TMX Group Ltd

TSX:X

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the TMX Group Limited Q4 2020 Financial Results Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. [Operator Instructions]I would now like to hand the conference over to your speaker today. Mr. Paul Malcolmson. Thank you. Please go ahead, sir.

[Paul Malcolmson]

Thank you, operator, and good morning, everyone. I hope that you and all your families continue to be staying safe and well. Thank you for joining us this morning for the fourth quarter 2020 conference call for TMX Group. As you know, we announced our results late yesterday, and a copy of our press release is available on tmx.com under Investor Relations. This morning, we are once again joining virtually and have with us John McKenzie, our Chief Executive Officer; and Frank Di Liso, our Interim Chief Financial Officer. Following opening remarks, we will have a question-and-answer session. Before we begin, I want to remind you that certain statements made on today's call may be considered forward-looking. I refer you to the risk factors contained in our press release and reports that we file with regulatory authorities. And with that, I'll turn the call over to John.

[John D. McKenzie, CEO & Director]

Well, thank you, Paul, and good morning, everyone. Thanks for dialing into the call today to discuss TMX Group's financial performance for the fourth quarter and the full year 2020, a year largely marked by the COVID-19 pandemic and the disruption it has brought on all business as usual and indeed everyday life as usual for people all over the world. On behalf of all of us at TMX, I want to send sincere thanks to all the brave people who have been working on the frontlines throughout this crisis, including health care workers, first responders and others providing essential services and crucial support to people in our communities. During the course of this call, we will discuss how our company and our industry has worked to adapt to the virtual environment and persevere to overcome challenges brought on by the pandemic conditions. But to be clear, our #1 priority remains the health and well-being of our people and their families. And we wish the best to everyone listening in this morning as we all navigate through the weeks and months ahead and work towards a safe return to a more familiar way of life. As Paul mentioned, we have Frank Di Liso, TMX's Interim CFO joining us on the call to walk us through the fourth quarter results in detail. My comments today will focus on TMX's results for the full year, the progress we have made in our ongoing initiatives to innovate for clients across our markets, and I will close with an update on TMX's corporate strategy and our enterprise-wide priorities going forward as we execute the next important phase of our long-term growth plan. Now turning to TMX's operating results and business performance. As much as any period in our history, 2020 served as a compelling evidence of the benefits of our diversified and stress tested business model. Revenue for the full year was $865.1 million, an increase of 7% from 2019 and earnings per share was up 12% or 11% on an adjusted basis. The year-over-year growth was driven by increased revenue from equities and fixed income trading and clearing. Trayport and capital formation, slightly offset by lower revenue from our Derivatives business. Operating expenses were up 6% from 2019, largely due to net litigation settlement costs of $12.4 million incurred in Q2 of 2020 and also higher costs related to our short-term employee performance incentive plan, given the strength of TMX's performance in 2020. Now taking a closer look now at the performance of our business areas. Revenue from equities and fixed income trading was $127 million in 2020, up $29 million or 30% compared to 2019, driven by significantly higher activity. Equity markets took off in the turbulent early months of 2020 and remained robust throughout the year. In fact, 2020 marks the second highest trading volume on Toronto Stock Exchange history with over $115 billion securities trade, trailing only in 2019. On a combined basis, volumes on our equity markets, including Toronto Stock Exchange, TSX Venture Exchange and Alpha were up 42% compared to the previous year, with dramatic spikes in messaging activity, particularly during the first half. Canada's market-wide circuit breakers were triggered 4x in 2020, a milestone we hadn't seen since 1997. And we are grateful to our stakeholders, including marketplaces, regulators and participants for their partnership in ensuring our markets remained resilient and functioning to meet elevated investor and industry demand. The ability of TMX's equity exchanges to perform our critical core functions, providing issuers and investors access to capital proved a vital stabilizing force in the nation's economy during a supremely challenging year. And further to that end, we have undertaken a program of technology and process improvements and investments to support the continued resilience and exhibit exchanges operating and supporting systems. Now within the volumes, the proportion of retail trading in Canada increased in 2020, reaching peak levels as high as 43% of total TMX volume traded in July and December 2020 compared with an average of only 35% in 2019. The pace of retail trading shows few signs of letting up anytime soon. In fact, January saw 45% as discount brokerages offer low-cost trading, enhanced choice and improved technology platforms to a growing work-from-home retail client base. While 2020 proved a demanding year, our equities team advanced on key initiatives designed to enhance the trading experience for our broad client base. Including our dark trading solution and our facility designed to enhance liquidity at the close of the lit market. TSX DRK, Canada's fastest-growing dark pool continues to expand its offering with new features designed to increase market share. Including a new liquidity program launched in July of 2020. TSX DRK's share of Canadian dark trading was approximately 27% in Q4 2020, up from 22% in the fourth quarter of 2019. And most recently, the modernization of our market on close, or MOC facility, a call market used to set the closing price for eligible Toronto Stock Exchange and select TSX Venture exchange-listed issues, the revamped MOC facility better aligns with the models of our global peers and is designed to provide clients with increased transparency and consistency of execution. In January, the proposal was approved by the OSC and has been backed by broad industry support. Now turning to Derivatives. While market conditions boosted activity in equity markets, overall revenue in our Derivatives trade, including business was $126.2 million in 2020, down $7 million or 5% from 2019. Driven by a 3% decrease in the revenue from MX and CDCC and reduced revenue from BOX as our agreement to provide transitional services ended last June. While overall MX volumes in 2020 were flat year-over-year, revenue was down slightly due to unfavorable product mix. The historically low interest rate environment had a negative impact on volumes in some of Montreal Exchange's key products, particularly short-term interest rate products during the second and third quarter of 2020. But we have seen encouraging signs recently as MX volumes grew 30% sequentially from Q3 to Q4 2020. And Frank will go into this a bit more in detail later as you look to the results of the first quarter in a few minutes. Now as we look further into 2021, MX's plan to roll out our extended hours initiative into Asia, remain on track. Last week, we announced the launch date of May 30, 2021, subject to completion of the sale certification process and final regulatory approvals. And we have seen strong engagement from investors and participants in the region to date. As investors in Asia see the benefits of having direct access to trading MX's products in their own time zone for managing both exposure against the flows they are seeing and handling already. Additionally, the availability of our products during Asia's business hours will enable investors and risk managers to trade Canada. Such as the Canadian yield curve on a relative value basis against other markets like Australia and Japan. Recently, many Asian pension funds, such as the Japan GPIF, the Australian Superannuation Fund industry and the Korean NPS has significantly increased their international exposures, and Canada offers them a compelling value proposition. Now I may be somewhat biased, but I'm a strong believer in Canada's markets. What appeals to investors in Asia is what an investment in Canada means to investors all over the world, access to a highly liquid, world-class market and a leading global economy. Now turning to our European markets and Trayport. We saw continued strong revenue growth in 2020. Revenue, including VisoTech, was $136.7 million in 2020, an increase of $17.1 million or 14% from 2019, with a 6% increase in average trader subscribers and a 6% increase in average total subscribers. Volumes in the European power and gas markets were up 10% and 14%, respectively, over 2019. In addition to strong performance in Trayport's core business, we continue to see positive results from expansion initiatives, including liquid natural gas and algorithmic power trading. Trading on each of the European and Asian LNG benchmarks was up significantly from 2019, and volumes in the intraday EPEX Spot grew at 14% when compared with 2019. Demand for algorithmic trading solutions across European energy markets also continues to grow. And Trayport has recently launched a data analytics tool that has met with positive client feedback and expanded the functionality of its auto trader algo product to cover other markets and products as they continue to emerge. In our Capital Formation business, revenue was $189 million, up $8.3 million or 5% from 2019, primarily driven by increased revenue from additional listing fees on both TSX and TSX Venture. Companies of all sizes and in all sectors benefit from access to public markets to grow. From early-stage companies on TSX Venture Exchange to large-cap companies in the S&P/TSX composite index. The 2020 performance of our Capital Formation business is strong proof of the efficacy of our ecosystem and illustrates the fundamental role of healthy public markets play in maintaining the viability and vitality of the Canadian economy. Companies continue to turn to our markets to access the capital they need to keep their businesses running, their growth objectives on track and in reach and their people employed. Financing activity on TSX Venture exchange was particularly strong in 2020, with a 25% increase in the total number of financings and a 57% increase in total dollars raised from 2019. And Canada's tech sector continued to thrive in 2020. In 2020, technology companies listed on our exchanges raised a record $8.1 billion, and the year was marked by some landmark IPOs, a trend that has continued into 2021. As last week, we celebrated another major milestone as TELUS International began trading on Toronto Stock Exchange, representing the largest technology IPO in TSX history and one of the largest IPOs in our collective history. TELUS International is a leading digital customer experience innovator and yet another great Canadian technology company with global aspersions to come to market. And TSX Venture, it recently welcomed Topicus.com, a spinout of Constellation Software, which completed the largest IPO in TSX Venture Exchange history. Topicus.com is a leading pan-European provider of vertical market software and vertical market platforms to clients, public and private sector markets. While building on our strong stock list of high priced profile companies, our markets have played a leading role in establishing new categories for entrepreneurs and investors across the innovative sector, including emerging new technologies. We recently welcomed new Bitcoin funds from CI Financial and Ninepoint that each raised over $100 million, with Ninepoint $230 million IPO, representing the largest public cryptocurrency fund ever raised. In addition to these and many other high-profile IPOs, our capital formation team has recently taken important steps to adapt our services and solutions to further expand opportunities for companies to efficiently and cost effectively raise capital. In December, we announced important changes to TSX Ventures' signature Capital Pool Company or CPC program. The CPC program is a unique listing vehicle exclusively offered by TSX Venture and the most popular go public vehicle for growth stage companies, accounting for almost 50% of new TSXV listings over the past 10 years. The changes to the program, which are designed to increase flexibility, reduce regulatory burden and improve the economics and overall value proposition came into effect on January 1, 2021. So overall increased demand for quick access to capital, coupled with a healthy investor appetite for growth stories, led to a substantial increase in private placement activity in 2020. TSX and TSX Venture companies raised a combined $14.5 billion in private placements in 2020, a 57% increase from 2019. But for clients, the process is manually intensive and consume a tremendous amount of administrative resources. So last month, we launched TMX dealLINX, a client-focused solution to address these concerns. TMX dealLINX is an automated private placement platform, designed to provide public and private companies with an efficient process and powerful tools to manage key processes from distribution and collaboration to compliance to deal completion. TMX is committed to the long-term viability of our capital markets ecosystem. And as an industry, we need to work to identify and solve inefficiencies and help free up resources for companies to focus on business ambitions rather than administrative tasks. Now I'd like to close my comments today with a brief update on our growth strategy. We remain firmly committed to executing our long-term strategy and advancing our road map for growth. The plan we rolled out in 2018 to generate revenue growth centered around 3 key priority growth areas. And so while the strategy has not changed in the past 2 years, so very much has changed in our operating environment and the world around us reminding us a sustainable long-term growth must be supported by an engaged team and a commitment to the broader stakeholder community and recognizing the central role TMX plays in the capital markets industry. In December '20, we represented an update to the TMX Group corporate strategy to the Board of Directors, identifying 4 priority areas of focus. The first is growth acceleration. Consistent with our proven strategy, we continue to pursue opportunities to position TMX competitively in chosen areas of high growth potential, including our global unique TSX Venture model, Derivatives, Trayport and Data Analytics. Our second priority area is talent and culture. So much of our success has been and is driven by the exemplary efforts and unwavering commitment of our people. We have undertaken vital work to bolster employee engagement and purpose and ensure a respectful and inclusive workplace and amplify our employer brand to continue to attract and retain talent and foster our employee development. Our third priority area is advocacy for better markets. As the global capital markets industry continues to rapidly evolve, TMX has an important role to play in advocating for measures to ensure that not only does Canada remain competitive on the world stage but we elevate the status of our markets to a global leadership position. We support initiatives such as the Capital Markets Modernization Taskforce and its efforts to identify and address key structural issues within Canada's capital markets, including corporate performance on equity diversity and inclusion. And we are encouraged by the overall direction expressed in the report released last month particularly the consideration paid to creating the necessary conditions for a company to more efficiently access the capital they need to grow. TMX is also taken on an active role in the important work to update corporate governance guidance for companies in Canada. We are cochairing a committee on the future of corporate governance in Canada, a diverse group of 12 experienced public company directors from across Canada, working together to develop an inclusive and flexible guidance designed to help boards and directors navigate relevant risks and opportunities in the modern business landscape. The committee's preliminary report will be released later this year. And the fourth key priority area is focusing on advancing sustainability and ESG. We have set about the work of integrating ESG objectives and initiatives into TMX's core objectives. And positioning TMX as a world-leading marketplace for sustainable investment and finance with our products and services. Sustainable investment touches virtually every facet of our business. And today, we have a number of key initiatives already underway, including ESG 101, a portal of issuer support services and resources to help listed companies navigate the fundamentals of ESG reporting. Trading of sustainable bonds issued by governments and quasi governmental entities is set to launch later this year, enabling retail investors to gain access to an otherwise opaque OTC bond market. TMX dataLINX launched a set of ESG indices in 2020, including the S&P/TSX 60 ESG index, which measures the performance of constituents in the S&P/TSX 60 index that meets sustainability criteria. And lastly, MX launched the trading of S&P/TSX 60 ESG index futures in December 2020 as well. With that, I want to thank you for your time today and turn the call back over to Frank. Thank you.

[Frank Di Liso, Interim Chief Financial Officer]

Thank you, John. Turning to our Q4 results. The resiliency of our business model was reflected in our strong results with reported revenues up 8% from Q4 of 2019. And excluding the impacts of the reclassified CDS recordable costs in the prior year, the increase in revenue was over 10% in the quarter. This was driven by increases in revenue from our Capital Formation, Global Solution, Insight Analytics and Equity, Fixed Income Trading businesses, partially offset by decreases in derivatives, trading and clearing. Operating expenses were up 7% over Q4 '19, reflecting higher employee performance incentive costs. Our adjusted EBITDA margin was 58%. Diluted earnings per share increased 50%, which included a noncash impairment charge of $18 million in Q4 '19. Adjusted diluted earnings per share was up 9%. There was a decrease in our share of net income from BOX in Q4 '20, driven by an increase of approximately $5 million or $0.07 per basic and diluted share in our share of long-term employee performance incentive costs for the full year 2020. This was mainly driven by increased volumes in 2020 versus the prior year. Now taking a closer look at revenues, the increase in Capital Formation segment was mostly driven by an increase in additional listing fee revenues compared with Q4 '19, reflecting higher revenues on TSX Venture exchange due to an increase in both the number of financings and the total financing dollars raised. There was also an increase in additional listings finance revenues on the Toronto Stock Exchange, reflecting a 56% increase in the number of transactions billed at the maximum listing fee of $250,000 and an increase of 15% in the number of transactions built below the maximum fee. According to 2021, the market capitalization of issuers listed on TSX Venture exchange increased from $45 billion at the end of 2019 to $78 billion at the end of 2020. The total market cap of all insurers on TSX increased from $3.2 trillion to $3.4 trillion over the same period. We estimate these increases in market capitalization should result in a lift in sustaining fee revenues of approximately $3 million to TSXV and approximately $2 million on TSX. Now turning to equities trading and clearing, high market volatility during the quarter continued to drive significant higher volumes. The average mix was over 26 in Q4 '20 compared with about 14 in Q4 '19. In equities and fixed income trading, there was a 35% increase in revenues in Q4 '20 compared with the last year, driven by a 51% increase in overall volumes traded across all of our exchanges. The impacts from the higher volumes were somewhat offset by a less favorable product mix in Q4 '20 compared with the prior year. There was significantly higher trading volume in TSXV securities, up 96% in the quarter which has a lower capture rate as compared with a 29% increase in volumes on the Toronto Stock securities. There was also an increase in fixed income trading revenue, reflecting an increased activity in swaps. CDS revenue decreased from Q4 '19 to Q4 20. In Q4 '19, recoverable costs of $5.3 million related to CDS clearing operations that we previously netted in operating expenses were reclassified and included in both CDS revenue and SG&A expenses. There were $1.3 million of the recoverable costs in Q4 '20. Excluding the impacts of recoverable costs, CDS revenue was up 6% in Q4 '20. In addition, there was higher international depository clearing and settlement revenue due to higher volumes in Q4 '20 compared to the prior year. Revenue in our GSIA segment was up 9% over 2019, which increases from both Trayport and our traditional data business. Revenue from Trayport was up 14% in Canadian dollars and up 13% in Sterling. The increase in revenue was also driven by a 5% increase in total subscribers, sales of additional products and enterprise license renewals. Revenues from our traditional data business increased by 5% from Q4 '19 to Q4 '20, with higher revenues from subscriptions, uses based quotes, peak benchmarks and indices. The average number of professional market data subscriptions for TSX and TSXV products was up 1% in Q4 '20 compared with last year, for MX, subs were up 3%. Derivatives trading and clearing revenue declined by 8% from Q4 '19 to Q4 '20, reflecting a 3% decrease in revenue for MX and CDCC. This decrease in revenue was primarily due to a decline in overall volumes, particularly in the 3 months Canadian Bankers' Acceptance futures or BAX contracts. In addition, there was a decrease of approximately $1.4 million in revenue related to our agreement to provide transitional services to BOX, which ended in the second quarter of 2020.As I mentioned, operating expenses increased 7% from Q4 '19. The increase in cost was primarily attributable to higher short-term and long-term employee performance incentive costs, increased severance costs, higher headcount, higher IT costs, the write-off of costs related to discontinued initiatives as well as increased costs related to managing our business during the COVID-19 pandemic. The increases were somewhat offset by a recoverable cost of $5.3 million related to CDS in Q4 '19 compared with $1.3 million in Q4 '20. There was also a decline in recruitment costs, travel and meal expenses, consulting fees and occupancy costs. Looking at our results on a sequential basis, revenue was up $11.9 million or 6% from Q3 '20 largely attributable to increases in revenue from equity, fixed income, trading, CDS, derivative trading, clearing and GSIA. Operating expenses in Q4 '20 were up $6.2 million or 6% from Q3 '20. The increase reflected higher severance costs, increased short-term employee performance incentive costs, higher IT costs, the write-off of costs related to discontinued initiatives and increased marketing costs. These increases were somewhat offset by lower long-term employee performance incentive costs and reduced COVID-19 pandemic-related expenses. Looking at our balance sheet. We reduced our debt by over $79 million from the end of 2019 to the end of 2020. We also spent $56.8 million in the repurchase of 473,400 of our common shares under our NCIB program through to the end of 2020. With the continued strength of our adjusted EBITDA in 2020, our debt to adjusted EBITDA ratio was 1.8x at December 31, down from 2.1x at the end of 2019. We also have about $278 million in cash and marketable securities at the end of the year, which was almost $115 million in excess of the $165 million we target to retain for regulatory and credit facility purposes. Yesterday evening, our Board declared a dividend of $0.70 per common share payable on March 12 to shareholders of record as of February 26. At 49% of our adjusted EPS, this is at the high end of our target payout ratio of 40% to 50%. And now I would like to turn the call back over to Paul.

[Paul Malcolmson]

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

[Operator]

[Operator Instructions] Your first question comes from Nik Priebe of CIBC Capital Markets.

[Nikolaus Priebe, Research Analyst]

Okay. First question just relates to CDS. Looking back at 2020, equity trading volumes were up over 40%, but I noticed CDS revenue increased only 4% for the year. That would imply relatively low sensitivity to equity turnover levels. But on the other hand, CDS revenue has grown over time. Wondering if I can just ask you to refresh us on the revenue model at CDS and maybe some of the key sensitivities there, if not, equity trading volumes, please?

[John D. McKenzie, CEO & Director]

Yes. Well, I'm happy to start that. And Frank, feel free to step in here. There's a 2 couple of components. So one thing within the CDS model is that the clearing fees, the clearing fees related to equity trading are actually one of the smallest components of the model. The larger components of CDS' model are around custody and activity around entitlement processing and those types of things. In addition, things like equity clearing, is one of the pieces that's subject to the historical 50-50 rebates, where 50% of that growth is rebated back to the participants of those. And you'll see in the details of those rebates have grown over the period as well. So those are the real drivers why you don't see that direct translation of that equity volume into the overall CDS revenue because it is a smaller component of the total CDS revenue mix.

[Nikolaus Priebe, Research Analyst]

Okay. Okay. Makes sense. And then just 1 other question on the expense side. I noticed information and trading system costs stepped up slightly in the quarter. It sounds like some of that related to the write-off of expenses related to discontinued initiatives and I don't think that was adjusted out of earnings. Can you just provide a bit of color maybe on what that related to and just the size of the write-offs that we shouldn't expect to reoccur there?

[Frank Di Liso, Interim Chief Financial Officer]

Yes. Certainly, Nik. This is Frank here. So it was a relatively small amount, roughly $1 million for the quarter related to the write-off. It relates to our bond initiative in our CDS clearing portfolio. So given the small -- it was a part of our ongoing investment in internal initiatives, given the size you're right, we did not adjust for that.

[Operator]

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

[Geoffrey Kwan, Analyst]

I know you talked a little bit about some of the deals that have been happening. And I'm just trying to get into the deal pipeline. I know in the past, at different points of time, there's been comments so that the pipeline seems pretty good or based on what you're seeing. I'm just curious based on what we're seeing today or what you're seeing today, how does this feel versus other times, does this feel materially stronger or in line with other points in time that do you think the pipeline has been pretty good?

[John D. McKenzie, CEO & Director]

Yes. Thanks, Geoffrey. And thanks for how you asked that question without asking me to predict the longer-term future. I appreciate that. The -- and I can give you this quite candidly because the team -- particularly the team that is working on processing and managing listing files with clients is extremely busy. So that trend and that strength that you saw through Q4 has very much continued into the start of 2021. We talked about a couple of them on the call like TELUS and Topicus and there are a number of additional tech IPOs that are in the pipeline. That continues to be one of the largest drivers of the IPO strength is tech sector, but also resources and other, but tech is the real leader there. So we are continuing to see depth in that pipeline for the foreseeable future.

[Geoffrey Kwan, Analyst]

Okay. And then I'm just wondering, is there some sensitivity you can provide in terms of thinking like operating leverage to stronger listings activity specifically. So for example, if we saw overall revenues increase, say, 5%, and it was driven, call it, solely by higher listings activity, like what type of increase in EBITDA or maybe looking at it from EBITDA margin perspective ballpark, would you think you would see in that scenario?

[John D. McKenzie, CEO & Director]

Yes. So in this part of the business, we do have a lot of operating leverage here. So a lot of the work. So there's not a lot of variable costs in terms of managing this, but we do have a lot of file support work. So we are adding resources to help the team, but it's not what you would call material in terms of looking at the expense base. And the really important piece here, Geoff, is that we did a lot of work over the last couple of years to digitize and automate the relationship with issuers for processing these files. So timely that this went live for us before COVID hit. It allows us to take the files from new IPO or issuer clients that are raising money electronically and process that work flow electronically. It's given us a lot more scale and leveraging the model than we would have had in terms of previous spikes in activity like we're having today. So yes, we will -- we are adding some resources to help with that file load, but it's not material.

[Geoffrey Kwan, Analyst]

Okay. And just my last question would be just the BOX long-term comp, I guess, nuance in Q4, and I could appreciate 2020 was an extraordinary year in many ways. But is there a way to reduce the volatility in the BOX compensation expense, whether or not it's accruing the LTIP and then doing a true-up in Q4? Or is this an issue that would likely happen if you have another year where BOX's financial results are either, say, up or down a lot relative to the prior year?

[John D. McKenzie, CEO & Director]

Yes. It's a good question, and we're going to -- let me give you a start on that, and Frank is going to jump in as well. It did, as you said, it did reflect a compensation cost for the whole year. So in theory, would have liked to have seen that accrued out through the year, but it is based on the valuation of BOX as an entity which, candidly, we are a large investor in it, but we're not a control investor. So we don't have control over how those compensation agreements are arranged. Frank, let me turn it to you to add into that.

[Frank Di Liso, Interim Chief Financial Officer]

Yes. Just adding the point that you need to look at that as a 2020 full year charge. And given like, as John mentioned, the sharp increase in volumes, especially in the last 6 months. This is where the valuation ended and resulted in the appropriate accrual. So on a go-forward basis, do you think it's more of an annual type of charge. If we see those volumes continue, obviously. So it's hardly dependent upon the evaluation of BOX going forward.

[Operator]

Your next question comes from Jeremy Campbell of Barclays.

[Jeremy Edward Campbell, Lead Analyst]

Just similar to the moves in the Canadian and U.S. rate curves, it looks like the Montreal Exchange is seeing some similar impacts to the U.S. market with longer-term futures contracts picking up quite a bit, while the short end remains pretty muted. So John and maybe Frank, too. Just one, kind of wondering if you can characterize the year-to-date rates activity in the futures complex as it's been dramatically higher down here in the U.S. year-to-date? And then two, maybe how you think about the complex revving up into 2021 as the year-over-year comps on the short duration side get much easier after March, and then on top of it, you have the 2 in the 5-year continue to spin up organically toward a more normalized level.

[John D. McKenzie, CEO & Director]

Yes. Frank, do you want to start with that and then I'll jump in.

[Frank Di Liso, Interim Chief Financial Officer]

Yes. So as you mentioned, we are seeing a really strong start to the year with our Derivatives volumes up, I believe, around 13% month of January so far, you would see the stats come out last week relative to our Q4 levels. We're optimistic. We've just launched the CGZ product in Q4. That's already roughly around 5,000 contracts per day. What we're noticing, to your point, some of the curve strategies involved in that product with the 2 and 5 year. I believe we've already seen contracts over 7,000 so far. So that's some positive news to start for the year. And John, not sure if anything else you want to add to that?

[John D. McKenzie, CEO & Director]

Yes. The piece I can add in is, a reminder, as we spoke earlier, that we've announced the launch date for our Asian Time Zone trading as well in terms of May 30. So second quarter, expect to see those large benchmark products like the fixed income products, trading on that time zone again, if we see the kind of lifts that we've seen out of the U.K., that could add substantial volume as well.

[Jeremy Edward Campbell, Lead Analyst]

Yes. And John, I was actually going to ask you that as well here, just maybe even more broadly on the whole futures complex, around the Asian time zones. You laid all the great reasons why they should be interested in the Derivatives complex in the Montreal Exchange. Just kind of wondering what your sales team on the ground has been hearing from clients around the demand and maybe how quickly activity might ramp-up of that late May launch?

[John D. McKenzie, CEO & Director]

Yes, that's a great question. So the -- it was a while before we could get folks back in the region, but we did get people back into the region in the fall. And the anecdotal pieces that we've been given in terms of why is based on that client feedback. So Tony Tse, who's our lead in the region, working both out of Canada, and working out of Hong Kong has been doing direct sales work with those large asset managers in Australia, in Japan, in Hong Kong and Singapore. And they are looking for international exposure. The challenge always around international exposures. If you don't make it easy to come to Canada, Canada is easy to bypass for just using the U.S. So the evidence from that client engagement is that the demand is there, once we make it easy for them to access. How fast that wraps up, sorry, ramps up. I can't give you guidance on that, but I would look to the experience that we had in the U.K. as a proxy.

[Operator]

Your next question comes from Graham Ryding of TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

Maybe on sort of Trayport. Just strong growth year-over-year, but it was -- your trader numbers, I think, were up 5% or 6% year-over-year, but your revenue growth is materially higher than that. So can you just provide some context on what's driving the higher revenue per subscribers?

[Frank Di Liso, Interim Chief Financial Officer]

Yes, Graham, I'm happy to take that. I'll take that question. So you got to remember, only a part of our revenue is directly impacted by what's called short-term subscriber movements from quarter-to-quarter. So you rightfully pointed out the growth in revenue is exceeding the growth in subscriptions, both year-over-year and sequentially. We did see a larger tranche of enterprise license renewed in the quarter, and that came at higher rates. In addition to that, we mentioned an additional -- amount of additional product sales tied with those subscribers through our EMA platform, customer portal and some of our data analytics products as well through the quarter. So that's what you're seeing specifically in Q4.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Got it. And then on the expense side, on the IT expense line, I think there was some sort of onetime items in there, but it was a pretty noticeable uptick from sort of a run rate. Can you give us some context maybe on -- is this a reasonable run rate next year? Is there a need for higher spending on the IT side? And then also on the CapEx side, it is elevated, can you give us some context on what you're expecting for CapEx next year or this year, sorry, 2021?

[Frank Di Liso, Interim Chief Financial Officer]

Yes. So I'll start with the operating expenses. So obviously, we expect to maintain consistent level of expenses going forward. You have noticed some uptick in '19, but we also saw some downticks in G&A. So I think you need to look at those together. In terms of -- we'll always continue to invest in growth. We'll have small pockets of new spend and then obviously, cost efficiencies to offset. We still exercise, obviously, our expense discipline. In terms of CapEx, Graham, typically, you can sort of speak towards the ongoing CapEx, where we're typically around $25 million to $35 million a year of ongoing CapEx. So you'll see higher levels this year related to our post-trade modernization initiative. So similar levels to what you saw in 2020.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Great. And then my last question, just the sustainable bonds initiative that you mentioned in your MD&A. Is that -- it looks like Canada's retail investors, is this something that you think could be material? And are there other areas in the traditional over-the-counter bond market that could be applicable here if this resonates?

[John D. McKenzie, CEO & Director]

I think in this one, this is going to be -- time will tell. We're looking at an area being both sustainable finance, ESG, sustainable bonds, that there's tremendous level of interest right now in terms of people that want to try issuance, people that want to try investing. So we don't have a good sense yet what the real demand is going to be, but we're trying to take advantage of the capabilities of the market to very quickly bring a product to market so that retailers can trade. So it's a low-cost initiative to test out market appetite for this type of product on a retail trading basis. And we'll see how it goes and build from it.

[Operator]

[Operator Instructions] Your next question comes from Brian Bedell of Deutsche Bank.

[Brian Bertram Bedell, Director in Equity Research]

John, you mentioned some of the initiatives that you discussed with the Board about, for example, the growth acceleration for revenue growth priority. Can you talk a little bit more about the plans to expand within data analytics to help accelerate the Trayport revenue growth? And is that more on trying to get new subscribers in? Or is it more on a sort of a cross-sell basis in terms of revenue capture?

[John D. McKenzie, CEO & Director]

So both within Trayport and within the rest of the franchise. So within Trayport, 2 of those key products and Frank talked to them a little bit just a second ago, the data analytics solution is a deep analytic database that allows traders to retest their strategies, things like that. It really is a premium add-on product for traders in the Trayport universe. So it is one of those things that over time contributes to a higher rate per user in terms of those added subscriptions. Similar to with the algorithmic trading solutions. So if you recall, this is the business we acquired with VisoTech and then worked to integrate it into the Trayport solution so that we can provide it out as an entitlement across that platform for Trayport customers. We are also doing other additional things, both with our own products we build, but also with partner products. We have a partner product on Trayport called Tradesignal, that we do deploy as well as an advanced charging solution, and that's a premium that will be applied across that solution. Similarly, within the rest of the TMX franchise, we are continuing to look at other applications for advanced data usage and analytics on top of that. Our product, which we call Grapevine, is a deep data analytics database that allows users to retest equity strategies. So total cost of an execution, those types of things, algo trading testing, those types of things. So we're continuing to build that out. The applications are really targeted to some of the large users today, but this is an area where we think there are more things that we can provide some useful solutions. And we're looking at applications around potentially supporting ETFs and other areas in that marketplace. So expect this to be a continuing area that we're going to be developing in 2021.

[Brian Bertram Bedell, Director in Equity Research]

Okay. Great. And then just on retail trading, as you mentioned, it's extremely strong, 45% contribution in January. Obviously, there's a huge debate in the U.S. as to the sustainability of reception we're seeing similar stats here, of course. But maybe if you can talk about your confidence level of retail engagement for '21 in terms of trying to size out the portion that you think is sustainable and growing versus maybe with more episodic early in the year and late in 2020 as well?

[John D. McKenzie, CEO & Director]

Yes. So I'm going to do my best to answer that question in terms of my level of confidence without predicting the future at the same time, if I can. The things that are underlying the strength in retail trading are drivers that are going to continue for some time. So if you look at the drivers in terms of the low rate environment, how that supports market valuations, a largely work-from-home culture right now and the continuing growth in retail trading applications that are provided through the brokers, all of those are supporting this elevated level of retail trading activity. Now we haven't seen the same degree in Canada that the U.S. has seen in terms of really heavy trading around specific names. So that hasn't given the same degree of what's been driving ours, as you've seen in the U.S. market, and that may not be the same level of sustainability. But those underlying factors, we don't see those trends abating in the near term.

[Operator]

Your next question comes from Jaeme Gloyn of National Bank Financial.

[Jaeme Gloyn, Analyst]

I wanted to dig in on a couple of revenue opportunities. But first, just with respect to a comment on Trayport and a larger tranche of enterprise clients, I believe you said renewing at higher rates. What is driving the higher rates? Is that a decision on the part of Trayport to increase or inflate pricing? Or what is driving that?

[Frank Di Liso, Interim Chief Financial Officer]

So part of that Jaeme, is there's built in CPI increases with our contracts. But more than that would be heavily influenced by usage. So as these deals that are in the 1- to 3-year time frame, renew, we will look at the usage, the number of site license that are being used. And obviously, more users means more revenues and more renewals at higher rates. So that's the main driver of that.

[Jaeme Gloyn, Analyst]

Okay. And it's user utilization, not trade volume utilization?

[Frank Di Liso, Interim Chief Financial Officer]

Correct, users.

[Jaeme Gloyn, Analyst]

Okay. Okay. Great. So on some revenue opportunities, a little bit of print used on the TSX dark pools, and we've seen some rapid growth in market share there. Can you talk about the revenue intensity of the dark pool relative to more traditional trading? And where do you see dark pool growing to as a share of overall volumes? And how do you see TSX share within the dark pool growing?

[Frank Di Liso, Interim Chief Financial Officer]

Yes. John, I guess I can start off and please jump in. So Jaeme, that's been a significant increase for us this year, right, in 2020, large -- one of the main drivers why our overall share in equity tradings have increased. So our dark pool share, I believe, has gone from 23% to 27% during the year. And that was largely one of the main major factors of why we ended up at roughly 16% market share for the year. We're continuing to work on these sort of dark initiatives that are going through. We gave some color in John's opening remarks about some of the more opportunities that we see in terms of more liquidity and then make it easier to trade through that. I'm not sure, John, if you want to add anything to that as well.

[John D. McKenzie, CEO & Director]

Thanks, Frank. We don't really have guidance in terms of what the share of the trading market will be driven by dark solutions. Historically, it's been around 10%. I don't think we updated that with the level of retail activity we've had terms. So I wouldn't want to guide you on where that can go. Our focus on, Frank, is to continue to have a growing share of that. So competitive pricing that we put in place continue to drive the expanded dark solutions that we've grown to, as you saw, 27% of that component, and we are looking to continue to expand that.

[Jaeme Gloyn, Analyst]

Okay. Maybe if I can ask a little bit differently then. I believe dark pool trading in the U.S. is significantly higher than the 10% it is in Canada. Can you talk about some of the differentiated factors as to why we would see that delta and whether that delta can persist?

[John D. McKenzie, CEO & Director]

Yes. One of the reasons that you see that delta in the Canadian market is because we've actually got more of the functionality that dark pool trading provides in the U.S. actually built right into the order structure. So as a market that gives -- we have broker preferencing built into our structure already, that allows brokers to trade against their own components. The price improvement components that are built into our market structure already. So a lot of that feature is we built into the active market. So you don't need to go to a dark pool to get them the way you did in the U.S. market.

[Jaeme Gloyn, Analyst]

Okay. Great. Shifting to the market on close is quite initiative to change the setup there. Can you talk about are there enhanced revenue opportunities here for TMX with the new market on close structure? Or is that indeterminate at this time?

[John D. McKenzie, CEO & Director]

I suggest it's indeterminate at this time. The -- certainly improving the market on close solution will allow. We anticipate more liquidity into the close of that, which would actually add to more trading activity. We do have today trading caps in terms of participant level caps in terms of that. And as we bring the solution out to market, we will relook the pricing structure forward in general. But I think it's early to say at this point.

[Jaeme Gloyn, Analyst]

Okay. Great. And a broader question then around ESG and some of the initiatives that you've launched so far with indices and futures. I'm just wondering, can you perhaps frame the ESG opportunity for TMX? What type of revenues can you see generated that would be associated to the ESG?

[John D. McKenzie, CEO & Director]

Yes. The way we are thinking about ESG, and we're going to be actually bringing more information out of this in the first and second quarter around our vision and mission in terms of how we support the industry this way. First of all, TMX is a company ourselves as a public company, we expect to be a leader in terms of good ESG disclosure, low footprint, those types of things, and we're going to be bringing out more measures of that in the future. The second component and really turning toward the nature of your question is as a marketplace operator and also thought leader, we are looking for ways that we help companies navigate ESG effectively and provide opportunities for issuers and investors. So some of the early things that we're doing around the issuer community is really to bolster the strength of the issuer-based period. So it's not a discrete revenue opportunity itself. It makes those issuer relationships stickier. It makes it easier to be a public company so that ESG reporting isn't another barrier for someone to use the public market to access capital. So that's where we'll see it on that component. And that's the on things like ESG 101. We are also looking reporting solutions to help issuers navigate in terms of what they report out. On the product side, and again, as we said, these are early stage. So the new trading of sustainable finance products like tradable bonds. That is a net new revenue opportunity that we'll see what the market uptick is that in terms of how it drives. Same thing with the index futures and the indices themselves. So if you remember, the -- in our market data revenues, we have revenues that come from our index relationships. So these net new index relationships and the assets under management with them will contribute to growth in the index revenues and then the futures that we are driving through the MX will grow in terms of those future trading pieces. So I'm not going to be able to guide you today in terms of what the revenue opportunities are for each of those, but we are pushing on a number of different areas, and it will be about what investor demand is going to pick up in these products.

[Operator]

There are no further questions at this time. I will now return the call to our presenters for closing remarks.

[Paul Malcolmson]

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

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.