TMXXF - TMX Group Limited (TMXXF) Q3 2023 Earnings Call Transcript
2023-10-31 14:50:06 ET
TMX Group Limited (TMXXF)
Q3 2023 Earnings Conference Call
October 31, 2023 08:00 AM ET
Company Participants
Amin Mousavian - VP, IR, Treasury & Administration
John McKenzie - CEO
David Arnold - CFO
Conference Call Participants
Ben Budish - Barclays
Nik Priebe - CIBC
Etienne Ricard - BMO Capital Markets
Brian Bedell - Deutsche Bank
Geoff Kwan - RBC Capital Markets
Graham Ryding - TD
Jaeme Gloyn - National Bank Financial
Presentation
Operator
Good morning, ladies and gentlemen and welcome to TMX Group Limited Q3 2023 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Tuesday, October 31st, 2023.
I would now like to turn the conference over to Amin Mousavian, Vice President, Investor Relations, Treasury, and Administration at TMX Group. Please go ahead sir.
Amin Mousavian
Thank you, Lara and good morning, everyone. It is October 31st and I hope this Halloween brings you the lifeful moments and memorable experiences. Thanks for joining us this morning to discuss the 2023 third quarter results for TMX Group. As you know, we announced our results late yesterday and copies of our press release and MD&A are available on tmx.com under Investor Relations.
This morning we have with us John McKenzie, our Chief Executive Officer; and David Arnold, our Chief Financial Officer. Following the opening remarks, we'll have a question-and-answer session.
Before we begin, I would like to remind you that certain statements made during this call may relate to future events and expectations and constitute forward looking information within the meanings of Canadian Securities law.
Actual results may differ materially from these expectations. Information concerning factors that could cause actual results to differ from forward-looking information is contained in our press release and in periodic reports that we have filed with the regulatory authorities.
And with that, I'll turn the call over to John.
John McKenzie
Thank you, Amin and good morning everyone. Thank you for dialing into the call this morning to discuss TMX's financial results for the third quarter and the first nine months of 2023.
My comments this morning will really focus on TMX's performance year-to-date through September 30th, and the important progress we have made in executing the enterprise growth strategy and advancing our key initiatives. David is here as well with me in Montreal this morning, and he will take us through the third quarter results in detail in a few minutes.
Now, before I turn to business, I do want to address something that has been on all of our minds for the last few weeks and that is the Middle East. TMX is actually part of the business community in Israel. We have one of the largest presences of any international market with 16 listed companies raising capital via our public market ecosystem.
Team members, clients, and people we work with closely are going through a profoundly difficult time and our hearts are with them. And so we are so grateful for the humanitarian efforts of groups working to treat and protect the lives of people in effect communities and providing essential relief services and resources. And we collectively pray for peace and a brighter tomorrow.
Now, turning to TMX's performance. We reported continued positive results for the first nine months of 2023 with solid year-over-year revenue growth for three consecutive quarters, amidst prevailing challenges across much of our operating environment.
Our 2023 results through September reflect the depth of value in our business. The execution of TMX's long-term strategy has strengthened our ability to deliver positive results, even in difficult macroeconomic conditions. This has been a deliberate effort to build the amount of business that's driven through our data services and in run rate revenues, so the business is more resilient in times of economic strife.
More importantly, today's TMX is better positioned to serve clients across our market, increasingly around the world and better positioned for growth. TMX reported revenue of $892.6 million, a 6% increase from the first nine months of last year, driven by double-digit growth in revenue from our Information Services business, or GSIA, which includes Trayport and TMX Datalinx, as well as increased revenue from capital formation, derivatives trading and clearing, excluding BOX.
These overall gains were partially offset by decreased revenue from equities and fixed income trading due to lower trading volumes on Toronto Stock Exchange, TSX Venture Exchange, and Alpha, and lower capital raising activities.
Clearly, this has been a challenging capital markets period and we want to just have a quick shout-out to our clients as well who are suffering through some of those same challenges.
On adjusted basis, diluted earnings per share for the first nine months of the year was $1.10, a 2% increase from the same period in 2022. Total reported operating expenses increased 10% compared to the first nine months of last year and David will take a closer look at these expenses in his remarks to follow.
Now, moving now to each of our business areas. GSIA remained our fastest growing business area through three quarters of the year. Revenue from GSIA was $311.6 million through the first three quarters of the year, which is a 17% increase from 2022, reflecting higher revenue from Trayport and TMX Datalinx, including co-location.
Trayport's revenue grew 22% or 17% in common currency pound sterling year-over-year, driven by a 9% increase in trader subscribers, annual price adjustments, and the impact of a favorable FX rate.
Trayport's core jewel network plays a key role in serving world power and natural gas markets, linking participants to execution venues, and clearinghouses and delivering innovative products and services to a growing client base. And September marked the 30th anniversary for Trayport.
The number of game-changing achievements over the years as the company has expanded its network into new asset classes and geographies and added new cutting edge capabilities is impressive.
Among other successes, since Trayport joined TMX in 2017, includes enhancing the client offering with the acquisition of leading solution providers such as Tradesignal and VisoTech, launching an initiative to aggregate the global environmental markets, and adding over 400 net new clients.
And world energy markets are rapidly evolving. Demand for data and analytics to support new quantitative automated approaches continues to grow. An improvement ability to meet the needs of the marketplace and a committed strategic focus on seeking out new opportunities has positioned Trayport well for continued success.
TMX Datalinx grew 13% in the first nine months due to higher revenue from data feeds, co-location, benchmark and indices, and enterprise agreement renewals, as well as the favorable FX impact from a stronger US dollar.
Revenue for the first three quarters of the year also included $5.3 million from Boston-based Wall Street Horizon acquired in November of last year. 2023 has been a landmark year for our Information Services business, marked by high performance and definitive steps forward in our strategy to boost our capabilities, expand our datasets, and deliver modern solutions to clients.
Progress this year also includes our participation in the creation of the new term core benchmark and our investment in VettaFi, a global provider of indices and ETF services.
Importantly, information and more specifically, what we can do with it, is not the focus of just this one division, but it is a crucial and common element in in TMX's enterprise global growth strategy.
Across the organization, we are focused on new ways to leverage our robust proprietary datasets to solve client challenges today and into the future. Earlier this month, we announced the launch of the new TMX ESG data hub.
Working with leader leading global ESG data and analytics provider, the new hub expands TMX Datalinx's offering, in support of client demand for integrating ESG measures into the investment decision making process. This includes tracking company climate action plans, quantifying impact, screening, and peer analysis.
Now, turning to Derivatives, excluding BOX, revenue from derivatives trading and clearing was a $121.1 million in the first nine months of 2023, a 13% increase from last year, driven by higher revenue from MX and CDCC due to increased volumes traded and cleared.
MX total volume grew 12% compared to the first nine months of 2022. And the level of overall open interest at September 30th, 2023 was 16% higher than the same date last year, which is an important key measure of liquidity growth in some of MX's key products.
Fixed income and equity derivative markets grew sequentially from Q2 to Q3, as higher volatility and an active central bank policy environment drew increased activity from institutional investors in MX's short-term interest rate products.
Highlights from the first nine months of the year featured year-over-year growth in key product areas, including 10% higher volumes from equity options, 20% higher volumes from ETF options. Heavy trading in the BAX CORRA and the CGZ, MX's two-year government Canada bond future contract, up 26% and 88% respectively. And overall, the interest rate product line also performed extremely well with volumes up 19% compared to the first nine months of 2022.
Now, moving to capital formation. Revenue for the first nine months of 2023 was $205 million, a 3% increase from 2022, reflecting higher revenue from TSX Trust, and partially offset by lower revenue from additional listing fees due to due to a decrease in the number of financing transactions and dollars raised on Toronto Stock Exchange and a decrease in the total financing dollars raised on TSX Venture Exchange, though we are encouraged by the year-over-year increase in the number of junior firing financing transactions being completed.
Revenue from other issuer serves services, which is largely consists of our TSX Trust business, including AST, was $83.9 million, a 37% increase compared to the first nine months of last year, driven by higher net interest income, slightly offset by lower transfer agent fees.
The stark realities of prevailing high interest rate environment and inflationary pressures through the first nine months of 2023 continued to weigh on equity markets and capitalizing activity here in Canada and economies around the world.
And while the overall number of new listings on TSX and TSX Venture is down from the same period last year and the record highs of as recent as 2021, the pipeline of Go Public prospects we are connected to remain strong.
Within the numbers, we're also seeing positive signs in traditional and non-traditional sectors along with some recent competitive wins among our new listings as companies continue to choose the TSX and the TSX Venture ecosystem to gain access to the capital they need to grow.
In September, we welcomed Allied Gold, a Canadian based gold producer with operations in Africa to Toronto Stock Exchange. The company raised approximately $364 million in a reverse takeover transaction, representing our largest go public offering in the mining sector since 2017. This listing was a significant win for the TSX and the entire ecosystem that surrounds the Canadian mining sector and speaks to the strength of our global value proposition.
Also, in September, TSX listed DRI Healthcare Trust, a global leader in financing life sciences innovation and completed two bought deal financings of around a $100 million.
And earlier this month, Strathcona Resources, one of North America's fastest growing energy companies, began trading on TSX following an acquisition at a $6 billion valuation.
And so we continue our business development efforts in targeted regions around the world. In September, we added a full time presence in Australia focused on the mining sector and the innovation sector.
In 2021, we also undertook an important initiative to improve indigenous relationships at our organization. And over the past two and a half years, we have made some important progress on our company's reconciliation journey, always stressing the need to prioritize actions over words. And last week, we were proud to host the inaugural TSX Indigenous Investor Day at our Market Center in Toronto.
For TMX, connecting entrepreneurs and growing businesses to potential investors is a fundamental core function of our marketplaces. And so this event marked an especially important milestone as we were able to bring a representative range of decision makers together to discuss strategies for growing indigenous-led businesses to the benefit of these businesses and the investors as well as the broader community and ultimately, all Canadians.
Canada's markets have an outstanding long-term track record of helping visionary entrepreneurs and early-stage businesses raise growth capital and enabling investors participate in that growth. And TMX is committed to building on that track record, enabling more efficient access to underrepresented groups and emerging industries long into the future.
Now, I'd like to finish up my comments this morning by emphasizing our commitment to our growth strategy and our stakeholders. While our 2023 results today show impressive resilience, TMX is not sitting idly by waiting for things to swing our way.
We are ever focused on the future on ways to adapt and accelerate our growth plans by invigorating our purpose to make markets better and empower bold ideas. We also have a strong balance sheet and flexibility to make future investments to continue to accelerate this growth, which David will take us through in more detail a little later on.
And in closing, I would like to thank all of our employees across the organization for their exemplary efforts this year in a very challenging market. All of our business strategies are rooted in the responsibility we have to serve stakeholders across our markets with excellence and integrity, vision and purpose.
TMX's people, here in Montreal, across Canada, and around the world share an unshakable commitment to fulfilling that responsibility and together, we look forward to the challenges ahead.
With that, let me pass the call over to David. Thank you.
David Arnold
Thank you, John, and good morning, everyone. Our third quarter results continue to demonstrate the resiliency of our diversified business model. Overall, revenue grew by 8% compared to the third quarter of last year, driven by double-digit revenue growth across a number of our business segments.
We reported an increase of 7% in our diluted earnings per share and 3% in our adjusted diluted earnings per share, driven by higher revenue from our businesses and finance income on cash balances. Partially offsetting these increases were higher operating expenses year-over-year and higher income tax expenses on an increase in the UK corporate income tax rate from 19% to 25%, which came into effect earlier this year.
A little later, I will speak to our successful efforts to contain expense growth in the second half of the year, whereby we are holding ourselves to a first half of the year expense run rate.
Turning now to our businesses. I will start with the segments that saw the largest year-over-year revenue increase. Revenue in our Global Solutions, Insights and Analytics segment grew by 19% this quarter, with double-digit growth from both Trayport and TMX Datalinx.
Revenue from our Trayport segment was up 19% in pound sterling, driven by a 7% increase in trader subscribers, in addition to our annual price adjustments and incremental revenue from our premium product offerings, most notably, data analytics and algorithmic trading. On the heels of a strong pound sterling this quarter, Trayport was up 31% in Canadian dollars.
Revenue in our TMX Datalinx business grew by 10%, driven by increases in first, subscription based services; second, revenue from Wall Street Horizon, which we acquired in November of last year; and finally, the impact of 2022 and 2023 price adjustments we've spoken of in prior quarters.
In addition, TMX Datalinx's revenue was up approximately $0.4 million due to a stronger US dollar, which accounts for approximately 1% of the 10% revenue increase this quarter.
Derivatives trading and clearing revenue, excluding BOX, was up 7% this quarter on a comparable basis. This was driven by a 12% increase in the Montreal Exchange and CDCC volumes and positive impact from pricing changes, which came into effect in January of this year, somewhat offset by an unfavorable product and client mix.
Now, as you'll recall, in third quarter of last year, we had a one-time reduction in revenue related to the termination fees on our five-year government of Canada bond futures market making agreement and a retroactive client billing credit.
As a result, this quarter's reported revenue in derivatives trading and clearing, excluding BOX, rose by 23% compared to last year, attributed to a 28% increase in revenue for the Montreal Exchange and a 15% increase in CDCC.
Revenue from BOX decreased 9% in US dollars, reflecting a lower rate per contract due to an unfavorable product mix, partially offset by a 5% increase in volumes. In addition, BOX's revenue was up $0.8 million due to a stronger US dollar, which accounts for approximately a 3% increase, reducing the overall revenue decline to 6% in Canadian dollars for BOX in our results.
In our equities and fixed income trading and clearing segment, revenue was up 1% in the quarter, driven by a 13% increase in revenue from our CDS business, offset by a 9% decrease from equities and fixed income trading.
The CDS revenue increase reflected higher interest income on clearing funds and higher fees due to increased activity across event management, custodial, and eligibility services, and stand by liquidity facilities. This was somewhat offset by lower exchange trading volumes.
The revenue decline in our equities and fixed income trading business was due to a 14% decrease in the overall volume of securities traded on our equities marketplaces, as well as low activity in government of Canada bonds and swaps.
Trading volumes were down across all of our marketplaces, namely 17% on TSX, 4% on TSX Venture Exchange, and 15% on Alpha Exchange. Now, despite the decline in volumes, our market share held strong at 66%.
Turning to capital formation, revenue in the segment declined 4% in the quarter, primarily driven by lower initial and sustaining listing fees on the TSX, TSX Venture Exchange, and a 22% decrease in the number of TSX additional listing transactions billed at the maximum fee of $250,000. This was partially offset by a 10% increase in the number of transactions billed below the maximum.
Now, despite the macroeconomic factors challenging the capital raising activities, there were increases in the total financing dollars raised on TSX, and total number of financings, both on TSX and TSX Venture Exchange.
Lastly, TSX Trust revenue increased by 12% in the third quarter, driven by higher net interest income, partially offset by lower transfer agent fees.
Turning now to our expenses for this quarter. There was a 12% increase in operating costs on a reported basis compared to last year, but more notably, a 9% increase on a comparable basis and a 3% sequential decrease on a comparable basis.
So to enable a meaningful comparison of expenses on a year-over-year basis, I call out the following items of note. First, BOXMarket's estimates of $6.7 million in increased expenses for services provided by BOXExchange, which is the national securities exchange responsible for regulating and monitoring activities of BOXMarket. For additional visibility, the $6.7 million increase can be further broken down to $4.6 million related to the first half of 2023, with the remaining $2.1 million related to the third quarter.
Second, we incurred $2.1 million in operating expenses this quarter related to running and operating Wall Street Horizon, which you recall, we acquired in November of last year. So the comparable in Q3 of 2022 would have been zero.
Finally, the comparable quarter last year included $3.5 million related to the AST integration, which was successfully completed by the end of last year. In addition, when we analyze the expenses further by normalizing for inflationary increases and higher FX conversion rates, the third quarter operating expenses are notably lower, with only a 3% growth rate compared to last year. Consistent with the past quarters, approximately half of our expense increase is driven by inflationary increases coupled with higher FX rates.
Turning now to a comparison of our results sequentially. Operating expenses in Q3 were up 2.6 million or 2% from the second quarter, primarily due to the higher BOX expenses, which I discussed in detail earlier.
Excluding the true up for BOX, operating expenses decreased 3% sequentially, reflecting lower revenue related expenses, director fees, employee performance incentive plan costs, and marketing, as well as sponsorship costs, partially offset by higher consulting and legal fees.
We maintain our view that our second half expenses will be in line with our first half of the year's expense run rate after one adjusts for the higher estimated regulatory expenses at BOX that I spoke of earlier. That is to say on a comparable basis. Revenue decreased by 18.9 million sequentially from the second to the third quarter. And this was due to three factors.
First, a decrease in TSX trust revenue reflecting lower balances compared to the second quarter of this year, which included above average corporate actions activity. Second, lower listings fees primarily driven by lower number of additional listings transactions billed at the maximum fee on TSX. And finally, a decrease in equities and fixed income trading driven by a 3% decline in the overall volumes of securities traded on our equities marketplaces.
And turning now to our balance sheet, in the nine months leading up to September 2023, we spent $40.5 million, repurchasing just over 1.44 million of our common shares under our normal course issuer bid program. A debt to adjusted EBITDA ratio was in the middle of our targeted range at 2.1 times. And we also held close to $654 million in cash and marketable securities, which was $479 million in excess of $175 million we targeted to retain for regulatory and credit facility purposes.
On October 3rd, subsequent to the third quarter reporting period, we repaid our 250 million Series B debenture with a combination of commercial paper and cash.
Now last night, our Board approved a quarterly dividend of $0.18 per common share, payable on December 1st to shareholders of record as of November 17th. In the third quarter, we will pay out 51% of our adjusted earnings per share while our last 12-month payout ratio at 49% remains well within our target range of 40% to 50%.
So that concludes my formal remarks. I'd now like to turn the call back to Amin for our Q&A period.
Amin Mousavian
Thank you, David. Laura would you please outline the process for the Q&A session?
Question-and-Answer Session
Operator
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]
Your first question comes from the line of Ben Budish from Barclays. Please go ahead.
Ben Budish
Hi, good morning and thanks for taking the question. Maybe two up front here on the GSIA business. First on Trayport, it looks like this is the fourth or fifth quarter in a row of accelerating growth and I'm just curious what are your thoughts on sort of the sustainability of that trend?
And then at the same time on the non-Trayport side, we saw the professional and market subscribers for both TSX and MX. I think for TSX, they kind of, the number declined quarter-over-quarter. For MX, it was a bit more flat. And so it looked like the revenue, you're still delivering positive revenue growth there, but if you could provide some color on the drivers of kind of the decline in number of subscribers and similarly, your kind of outlook there. Thank you.
John McKenzie
No problem. Good morning. So let me start with Trayport first. So I'm going to anchor you into first of all the long-term guidance in terms of kind of high single, low double-digit growth rate over the long term. And certainly, we are continuing to outperform that and have candidly outperformed it every year since we acquired the business.
The piece of growth that's, first I'll call it, the sustained growth going forward, the 9% that we talked about in the comments in terms of actual subscriber growth this year, If you look back over a number of years, that's been a continued performance trend for the business in terms of adding trader subscribers.
We expect that to continue going forward. There certainly is a higher lift in 2023 with respect to CPI increases in our contracts, given the higher CPI rate in the U.K. market. Now, that's not going to be the same for 2024, but it's still going to be elevated from prior periods, so you're still going to see strength related to that.
And we are continuing on the initiatives to expand the franchise. So the build out in the US market, the build out in terms of refined oil, adding to data and analytics products across the board. So all those factors that have led into that accelerated growth rate are continuing going forward.
But over the long-term, I still have to anchor you to the kind of long-term guidance that we've given. Now when I switch that to the Datalinx business, and you can ask again, if I don't get to all these, I'm impressed Ben in terms of how much you packed into that question.
The subscriber counts in general, this is fairly normal to see this kind of flat or slight pullbacks when we've been kind of in a prolonged period of softness in the capital markets and when you've got clients that are curtailing some of their staff, some of their workforce, so it's not surprising to see that. It typically is something that lags market activity and when you see the markets return and restore, it is often a lag on the other side in terms of seeing them step back up again.
So it's not surprising to us, but at the same time, in the parts that are not subscriber based, we have enterprise relationships with the majority of the large clients for the non-pro. So these would be your retail advisors, individual retail users, things like that.
We've actually been renewing this year all those agreements and on largely renewing those at an uptick. And so that's both a combination of some flow through of pricing over time, because they're multi-year agreements, but also expanding the usage of that dataset in their firms.
And so that's one of the strategic values that we went into in terms of why we went into enterprise agreements in the Datalinx business is it actually creates a long-term relationship with the clients. And as they use it, and they start to use it throughout their firm in more ways, we can provide more value to both the client and to us in terms of growing revenue. So I hope that helps with some of the color there.
Ben Budish
It does. And since I squeezed so many in there, I'll jump back into the queue. Thanks so much, John.
John McKenzie
No problem. Thanks.
Operator
Your next question comes from the line of Nik Priebe from CIBC. Please go ahead.
Nik Priebe
Okay. Thanks for the question. I was wondering, if you could just remind us how that CPI contract price escalator works at Trayport. Like, does that re-price for all subscribers on January 1, irrespective of the timing of their annual renewal period? I just wanted to understand that dynamic a little bit better.
David Arnold
Hey Nik, it's David. Yes, you've got it correct. So, you know, clients might have an anniversary of the agreement of March 31st or June 30th, but built into all of those multi-year agreements is the fact that we would price based on the Bank of England's cost of living adjustment, really as the benchmark.
And in and around November of each year, our trade port team will do the math and then reach out to all of the clients they're all anticipating notification of what the annual price increase would be and we tend to try and get those out in the kind of November-December timeframe. So yes, they all kick in on January 1st regardless of the anniversary of the agreement. John, do you want to add?
John McKenzie
Yeah, I'm just going to build on the other piece that's the real driver there and it builds on the other discussion as well. While those pieces kick in Jan 1, as you indicated all those client agreements do actually renew at different times.
As the client agreements reduce throughout the year, those client agreements are often renewed for multi-year periods and they're often also step ups in terms of the number of users and the overall fees generated. And so that's actually part of what drives the long-term step up in the trader subscribers and the revenue beyond just the CPI piece.
So we had actually in just this month as well, another large scale client do a new site license with us. They renewed a five year extension on it and a substantial uplift. So that's, it goes to the nature of the strength of the business. It's not just the CPI piece, it's when those client agreements come up, they're expanding the usage and expanding the investment with Trayport at the same time.
Nik Priebe
Yeah. Okay, that's good, very helpful. And then just shifting over to OpEx at the enterprise-wide level, how do you think about the budgeting process there with respect to constraining expense growth in an environment with continued wage pressure and just balancing that against the need to invest for growth? Like as we look out into 2024, is low single-digit expense growth kind of a reasonable baseline expectation there?
David Arnold
So Nik, I'll start and maybe John can add a little bit of strategic color, right? So you know, the first and foremost priority for us is really investing for growth. And so, yeah, there are obviously inflationary pressures on, cost of living for wage increases, supply cost increases that, obviously get passed on to us.
But you know, underlying all of this are incremental investments that we're making in modernizing our platform and growing, right? You would have seen that we've obviously recruited an individual in the US to help us with some of our growth plans in the US. Trayport, as we've mentioned on numerous occasions, are expanding into North America, so both the US and Canada. And these are on the margin incremental increases.
So when we look at the budgeting process, which is really your question, and I can't give you too much information, Nik, but I'll give you what I can. It starts primarily with, okay, rolling forward the annualization of what we had in 2023. So really that's just to get us at the starting blocks. So people hired midway through the year, we need to account for the balance of the year.
Then the next thing is obviously the inflationary pressures and then it's a targeted and strategic discussion, which is where I kind of introduced John now, where we focus on those growth factors of the franchise that really accelerate our strategy.
And so, all of those going to the hopper I'm culminating in us ending up with whatever the expense growth rate will be so and absolutely growth investments you got the first two buckets anyone could look up what those inflation increases might be but it's the wild card is investments for growth.
John McKenzie
Yes, so I'll build on David comments as well and it you know right into the lens of what'll call run the business and build the business and so run the business, the business we've got today, the continued reinvestment in that business, things like even post-trade modernization, the reinvestment in the Juul Direct platform for Trayport, those are all part of running our business for today and the future, and certainly our objective is to try to bring that into the low singles. It's a very difficult environment to do that right now. That is absolutely the objective, but it is a difficult environment to do that because it's not just the challenges around expectations for staff.
But the second largest piece of our expense base is our technology costs and the inflationary pressures on technology spend are substantial in terms of technology, renewals, licenses, hardware, software, they are all facing the same pressures.
So, that's the objective we're working with. Where we're challenging our organization is where can you look for additional opportunities to save so that we actually can deliver additional savings to then use to reinvest in the future.
There are areas that we know that are going to generate savings from some of the larger investments we're making, but things like post-trade modernization or the Juul platform are multi-year initiatives. So to get to the end point where you get to see the savings come off, you know, takes some time. And so that's less of a 2024 impact and more of a 25 and beyond.
The last piece that we're thinking about is in terms of kind of how do we give you, kind of better guidance and better disclosure are for those larger kind of build the business initiatives and David, you know, rightly mentioned our, our efforts to start building out into the US with our, with our new US team we're building. That's not part of our current operations and not part of our current revenue, but it's part of our long-term growth.
So, we're going to think about how do you give better guidance to you? So you can understand what's the real cost for running the business and where are we making some. know strategic investments beyond that that are quite discreet and transparent. So look for us to do more for that in the new year on the back of this budget process as we get it done.
Nik Priebe
Okay. That's great color. Thanks very much. I'll pass the line.
Operator
Your next question comes from the line of Etienne Ricard from BMO Capital Markets. Please go ahead.
Etienne Ricard
Thank you and good morning. On the launch of the two new order books at the Alpha Exchange, how do you expect this initiative to result in increased trading volumes, specifically for dark trading, given the market share gains you've experienced in recent years?
John McKenzie
Yeah, great question. So, I mean, our market share gains, we are still in dark trading though, underweight compared to the rest of our franchise. So if you look at our market share of all of our listed trading activity, we're more like, two-thirds of the marketplace. We're in the dark world. We're more in the 30%, 31% range.
So we do see that there's room for us to grow. Well, we can glow too, but, you know, mostly we want to grow. Our market share within that dark trading space and we saw there was unique features and functions that we could add in to meet unique client needs to build that.
And then the same thing with the actual execution venue. The nice thing with both these things are in addition to the opportunity to build incremental volume, these are also premium services in terms of premium revenue.
So, as volume builds in them, they have the ability to increase that kind of revenue per trade in the trading space. Those are the two key components to them and both of them are driven specifically from unmet client needs that we've identified through our interactions with the street.
Etienne Ricard
On the acquisition of EQM by VettaFi last month, what do you see as the potential to introduce new index solutions to your base of ETF issuers in Canada following this acquisition?
John McKenzie
I'm impressed with how much you're paying attention to pick up on that one. That was an interesting acquisition. This actually goes right into the genesis of why we liked VettaFi, why we made the investment into it. The platform that the team at VettaFi has built, the index factory, has got the ability to add new indices to it. So indices like EQM can be acquired and integrated into that factory and run very efficiently and then expanded out to a broader network.
So what you're seeing is an indication of the forward strategy of what we expect to do with that going forward. Now in addition to that, that's what you know, VettaFi can actually do on their own with their own capabilities. The partnership we are working on together is how do we use that factory to create net new indices using data sets that we have, client relationships that we have.
And so that's still early stage in terms of developing those. But if you think about some of the unique Canadian datasets we've got in terms of both equities junior equities, fixed income, energy data through Trayport, clearing data, the CDS, there's lots that are in there that we can build into future indices.
And even the piece that we talked about earlier in the call, you know, the ESG hub that we've launched, as you build up more ESG data, there's other types of indices you could build from that in terms of reference data, thematics those types of things. So that's -- that's what our joint team is working on, and I'm glad you picked up on EQB, because it's actually a really good case study on what those capabilities allow you to do.
Etienne Ricard
Great, thank you very much.
Operator
Your next question comes from the line of Brian Bedell from Deutsche Bank. Please go ahead.
Brian Bedell
Oh, great. Thanks. Good morning, folks. Let me just quick on expenses on the second half, getting to the first half. So just on a reported basis, I guess would that imply about $153 million of expense in the fourth quarter if you were to match that perfectly? And does that include the expenses you mentioned from BOX, or I guess how would the BOX expense influence that?
John McKenzie
So Brian, let me handle the second part of your question first. Yeah, I mean, we don't have the visibility because of the shareholder structure that we have with BOX. So as a result, the wild card for me is, will the BOX exchange expense pickup in BOX market be the same in Q4 as it is in Q3, right? That's to be determined.
So when I mentioned that, it's actually looking through that. So excluding anything that might be passed through from the exchange to the market. So that's the first one right off the bat is, we don't have the visibility into that. So when I say the second half will be comparable to the first half, that's excluding that.
And then on the ability to look at the numbers, yeah, you could just pick up the two, reported numbers for Q1 and Q2. Times that by two, deduct Q3, and you get a good indication as to where the guardrails might be for Q4.
Brian Bedell
Yes. Perfect. Great, thanks. And then just on the MX, Just in terms of the market share shift or the product mix shift to Quora, maybe if you could just comment on to what extent you would expect that to continue to influence the rate per contract yield. I think it's come down a little bit.
And then I guess what you're seeing from the trading community, I know there's always -- I think, John, you had mentioned in a prior call that when volatility settles down, it's actually good if there's more certainty of trading and that actually improves volume. So maybe if you can just contrast that scenario versus, I guess, the volatility that we've seen in October so far.
John McKenzie
Well, sometimes I like to split hairs and talk about good volatility and bad volatility and that's sometimes the challenge particularly around the fixed income piece. So having unpredictable Bank of Canada rate moves is challenging, because that's challenging on short-term product, and so that since we've had some stability in the central bank regime that's actually been helpful, but you still want to see volatility around trading activity around it because that drives more usage of those products. And we have seen that improvement in strength.
And so we're like when you when you translate that into kind of that transition from BAX to CORRA, we're pretty happy with the uptake in CORRA already given that it's actually not the mandated contract yet. We know there's still BAX until that transition next year. So seeing the lift in both those contract volumes and the recovery in the BAX volumes at the same time has been really positive and strong for liquidity in those products.
Now as we go into the actual transition period, certainly there's market making built in to supporting the CORRA agreement that isn't you know there in a very well-established BAX contract. And so there will be a short-term RPC issue or step down when we have that transition, but like other new contracts that will be time-limited and we'll work our way out of that.
Now that being said our expectation is that in both in combination the CORRA and the BAX and then actually in the CORRA itself has the potential for higher run rate volumes than what the BAX did beforehand, because this actually is a better product. It adds for more terms and more ways for the clients to use it. And so that's part of the analysis as well.
So, we need to look to a short-term revenue per contract impact for the really the launch and initiation of it, but with the potential for higher long-term revenues and then that rebate piece over time winds off.
I can't give you guidance as to when because those are again commercial agreements with the liquidity providers, but similar to what we've seen in other contracts.
Brian Bedell
Yes, okay, that makes sense. That's great, color. Thank you.
Operator
Your next question comes from the line of Geoff Kwan from RBC Capital Markets. Please go ahead.
Geoff Kwan
Hi, good morning. I just want to expand on, I guess, some of the topics that you've been asked so far this morning. The first one is just going back to the market data subscribers and the quarter-over-quarter changes we've seen over the past couple of quarters. Do you get much insight in the short-term, whether or not it's maybe on a one quarter basis, maybe even two, of how that may trend and just wondering what you're seeing on that front?
And then also, is it still the same dynamic as I thought from previously? For example, if you had someone that may have lost their job, you don't see that step down in the market data subs or the revenue impact for maybe a quarter, maybe two, and also that nuance happens on the opposite side when someone adds a market data subscription.
John McKenzie
Yes. And also the challenge of that Geoff is also, we also can't just take job reductions in different clients or dealers holistically, because it also tends spends on what the rules are where they're using it or how they're using data in their shop.
So, it's -- we don't get great forward-looking information with respect to our ability to predict it other than that general market piece that when you've got industry step down in employment to your point, we will often see that impact on a bit of a lag if they actually reset and kind of recount their seats and make adjustments going forward and the same thing coming back. But unfortunately, no, we don't we don't get a lot of insights to it until it's actually happening.
Geoff Kwan
Okay. And then just my other question was on Trayport, how much of the revenue today is coming from call it outside the Core European customer base? And can you kind of talk about, I know you talked a little bit about some of the stuff, but just the outlook and expectations in terms of how quickly you can drive that revenue outside of the kind of the core franchise base.
John McKenzie
Yes. Well, I mean, we've given guidance before that the piece that's coming directly out of the kind of the North American market is kind of 5 million pound-ish in terms of run rate now out of the overall mix. But it's actually difficult for us to delineate the way you've asked in terms of kind of outside the European client base, because a lot of those clients are global and they're doing global business on Trayport.
And if you think about some of the exchanges that participate as well as playing clients like ICME, those are global franchises as well. And while they might be participating in the European market, they're participating also with North American data. So it's a bit more nuanced than that. The piece I can give you is actually the direct piece, and from what we've actually been building out in the US, what it's contributing so far.
Geoff Kwan
Okay. Thank you.
Operator
Your next question comes from the line of Graham Ryding from TD. Please go ahead.
Graham Ryding
Hi, good morning. There was a couple of comments around building into the US. I'm just wondering if I could maybe dig into that a little bit. Can you remind us what you're looking to do there? Is it initially around an equity trading initiative? And then beyond that is it a phased project or exploratory process or have you defined what you exactly want to do and what you want to spend over the near term?
John McKenzie
Okay. There's going to be a different game today in terms of what we're doing and how much I'm going to tell you today. So you have to bear with me on that. We actually do have a well-defined strategy in terms of what we're trying to do in the US. We haven't had broad discussion in the public market yet, so I'm going to be a little bit more limited in terms of what we share today.
But essentially, when you look to what we've built out in Canada in terms of the Alpha-X, the Alpha DRK initiatives and really looking to provide better execution quality for clients, we see that similar opportunity in the US as a way to start building our equity platform directly in the US as opposed to just on a cross-border basis.
We've got substantial client bases with cross-border activity and when you think about particularly even the you know the Canadian banks and their presence within the US market and we do believe the long-term that the quality of our offerings can compete with any of the North American players in the home market just the same way they compete in the Canadian market.
So, that being said the initial strategy in terms of building is to look to what that unique opportunity is around execution quality and the hiring of our new head of US equities is working on building out the team to do that. So it is definitely more than what I would call experimentation.
We do actually have a strategy to build and in the New Year we'll look to see how we can provide more guidance to you, both in line with the investing community, but also in line with the client community that we've been engaged with over the past year in terms of their interest level in supporting new marketplace.
Graham Ryding
Okay, perfect. That was good color. A sort of a two-pronged question but really on the interest income side of your business. So TSX Trust, it was a little bit lighter than last quarter for sure, but also I think it was below Q1 and Q4 levels, I guess earlier in the year and late last year. So can you just expand on, was that all about lower transfer agency activity, or how should we think about this quarter compared to previous quarters?
David Arnold
Yes, so Graham, it's David. So I would say Q1 is a better indicator of kind of a normal run rate. But obviously, as you know, that one of the triggers there on the net interest income side is A, rates, but B, also balances, right? And so to the extent that we see the capital markets environment like it is right now, with some of the listings activity, IPOs not being as robust, there's a direct correlation obviously to our Trust business because we participate in a lot of those corporate actions.
And obviously that's a little bit more of a dampener on Q3. But as we go into Q4 and as we look into Q1 of next year, we're anticipating hopefully some early signs of a little bit of a rebound. So that's the first piece.
And then yes, I mean, obviously, on the transfer agency, it was softer than we had hoped for in this quarter. Once again, I hope that it kind of rebounds more in the Q1 run rate, if you will.
Graham Ryding
Okay. That's helpful. If I could just on a similar theme, just throw in another question on that. But with this move to T plus one in mid next year, will that have any impact on the interest income that you would capture through CDS?
John McKenzie
No, because we really don't capture much interest income in CDS. It will have a meaningful impact on our clients because the move for T2 to T1, we expect to be a 40% to 50% savings in the collateral that they post with us. But unlike most of the European clearing houses would have substantial net interest income associated with that, we largely pass it all back so there's no material change there.
Graham Ryding
Okay. That's it for me. Thank you.
Operator
Your next question comes from the line of Jaeme Gloyn from National Bank Financial. Please go ahead.
Jaeme Gloyn
Yes. Thanks. First just wanted to get some clarity on the capture rates in the derivatives business both MX and BOX. Would you be able to give us a little bit of color on it? Is this a clean quarter, free of rebates? Maybe from a client and product perspective, is it roughly average? Maybe a little bit of color in terms of the capture rates on both of those businesses, the MX and BOX.
John McKenzie
Jaeme, they're all clean quarters. Yes, so the MX one, you can look to the product mix, it's a clean quarter in the sense that there's no client adjustments or anything like that. It's just the actual impacts on the revenues of the products that are traded. The piece that we talked earlier, as you shift some volume from BAX to CORRA, that will have an RPC impact in the short-term because it has a rebate regime helped to build it.
And I want to remind people that was a deliberate choice we made to ensure that liquidity got built up in that new product and didn't end up missing the public market and ended up in the over-the-counter market. So, no, it is a clean quarter. There's no special one-offs that are in there that is impacting it. It's just the mix of the business.
And the same thing with BOX. BOX has been very steady when you look sequentially. I think actually BOX is up actually substantially and sequentially both in terms of volume and share, but the actual RPC has been largely stable.
So again, that's going to depend on the mix of what the clients are using BOX 4 in terms of whether or not you have kind of more floor trading, more high-volume trading, large contracts or more kind of open market trading. But again, as you asked, it's a clean quarter, there's nothing special going on there that's impacting things.
Jaeme Gloyn
Yes, that's what I was getting at. Thank you. If I think about VettaFi and the recent acquisitions, one data point you put in the MD&A was $19 billion in ETFs. Or I guess, it underpins $19 billion. Is that the key total addressable market figure we should be thinking about for that business?
And if you kind of go back to pre the ROBO and EQM transactions, like what was that value? And maybe even like let's talk like three years ago, five years ago, whatever time frame you want to pick, like how is that $19 billion -- what has been the growth rate on that?
John McKenzie
Yes. I'd have to -- I wouldn't be able to help you with the growth rate over time because I don't have that handy and we can make sure we do that as a follow-up. Pre the ROBO Global, that was about I think $2 billion in terms of additional AUM, so kind of 17 before that. Some of the other ones that we've brought on have been fairly small because they've been kind of niche.
But the idea is you bring them in small, bring them on the platform, then we can scale them up. And what VettaFi does that's unique in this space is it has a burgeoning what I'll call digital distribution business that actually helps the ETF issuers that are using the index reach a larger addressable audience of retail investors, wealth advisors, things like that.
So it is intentional in terms of bringing on smaller new stage or early stage ones and having it grow versus time. Now we'll have to get back to you on what the growth rate has been with respect to the AUM, but this is exactly the driver that we're looking to grow long-term.
In the index-based revenues that are in VettaFi, they are driven off of AUM and so it is a key indicator going forward. It'll be something that we can think about how we give you more guidance on as we go.
Jaeme Gloyn
Yes. And then just to follow-up on that as I think about like the opportunity for VettaFi, is this more about creating your own market and growing that $19 billion? Or where does VettaFi sit with that $19 billion within the broader ETF ecosystem that would be competitors or other players offering similar services?
John McKenzie
Yes. So it varies. I mean, when you think of the overall ETF assets under management, this is a very small piece. There's a substantial growth opportunity and it comes from adding new indices, but also doing switches where with their capabilities we can switch out another provider or a legacy one to something that is created by VettaFi on behalf of the ETF client.
So this is where kind of when you think about the addressable market, the opportunity for upside is substantial. And even to think about the way we think about ETFs for our market in general, I'll remind folks that we have almost a thousand ETFs listed on TSX today.
They are faster growing in terms of assets under management than the underlying mutual fund market, but still only represent about 15% of those total assets even in the Canadian market but growing at double digits versus what the mutual fund market is which I believe is actually declined this year.
There are multiple thousands of mutual funds, so the opportunity for continued adding creation of new ETF is still strong. The growth rates are strong. The additional AUM coming into them has high potential. I think this year alone we've talked to the fact that we've actually added I think over 75 new ETFs to TSX this year. So all those gives you some of the indications as why we see the addressable market for what VettaFi can do to not only be large, but expanding and growing rapidly.
Jaeme Gloyn
Okay, great. And last one on the VettaFi, if you can thinking about their M&A opportunity set in front of them, what does their balance sheet look like today? Are they well capitalized to execute more M&A or is this something where you put your 22% in and maybe they'll come back to TMX for some more capital to go out and further consolidate that market?
John McKenzie
It would very much depend on the size of the acquisition opportunity. But you can understand our enthusiasm in the business and our willingness to support its growth.
Jaeme Gloyn
Okay. Got it. Thanks, guys.
Operator
We have a follow-up question coming from the line of Ben Budish from Barclays. Please go ahead.
Ben Budish
Hi. Thanks for taking the follow-up. I wanted to ask about the build-out of the US business, but it sounded like you kind of gave your thoughts on that for now, John. So maybe just one other follow-up just on the trust business. Where are you in terms of the sort of cross-selling opportunity between the legacy business and AST? Just thinking about how this kind of should evolve over the next year or so, just in terms of the -- in the context of your longer-term growth objectives with the trust business expected to be a high-growth segment? Thanks.
John McKenzie
Yes. That cross-selling piece is still early stage. So the AST brought us new tools like employee plan management. We've actually just hired an industry expert to help actually take that to the next level in terms of where does that product need to evolve to and then to be able to sell it across a broader client base.
So, it's a product that is only lightly penetrated both in the AST client base, but also in our TSX Trust client base that we've merged everything into. So that's just one example of where we see those additional upside opportunities.
We're also selling into clients with things like the registered plan management services. We can sell into some of our private company leads that are in our pipeline for things like plan management, trust services, et cetera, et cetera. We are winning more trust mandates.
So, these are beyond the transfer agency mandates, the ability to do the actual trust mandate on top of that. And that's actually both with clients that we already had as transfer agent clients, but also clients that are transfer agent clients of someone else.
And so in some case we're winning trust mandates of other people's clients. So that ability to keep driving that higher order growth rate we've indicated is absolutely continuing. We expect that for the long-term.
And the other piece with that is, this has not been a strong IPO market in the past year, but as we see that recovery in the IPO market given the ability to interact and introduce TSX Trust early in the stage of relationship with an issuer client, we also expect to continue to win well above our share of new mandates coming to the marketplace both for transfer agency and trust.
Ben Budish
Great, very helpful. Thanks so much.
John McKenzie
Thank you.
Operator
There are no further questions at this time. I'd now like to turn the call back over to Mr. Amin Mousavian for any closing remarks.
Amin Mousavian
Thank you everyone for listening in today. If you have any further questions, contact information for Investor Relations as well as media is in our press release, and we'd be happy to get back to you. Until next time, goodbye.
Operator
Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.
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TMX Group Limited (TMXXF) Q3 2023 Earnings Call Transcript