TMX Group Ltd

TSX:X

Earnings Call Analysis

TMX Group Reports 6% Revenue Growth in Q3 2023

In the challenging capital markets of the first nine months of 2023, TMX Group achieved a revenue of $892.6 million, marking a 6% increase over the previous year. This growth was propelled by a 17% rise in Information Services businesses including Trayport and TMX Datalinx, and a 13% increase in derivatives trading and clearing revenue, excluding BOX, reaching $121.1 million. Capital formation also saw a modest 3% gain totalling $205 million. Notably, other issuer services, largely from TSX Trust, surged by 37% to $83.9 million. Adjusted diluted earnings per share rose by a modest 2% to $1.10. Despite the growth, the finance sector faced headwinds with declining revenues from equities and fixed income trading, impacting trading volumes on major exchanges and capital raising activities. Operating expenses ascended by 10%, reflecting the company's proactive approach amidst economic strains.

Maintaining Momentum in Adverse Conditions

Despite economic uncertainties, TMX Group continued to exhibit resilience, displaying solid year-over-year revenue growth for three consecutive quarters of 2023. The company's strategic initiatives have fortified its capacity to endure economic downturns, showcased by a 6% increase in revenue to $892.6 million compared to the same period in the previous year. As investors eye stability, such performance indicates TMX Group’s ability to leverage its diversified portfolio to maintain positive momentum.

Slight Uptick in Earnings Amid Rising Costs

TMX Group reported a modest 2% increase in adjusted earnings per share to $1.10 for the first nine months of 2023, compared to the same period in 2022. This growth is tempered by a 10% rise in operating expenses, reflecting the cost pressures associated with sustaining growth and the higher U.K. corporate tax rates affecting the company's overseas operations. Investors should weigh the company's earnings growth against the backdrop of increased expenditures.

Information Services: A Revenue Growth Powerhouse

TMX Group's Information Services segment has been a significant driver of growth. The GSIA business, which accounts for a substantial part of this segment, surged with a 17% revenue increase to $311.6 million in the first nine months, spurred by Trayport's robust performance. Trayport itself expanded by 22% and TMX Datalinx by 13% over the same period, indicating positive trends in data and analytics demand.

Derivatives and Clearing: Consistent Strength

Derivatives trading and clearing, excluding BOX, showed a 13% increase in revenue to $121.1 million for the first nine months. This growth persisted into the third quarter, with a 7% rise in comparable basis revenue, driven by increased volumes and pricing changes in Montreal Exchange and CDCC. However, BOX's revenue dipped by 9% in U.S. dollars due to an unfavorable product mix, albeit mitigated by higher volumes and a stronger U.S. dollar, reducing the decline to 6% in Canadian dollars.

Equities and Fixed Income: Mixed Outcomes

While TMX Group's equities and fixed income trading and clearing segment registered a lean 1% increase for the third quarter, underlying dynamics revealed contrasting trends. The CDS segment outperformed with a 13% revenue rise, capitalizing on higher interest income and fees. Conversely, equities and fixed income trading experienced a 9% downturn due to diminished trading activities across TSX, TSX Venture Exchange, and Alpha Exchange.

Positive Developments in the Trust Business

The TSX Trust demonstrated robust quarterly performance with a 12% revenue upturn, attributed to inflated net interest income, even though transfer agent fees registered a decline. This component of TMX Group's operations is important for investors seeking diversification within the company's revenue streams.

Firm Control Over Operating Expenses

Although there was a reported 12% increase in operating costs year-over-year, TMX Group emphasizes that when adjusting for extraordinary items and inflationary effects, the growth in operating expenses stands at just 3%. This controlled expenditure growth, particularly in holding to the first-half expense run rate in the face of inflationary pressure and FX rates, may provide some reassurance to investors looking for disciplined cost management amid expansion.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q3 2023 Financial Results Conference Call. [Operator Instructions] Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Tuesday, October 31, 2023. I would now like to turn the conference over to Mr. Amin Mousavian, Vice President, Investor Relations, Treasury and Administration of TMX Group. Please go ahead, sir.

[Amin Mousavian, executive]

Thank you, Laura, and good morning, everyone. It is October 31, and I hope this Halloween brings you delightful moments and memorable experiences. Thanks for joining us today to discuss the 2023 third 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 during this call may relate to future events and expectations and constitute forward-looking information within the meaning of Canadian securities law. Actual results may differ materially from these 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'll turn the call over to John.

[John McKenzie, executive]

Well, thank you, Amin, and good morning, everyone. Thank you for dialing into the call this morning to discuss TMX's financial results for the third quarter and the first 9 months of 2023. My comments this morning will really focus on TMX's performance year-to-date through September 30 and the important progress we have made in executing the enterprise growth strategy and advancing our key initiatives. David is here as well with me in Montreal this morning, and he will take us through the third quarter results in detail in a few minutes. Now before I turn to business, I do want to address something that has been on all of our minds over the last few weeks, and that is the Middle East. TMX is actually part of the business community in Israel. We have one of the largest presences of any international market with 16 listed companies raising capital via our public market ecosystem. Team members, clients and people we work with closely are going through a profoundly difficult time and our hearts with them. And so we are so grateful for humanitarian efforts of groups working to treat and protect the lives of people and affected communities and providing essential relief services and resources, and we collectively pray for peace and a brighter tomorrow. Now turning to TMX's performance. We reported continued positive results for the first 9 months of 2023, with solid year-over-year revenue growth for 3 consecutive quarters, amidst prevailing challenges across much of our operating environment. Our 2023 results through September reflect the depth of value in our business. The execution of TMX's long-term strategy has strengthened our ability to deliver positive results even in difficult macroeconomic conditions. This has been a deliberate effort to build the amount of business is driven through our data services and in run rate revenues, so the business is more resilient in times of economic stress. More importantly, today's TMX is better positioned to serve clients across our markets increasingly around the world and better positioned for growth. TMX reported revenue of $892.6 million, a 6% increase from the first 9 months of last year, driven by double-digit growth in revenue from our Information Services business, or GSIA, which includes Trayport and TMX Datalinx as well as increased revenue from capital formation, derivatives trading and clearing, excluding BOX. These overall gains were partially offset by decreased revenue from equities and fixed income trading due to lower trading volumes on Toronto Stock Exchange, TSX Venture Exchange and Alpha and lower capital raising activities. Clearly, this has been a challenging capital markets period, and we want to just have a quick shadow to our clients as well, we are suffering through some of the same challenges. On adjusted basis, the diluted earnings per share for the first 9 months of the year was $1.10, a 2% increase from the same period in 2022. Total reported operating expenses increased 10% compared to the first 9 months of last year, and David will take a closer look at these expenses in his remarks to follow. Now moving now to each of our business areas. GSIA remained our fastest-growing business area through 3 quarters of the year. Revenue from GSIA was $311.6 million through the first 3 quarters of the year, which is a 17% increase from 2022, reflecting higher revenue from Trayport and TMX Datalinx, including co-location. Trayport's revenue grew 22% or 17% in common currency, pound sterling year-over-year, driven by a 9% increase in trader subscribers, annual price adjustments and the impact of a favorable FX rate. Trayport's core Joule network plays a key role in serving world power and natural gas markets, linking participants to execution venues and clearing houses and delivering innovative products and services to a growing client base. And September marked the 30th anniversary for Trayport. The number of game-changing achievements over the years as the company has expanded its network into new asset classes and geographies and added new cutting-edge capabilities is impressive. Among other successes, since Trayport joined TMX in 2017 includes enhancing the client offering with the acquisition of leading solution providers such as Tradesignal and VisoTech, launching an initiative to aggregate the global environmental markets and adding over 400 net new clients. And world energy markets are rapidly evolving. Demand for data and analytics to support new quantitative and automative approaches continues to grow and a proven ability to meet the needs of the marketplace and commit to strategic focus on seeking out new opportunities has positioned Trayport well for continued success. TMX Datalinx grew 13% in 9 months due to higher revenue from data feeds, co-location, benchmark and indices and enterprise agreement renewals as well as the favorable FX impact from a stronger U.S. dollar. Revenue for the first 3 quarters of the year also included $5.3 million from Boston-based Wall Street Horizon acquired in November of last year. 2023 has been a landmark year for our Information Services business, marked by high performance and definitive steps forward in our strategy to boost our capabilities, expand our datasets and deliver modern solutions to clients. Progress this year also includes our participation in creation of the new term core benchmark and our investment in VettaFi, a global provider of indices and ETF services. Importantly, information and more specifically, what we can do with it is not the focus of just this one division, but it is a crucial and common element in TMX's enterprise global growth strategy. Across the organization, we are focused on new ways to leverage our robust proprietary datasets to solve client challenges today and into the future. Earlier this month, we announced the launch of the new TMX ESG data hub, working with leading global ESG data and analytics provider, the new hub expands TMX Datalinx's offering and support a client demand in integrating ESG measures into the investment decision-making process. This includes tracking company climate action plans, quantifying impact, screening and peer analysis. Now turning to derivatives. Excluding BOX, revenue from Derivatives Trading and Clearing was $121.1 million in the first 9 months of 2023, a 13% increase from last year, driven by higher revenue from MX and [ CDCC ] due to increased volumes traded and cleared. MX total volume grew 12% compared to the first 9 months of 2022. And the level of overall open interest at September 30, 2023, was 16% higher than the same date last year, which is an important key measure of liquidity growth in some of MX's key products. Fixed income and equity derivative markets grew sequentially from Q2 to Q3 as higher volatility and an active central bank policy environment drew increased activity from institutional investors in MX's short-term interest rate products. Highlights from the first 9 months of the year featured year-over-year growth in key product areas, including 10% higher volumes from equity options, 20% higher volumes from ETF options, heavy trading in the BAX CORRA and the CGZ MX's 2-year government Canada bond future contract, up 26% and 88%, respectively. And overall, the interest rate product line also performed extremely well, with volumes up 19% compared to the first 9 months of 2022. Now moving to capital formation. Revenue for the first 9 months of 2023 was $205 million, a 3% increase from 2022, reflecting higher revenue from TSX Trust and partially offset by lower revenue from additional listing fees due to a decrease in the number of financing transactions and dollars raised on Toronto Stock Exchange and a decrease in the total financing dollars raised on TSX Venture Exchange, though we are encouraged by the year-over-year increase in the number of [ Junife ] financing transactions being completed. Revenue from other issuer services, which is largely consist of our TSX Trust business, including AST, was $83.9 million, a 37% increase compared to the first 9 months of last year, driven by higher net interest income, slightly offset by lower transfer agent fees. The stark realities of availing high interest rate environment and inflationary pressures through the first 9 months of 2023, continued to weigh on equity markets and capital-raising activity here in Canada and economies around the world. And while the overall number of new listings on TSX and TSX Venture is down from the same period last year and the record highs as recent as 2021, the pipeline of go-public prospects we are connected to remain strong. Within the numbers, we are also seeing positive signs in traditional and nontraditional sectors, along with some recent competitive wins among our new listings as companies continue to choose the TSX and the TSX Venture ecosystem to gain access to the capital they need to grow. In September, we welcomed Allied Gold, a Canadian-based gold producer with operations in Africa to Toronto Stock Exchange. The company raised approximately $364 million in a reverse takeover transaction, representing our largest go public offering in the mining sector since 2017. This listing was a significant win for the TSX and the entire ecosystem that surrounds the Canadian mining sector and speaks to the strength of our global value proposition. Also in September, TSX listed DRI Healthcare Trust, a global leader in financing life sciences innovation and completed 2 bought deal financings of around $100 million. And earlier this month, Strathcona Resources, one of North America's fastest-growing energy companies began trading on TSX following an acquisition at a $6 billion valuation. And so we continue our business development efforts in targeted regions around the world. In September, we added a full-time presence in Australia focused on the mining sector and the innovation sector. In 2021, we also undertook an important initiative to improve indigenous relationships at our organization. And over the past 2.5 years, we have made some important progress on our company's reconciliation journey, always stressing the need to prioritize actions over words. And last week, we were proud to host the inaugural TSX and indigenous Investor Day at our market center in Toronto. For TMX, connecting entrepreneurs and growing businesses to potential investors is a fundamental core function of our marketplaces. And so this event marked an especially important milestone as we were able to bring a representative range of decision-makers together to discuss strategies for growing indigenous-led businesses to the benefit of these businesses and the investors as well as the broader community and ultimately all Canadians.Canada's markets have an outstanding long-term track record of helping visionary entrepreneurs and early-stage businesses raise growth capital and enabling investors to participate in that growth. And TMX is committed to building on that track record, enabling more efficient access to underrepresented groups and emerging industries long into the future. Now I'd like to finish up my comments this morning by emphasizing our commitment to our growth strategy and our stakeholders. While our 2023 results today show impressive resilience, TMX is not sitting idly by waiting for things to swing our way. We are ever focused on the future on ways to adapt and accelerate our growth plans by invigorating our purpose to make markets better and empower bold ideas. We also have a strong balance sheet and flexibility to make future investments to continue to accelerate this growth, which David will take us through in more detail a little later on. And in closing, I would like to thank all of our employees across the organization for their exemplary efforts this year in a very challenging market. All of our business strategies are rooted in the responsibility we have to serve stakeholders across our markets with excellence and integrity, vision and purpose. TMX is people. Here in Montreal, across Canada and around the world share an unshakable commitment to fulfilling that responsibility. And together, we look forward to the challenges ahead. With that, let me pass the call over to David. Thank you.

[David Arnold, executive]

Thank you, John, and good morning, everyone. Our third quarter results continue to demonstrate the resiliency of our diversified business model. Overall, revenue grew by 8% compared to the third quarter of last year, driven by double-digit revenue growth across a number of our business segments. We reported an increase of 7% in our diluted earnings per share and 3% in our adjusted diluted earnings per share, driven by higher revenue from our businesses and finance income on cash balances. Partially offsetting these increases were higher operating expenses year-over-year and higher income tax expenses and an increase in the U.K. corporate income tax rate from 19% to 25%, which came into effect earlier this year. A little later, I will speak to our successful efforts to contain expense growth in the second half of the year, whereby we are holding ourselves to our first half of the year expense run rate. Turning now to our businesses. I will start with the segments that saw the largest year-over-year revenue increase. Revenue in our Global Solutions, Insights and Analytics segment grew by 19% this quarter with double-digit growth from both Trayport and TMX Datalinx. Revenue from our Trayport segment was up 19% in pound sterling, driven by a 7% increase in trader subscribers in addition to our annual price adjustments and incremental revenue from our premium product offerings, most notably, data analytics and algorithmic trading. On the heels of a strong pound sterling this quarter, Trayport was up 31% in Canadian dollars. Revenue in our TMX Datalinx business grew by 10%, driven by increases in first subscription-based services; second, revenue from Wall Street Horizon, which we acquired in November of last year; and finally, the impact of 2022 and 2023 price adjustments we have spoken of in prior quarters. In addition, TMX Datalinx's revenue was up approximately $0.4 million due to a stronger U.S. dollar, which accounts for approximately 1% of the 10% revenue increase this quarter. Derivatives Trading and Clearing revenue, excluding BOX was up 7% this quarter on a comparable basis. This was driven by a 12% increase in the Montreal Exchange and CDCC volumes and positive impact from pricing changes, which came into effect in January of this year, somewhat offset by an unfavorable product and client mix. As you'll recall, in the third quarter of last year, we had a onetime reduction in revenue related to the termination fees on a 5-year Government of Canada bond futures market-making agreement and a retroactive client billing credit. As a result, this quarter's reported revenue in derivatives trading and clearing excluding BOX, was by 20% compared to last year, contributed to a 28% increase in revenue from the Montreal Exchange and a 15% increase in CDCC. Revenue from BOX decreased 9% in U.S. dollars, reflecting a lower rate per contract due to an unfavorable product mix, partially offset by a 5% increase in volumes. In addition, BOX's revenue was up $0.8 million due to a stronger U.S. dollar, which accounts for approximately a 3% increase, reducing the overall revenue decline to 6% in Canadian dollars for BOX in our results. In our Equities and Fixed Income Trading and Clearing segment, revenue was up 1% in the quarter, driven by a 13% increase in revenue from our CDS business, offset by a 9% decrease from equities and fixed income trading. The CDS revenue increase reflected higher interest income on clearing funds and higher fees due to increased activity across event management, custodial and eligibility services and standby liquidity facilities. This was somewhat offset by lower exchange trading volumes. The revenue decline in our equities and fixed income trading business was due to a 14% decrease in the overall volume of securities traded on our equities marketplaces as well as lower activity in Government of Canada bonds and swaps. Trading volumes were down across all of our marketplaces, namely 17% on TSX, 4% on TSX Venture Exchange and 15% on Alpha Exchange. Now despite the decline in volumes, our market share held strong at 60%. Turning to capital permission. Revenues have declined 4% in the quarter, primarily driven by lower initial and sustaining listing fees on the TSX, TSX Venture Exchange and a 20% decrease in the number of TSX additional listing transactions billed at the maximum fee of $250,000. This was partially offset by a 10% increase in the number of transactions billed [ on ]. Despite the microeconomic factors challenging the capital raising activities, there were increases in the total financing dollars raised on TSX and total number of financings, both on TSX and TSX interchange. [ Lastly ], TSX Trust revenue increased by 12% in the third quarter, driven by higher net interest income, partially offset by lower transfer agent fees. Turning now to our expenses for this quarter. There was a 12% increase in operating costs on a reported basis compared to last year, but more notably, a 9% increase [ on a comparable ] basis and a 3% sequential decrease on a comparable basis. So to enable a meaningful comparison of our expenses on a year-over-year basis, I call out the following items of note. First, BOX markets estimates of $6.7 million in increased expenses for services provided by BOX Exchange, which is the National Securities Exchange responsible for rating and monitoring activity of BOX Market. For additional visibility, the $6.7 million increase can be further broken down to $4.6 million related to the first half of 2023, with the remaining $2.1 million related to the third quarter. Second, we incurred $2.1 million in operating expenses this quarter related to [indiscernible] operating Wall Street Horizon, which you recall we acquired in November of last year. So comparable in Q3 of 2022 would have been 0. Finally, the comparable quarter last year included $3.5 million related to the AST integration, which was successfully completed by the end of last year. Now in addition, when we analyze the expenses further by normalizing for inflationary increases and higher FX conversion rates, the third quarter operating expenses are notably lower with only a 3% growth rate compared to last year. Consistent with the past quarters, approximately half of our expense increase is driven by inflationary increases, coupled with higher FX rates. Turning now to a comparison of our results sequentially. Operating expenses in Q3 were up $2.6 million or 2% from the second quarter, primarily due to the higher BOX expenses, which I discussed in detail earlier. Excluding the [ true-up ] for BOX, operating expenses decreased 3% sequentially, reflecting lower revenue-related expenses, director fees, employee performance incentive paying costs and marketing as well as sponsorship costs, partially offset by higher consulting and legal fees. We maintain our view that our second half expenses will be in line with our first half of the year's expense run rate, after one at us for the higher estimated regulatory expenses at BOX that I spoke of earlier. That is to say on a comparable basis. Revenue decreased by $18.9 million sequentially from the second to the third quarter, and this was due to 3 factors: first, a decrease in TSX Trust revenue, reflecting lower balances compared to the second quarter of this year, which included above average corporate action activity; second, lower lifting fees primarily driven by lower number of additional listing transactions billed at the maximum fee on TSX. And finally, the decrease in equities and fixed income trading driven by a 3% decline in the overall volume of securities traded on our equities marketplaces. Now turning on to our balance sheet. In the [indiscernible] just over 1.44 million [indiscernible] shares under our normal course issuer bid program. Our debt to adjusted EBITDA ratio was in the middle of our target [ Technical Difficulty] range at 2.1x. And we also held close to $654 million in cash [Technical Difficulty] on October 3, subsequent to the third quarter reporting period, [ we have our ] $250 million Series B debenture with a combination of commercial paper and cash. Last night, our Board approved a call dividend of $0.18 per common share payable on December 1 to shareholders of record as of November 17. In the third quarter, we will pay out 51% of our adjusted earnings per share, while our last 12-month payout ratio at 49% remains well within our target range of 40% to 50%. So that concludes my formal remarks. I'd now like to turn the call back to Amin for our Q&A period.

[Amin Mousavian, executive]

Thank you, David. Laura, would you please outline the process [indiscernible]?

[Operator]

[Operator Instructions] Your first question comes from the line of Ben Budish from Barclays.

[Benjamin Budish, analyst]

Maybe 2 upfront here on the GSIA business. First, on Trayport. It looks like this is the fourth or fifth quarter in a row of accelerating growth. I'm just curious what are your thoughts on sort of the sustainability of that trend? And then at the same time, on the non-Trayport side, we saw the professional and market subscribers for both TSX and MX. I think for TSX, they kind of the number decline quarter-over-quarter for MX it was a bit more flat. And so it looks like the revenue you're still delivering positive revenue growth there, but if you could provide some color on the drivers of kind of the decline in number of subscribers and similarly, your kind of outlook there.

[Amin Mousavian, executive]

No problem. Let me start with Rayport first. So I'm going to anchor you into, first of all, the long-term guidance in terms of kind of high single, low double-digit growth rate over the long term. And certainly, we are continuing to perform and performed every year since we acquired the business. The piece of growth that -- first of all, a sustained growth going forward, the 9% that we talked about in the comments in terms of actual subscriber growth this year. If you look back over a number of years, that's been a continued improvement trend for business terms of adding trader subscribers we expect that to continue going forward. There certainly is a higher lift in 2023 with respect to [ CPI ] increases in our contract given the higher CPI rates in the U.K. market. Now that's not going to be the same for 2024, but it's still going to be elevated for prior periods, so you're still going to the strength related to that. And we are continuing on the initiatives to expand the franchise. So the build-out in the U.S. market, the build-out in terms of refined oil, adding to data and analytics products across the board. So all those factors that have led into that accelerated growth rate are continuing going forward. But over the long term, I still have to agree to the kind of the long-term items that we've given. Now when I switch that to the Datalinx business, and you can ask again if I don't tell this because I'm impressed [indiscernible] into that question. The subscriber [indiscernible], the subscriber counts in general. This is fairly normal to see this kind of flat or hold back when we've been kind of in a prolonged period of softness in the capital markets and when you've got clients that are curtailing some of their staff, some of their workforce. So it's not surprising to see that. It typically is something that lags market activity. And when you see the markets return and restore, it is often a lag on the other side in terms of seeing them step back up again. So it's not surprising to us, but at the same time, in the parts that are not subscriber-based, we have enterprise relationships with the majority of the large clients for the non-pro. So these would be your retail advisers, individual retail use things like that. We've actually been renewing this year, all those agreements and then largely renewing those at an uptick. And so that's both a combination of some flow-through of pricing over time because they're multiyear agreements, but also expanding the usage of that data set in their firms. And so that's one of the strategic values that we went into in terms of why we went into enterprise agreements in the Datalinx business, is it actually creates a long-term relationship with the clients. And as they use it and they start to use it throughout their firming more ways we can provide more by to both clients and to us in terms of growing revenue. So I hope that helps with some of the color there.

[Operator]

Your next question comes from the line of Nick Priebe from CIBC.

[Nikolaus Priebe, analyst]

I just wanted to just remind us how that CPI contract price escalators at Trayport, like does that reprice to all subscribers on January 1, irrespective of the timing of their annual renewal period? I just wanted to understand that a little bit better.

[David Arnold, executive]

Nick, it's David. Yes, you've got it correct. So clients might have an anniversary of the agreement on March 31 or June 30. But built into all of those multiyear agreements is the fact that we would price based on the Bank of England's cost of living adjustment really as a benchmark. And in around November of each year, our Trayport team will do the math and then reach out to all the clients get all anticipating a notification of what the annual price increase would be. And we tend to try and get those out in the kind of November, December time frame. So yes, they will kick in on January 1, regardless of the anniversary [indiscernible]. John, do you want to add?

[John McKenzie, executive]

I'm going to build on. The other piece is the real driver there, and it builds on the other discussion as well. While those pieces kick in Jan 1, as you indicated, all of those client agreements do actually renew at different times. As the client agreements reduced throughout the year, those client agreements are often renewed for multiyear periods, and there are often also step-ups in terms of the number of users and the overall fees generated. And so that's actually part of what drives the long-term step-up in the trader subscribers and the revenue beyond just the CPI. So we had actually in just this month as well, another large-scale client do a new site license with us. They renewed a 5-year extension on it and a substantial uplift. So that's -- it goes to the nature of the strength of the business. It's not just the CPI piece, when those client agreements come up, they're expanding the usage and expanding the investment with Trayport at the same time.

[Nikolaus Priebe, analyst]

Yes. Okay. That's good. Very helpful. And then just shifting over to OpEx at the enterprise line level. How do you think about budget consistent with respect to constraining expense growth in an environment with continued wage pressure and just balancing that against the need to invest for growth? As we look out into 2024, is low single-digit expense growth kind of a reasonable baseline expectation there?

[David Arnold, executive]

So Nick, I'll start and maybe John can add a little bit of strategic color, right? So the first and foremost priority for us is really investing for growth. And so yes, there are obviously inflationary pressures on cost of living for wage increases, supplier cost increases that obviously get passed on to us. But underlying all of these are incremental investments that we're making in modernizing our platform and growing, right? So you would have seen that we've obviously recruited an individual in the U.S. to help us with some of our growth plans in the U.S. Trayport, as we've mentioned on numerous occasions, are expanding into North America, so both the U.S. and Canada. And these are on the margin incremental increases. So when we look at the budgeting process, which is really your question. And I can't give you too much information, Nick, but I'll give you what I can. It starts primarily with, okay, rolling forward the annualization of what we had in 2023. So really, that's just to get us at the starting blocks. So people hired midway through the year, we need to account for the balance of the year. And then the next thing is, obviously, the inflationary pressures. And then it's a targeted and strategic discussion, which is where I kind of introduced John now, where we focus on those growth sectors of the franchise that really accelerate our strategy.And so all of those go into the hopper, culminating in us ending up with the expense growth rate will be. So absent any growth investments, you've got the first 2 buckets, anyone could look up what those inflationary increases might be, but it's the wild card is investments for growth.

[John McKenzie, executive]

Yes. So I'll build on David's comments as well and right into the lens of how you asked it. When we think about it, we're actually thinking about the lens of what I'll call kind of run the business and build the business.And so run the business, the business we've got today, the continued reinvestment in that business, things like even post-trade modernization, the reinvestment in the Joule-direct platform for Trayport. Those are all part of [ running our ] business for today and the future. And certainly, our objective is to try to bring that into the low singles. It's a very difficult environment to do that right now. That is absolutely the objective, but it's a difficult environment to do that because it's not just the challenges around expectations for staff, but the second largest piece of our expense base is our technology costs and the inflationary pressures on technology spend are substantial in terms of technology renewals, licenses, hardware, software, they are all facing the same pressures. So that's the objective we're working with. Where we're challenging our organization is where can you look for additional opportunities to save so that we actually can deliver additional savings to then use to reinvest in the future. There are areas that we know that are going to generate savings from some of the larger investments we're making, but things like post-trade modernization or the Joule platform, our multiyear initiatives. So to get to the endpoint where you get to see the savings come off, it takes some time. And so that's less of a 2024 impact and more of a '25 and beyond. The last piece that we're thinking about is in terms of kind of how do we give you kind of better guidance and better disclosure are for those larger kind of build the business initiatives. And David rightly mentioned our efforts to start building out into the U.S. with our new U.S. team we're building. That's not part of our current operations and not part of our current revenue, but as part of our long-term growth. So we're going to think about how do you give better guidance to you, so you can understand what's the real cost for running the business? And where are we making some strategic investments beyond that, that are quite discrete and transparent. So look for us to do more for that in the new year on the back of this budget process as we get it done.

[Operator]

Your next question comes from the line of Etienne Ricard from BMO Capital Markets.

[Etienne Ricard, analyst]

On the launch of the 2 new order books at the Alpha Exchange, how do you expect this initiative to result in increased trading volumes, specifically for [ dark ] trading, given the market share gains you've experienced in recent years?

[David Arnold, executive]

Yes, great question. So I mean our market share gains, we are still in do trading, though, underweight compared to the rest of our franchise. If you look at our market share of all of our listed trading activity, we're more like 2/3 of the marketplace where in the dark world, we're more in the 30%, 31% range. So we do see that there's room for us to grow. But we can grow, too. But mostly, we want to grow our market share within that [indiscernible] space, and we saw there was unique features and functions that we could add in to meet unique client needs to build that. And then the same thing with the actual execution venue. The nice thing with both these things are in addition to the opportunity to build incremental volume, these are also premium services in terms of premium revenue. So as volume builds in them, they have the ability to increase that kind of revenue per trade in the trading space. So those are the 2 key components to them, and both of them are driven specifically from unmet client needs that we've identified through our interactions with the Street.

[Etienne Ricard, analyst]

Yes. And on the acquisition of EQM by VettaFi last month, what do you see as the potential to introduce new index solutions to your base of ETF issuers in Canada following this acquisition?

[David Arnold, executive]

I'm impressed with how much you're paying attention to pick up on that one. So that was an interesting acquisition. This actually goes right into the kind of the genesis of why we like to trade VettaFi – why we made the investment into it. The platform that the team at VettaFi has built the index factory has got the ability to add new indices to it. So indices like EQM can be acquired and integrated into that factory and run very efficiently and then expand it out to a broader network. So what you're seeing is an indication of the forward strategy of what we expect to do with that going forward. Now in addition to that, that's what VettaFi can actually do on their own with their own capabilities, the partnership we are working on together is how do we use that factory to create net new indices using datasets that we have, client relationships that we have. And so that's still early stage in terms of developing those. But if you think about some of the unique Canadian datasets we've got in terms of both equities, junior equities, fixed income, energy data through Trayport, clearing data at CDS, there's lots that are in there that we can build into future indices. And even the piece that we talked about earlier in the call, the ESG hub that we've launched, as you build up more ESG data, there's other types of indices you could build from that in terms of reference data, thematics, those types of things. So that's what our joint team is working on. I'm glad you picked up on EQB because it's actually a really good case study on what those capabilities allow you to do.

[Operator]

Your next question comes from the line of Brian Bedell from Deutsche Bank.

[Brian Bedell, analyst]

Maybe just quip really quick on expenses on the second half getting to the first half. So just on a reported basis, I guess, would that imply about $153 million of expense in the fourth quarter, if you were to match that perfectly. And does that include the expenses you mentioned from BOX? Or I guess how would the BOX expense influence that?

[David Arnold, executive]

So Brian, let me handle the second part of your question first. Yes, I mean, we don't have the visibility because of the shareholder structure that we have with BOX. So as a result, the wildcard for me is will the BOX exchange expense pickup in BOX market be the same in Q4 as it is in Q3, right? That's to be determined. So when I mention that, it's actually looking through that. So excluding anything that might be passed through from the exchange to the market. So that's the first one right off the bat is we don't have the visibility into that. So when I say the second half will be comparable to the first half, that's excluding that. And then on the ability to look at the numbers, yes, you could just pick up the 2 reported numbers for Q1 and Q2 times 2, deduct Q3 and you get a good indication as to kind of where the guardrails might be for Q4.

[Brian Bedell, analyst]

Yes. Perfect. Okay. Great. And then just on MX. Just in terms of the market share shift or the shift -- the product mix shift to CORRA, maybe if you could just comment on to what extent you would expect that to continue to influence the rate per contract, yield, I think it's come down a little bit. And then, I guess, what you're seeing from the trading community. I know there's always -- I think, John, you had mentioned in a prior call that when volatility settles down, it's actually good if there's for more certainty of trading and that actually improves volumes. So maybe if you can just contrast that scenario versus, I guess, the volatility that we've seen in October so far?

[David Arnold, executive]

Well, sometimes I'd like to split hairs and talk about good volatility and bad volatility that's sometimes a challenge, particularly around the fixed income piece. So having unpredictable Bank of Canada rate moves, it's challenging because that's challenging in the short-term product. And since we've had some stability in the Central Bank regime, that's actually been helpful, but you still want to see volatility around trading activity around it because that drives more usage of those products, and we have seen that improvement and strength. And so we're -- like when you translate that into kind of that transition from BAX to CORRA, we're pretty happy with the uptake in CORRA already, given that it's actually not the mandated contract yet, still BAX until that transition next year. So seeing the lift in both those contract volumes and the recovery in the BAX volumes at the same time has been really positive and strong for liquidity in those products. Now as we go into the actual transition period, certainly, there's market making built into supporting the CORRA agreement that isn't there in a very well-established BAX contract. And so there will be a short-term [ RPC issue ] or step down when we had that transition. But like other new contracts, that will be time limited, and we'll work our way out of that. Now that being said, our expectation is that in both in combination, the CORRA and the BAX and then actually in the CORRA itself has the potential for higher run rate volumes than what the BAX did beforehand because this actually is a better product, it adds for more terms and more ways for the clients to use it. And so that's part of the announce as well. So we need to look to a short-term revenue per contract impact for the -- really the launch and initiation of it, but with the potential for higher long-term revenues and then that rebate piece over time winds off. I can't give you guidance as to when because those are, again, commercial agreements with the liquidity providers, but similar to what we would see in other contracts.

[Operator]

Your next question comes from the line of Geoff Kwan from RBC Capital Markets.

[Geoffrey Kwan, analyst]

I just want to expand on, I guess, some of the topics that you've announced so far this morning. First one is just going back to the market data subscribers and the quarter-over-quarter changes we've seen over the past couple of quarters. Do you get much insight in the short term, whether or not maybe on a 1-quarter basis, maybe even 2 of how that may trend? And just wondering what you're seeing on that front? And then also, is it still the same dynamic? Because I thought for previously, for example, if you had someone that may have lost their job. You don't see that step down in the market data subs or the revenue impact for maybe a quarter, maybe 2, and also that, that nuance happens on the opposite side when someone adds a market data subscription?

[David Arnold, executive]

Yes. And also the challenge of that, Geoff, is also we also can't just take job reductions in different clients or dealers holistically because it also depends on what the rules are, where they're using it or how they're using data in their shops. So it's -- we don't get great forward-looking information with respect to our ability to predict it other than that general market piece that when you've got industry step down in employment, to your point, we will often see that impact on a bit of a lag as they actually reset kind of recount their seats and make adjustments going forward and the same thing coming back. But unfortunately, no, we don't get a lot of insights to it until it's actually happening.

[Geoffrey Kwan, analyst]

Okay. And then just my other question was on Trayport. How much of the revenue today is coming from, call it, outside the core European customer base? And can you kind of talk about -- I know you talked about a little bit some of the stuff, but just the outlook and expectations in terms of how quickly you can drive that revenue outside of the kind of the core franchise base?

[David Arnold, executive]

Yes. Well, I mean we've given guidance before that the piece that's coming directly out of the kind of the North American market is kind of GBP 5 million-ish in terms of run rate now out of the overall mix. But it's actually difficult for us to delineate the way you've asked in terms of kind of outside the European client base because a lot of those clients are global, and they're doing global business on Trayport. And if you think about some of the exchanges that participate as well as playing clients, like [ ICE CME ], those are global franchises as well. And while they might be participating in the European market, they're participating also with North American data. So it's a bit more nuanced than that. The piece I can give you is actually the direct piece from what we've actually been building out in the U.S., what is contributing so far.

[Operator]

Your next question comes from the line of Graham Ryding from TD.

[Graham Ryding, analyst]

There was a couple of comments around building into the U.S. So just wondering if I could maybe dig into that a little bit. Can you remind us what you're looking to do there? Is it initially around an equity trading initiative? And then beyond that, is it is sort of a phased project or, I guess, exploratory process? Or do you sort of have you defined what you exactly want to do and what you want to spend over the near term?

[David Arnold, executive]

Okay. So there's going to be a different game today in terms of what we're doing and how much I'm going to tell you today. So you have to bear with me on that. We actually do have a well-defined strategy in terms of what we're trying to do in the U.S. We haven't had broad discussion in the public market yet. So I'm going to be a little bit more limited in terms of what we share today. But essentially, when you look to what we've built out in Canada in terms of the Alpha-X the Alpha DRK initiatives and really looking to provide better execution quality for clients, we see that similar opportunity in the U.S. as a way to start building our equity platform directly in the U.S. as opposed to just on a cross-border basis. We've got substantial client bases with cross-border activity. And when you think about -- particularly even the Canadian banks and their presence within the U.S. market, and we do believe the long term that the quality of our offerings can compete with any of the North American players in the home market just the same way they compete in the Canadian market. So that being said, the initial strategy in terms of building is to look to what that unique opportunity is around execution quality and the hiring of our new head of U.S. equities is working on building the team to do that. So it is definitely more than what I would call experimentation. We do actually have a strategy to build. And in the new year, we'll look to see how we can provide more guidance to you, both in line with the investing community, but also in line with the client community that we've been engaged with over the past year in terms of their interest level in supporting new marketplace.

[Graham Ryding, analyst]

Okay. Perfect. That was good color. Sort of a two-pronged question, but really on the interest income side of your business. So TSX Trust, it was a little bit lighter than last quarter for sure, but also I think it was below Q1 and Q4 levels, I guess, earlier in the year and late last year. So can you just expand on was that all about lower transfer agency activity? Or how should we think about this quarter compared to previous quarters?

[David Arnold, executive]

Yes. So Graham, it's David. So I would say Q1 is a better indicator of kind of a normal run rate. But obviously, as you know, that one of the triggers there on the net interest income side is A rate, but B, also balances, right? And so to the extent that we see the capital markets environment like it is right now, with some of the listings activity, IPO not being as robust, there's a direct correlation, obviously, to our trust business because we participate in a lot of those corporate actions. And obviously, that's a little bit more of a dampener on Q3. But as we go into Q4 and as we look into Q1 of next year, we're anticipating hopefully some early signs of a little bit of a rebound. So that's the first piece. And then, yes, I mean, obviously, on the transfer agency, it was softer than we had hoped for in this quarter, once again, hope that it kind of rebounds more in the kind of Q1 kind of run rate, if you will.

[Graham Ryding, analyst]

Okay. That's helpful. If I could just kind of some 3 and 3 and just throwing another question on that. But with this move to T+1 in mid-next year, will that have any impact on the interest income that you had captured through CDS?

[David Arnold, executive]

No, because we really don't capture much interest income in CDS. It will have a meaningful impact on our clients because the move for the [ T21 will ] -- we expect to be a 40% to 50% savings in the collateral that they post with us. But unlike most of the European clearing houses would have substantial net interest income associated with that. We largely pass it all back. So there's no material change there.

[Operator]

Your next question comes from the line of James Gloyn from National Bank Financial.

[Jaeme Gloyn, analyst]

First, I just wanted to get some clarity on the capture rates of the derivatives business, both MX and BOX. Would you be able to give us a little bit of color on it, like is this a clean quarter for your rebates maybe from a client and product perspective, is it roughly average? Like maybe a little bit of color in terms of the capture rates on both of those businesses, the MX and BOX.

[David Arnold, executive]

Jaeme, they're all clean quarters. Yes. So I mean the MX one, this you can look to the product mix. It's a clean quarter in the sense that there's no client adjustments or anything like that. It's just the actual impacts on the revenues of the products that are traded. The piece that we talked earlier, as you shift some volume from BAX to CORRA that will have an RPC impact in the short term because it has a rebate regime helped to build it. And I want to remind people that was a deliberate choice we made to ensure that liquidity got built up in that new product and didn't end up missing the public market and ended up in the over-the-counter market. So no, it is a clean quarter. There's no special one-offs that are in there that is impacting. It's just the mix of the business. And the same thing with BOX. BOX has been very steady when you look sequentially. I think actually BOX is up actually substantially and sequentially both in terms of volume and share, but the actual RPC has been largely stable. So again, that's going to depend on the mix of what the clients are using BOX for in terms of whether or not you have kind of more [ floor ] trading, more high-volume trading large contracts or more kind of open market trading. But again, as you ask, it's a clean quarter, there's nothing special going on there that's impacting things.

[Jaeme Gloyn, analyst]

Okay. Yes, that's what I was getting at. If I think about VettaFi and the recent acquisitions, one data point you put in the MD&A was $19 billion in ETFs or I guess it underpinned $19 billion. Is that the key total addressable market figure we should be thinking about for that business? And if you kind of go back to [indiscernible] EQM transactions, like what was that value? And maybe even like let's talk like 3 years ago, 5 years ago, whatever time frame you want to pick, like how is that $19 billion? What has been the growth rate on that?

[David Arnold, executive]

Yes, I'd have to -- I wouldn't be able to help you with the growth rate over time because I don't have that handy, and we can make sure we do that as a follow-up. [indiscernible], that was about, I think, $2 billion in terms of additional AUM, so kind of '17 before that. And some of the other ones that we've brought on have been fairly small because they've been kind of niche, but the idea is you bring them in small, bring them on the platform, then we can scale them up. And what VettaFi does that's unique in this space is it has a burgeoning what I'll call a digital distribution business that actually helps the ETF issuers that are using the index reach a larger addressable audience of retail investors, wealth advisers, things like that. So it is intentional in terms of kind of bringing on smaller new stage or early stage 1s and having it grow versus time.Now we'll have to get back to you on kind of what the growth rate has been with respect to the AUM. But this is exactly the driver that we're looking to grow long term. In the index-based revenues that are in VettaFi, they are driven off of AUM. And so it is a key indicator going forward. It will be something that we can think about how we give you more guidance on as we go.

[Jaeme Gloyn, analyst]

Yes. And then just a follow-up on that. As I think about like the opportunity for VettaFi, is this more about creating your own market and growing that $19 billion? Or where does VettaFi fit with that $19 billion within the broader ETF ecosystem that would be like competitors or other players offering similar services?

[David Arnold, executive]

Yes. So it varies. I mean, when you think of the overall ETF assets under management, this is a very small piece. There's a substantial growth opportunity. And it comes from adding new indices, but also doing switches where with their capabilities, we can switch out another provider or a legacy one to something that's created by VettaFi on behalf of the ETF client. So this is where kind of when you think about the addressable market, the opportunity for upside is substantial. And even think about the way we think about ETFs for our market in general, I'll remind folks that we have almost 1,000 ETFs listed on TSX today. They are faster growing in terms of assets under management than the underlying mutual fund market, but still only represent about 15% of those total assets even in the Canadian market, but growing at double digits versus what the mutual ] fund ] market is, which I believe has actually declined this year. There are multiple thousands of mutual funds. So the opportunity for continued add and creation of new ETFs is still strong. The growth rates are strong. The additional AUM coming into them has high potential. I think this year alone, we've talked about the fact that we've actually added, I think, over 75 new ETFs to TSX this year. So all of those gives you some of the indications as why we see the addressable market for what VettaFi can do to not only be large but expanding and growing rapidly.

[Jaeme Gloyn, analyst]

Okay. Great. And last one on VettaFi, if you can. Thinking about their M&A opportunity set in front of them, like what does their balance sheet look like today? Are they well capitalized to execute more M&A? Or is this something where you put your 22% in and maybe they will come back to TMX for some more capital to go out and further consolidate that market?

[David Arnold, executive]

It would very much depend on the size of the acquisition opportunity. But you can understand our enthusiasm of the business and our willingness to support its growth.

[Operator]

We have a follow-up question coming from the line of Ben Budish from Barclays.

[Benjamin Budish, analyst]

I wanted to ask about the build-out of the U.S. business, but it sounded like you kind of gave your thoughts on that for now, John. So maybe just one other follow-up just on the trust business. Where are you in terms of the sort of cross-selling opportunity between the legacy business and AST? Just think about how this kind of should evolve over the next year or so just in terms of the -- in the context of your longer-term growth objectives with the trust business is expected to be a high-growth segment.

[David Arnold, executive]

Yes, the cross-selling piece is still early stage. So the AST brought us new tools like employee plan management. We've actually just hired an industry expert to help actually take that to the next level in terms of where does that product need to evolve to and then to be able to sell it across a broader client base. So it's a product that is only lightly penetrated both in the AST client base, but also in our TSX Trust client base that we've merged every into. So that's just one example of where we see those additional upside opportunities. We're also selling into clients with things like the registered plan management services. We can sell into some of our private company leads that are in our pipeline for things like plan management, trust services, et cetera, et cetera. We are winning more trust mandates. So these are beyond the transfer agency mandates the ability to do the actual trust mandate on top of that. And that's actually both with clients that we already had as transfer agent clients, but also clients that are transfer agent clients of someone else. And so in some cases, we're winning trust mandates of other people's clients. So that ability to keep driving that higher growth rate we've indicated is absolutely continuing. We expect that for the long term. And the other piece with that is, this has not been a strong IPO market in the past year. But as we see that recovery in the IPO market, given the ability to interact and introduce TSX Trust early in the stage of relationship with an insurer client, we also expect to continue to win well above our share of new mandates coming to the marketplace, both for transfer agency and trust.

[Operator]

There are no further questions at this time. I'd now like to turn the call back over to Mr. Amin Mousavian for any closing remarks.

[Amin Mousavian, executive]

Thank you, everyone, for listening in today. If you have any further questions, contact information for Investor Relations as well as media is in our press release, and we'd be happy to get back to you. Until next time, goodbye.

[Operator]

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