want to cheer dislocation like that because there's going to be a lot of strain on some of the users in there. But in terms of the demand, we would expect that it would increase the demand for the product.

[Brian Bertram Bedell, Director in Equity Research]

And then how about for rolling out JUUL to more trading desks, you've already been pretty successful at that. But just in thinking about that outlook over the next 2 quarters.

[John D. McKenzie, CEO & Director]

Yes. I mean that's exactly, I mean I can't give forward guidance on that, but it's that demand for more trading desks to trade in these types of products is the flow-through demand in terms of deploying JUUL to more traders. And that can be net new clients, as David talked about, the 10 new clients we signed, but also shops that are already with Trayport, expanding their usage of it. And then when they were new with us, they were new at higher rates for more subscribers.

[Brian Bertram Bedell, Director in Equity Research]

Okay. Great. And then maybe just on -- back to MX. Just on the revenue capture. Sequentially, there was obviously an improvement. As we move into the fourth quarter obviously it depends on mix of products, but if you could maybe just give some insight in terms of how you think the extended hours may influence that, plus any incentives that you're offering. Obviously, the mix of active traders is always a wildcard. But if we stay at sort of this level, maybe just some view on how we should think about that revenue capture into fourth quarter on MX.

[David Arnold, Chief Financial Officer]

So [ James ], good question. You've summarized the variables really well. You understand the business. But early stage volumes, as we published in our October report, which just came out the other day, are continuing that upward momentum that we saw towards the back end of Q3. So volumes continue to be robust. It will boil down to, obviously, mix. It just depends on the volume. Is it in the higher-spread products or in the lower-spread products. But right now the momentum that we saw at the end of Q3 is continuing into Q4. So that is a very positive sign.

[John D. McKenzie, CEO & Director]

Yes. I'm going to build on David's comments because all indicators, if you look at the commentary from either the folks that are following the financial markets, the Bank of Canada Governor, we are looking at a period of increased volatility in rates, not decrease. So anticipation of rate increases, more volatility across the yield curve, all those are positive wins in terms of tailwinds to actually continue to build in the products like the tenure, the [ backs ], the 2-year product that we recently launched, the 30-year that we're working on. So a lot of strong tailwinds in Q4 for the rates complex. And those tend to be premium-priced products.

[Operator]

And at this time we have no other questions. Please proceed with closing comments.

[Paul Malcolmson]

Well, thank you, everyone, for listening in today. If you have any further questions, the contact information for media as well as for Investor Relations is in our press release, and we'll be happy to get back to you. Stay well, everyone.

[Operator]

Thank you. Ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.