TMX Group Ltd

TSX:X

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q4 2021 Financial Results Conference Call. [Operator Instructions]. This call is being recorded on Tuesday, February 8, 2022. I would now like to turn the conference over to Paul Malcolmson. Please go ahead.

[Paul Malcolmson]

Well, thank you, operator, and good morning, everyone. I hope that you and all of your families are staying well and safe. Thank you for joining us this morning for the Full Year and Fourth Quarter 2021 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 have with us John McKenzie, our Chief Executive Officer; and David Arnold, our Chief Financial Officer. Following opening remarks, we will have a question-and-answer session. Before we start, I want to remind you that certain statements made on today's call may be considered forward-looking. I refer you to the risk factors contained in our press release and in reports that we have filed with regulatory authorities. And with that, I'd like to turn the call over to John.

[John D. McKenzie, CEO & Director]

Well, thank you, Paul, and good morning, everyone. Thank you for joining us today for our discussion of TMX Group's Q4 and full year 2021 financial performance. And on behalf of all of the TMX, I want to wish you the very best of health to everyone listening this morning. Now as Paul mentioned, we announced our results last night. And shortly, David will take you through the fourth quarter in detail. But first, I'd like to focus my comments this morning on TMX Group's performance for the full year 2021, updating you on the progress we have made in our efforts, both internally and externally to strengthen TMX's ability to drive success for our clients and to make markets better. And I also want to outline our top priorities as we continue on into 2022. Now 2021 was a tremendous year for TMX marked by strong performances and major accomplishments across our business areas as well as important progress in strategic initiatives. Before I get further into our operating results, I want to acknowledge a common and crucial element in all of TMX's successes, our people. Throughout the year and in every facet of our business, TMX's team of professionals demonstrated an unwavering commitment to our clients and stakeholders, rising to meet the increased demands and the day-to-day challenges of a busy market, all while navigating the realities of work and home life during the pandemic conditions. Our business achievements are people achievements. And speaking on behalf of TMX's senior leadership, I want to thank all of our employees for their outstanding efforts. Now to our results for the full year. TMX generated record revenue of $980.7 million, an increase of 13% from 2020. Our diluted earnings per share grew 22% or 21% on an adjusted basis compared to the year-end December 31, 2020. TMX's impressive performance in 2021 reflects significant contributions from across our business areas, including Capital Formation, Derivatives Trading and Clearing and Trayport and stands as powerful evidence of TMX's ability to serve the diverse needs of our dynamic and global client base. Our total operating expenses increased 9% from 2020, and this is largely due to the inclusion of expenses related to AST Canada, including acquisition and integration costs. The year-over-year increase in expenses also reflected higher headcount and payroll costs, including merit increases as well as higher costs related to our short-term employee performance incentive plan given the strong operating results for 2021. Now moving to our business areas. Revenue from Capital Formation was $257.7 million, an increase of 36% from 2020, largely driven by an increase in the number of issuer financings and financing dollars raised on Toronto Stock Exchange and TSX Venture Exchange. It was a record-setting year in terms of deal-making activity and new listings on our equity markets. Our total financing dollars raised by issuers totaled $56.9 billion in 2021, a 33% increase over 2020 and led by continued growth in our largest sectors of technology and mining with total dollars raised up 70% and 33%, respectively. The highlights from 2021 included some new all-time records, including 177 new listings on Toronto Stock Exchange, excluding graduates, a 17% increase from 2020, 36 corporate IPOs on TSX triple the number from 2020 and sustained momentum in the innovation sector, which includes companies in clean tech, biotech and renewable energy, with an overall record of 110 new listings on TSX and TSX Venture and $23 billion in overall capital raised. Inside the numbers, the face of Canada's equity markets continues to change. Our stock list has never been so diverse with companies of all sizes and stages of maturity from a broad range of sectors, offering compelling opportunity for investors. And the foundation of our market has never been stronger. On TSX Venture Exchange, the world's leading public venture market and the bedrock of our unique ecosystem, issuers raised more than $11 billion in financing across more than 1,800 transactions during 2021. Leading the way in TSX Venture financings by sector were innovation and mining with $3 billion and $6 billion raised, respectively. A strong public venture market is a key element of our 2-tiered public company ecosystem and a differentiating feature of Canada's capital markets. These early-stage companies across all sectors are amongst the most innovative in the world, and no market in the world does a better job of nurturing and clearing a path to long-term success for small-cap growth companies than the Canadian public venture market community. We celebrated 36 graduations from TSX Venture to TSX during 2021, the most since 2011. Since 2000, more than 700 companies have graduated from TSX Venture to Toronto Stock Exchange, and these Canadian grown success stories make up 21% of today's benchmark S&P/TSX Composite Index. TMX continues to expand the reach and raise the profile of our markets beyond our borders and through our targeted business development program. On a combined basis, TSX and TSX Venture ranked third amongst our global exchange peers by the number of new international listings in 2021. We welcomed 49 new issuers from the United States and other regions of TMX focus like Israel, Australia and South America. These companies operate in a variety of sectors, including technology, mining, life sciences and renewable energy. And the addition of new listings from large-cap companies and big-name IPOs to early-stage juniors and capital pool companies builds our market stronger and deeper and enhances our value proposition among global investors. Canada's markets are among the best in the world. They are deep and diverse. They are fair and liquid, innovative and responsive. But our markets are not static and must continue to evolve, and TMX is committed to working in collaboration with our clients and stakeholders to innovate and adapt our offerings, to make markets better and ensure we retain our competitive edge into the future. Now turning to Derivatives. Revenue from trading and clearing was $142.5 million, up 13% from 2020 driven by a 14% increase in revenue from Montreal Exchange and CDCC. 2021 was a year of significant growth for Canadian derivative markets. Total volumes on MX increased 29% compared to 2020, highlighted by strong performances in some of our signature Canadian benchmark products, including the BAX contract, where volume grew 21% year-over-year. We also saw a significant growth in investor interest in some of our developing product areas, with volumes in single share futures up 91% and equity options up 35% from 2020. MX continues to adapt its suite of products to meet investor demand. In November 2021, we launched the 30-year Government of Canada bond futures contract, adding another liquidity point to our futures curve by complementing the 2-, 5- and 10-year contracts. The new 30-year contract is designed to facilitate hedging for longer maturity instruments and to create more cross-market trade opportunities. And in keeping with the cross market theme, MX took a major step forward in its global expansion plans with the September launch of extended trading hours to sync with the Asia Pacific Time Zone. An initiative that began in 2018 with trading on London time, extended trading hours on Montreal Exchange directly connects us to the world's premier financial centers, enabling sophisticated modern investors in all time zones to trade Canada on their time. The initial response to Asia Pacific hours has been very positive. Despite the challenges the pandemic poses in terms of business development halfway across the world, and our daily volumes during the new session have averaged approximately 6,000 contracts in the opening months. And combined, MX's European and Asia Pacific extended hour sessions accounted for approximately 6% of total MX volumes traded during 2021. Looking ahead to next year, in response to growing demand for risk management products in the crypto space, MX is working towards introducing a cash-settled futures product designed to enable the investors to hedge cryptocurrency investments. And our team continues to examine ways that we can enhance the overall MX client experience and augment our market-making program to attract more retail trading. Now moving on to Trayport. We are pleased to report double-digit growth during the year, with revenue of $150.6 million, a 10% increase compared to 2020. Growth was driven by a 7% increase in average number of total subscribers and also included $2.1 million in Tradesignal revenue from the acquisition in June. Over the past weeks and months, volatility has again gripped global energy markets. Natural gas supply shortages in Europe and parts of Asia, coupled with increased demand as economies build back towards prepandemic levels of activity have driven energy prices to record highs. And Trayport's tailored product plays an important role in energy markets, especially in uncertain conditions, equipping clients with data and analytics capabilities to make informed trading decisions. Our network offers a key access point, connecting traders, portfolio managers and analysts to over 40 execution venues across power and natural gas markets. In response to rapidly evolving global energy markets and the ongoing transition to renewables gathering momentum, Trayport continues to explore opportunities to diversify its client offering and expand into new asset classes and geographies. In addition to a stellar year from a performance perspective, 2021 was also a very important year for TMX in terms of progress made in our 4 strategic priority areas: accelerating growth across the enterprise and our business areas; enhancing our talent and culture by investing in our people and our purpose to make markets better and empower bold ideas; activating TMX as a vocal proponent to advocate for smart policy measures to ensure Canada's markets maintain our competitive edge; and integrating environmental and social governance and sustainability objectives and initiatives into TMX's corporate and business objectives and priorities. As discussed on our Q3 call, we appointed Michelle Tran, a respected TMX veteran with deep connections across our client community as the new President of TMX Datalinx. And just 2 weeks ago, we once again tapped into the depth of expertise and wealth of experience with the organization to appoint Tim Babcock as the new Vice President and Head of TSX Venture Exchange. Tim has more than 20 years of experience with TSX Venture. His knowledge and expertise in regards to all aspects of the business and community, coupled with his leadership skills, position him and the TSX Venture franchise for ongoing success. It continues to be an exciting time for TMX. Building these roles and others from inside our organization demonstrates our commitment to nurturing talent and developing exceptional leaders. And it stands as compelling evidence that we are on the right track in establishing a high-performance working culture. Now in addition to our Q4 financial results last night, we were very pleased to announce an 8% dividend increase from $0.77 to $0.83 per share, payable on March 11, 2022, to shareholders of record at the close of business on February 25, 2022. This is the fifth increase in TMX Group's dividend in 3 years and demonstrates our proven ability to generate increasing cash flows over time and over different market conditions. We remain committed to executing an effective long-term growth strategy, serving stakeholders in our markets across the world with excellence throughout all market conditions and continuing to deliver value to our shareholders. And with that, let me turn the call over to David.

[David Arnold, Chief Financial Officer]

Thank you, John. Good morning, everyone. It's good to be back in the office again. So let's turn to the fourth quarter results. The fourth quarter was another exceptional quarter for us, with 15% revenue growth and 24% growth in both diluted and adjusted diluted earnings per share. There were revenue increases from across all our businesses, with the exception of equities and fixed income trading revenue, which was down due to lower volumes when compared to the high volumes of Q4 2020. On the heels of our strong revenue growth, operating expenses increased 20% over Q4 of 2020, mainly driven by costs related to our acquisitions of AST Canada and Tradesignal. After adjusting for these 2 acquisitions in 2021, organic revenue growth was 11% this quarter, and operating expenses, excluding AST Canada and Tradesignal, were up 8%, driven by an increased investment in growth areas of our business and yielding yet another quarter of positive operating leverage. Our 24% earnings per share growth in the quarter, as mentioned earlier, was primarily driven by higher revenue as well as an increase in our share of income from the Boston Options Exchange after another strong quarter and lower income tax expense in the quarter compared with Q4 of 2020. This quarter, there was a $3.9 million reduction to income tax expenses, of which $2.9 million or $0.05 per basic and diluted share related to a reversal of a deferred tax asset written off in 2017, which we adjusted for in 2017, so have applied consistent treatment for that this quarter. Partially offsetting these earnings increases were higher expenses in the quarter, which included integration costs related to AST Canada of $2.8 million or $0.04 per basic and diluted share as well as higher net finance costs driven by the higher interest expense related to the issuance of our Series F debentures back in Q1 of 2021. Turning now to our businesses, and I'll start with those that saw revenue increases in the quarter. Revenue and capital formation grew by 33% this quarter, including approximately $8.6 million of revenue related to AST Canada, which accounts for approximately half of the growth. Excluding AST Canada, revenue in the quarter grew 16% in capital formation and was primarily driven by higher initial listing fees in the quarter when compared with Q4 of last year. Sustaining listing fees increased in the quarter, reflecting an increase in the market capitalization of issuers as at December 31, 2020. Additional listing fees also increased in the quarter due to increases in both the total number of financings and the total financing dollar raise. The increase or the increases on TSX reflected a 52% increase in the number of additional listing transactions billed at the maximum listing fee of $250,000 partially offset by a 6% decrease in the number of transactions billed below the maximum fee when compared to Q4 of last year. Now looking forward to 2022, the market capitalization of issuers listed on TSX increased from $3.4 trillion at the end of 2020 to $4.2 trillion at the end of 2021. The total market capitalization of all issuers on TSX Venture Exchange increased from $78 billion to over $102 billion over the same period. Now we estimate that these increases in market capitalization on TSX and on TSX Venture should result in an increase in sustaining listing fee revenue of approximately $3 million in 2022 or a 4% increase compared to last year since the vast majority of the increase in market capitalization came from those issuers at or above the maximum sustaining listing fee on TSX. Turning to Derivatives Trading and Clearing. This quarter's revenue grew by 24% from when compared to Q4 of 2020. While volumes on the Montreal Exchange increased by 46% compared to Q4 of last year, there was lower revenue per contract, reflecting changes in both client and product mix. In the past quarter, there was an increase in high-volume traders trading activity, which yielded lower revenue per contract. In addition, the volume increases was partially driven by contracts with lower yields, including single stock futures, which made up 15% of total volumes in the quarter compared with 7% a year ago. Revenue in our Global Solutions, Insights and Analytics segment was up 8% over Q4 of 2020, with increases from both Trayport and Datalinx. Revenue from Trayport was up 10% in Canadian dollar terms or 11% in pound sterling. The increase was driven by a 9% growth in total subscribers in the quarter compared with a year ago and an $800,000 of revenue contribution from Tradesignal, which was acquired on June 1. Organic revenue growth in Trayport in Canadian dollars was therefore 8% when compared to Q4 of 2020. Revenue in our traditional data business grew by 6%, driven by increases in usage-based quotes, professional and nonprofessional subscribers, colocation, feeds, benchmarks and indices. The average number of professional market data subscribers for -- subscriptions for TSX and TSX Venture products grew 7% in the quarter compared with last year, and subscriptions on the Montreal Exchange were also up by 7%. The higher revenue was partly offset by an unfavorable impact of approximately $700,000 from a stronger Canadian dollar relative to the U.S. dollar over Q4 of 2020. Revenue from CDS was up 11% in the quarter, reflecting higher depository, event management fee, international as well as clearing and settlement revenue when compared with Q4 a year ago. The increases in revenue were partially offset by higher rebates and lower network fees. The revenue increases in the aforementioned businesses were partially offset by equities and fixed income trading revenue, which decreased 4% in the quarter compared with Q4 of 2020. This decrease was driven by a 9% decline in the overall volume of securities traded on our equities marketplaces. Trading volumes of TSX securities decreased by 6% in the quarter, while volumes on TSX Venture Exchange and TSX Alpha Exchange decreased by 17% and 6%, respectively. There was also a decrease in fixed income trading revenue, reflecting lower activity in swaps in the quarter. These decreases were partially offset by higher yields on all of our equities marketplaces in the quarter when compared with Q4 of 2020. So turning now to our expenses. Operating expenses in the fourth quarter increased by 20% compared to Q4 of last year. There were approximately $13.3 million of expenses in Q4 relating to AST Canada, including $2.8 million of integration costs, $1.5 million related to the amortization of acquired intangibles, $1.3 million related to the transition services agreement with AST and $900,000 of acquisition and related costs. Operating expenses, excluding AST Canada, increased by 8% in the quarter compared with Q4 of last year. The higher expenses reflected higher headcount and payroll costs, increased short-term employee incentive plan costs, higher legal fees as well as increased recoverable expenses. These increases in costs were partially offset by lower severance costs of $2 million, lower long-term employee performance incentive plan costs of $900,000 and $400,000 of acquisition and related costs related to AST Canada in Q4 of 2020. We expect integration costs of AST Canada of approximately $20 million over the 12-month period from September 1, 2021, to August 31, 2022. These integration costs are expected to generate total revenue and cost synergies of approximately $8 million, which will be substantially achieved by the end of 2024. In addition, we expect at least $2 million of these cost synergies in fiscal 2022. Looking at our results sequentially. Revenue increased $21.1 million or 9% from Q3 2021 to Q4 of 2021. This was driven by higher revenue in Capital Formation, Equities and Fixed Income Trading and Clearing, CDS, Derivatives Trading and Clearing and Global Solutions, Insights and Analytics, partially offset by slightly lower other revenue. Operating expenses increased $14.3 million or 12% from Q3 due to higher severance of $2.8 million, higher software license and maintenance costs of $1.8 million and higher short-term employee incentive performance plan costs of $1.2 million. There was also approximately $13.3 million of expenses included in Q4 2021 related to AST Canada, as mentioned earlier. These increases in operating expenses were partially offset by lower long-term employee incentive plan costs when comparing Q3 to Q4. Commenting on our balance sheet. In the fourth quarter of 2021, we spent $18.6 million repurchasing $140,000 of our common shares under our normal course issuer bid program. Our debt to adjusted EBITDA ratio was 1.7x at the end of the quarter, and we also held over $341 million in cash and marketable securities at the end of the quarter, which is about $136 million in excess of the $205 million we target to retain for regulatory and credit facility purposes. Now as John mentioned earlier, our Board approved a quarterly dividend of $0.83 per common share payable on March 11 to all shareholders of record as of February 25. In 2021, we paid out 42% of our adjusted earnings per share, which is at the low end of our targeted payout ratio of 40% to 50%. With the increase to $0.83 in Q4, we will pay out 47% of our adjusted Q4 EPS, which is slightly above the midpoint of our target payout ratio and positions us well within our range as we look forward to 2022. And now I'd like to turn the call back to Paul.

[Paul Malcolmson]

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

[Operator]

[Operator Instructions] Your first question comes from Nick Priebe with CIBC Capital Markets.

[Nikolaus Priebe, Research Analyst]

Okay. So one thing that stood out in the quarter was that it looked like an abnormally strong period for subscriber growth, particularly trader subscribers at Trayport. Is there any additional color you can provide just on what you saw specifically in Q4 and whether you see that momentum carrying into 2022?

[John D. McKenzie, CEO & Director]

Yes. And it's a great question. So I don't know if you recall this, but this is certainly something that we've talked about in the past that sometimes you can see, quarter-by-quarter, a disconnect between subscriber numbers and the revenue impact as we sign new agreements or as we renew or extend. And as we've talked through the last number of quarters, we've been continuing to add new clients to Trayport all through 2021, and that client demand for Trayport has continued to be strong. I mean, you can expect that the market conditions around energy and energy trading is actually a strong demand driver for more people to use trader -- Trayport. So not a surprise to us that we're seeing that lift in subscribers and look for that to drive revenue in the future as those contracts renew, as we see the full revenue impact, things like that. So that's the way to think about it. It's continued strong growth in demand for the Trayport platform.

[Nikolaus Priebe, Research Analyst]

Okay. Got it. And then just one other question for me. As we continue to see year-over-year earnings growth, you continue to structurally delever as well. So I guess in that context, can you give us a bit of a read or an update on what you're seeing, if anything, on the M&A landscape?

[John D. McKenzie, CEO & Director]

Yes, we're happy to. So I mean, strategically, it all drives from what we're doing in terms of trying to grow those core parts of our franchise. We've talked about growing data and analytics, Trayport, more services for issuers, et cetera, et cetera. So we continue to be very active in terms of looking at new opportunities. And even in 2021, when you think about what we actually executed, while they were smaller in size than a Trayport, our execution of Tradesignal, our execution of AST Canada were meaningful in terms of moving those strategies along. And we did some comparisons to ourselves to other exchanges around the world. And we were at pace or better in terms of the numbers of deals we actually executed and closed. So we are actively continuing to look at those kind of opportunities. Our balance sheet is in a very strong position to execute on them and expect us that we continue to actively look for things that will accelerate the strategy that way.

[Operator]

Thank you. Your next question comes from Etienne Ricard with BMO Capital Markets.

[Etienne Ricard, Analyst]

First on the Montreal Exchange, could you comment on initial market reception to the launch of the 30-year interest rate product as well as trading volumes in early '22, given the recent rising bond yield backdrop.

[John D. McKenzie, CEO & Director]

Yes, I'm happy to. And certainly, the reception to the 30-year product has been strong because -- I mean, keep in mind, when we're bringing a product like that to market, we're doing it with client demand upfront. It's one of the approaches we're doing to all product launch around MX is interacting with clients. And so it's always there to solve a problem for clients so that we know there's actually going to be active issue in it. Off hand, I don't know directly in terms of the volumes we're seeing in the early stage, but we're positive in terms of the launch so far. And the overall client support, I actually think we just released our MX volumes for January in the last day. So let us get back to that in terms of what that actually looks like for January, but I believe it's continuing that same positive trend.

[Etienne Ricard, Analyst]

Okay. And on Trayport. So an interesting development in Q4 seems to be the shift towards exchange-traded products in European natural gas trading. So I guess, first question is, do you see this on exchange ship as permanent? And the second part is should natural gas trading become increasingly consolidated, how do you make sure the subscribers remain engaged with the Trayport platform?

[John D. McKenzie, CEO & Director]

I'm so glad you asked that question because it really is an area that we want to give a lot more clarity to the users and to the investors. As a background piece, the largest natural gas contract in the world is Henry Hub contract, which is exchange traded primarily through ICE and CME Trayport subscribers actually use Trayport to get access to U.S. pricing so they can actually do benchmarks for other products that price off them. And so what you've seen in this period of real high gas volatility is not a shift in trading to things that are on exchange, but strong growth in those contracts that also have a big exchange component to them. But that's also where we wanted to remind people that Trayport provides access to about 40 different venues. And any trader that's trading through Trayport is often trading both contracts that may be exchange traded, brokered, a combination or both. So it's not just to access a single product on exchange or in a brokered world. So that's what the value of the Trayport solution is. It's really aggregating multiple products around multiple markets and the increased liquidity in some of these products only just brings more people to the market. Even for a client, whose primary objective was to potentially trade a product on an exchange, Trayport as a front end still provides an important service to them in terms of being able to provide that data, that front-end connectivity, the access to clearing and things like that. So I really appreciate you asking that because I think it's a bit of a mythology that if something is just exchange traded, there's not the same value for Trayport, where Trayport actually continues to provide value because it gives access to all the other products in the ecosystem that, that trader cares about.

[Etienne Ricard, Analyst]

Great. And lastly, just on -- again, on capital deployment. Given the recent pullback to tech valuations, are you seeing more opportunities that could match your return hurdles relative to 3 months ago?

[John D. McKenzie, CEO & Director]

We were seeing opportunities all through 2021 and into 2022 as well. And certainly, we're looking at things actively now. And remember, it's going to be a combination of both value to shareholders, appropriate return hurdles, but also quality of the business, our ability to integrate it, scale it up and drive growth with it. And those are really key factors. So one of the biggest limiters on any transaction is, is it a quality business that we can scale up and grow? Just because it's technology or data doesn't mean it's going to drive our strategy. That's the #1 thing that we're looking at. Is it going to drive our strategy? David, anything you want to add to that in terms of our capital deployment?

[David Arnold, Chief Financial Officer]

The only thing I'd add, John, is as we continue to stress, and this is key, Etienne, is we're looking for inorganic and organic growth at the same time, things that we can invest in internally, and you've seen that with some of our initiatives around Asia hours, adding additional products, the 30-year as an example, which you asked about. And then, yes, we're looking for value, but also things that obviously accelerate the growth of our strategy, as John said.

[Operator]

Your next question comes from Graham Ryding with TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

Maybe just some color. David, it's probably for you, just on the expense outlook. Just how much ability do you have on the expense side to manage any inflationary pressures? And also if any of your business lines normalize in 2022? I'm thinking capital formation and maybe equity volumes or whatnot. How much of an ability do you have to manage expenses to sort of offset and maintain not -- or push against negative operating leverage?

[David Arnold, Chief Financial Officer]

Yes. So that's a great question, and thanks for asking it, Graham. So for us, let's start with where you ended off there, right? For us, it's about positive operating leverage, growing revenue at a higher rate than we're going to grow our expenses. Obviously, we've indicated in the past, we're really trying to keep our expenses flat plus inflation as really kind of our guidepost. But as we always show and we show you our numbers, we have to adjust for acquisitions in year. So AST Canada is a good example in capital formation. Looking at those numbers in absolute reported perspective there higher year-over-year. And when you adjust for that, it gets into the more normal range. So I'm not going to be able to guide you any more other than we do have several levers within the business. We look to organize our operations in the most effective manner. And from time to time, we take opportunistic moves to manage expenses to either be flat or slightly up with inflation.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Understood. And then you made a reference, John, about a cash-settled crypto futures product. I guess you would probably need regulatory approval for that. Is that process currently underway? And just any color or estimate on when this product could potentially be rolled out?

[John D. McKenzie, CEO & Director]

Yes. Unfortunately, I can't give you a time estimate today because it's something that we're actively in the works with. And it is like other products on MX, it's based on where we see demand and client interest for products that they are looking at. Any time we bring a new product to market around the MX, we do have a regulatory process, but it's quite streamlined. In terms of the regulator, the AMF, has worked well with us over the year to create a process where we can effectively bring market products to market quickly with the appropriate client demand and clearing regime and risk management tools around that. So that's all the basics in terms of how we launch products, but it is really based on getting the product right with the needs of the client. There's another area just for an FYI because we've heard it and we'll get this question from other folks as well. We are seeing it with the large dealer community as well in the Canadian market that are looking at how do I provide crypto tools or crypto assets to their investor base. And so that's part of our active dialogue as well as what can we do within the capabilities of the exchange, the capabilities of our clearing system, our trust franchise to be able to provide more of those products and services to the brokerage clients so they can extend them to their investors. So I think that it should come as no surprise. This is where we've generally been on the front end of innovation in the marketplace, first market to launch crypto ETFs as well and expand those usage. So this is a natural place for us to be active. So I mean, at this stage, because we're at those product discussions, I can't give you firm time lines as to when we would come to market. But I wanted you to know that it's something we were actively working on.

[Graham Ryding, Research Analyst of Financial Services]

Okay. Great. And just my last question then. I think you mentioned you're looking at renewable opportunities at Trayport. What can you elaborate there? Is that bringing in products onto the platform or launching new products? What are you -- or is that an M&A perspective? What are you looking at on the renewable side?

[John D. McKenzie, CEO & Director]

Yes, there -- I mean, there's 2 things. So I mean, we actually do already make renewable power available in the platform, and we're always looking to continue to expand that. And that again is driven by client demand. So trading renewable power points with -- and within the mix of the energy mix that we trade. But the interesting piece that we're working on is other things around clients being able to manage their environmental footprint. They're -- and really, this is the voluntary carbon market we're talking about. So you think about TMX as an example. We committed last year to be net neutral to net zero. We achieved that in 2021 through carbon offsets. But when you look to how do you do that on a more permanent future basis, you get into where can you create the market for buyers and sellers of carbon offsets so that firms like us can manage their exposures down to net zero. And then how do you create the capability in the facility to trade those exposures to balance your load, to balance your need, things like that. So that's actually what we're working towards with Trayport to be able to put that on screen with key partners that are the experts in the industry around voluntary carbon. And we think that it's both a product extension that helps both Trayport clients that are deep in the energy market. But quite frankly, issuers on TSX and TSX Venture who are some of the biggest both producers and consumers of carbon credits. So it's an area where we want to continue to be on the front end in terms of being a marketplace leader in supporting environmental products and sustainability for our issuers and our clients.

[Operator]

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

[Geoffrey Kwan, Analyst]

Just first question was on the MX. You talked about, I guess, the impact of high-frequency traders in terms of on the revenue per contract traded. Just wondering what that proportion of volumes are coming from that kind of constituency in Q4 and how that would have compared to the year prior period.

[John D. McKenzie, CEO & Director]

Sorry, Geoff, we're not in the same room, so we're always looking to who's taking the question first. We don't have that period comparison off hand, so we actually will follow up on that piece for you. In any pieces in terms of the mix, it's both that combination though of high-frequency trading activity, but also just the product mix if you look at what were the largest product growth areas for MX in 2021, over 30% in equity options, 90% in single stock futures. Those are lower-priced products than the large fixed-income futures or index-based futures. So it is that combination, but we'll follow up on the data sets in terms of the high-frequency impact in terms of year-over-year.

[Geoffrey Kwan, Analyst]

Okay. And then just maybe within that, are there certain products within -- on the MX's platform that they tend to trade more relative to others?

[John D. McKenzie, CEO & Director]

Well, certainly, I mean some of the highest volume traded products are things like the Canada government bond, the BAX futures, those large fixed-income products. And we've got a very large growing volume in things like the 5-year, the 2-year now, we expect the 30-year as well. Those fixed income products tend to be higher premium products. But as you know, we've talked about this in the past, to bring new products to market and really drive growth, we will use rebate incentives to drive them. They've been extremely successful in terms of adding liquidity to the platform and creating the position for long-term growth. So that does, in the short term or quarter-by-quarter, impact some of the pricing of those products themselves. But to the earlier question we had earlier on around strength in demand for fixed income product given the fixed income products are tending to be more premium-priced products and you look at rate volatility coming, demand for more trading there, that's an area that we would anticipate being strong in 2022 as you get more rate trading, Bank of Canada making changes, et cetera, et cetera. That will lead to more trading growth in those products, which tend to be the premium-priced products.

[Geoffrey Kwan, Analyst]

Okay. And just my other question was just on the new issue pipeline. How you feel about it today or what you're seeing today and how that's trended over the last quarter or 2?

[John D. McKenzie, CEO & Director]

I mean certainly, what we've seen in January activity was a little softer than where we came out of December. But the new issue pipeline continues to be very strong. So we still continue to have 1,500-ish issuers -- potential issuers in our pipeline that we're active in dialogue with. And one of the data points I'll share with you in terms of the success around 2021 is of that new issue activity in 2021, approximately 50% of it was companies that came from our pipeline. So companies that we had been building relationships with over years before they came to market. So with our deal team, our deal team throughout Capital Formation, who has worked extensively through this period, they continue to be in active dialogue with potential new listed issuers to come forward. And even if you look at the statistics for January alone, while we're not seeing the same level of financing dollars that we had in, say, December, we're actually still continuing to see growth in new issues on Toronto Stock Exchange. So that demand continues to be there. What I would anticipate as we go through into 2022 with changes in market values, is some continued shift in terms of where are some of the sectors that are getting the biggest activity. And so while we all realize that values in the tech sector have come off from their highs last year, there's still strength in other sectors like financial services, diversified industrials, mining and actually renewed strength in the energy sector given the strong pricing around gas and oil. So there's a lot of positive indicators for financing across a number of sectors. And this -- candidly, Geoff, what's been really positive for our marketplace over the last number of years, it's become so much more diversified that we can have strength in capital raising in different market conditions because of different strengths in different sectors.

[Geoffrey Kwan, Analyst]

And sorry, if I just add one final one, just clarifying. When you use the word pipeline, you talked about 1,500 issuers in active dialogue, about half of the issues. I think it was the -- half of the issues in 2021 were ones that came from the pipeline. When you say the pipeline, are you referring to companies that are nonissuers right now that may IPO or essentially list at some point? Or are you looking...

[John D. McKenzie, CEO & Director]

Absolutely.

[Geoffrey Kwan, Analyst]

It's okay. So when you talk about it's not including existing issuers where I know you don't have as much line of sight when they may look to do capital markets transaction like...

[John D. McKenzie, CEO & Director]

No. This is -- yes, this is around net new issuers.

[Operator]

Your next question comes from Jaeme Gloyn with National Bank.

[Jaeme Gloyn, Analyst]

First question is around the Trayport platform and the growth in trader subscribers. You mentioned that the increased attention to gas and energy markets has driven or in part driven some of that increase. Does -- how would you respond to the view that perhaps that increases maybe some cyclicality in the platform? Should these markets come off again as they tend to swing in volatile direction. So is there -- should we look at Trayport as being a more cyclical business at this point? Or how would you respond to that?

[John D. McKenzie, CEO & Director]

I think, Jaeme, if you look at the history of Trayport over time as we bring on new clients, it's largely sticky. So as clients start to deploy the platform throughout it and see the value of using it across their trader community, you don't generally see material drop off from that. What we normally will see is as clients renew with us, and I think you know they have clients on multiyear agreements. When clients are new, they're usually adding seats as opposed to just stepping back. Now we did have -- 2 years ago as we came into COVID, we had some client renewals where they actually trimmed some of the excess seats. And if you recall, we had some moderation in terms of the actual trader growth but didn't impact revenue because these are all enterprise agreements. So while we've expanded with some clients, we may have been adding more seats. If there is more than they need in terms of a change in the mix, that doesn't necessarily mean a material change from a revenue standpoint because it is all about what's the enterprise value of that client. So the history on Trayport would suggest that it's actually fairly sticky in multiple market cycles.

[Jaeme Gloyn, Analyst]

Okay. Great. Appreciate that. Looking at the AST transaction, results seem like they're pretty down the fairway from what we would have expected. Is there anything -- like can you get into that business in a little bit more detail what was driving some of the revenues this quarter, customer acquisitions, penetration of that market in terms of like market share. What more can you tell us about the AST transaction in Q4?

[John D. McKenzie, CEO & Director]

So in terms of Q4 AST, let me start in terms of the business pieces and David can jump in on some of the transactional elements. But yes, the integration and doing the business together is going positively. And the client what you're seeing is the strong client participation in the product. So we've had clients that, with under our ownership now, are happy to extend with us, material clients doing multiyear extension. It's very early stage to talk about kind of net new blue-chip client acquisition there because we really need to complete our integration work, which we're going to get largely done in the middle of next year in terms of being able to operate on shared systems and go out to clients with shared capabilities, shared call center, all those types of things in terms of selling the combined value proposition. So have a couple of quarters patience with us on that piece as we put the businesses together. But the value proposition is there. It's very strong. We're seeing the client renewals we expect. And what we are seeing in terms of the potential, as we go into next year, is the opportunity for rate moves. So if you recall, we've talked in the past that there's been very limited revenue within both the AST business that we acquired in 2021 and even in the core TSX Trust business we built in terms of the net interest income that we would generate from holding cash for participants, corporate actions, transactions, those types of things in a near 0 rate environment. So as we start to see rates move, and then Dave, you can talk to this other, I believe we provided some sensitivities around this to give you some guidance. This is a meaningful upside to the business in 2022. Go ahead, David.

[David Arnold, Chief Financial Officer]

Yes. So I think the key thing for me, Jaeme, is that a couple of things in our disclosure that -- to pick up on is, one is we anticipate getting all of our cost synergies or substantially all of them by the end of 2024. And last quarter, we had earmarked 2025. So that's positive news. The other thing is we're going to realize $2 million at least of our synergy savings this year and 2022. The integration is going well, as John mentioned. The client satisfaction, which we measure internally has continued to rise, which is a good indication of an integration going well.

[Jaeme Gloyn, Analyst]

Okay. Great. Next question is a bit more -- I guess, you can answer it in a few different ways, but just thinking about pricing power and your latest thoughts around that in terms of looking at the sustaining listing fees, only a 3% bump there despite the much larger increase in market cap of the companies and then also on the capital formation or additional listing side, the maximum [indiscernible] fee has been budgeted in a few years. What are your updated views on addressing pricing power in some of these transactional elements?

[John D. McKenzie, CEO & Director]

It's an area that I believe we've got more opportunity, Jaeme. And certainly, if you think about the different parts of the franchise, we are priced competitively in things like capital formation, if you benchmark us against other marketplaces around the world. So it's an area we're going to continue to look for both opportunities and risks if we have any in there, and I would expect to see us do more in that space. In other parts of the franchise, like equity trading, that really is market competitive. There's multiple marketplaces in Canada and the U.S. Our pricing is comparative with those. So I wouldn't see the same type of opportunity areas in that area. But even in some things where we've historically not had changes in the past, we are making changes in either we have in 2021 and/or will in '22 to around some of our market data products. We do some pricing when we do renewals on Trayport. So there are areas throughout the franchise where I believe we continue to have pricing opportunity. But I do want to be strategic about how we execute it. We're not going to do broad-based X-percent increase across franchise. We're looking at where do we have competitive opportunities that fit with our value proposition to make change, and we are actively looking across the franchise for what those are.

[Jaeme Gloyn, Analyst]

Okay. Great. And in that context of competitive dynamics, are there -- can you share any initial views or any thoughts around the entry of Cboe into the Canadian marketplace? With now a couple of transactions over the last year, have you noticed any changes in the competitive dynamics that they're bringing to the Canadian marketplace.

[John D. McKenzie, CEO & Director]

No. Candidly, no. But at this point, they need to -- they'll still need to file with commissions what their intentions are in terms of being an exchange operator in Canada. What we expect and we will be quite active in this is that when small markets start in Canada, they often have kind of a lighter touch from a regulatory standpoint. Marketplaces like Cboe or Nasdaq before that are large sophisticated global players. We do expect them to be held to the same regulatory standards that we hold to, that we hold for market quality in Canada, and we expect that for these competitors as well. And on that basis, we expect we can compete very well with these. We've got a great product and service offering and we are very close to the clients. So I expect we will be a very strong competitor.

[Jaeme Gloyn, Analyst]

Okay. And last one for me also sort of thinking about new exchanges. BOX has recently announced a new exchange using blockchain technology, BSTX. Are you able to talk about your or TMX, I mean you have the interest in BOX Holdings and -- what are your views of that marketplace in the U.S.? Is there some opportunities to bring that to Canada? Are there further capital allocation possibilities for that business? Maybe some broad comments around what you see for that new exchange down.

[John D. McKenzie, CEO & Director]

Yes. So I mean you would have seen from our disclosure that we are -- our position in BOX is expanding in terms of our overall ownership, our voting position. So we really are at the early stages of moving from being a portfolio investor in the business to having a larger role in the strategic direction that we would do through the Board of BOX because it is an independent entity with multiple shareholders engaged in it. So that is something that we're going to be looking at in '22 through the BOX Board where we participate the management of BOX in terms of what's the strategic direction in terms of continuing to capitalize on the success in the U.S. market. And it's been successful. I mean this is a business that over the last number of years has grown from kind of 2% to 3% share of the U.S. option trading market to 5% to 6%, and you're seeing that flow through in our share of those results. The BOX Digital offering is one that's actually been active in the works with the team there for a year plus in terms of looking for a model to expand into digital that fits with what the SEC is comfortable in kind of a regulated token space. So it is still early stage. I would classify it almost as this is experimental to see if we can actually use the capabilities of an exchange with emergence of some demand on digital offerings to create marketplace opportunities. And that's the way I would think about this. This is actually exploratory and it's something that we can build on if there is client success around it. Now within our Canadian market as well, we continue to look at opportunities to how do you reach deeper into companies that are privately financed companies. And so that could be in digital offerings in the future, but it also can be in services. So the services that we provide through Trust are ones that we've talked about are extensible to private companies. And then the service we launched last year, TMX LINX, our partnership between ourselves and Catapult is a digitization or an electronification of private placements for private companies. So it's another way to service in those companies. So it is an area that we're actively looking at. I expect over time that digital tokens or digital securities are going to fall into the realm of regulated securities, just like anything on exchanges. That's going the purview of where the SEC is likely to go, where the OSCs are likely to go to ensure investors are getting the same protections regardless of the instrument they're using to invest in, and we are well set up to support that. So whatever it is that issuers are going to want to list in the future and traders are going to want to trade, we will be able to do it through our platform one way or another.

[Operator]

We have a follow-up question from Graham Ryding with TD Securities.

[Graham Ryding, Research Analyst of Financial Services]

David, the $8 million in AST synergies by 2024, are those all cost savings or is that a mix of cost and revenue?

[David Arnold, Chief Financial Officer]

It's both.

[Graham Ryding, Research Analyst of Financial Services]

50-50? Or you're not in a position to sort of flesh out what's what?

[David Arnold, Chief Financial Officer]

It's a good question, Graham, but not in a position to share that right now.

[Operator]

There are no further questions at this time. Mr. Malcolmson, you may proceed.

[Paul Malcolmson]

Well, thank you, operator, and thank you, 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]

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 great day.