TMX Group Ltd

TSX:X

Earnings Call Transcript 2018-Q4

[Operator]

Good morning. My name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the TMX Group Fourth Quarter 2018 Financial Results Conference Call. [Operator Instructions]Mr. Paul Malcolmson, you may begin your conference.

[Paul Malcolmson, Director of Investor Relations]

Thank you, Amy, and good morning, everyone. Thank you for joining us today for the Fourth Quarter 2018 Conference Call for TMX Group. As you know, we announced our fourth quarter and full year results last night. A copy of our press release is available on our website, tmx.com under Investor Relations.This morning, we have with us Lou Eccleston, our Chief Executive Officer; and John McKenzie, our Chief Financial Officer. Following the opening remarks from Lou and John, we will have a question-and-answer session.Before we start, I want to remind you that certain statements made on the call today may be considered forward-looking, and I refer you to the risk factors outlined in today's press release and also in reports filed by TMX Group with regulatory authorities.Now I'd like to turn the call over to Lou.

[Lou Eccleston, CEO & Director]

Thanks, Paul. Good morning, everyone, and thanks for dialing in, and, of course, happy Valentine's Day. This past year featured some strong performances within each of TMX's operating segments, including both our transaction and recurring revenue-based businesses. Looking at the fourth quarter as well as the full 12-month period ended December 31, 2018, we reported solid year-over-year growth in revenue, earnings per share and cash flows generated. Overall, TMX 2018 revenue was up 22%, with an 8% increase in organic revenue when compared to 2017. Also of significant note as we look back on 2018, TMX delivered earnings growth in each quarter of the year when compared to each of the quarters of 2017. This is a particularly impressive accomplishment given the challenging market conditions we faced around the world. John will take you through the results in finer detail, but first I want to share some observations of our overall business performance.The high volatility of 2018 certainly posed considerable challenges for a significant portion of our client base and our business, with a particularly severe downswing in valuations during the last few weeks of the year. But along with those negative pressures, we've seen some positive effects of high volatility on TMX results in our transaction-based businesses and also in other parts of our increasingly diversified business. Our overall successes in 2018 demonstrate that the work we've done to strengthen TMX's portfolio of client-focused solutions is paying off. Across TMX, we have both new and established components of our business model and are opening up to become adaptive and responsive, like our innovations listing platform on TSX and TSXV, built on the foundation of our world-leading resource platform. Our growing strength in the innovation sector is a powerful proof point for how we're effecting change in how the world perceives TMX. We're still in the early stages of a promising paradigm shift in our markets. Canada is becoming[Audio Gap]first set of companies from multiple industries, including fintech, biotech, blockchain cleantech, IT consulting, e-sports and, of course, campus. These companies span a wide range of regions around the world, including the U.S., Portugal, Israel and Singapore. We continue to focus our business development and sales efforts on attracting international listings across all sectors and activating new pools of capital in new geographies. In 2019, we have international business development campaigns in the works for California as well as Israel and South America. And as I said earlier, higher volatility has led to gains in our global trading businesses. Derivatives revenue was up 13% in 2018 versus 2017, driven by higher volumes, including record-setting activity in a number of Montreal Exchange's key products. 2018 was also a landmark year for MX in advancing our global growth strategy. Now October, MX launched extended trading hours on our interest rate product suite to enable clients to manage their exposure to Canadian markets during nonregular Canadian business hours. To date, we're seeing significant activity and global participation during these early hours. In the month of December, early hours volume accounted for almost 4.5% of MX's total daily volume in our core products, up from 2.5% in October. So based on success of phase 1 and increased client demand, later this month, MX is expanding its extended trading hours initiative to include index futures like the SXF, Canada's equity and debt's benchmark product.Revenue from equities and fixed income trading grew 5% in 2018 compared with 2017. And this is driven by higher overall trading volumes on Toronto Stock Exchange and increased activity at Shorcan. Within the numbers, we see important progress made in our client-first approach to serving the equities trading community. There are two innovations I'd like to highlight for 2018. First the performance of TSX Alpha, where the market share has been growing over the last few quarters hitting a peak of over 9% recently. I want to point out that Alpha is an unprotected market. That means that 9% is earned volume. And that's evidence that a growing segment of our clients is choosing to send orders to this innovative marketplace. Another thing to highlight in equities is that last September, we completed the rollout of our secondary market maker initiative on TSX. So now for every TSX corporate issuer, we have to committed market makers, each with firm quoting and liquidity provision obligations. Over the first few months, we have already seen impressive improvements in liquidity and market quality metrics on TSX.Turning now to Trayport, the primary connectivity network and data analytics platform for the European wholesale energy markets. Trayport experienced strong revenue growth in the core subscriber business in 2018, up 10% over 2017. This is driven by a 3% increase year-over-year in number of total subscribers, and that includes a 9% increase year-over-year on trader subscribers and an important increase of 6% in the average revenue per user over 2017. Trayport remains focused on growth opportunities in new markets around the world and expanding the portfolio of new services offered to their client base. What I want to do now is spend a minute to address some important organizational changes we made this week in our post-trade businesses. So earlier this week, Glenn Goucher, Chief Clearing Officer, President of CDCC and CDS, announced his retirement effective at the end of February. On behalf of TMX and our Board of Directors, I'd like to sincerely thank Glenn for his years of service in our Derivatives and Clearing business. Over the years, his leadership has helped position Canada's clearinghouses as premier institutions among our global capital markets peers. We wish Glenn well into the future. Jay Rajarathinam, our Chief Technology and Operations Officer, will relocate to Montreal and also run all post-trade services and operations as President, CDCC and CDS, effective immediately. Jay has been managing all our technology systems supporting CDS and CDCC since July 2016. And prior to joining TMX in 2016, Jay supported technology for six clearinghouses among his responsibilities as the SVP of Technology Infrastructure at ICE. He has years of experience overseeing this crucial component of capital markets infrastructure, including strategic planning and execution as well as overseeing day-to-day technology operations and incident management.Further, we're pleased to announce that Wayne Ralph has joined the organization in the newly created position of Chief Operating Officer CDS, reporting to Jay. As an industry veteran, Wayne will oversee the operation of CDS as well as the ongoing program to implement a single integrated technology platform for our clearing and settlement businesses. Wayne brings years of experience and a depth of knowledge of our post-rate client base to CDS and is very familiar with our organization, having served on the Board of Directors of CDS from 2006 to 2017. And in his most recent role, Wayne served as Executive Vice President of Global Operations at CBIC World Markets.Now moving on from there, if you attended or watched, and many of you did and I thank you for that, our Investor Day in November, we set clear fundamental benchmarking plans for long-term revenue and earnings growth objectives. Mid-single digits revenue growth and double-digit earnings growth on an adjusted basis, a benchmark that highlights our operating leverage. And as our business leaders laid out that day, the roadmap for TMX's portfolio solutions stretches far beyond just the next potential product. It includes the building and implementation of new capabilities such as enterprise technology and data platforms and community building platforms like TMX Matrix. I want to reiterate the core principle of TMX's roadmap for growth. And that is the transformation of TMX from a regional resource exchange operator into a client-first global solutions provider. Our 2018 results and our foundation for continued growth are based on the outstanding characteristics of TMX as an organization and as an entity. Going forward, we have large, untapped addressable markets in our core business as well as adjacent opportunities. We have a diverse business model, which enables us to navigate changing global market conditions and significant competitive barriers. And we have a talent, financial wherewithal and a discipline to invest in and execute a cohesive enterprise-wide strategy to achieve sustainable long-term growth into the future.In closing this morning and before we get to your questions, I want to follow up on one other thing I touched on in Investor Day. We set out 4 years ago on a journey to transform TMX from a regional infrastructure company into a global provider of intellectual property-based solutions, able to develop and deliver client solutions to market quickly and cost-effectively. We defined our vision then to be a technology-driven solutions provider that puts clients first. Over the last 4 years, we have fulfilled that aspiration. We have achieved our vision and we are, indeed, a technology-driven solutions provider today. And client-first is the lens through which we see the world; it is intrinsic to the new TMX.In December 2018, our Board of Directors approved the change to refine our vision statement to move to a new aspirational statement, one to strive for going forward. The new TMX vision is, To be an indispensable solution for companies around the world to raise capital and the preferred destination for traders and investors to prosper. We are excited about the future and to live up to our new vision in the eyes of our clients every day. Thank you for your attention. I look forward to your questions. And with that, I'll turn the call over to John.

[John McKenzie, Senior VP & CFO]

Well, thank you very much, Lou, and good morning, everyone. As I'm sure most of you have seen the press release from last night already, I will jump right in with a summary of the quarter results, following which I want to spend a few minutes on some updates for 2019.We were pleased to report another strong quarter, with revenue growth in Q4 of 22%. Once again, we benefited from a diversified business model with strength in our trading, clearing and subscription-based businesses more than offset a decrease in additional listing fee revenue. Our year-over-year organic revenue growth was 8% this past quarter, excluding Trayport. And while offering expenses increased, we had record income from operations of $97 million in Q4 2018, up 16% from Q4 2017. We delivered solid earnings performance with $1.24 in diluted earnings per share from continuing operations, up 72% over last year, and adjusted diluted earnings per share of $1.31, up 7% over the fourth quarter of 2017. Overall in Q4, our trading and clearing businesses benefited from increased market volatility. Equities and fixed income trading revenue was up 13% over last year, reflecting higher volumes in equity trading on TSX and Alpha, offset by lower volumes on TSX Venture and increased activity in Government of Canada bonds and swaps for Shorcan. On the clearing side, CDS revenue was up 11%, reflecting higher clearing and settlement revenues and also due to market volatility, increased revenue from the New York Link service as well as higher interest on clearing funds. Our subscription-based businesses within Global Solutions, Insights and Analytics, have essentially all recurring revenues and were up 53%, driven by the inclusion of revenue from Trayport of $28.6 million in Q4 2018, compared with $4.5 million for just the last 2 weeks of last year. Excluding Trayport, revenue was up 3%, reflecting higher revenue from subscriptions, usage-based quotes, data feeds and co-location. Subscriptions were up 1% on TSX and TSX Venture Exchange, and that same metric was up over 3% over Q4 '17 for MX. In addition, there was a favorable impact from a stronger U.S. dollar compared with last year. Traypor'ts core subscriber business was up 12% over Q4 of 2017. And as you'll recall, Contigo, the ancillary non-subscriber-based risk application business of Trayport was sold on November 30, 2018.Now turning to operating expenses. Operating expenses before acquisition costs in Q4 were $110.6 million, up almost $24 million or 27% compared with 2017. This reflected increased costs related to Trayport of $14.6 million, approximately $2.6 million in severance costs related to organizational changes, higher employee performance incentive plan costs of about $3.1 million and higher project and infrastructure spending, including costs related to the modernization of our clearinghouses CDS and CDCC. Now looking at our results on a sequential basis. Revenue in Q4 was up 8% from the third quarter, reflecting increases in all operating segments. Operating expenses before acquisition costs were up just over $4 million compared with last quarter. And there were higher information and trading system expenses as well as higher recoverable expenses related to the increased revenues. Income from operations increased sequentially, reflecting higher revenue partially offset by the higher expenses. And on a reported basis, diluted earnings per share increased by 22%, from $1.02 to $1.24, and, on and adjusted basis, diluted EPS increased by 10%, from $1.19 in Q3 to $1.31 in Q4.Now to comment on our balance sheet. We were able to reduce our debt by over $275 million from the end of 2017 to the end of 2018. Our debt to adjusted EBITDA ratio was 2.4 at the end of 2018, down from about 3.3 at the end of 2017. We also held over $230 million in cash and marketable securities at the end of the year, $60 million in excess of the $170 million we target to retain for regulatory and credit facility purposes.Now looking to the future, I want to spend a few minutes on several items we highlighted in our disclosure documents that will impact Q1 and the rest of 2019.Starting with revenue, we highlighted that TSX amended its listing fee schedule effective January 1, 2019, to include an increase in the maximum annual sustaining fee for corporate issuers from $110,000 to $125,000. However, the aggregate market capitalization of issuers listed on the TSX decreased from just under 3 trillion to 2.65 trillion at the end of 2017 to the end of 2018. And the market capitalization of issuers listed on the TSX Venture exchange decreased from 54.5 billion to 45.4 billion over that same period. We estimate that these decreases in market capitalization on TSX and TSX Venture, net of the impact on changes in our sustained listing fees as described above, could result in a decrease in sustaining listing fee revenue of about $1 million to $3 million throughout 2019.In terms of operating costs, I want to highlight two items for you to note in Q1. The first is a reminder that we see an increase in payroll taxes from the fourth to first quarter each year. Last year, that increase was approximately $3.1 million from Q4 '17 to Q1 '18. Also, for compensation and benefits costs, in Q1 '19, it is anticipated that we will have severance costs related to organizational changes consistent with the range provided in Q1 2018. In terms of CapEx, just a reminder that the modernization of our clearinghouses CDS and CDCC continues. As we mentioned in our disclosure documents, this is a complex undertaking and we will provide updates on the costs, savings and timing throughout 2019. On taxes, we expect to see our statutory tax rate at approximately 26% for 2019. And finally, we have provided some additional disclosure on IFRS 16 and how it will impact the presentation of our results going forward. Now last night our board declared a quarterly dividend of $0.62 per common share, to be paid on March 15, to shareholders of record on March 1, an increase of $0.04, or 7%. This is the fourth increase over the last 10 quarters. At 47%, this payout ratio is within the range of our domestic, international peers, and we are committed to continue to monitor that range and maintain a payout ratio that's consistent with that group.At this point, I will turn the call back to Paul for the question-and-answer period.

[Paul Malcolmson, Director of Investor Relations]

Thanks, John. Amy, could you please outline the process for the question-and-answer session?

[Operator]

[Operator Instructions] Nik Priebe with BMO Capital Markets.

[Nikolaus Priebe, Analyst]

Just wanted to start with a question on Trayport. It looked like it was pretty solid growth in the number of subscribers just on a sequential basis in the quarter, particularly on the number of traders. Just wondering how you would attribute that. Would that uptick be attributed to some of the work that you've been doing to enhance the platform's capabilities of end features? Or are you seeing some more global demand for that offering? Or is it just pretty broad-based in general?

[Lou Eccleston, CEO & Director]

Yes. One of the key things driving it is the continued market growth in the European and Asia benchmark contracts for the liquid natural gas market, which is one of the four areas that we talked about during Investor Day. January, for example, was up again. But you're seeing that growth in those markets as they become more global. That drives volume and it [ adds ] more demand for traders and brokers that need the seats. And it also drives that revenue per user number. And we actually are also making really good progress on the jewel broker platform which we talked about. That's sent to launch by the end of this quarter. That'll give us more visibility and potential for growth as that market grows. But all of those areas that we outlined are actually really moving quickly and continue to grow, as we anticipated they would.

[Nikolaus Priebe, Analyst]

Okay. No, that's helpful. And just a question on the dividends, or perhaps a broader question on capital return in general. But as you come through this initial period of elevated capital spending just related to the clearinghouse integration and as the debt to EBITDA ratio continues to grind towards the lower end of the target range, does that sort of change how you would view the payout ratio in the context of peers? Or would you be more inclined to look at the use of excess cash flow on things like buybacks? Just some insight on your thoughts on that would be helpful.

[John McKenzie, Senior VP & CFO]

Yes, Nik, it's a great question. And if you recall, I'm going to reiterate a bit of what we talked about at the Investor Day in terms of those capital priorities. The #1 priority in terms of the use of excess cash and the use of the balance sheet capacity is really growth. So we are actively continuing to look and see if we can identify places where we can invest in those core growth areas of the business, capital formation, derivatives, insight and analytics. So that there are investment opportunities for us to accelerate those growth curves, that's the first priority. Now going back to the second part of your question, you're absolutely right. And you indicated we're at 2.4x now in our leverage ratio. You'll continue to see that tick down throughout the year. And the low point, as we've talked in the past, for us is kind of around 2x is where my happy place is on a long-term basis. It doesn't change the perspective in the short term in terms of payout ratio. But currently, when you look at the cash flow we generate, even with what we're spending in terms of the clearinghouse modernization project, we're generating significant excess. So it gives you the sense at where we can continue to be comfortable paying out in the high end of that range. As we get later on in the year and if we see s sustained leverage at 2x or less and we're not able to identify good investment opportunities that both drive the strategy, drive growth, but are also financially disciplined, we will look at other alternatives at that point. But given where we are now, it's still a bit premature to speculate.

[Nikolaus Priebe, Analyst]

Okay. That's helpful. Thanks, John. And then one last question on OpEx in the quarter. Just kind of looking at information and trading systems expenses, it looks like they've ticked up a little bit relative to the preceding quarter. Just wondering if you could give us a little bit of color on that? Was that related to the clearinghouse integration? And if so, should we expect that to remain a little bit elevated through 2019, as you continue to work towards completion of the project? Or were there some 1x elements in the mix?

[John McKenzie, Senior VP & CFO]

Yes. There's actually some of both. And you answered both your questions at the same time, so I always appreciate that, Nik. There is some pieces that are a bit cyclical as we do some licensing work at the end of the year, so that Q4 tends to be a bit on the higher side. But certainly there's also an element in there of the clearing modernization. We talked in the past that the bulk of those costs are capitalized. But the bulk doesn't mean all. So there was some impact to the cost base in the quarter related to that project, indicative of what you would kind of see if you look at the whole year, indicative of what you would see for 2019. But I wouldn't necessarily take Q4 as a jumping off point.

[Operator]

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

[Graham Ryding, Research Analyst of Financial Services]

John, maybe we'll just stick with that theme. So I think it was $6 million of operating expense that you attributed to the clearing initiative in 2018. The language in your MD&A sounds like that number is going higher. Is that the correct way to interpret it for 2019, but you're just not at a position yet to give us an exact range?

[John McKenzie, Senior VP & CFO]

I think it's actually fair to say that the spend that you saw in 2018 is largely indicative of what you will see in 2019. What we can't give you yet, and we are working to do so as fast as we can, is to give you that kind of ultimate component of when do we launch this? What'll the ultimate totality be, and any impact on our savings. So that's the piece that we're holding back on. And Lou talked earlier about some changes in leadership and structure around the business and the initiative. So as we work through that, we'll be coming out with more information. But I would suggest that what you saw in 2018, is generally indicative of what you should see for '19.

[Graham Ryding, Research Analyst of Financial Services]

Okay. That's helpful. And is there a bias towards the CapEx spend and the timing of this project to be pushed higher and pushed out? Or is it just things are still fluid and up for it could be lower as well?

[John McKenzie, Senior VP & CFO]

Yes. I'm going to hold on that for now. I think we need to let the teams do a little bit more work. As we noted, that the initiative is quite complex. It's got a significant impact on The Street and participants. So we've got some more work to do before we can give you that update.

[Graham Ryding, Research Analyst of Financial Services]

Okay. That's fine. Lou, just jumping to Trayport. Pretty strong organic growth in the quarter. How much of that growth would you attribute to sort of the growth of the LNG market? Is it the big driver or the big theme that's driving Trayport right now?

[Lou Eccleston, CEO & Director]

It's certainly a significant one. I don't know if it's the primary one. But it's certainly an important one. Those volumes are way up. It certainly does help. But we're working across all four of those things that we talked about and constantly adding new services and product. I didn't mention it. But the data analyst product will also launch later this year. So there's a lot of work going on. I mean, it's a strong driver. But it's across the board.

[Graham Ryding, Research Analyst of Financial Services]

Okay. And my last question would be just on the capital formation side of your business. Just wondering if you have some color or some commentary on the pipeline? The second half of the year was obviously quiet because of markets. Is there any sort of pent-up demand or any evidence that with the market improvement in January that that activity is expected to pick up? How are you feeling?

[Lou Eccleston, CEO & Director]

Yes, that's a good point. We feel very good about the pipelines, actually. The pipelines have grown, despite the issues in the marketplace. And one of the reasons I spent some time talking about the innovation results is because, despite what's going on in the market, you still saw lots of listings in the innovation market. And if you then connect that to a really strong and growing pipeline all over the world, it's fair to say that there absolutely is pent-up demand. And that's why we pay a lot of attention to that pipeline. And all over the world, there's lots of companies that are looking to raise capital one way or the other. So we're comfortable that we're in a very good diversified position. And as things change and make those conditions better, that we'll see more of that pipeline come through.

[Graham Ryding, Research Analyst of Financial Services]

Okay. And then just my last quick one. IFRS 16, John, can you give some context, unless I missed it in the MD&A? What's the impact on amortization and operating expense?

[John McKenzie, Senior VP & CFO]

Yes. So the disclosure that's primarily in the financial statements is around the balance sheet impact. So what IFRS 16 does for us is, it potentially takes all of our premises leases and it puts them on balance sheet. So the anticipated impact on the balance sheet is approximately $100 million added to both the asset and the liability base to reflect this. In terms of what happens to the income statement, it's not a material impact or a meaningful impact in terms of operating earnings. But it will change how you report between G&A and depreciation for those operating leases. Now approximately in 2018, approximately $22 million in terms of our G&A expense was associated with lease costs and maintenance and taxes and things like that around that. So a portion of that is what you would expect in 2019 that will move from G&A into that depreciation and amortization amount. When we do the first quarter report, we're going to make sure we give you incremental disclosure, so you can clearly break out in the amortization what's coming from this accounting change, and continue to do the same type of performance measures that we've had in the past, like EBITDA measures, things like that. But we'll make sure you get the right level of disclosure, so you can see the change.

[Operator]

[Operator Instructions] Your next question comes from the line of Jaeme Gloyn with National Bank Financial.

[Jaeme Gloyn, Analyst]

The first question's around the pricing power that you have in your business lines. In recent quarters, and including this last quarter, around the sustaining fees, you've been able to increase prices. Can you talk about perhaps some of the other areas of the business where you might be able to exercise some of that pricing power, and also the timing around those potential changes?

[John McKenzie, Senior VP & CFO]

Yes. And certainly one that's actually very near term for us is we are -- and I think we may have mentioned some of this at Investor Day. We're having a very good look at the Venture Exchange pricing today. The Venture Exchange is very interesting, because it's got a much deeper and more complex pricelist than the senior market does. So our team is taking a very strategic review of that pricing list, to look at how do we actually price where we have pricing power but also simplify the structure and make it easier for companies to go public? So we are working through a proposal right now with our regulatory partners that would do that, that would allow for some improvement in terms of pricing and revenue from TMX, but also make it lower cost for early stage companies to come in and reduce that barrier. Because as Lou talked about earlier, that's really the focus and the mantra of bringing more innovation companies on, so we reduce the friction to the low end. We increase pricing at the higher end when they actually do additional capital financing raising, so that we're actually participating in their success and help to build the pipeline that way. So you'll see more from us on it shortly, as we work through the regulatory process on it. And we continue to look at all other parts of the business as well to see where we've got opportunities.

[Jaeme Gloyn, Analyst]

Great. Thank you. Second question. On the growth outlook and the focus, capital formation, derivatives, data analytics. The M&A side of it seems a little bit easier to see, perhaps, around data analytics. I'm just wondering, in terms of capital formation and derivatives, what would you be looking to potentially acquire or add in terms of capabilities on that side? And I'm not thinking about organic initiatives like increase in sales staff or products, things like that, more on the inorganic side.

[Lou Eccleston, CEO & Director]

Yes. You're right, it's a different picture and it's more of a challenge. When you get into things like capital formation and derivatives, you've got to pay very close attention to regulatory harmony, as I call it, if you're going to go beyond your borders, for example, to look at something. Trayport is an unregulated business, so it wasn't an issue we had to deal with. But if you're going into a world where things are heavily regulated, you've got to look for things that make sense from a coherent integrated standpoint, otherwise, you're just buying a business to own it if it's a different regulatory regime or different political regime. So it's a different place. That said, I still am hopeful that we find ways to build more of a global capital formation platform. We've got some initial partnerships with people like Santiago, and are talking to many other exchanges around the world, looking at ways to blend over-the-counter capabilities that move up into venture capabilities that then graduate with our ecosystem, looking at more of a global ecosystem. It's just a bit more of a challenge, and it might be as much partnership as it is M&A for that. And I think with derivatives, it's the same thing. Derivatives is probably more, though, Jaeme, about product than it is M&A. And one of the things that's starting to evolve is, we see the successes, early successes of extended hours, is new contract capability. So when you start to think about what do you do in Asia? Maybe there's new contracts we could develop with partners on the ground, investors and banks around the world that then list on the Montreal Exchange. So there's a lot of different ways to think about it. But it's not just straight M&A. But it is certainly activity around partnerships, new products, but partnerships with people on the ground around the world.

[John McKenzie, Senior VP & CFO]

Yes. The only thing that I'll add, Jaeme, is when you think about the capital formation [ streams ], you think about it in two lenses. As Lou talked about, what are those things that we could do to either partner or invest and that expand the addressable market in terms of the reach that we have, both geographically, but also in nontraditional forms of capital raising? There's a significant number of companies that have raised capital in the private market. Are there ways for us to serve those companies as well and expand the client base that we support? The second lens is, always think about how do you also provide a broader and deeper service to the clients that we have, or future clients? And for example, when we acquired the TSX Trust business, 5, 6 years ago, that was very much along that lens of, how do you provide more services to the issuer base? And now that's one of our fastest growing business lines. So other things that provide technology-based, IP-based solutions to an expanded client base, the issuer community, are things we're going to look at.

[Jaeme Gloyn, Analyst]

Okay. Thank you. That's very detailed. Couple of, just I guess more granular-type questions. In the equity trading revenue numbers, you called out product mix or a shift in product mix driving some of the growth year-over-year there. Can you just explain a little bit more details around that product mix shift?

[John McKenzie, Senior VP & CFO]

Yes. The simple piece, and if you look to the actual stats we reported for the quarter, you see that the bulk of the growth was in TSX trading as opposed to TSX Venture trading. That tends to have a higher average kind of rate per contract in terms of mix. So that's the mix feature that you're seeing there.

[Jaeme Gloyn, Analyst]

Right. And in the CDS, you highlighted the New York Link service. Maybe a couple of bullets maybe around that and where you see growth out of that New York Link service line item.

[John McKenzie, Senior VP & CFO]

Am I paraphrasing your question as what is that service?

[Jaeme Gloyn, Analyst]

No. More around do you see more growth out of that? Is that something that's an emphasis or you made some investments around it that are kind of creating this --

[John McKenzie, Senior VP & CFO]

No, I mean that one's really a factor of market demand. So the service in terms of the participation in the service is largely unchanged. And for those that don't understand the service, it's we provide direct access to DTCC in the U.S., for Canadian-based participants. So we actually act as the clearing broker for them, and we look into them. And that gives them a way to access the U.S., on a more cost-efficient basis than they could directly on their own. In terms of the activity that we saw in the marketplace, and this is very much tied to the activity in equity markets and fixed income markets that we talked about earlier, that created more demand for cross-border flow both in terms of trading in the U.S., and cross-border position moves. That's what the New York Link is. So it really was a factor of market demand as opposed to a change in the service.

[Operator]

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

[Geoffrey Kwan, Analyst]

Just I had one question just expanding on your comments on the MX and the extended hours. Now if my rough math is right, on the interest rate derivatives in January, you had I think it was just under 5 million in volume at 4.5%, I think is what you were saying the extended hours was doing. So that's roughly about 220,000 contracts a month. Just wondering, bigger picture as you kind of roll it now, as you mentioned, in index futures and maybe more broadly there, how much do you think this could add to monthly volume sort of looking out over the next, say 12 to 18 months?

[Lou Eccleston, CEO & Director]

Well, it's longer-term, Jeff. We've looked at lots of peers, of several peers that have done this. And we hope that we can continue the progress we've made. You saw that I mentioned where it went from October through December. But longer term, you're talking about 3, 4, 5-plus years, we've seen peers add anywhere from 15% to 30% increases. And we're off to a good start for that. So we're not so much a 12-year target, but it's long-term. We'll keep working on it, and it's off to a good start. But peers have experienced 15%, 30% increases.

[Geoffrey Kwan, Analyst]

Sorry. And that's 15%, 30% growth, or 15% to 30% of their volume is coming from --

[Lou Eccleston, CEO & Director]

Volume increase. In volume, volume increases.

[John McKenzie, Senior VP & CFO]

Yes. And, Geoff, the other important metric for you to consider there is, you think about the amount of volume that comes into our market today that comes from foreign sources. And this is more a 2018 hours. About 40% of the flow that goes into the MX comes from outside of Canada. Of other comparable global exchanges like ours, would see more like 60% of their volume coming from foreign participants. So just as an indicator of what we could get to if we achieve that kind of benchmark, you're looking at a substantial uptick. So the initiative on extended hours is part of doing that, expanding the product suite is part of doing that. And if we continue to see the success there, we'll look to see, how do we move into other time zones as well?

[Operator]

This concludes our question-and-answer session. I will now turn the call back over to Paul Malcolmson for closing remarks.

[Paul Malcolmson, Director of Investor Relations]

Thank you, Amy, and thank you, everyone, for listening today. The contact information for the media as well as for investor relations is in our press release, and we'd be happy to take further questions through the day. Again, thank you very much for joining, and have a great day.

[Operator]

This concludes today's conference call. You may now disconnect.