TMX Group Limited

Thank you, operator, and good morning, everyone. Thank you for joining us this morning for the first quarter 2020 conference call for TMX Group.

As you know, we announced our results late yesterday and a copy of our press release is available on tmx.com under Investor Relations. Today, we are all joining virtually from our homes and have with us, John McKenzie, our Interim Chief Executive Officer and Chief Financial Officer and Paul Malcolmson, Managing Director of Investor Relations.

Following opening remarks, we will have a question-and-answer session. Before we begin, I would remind you that certain statements made on today’s call may be considered forward-looking.

I refer you to the risk factors contained in our press release and reports that we have filed with regulatory authorities. And with that, I will turn the call over to John.

Thank you, Julie, and good morning, everyone, and thanks for dialing into the call this morning. I want to start by wishing everyone the very best who is listening today and hope that you and your families are staying healthy and safe.

As Julie, mentioned, we are virtually here this morning to discuss TMX Group’s financial performance for the first quarter of 2020. And although this date has been long marked on our calendar for TMX and for everyone joining us this morning, almost nothing about these last few weeks to be characterized as business as usual as the COVID-19 pandemic has drastically changed the world in which we live and work.

And before we get into the details of our results this morning, on behalf of all of us at TMX, I want to send a message of whole constraint to all those listening to the call today whose family has been affected by this terrible virus. Our thoughts are with you.

I also want to sincerely thank all of the healthcare workers, first responders and others providing essential services across our communities here in Canada and around the world. And while we humbly salute those on the front-lines, the fact is that, even from our homes and our remote workspaces, we all play a role in the fight against COVID-19.

The response from our capital markets community to this unprecedented crisis had been impressive. TMX applauds the efforts of our stakeholders, including listed issuers, as well as our trading and clearing participants to help our communities cope from manufacturing of safety products for healthcare workers, to generously donating funds and volunteering time to support agencies.

From a broader economic standpoint, while the impacts of COVID-19 pandemic will be deeply felt for some time, the resiliency of Canada’s financial industry has something to be proud of and bodes well for the future measures can reopen the country and reinvigorate the economy taking shape. TMX is firm and it’s as clear-eyed as ever in our commitment to fulfill our core mission in operating Canada’s capital markets.

We feel strongly that in both in the public interest and in the best interest of all of our stakeholders, that at all times and especially in times of crisis, markets must remain open and available. Our markets are functioning well and doing what they were designed to do, provide investors with liquidity and ensure issuers have a world-class venue to raise capital.

And while much of the economy has been put on hold, we are not at all at a complete standstill. Businesses of all sizes across the country are up and running and working as hard as ever to adapt to the realities of an evolving operating landscape, while preparing for a future that is yet to be clearly defined.

And as the broader recovery begins to take shape, TMX remains steadfast partnered in helping to ensure that the future for our entire market ecosystem is as bright as possible. Now, let me turn to our first quarter performance.

TMX achieved strong financial results, compared to Q1 of 2019 reflecting the extreme volatility and a surge in activity as markets reacted to the COVID-19 pandemic. Our revenue was $220 million, a 12% increase over Q1 2019.

Earnings per share was at a $1.24 on a diluted basis, up 14% and $1.53 on and adjusted basis, an 18% increase from Q1 2019. And cash flow from operating activities were $79 million, reflecting a 50% increase, compared to Q1 of last year.

The increase in revenue was somewhat offset by a small increase in operating costs in the quarter. Trading statistics for Q1 and particularly for the month of March indicated the degree of turbulence across the marketplace.

Volume traded on Toronto Stock Exchange in the first quarter was up 36% over last year and March TSX volumes more than doubled in comparison to March of 2019. Across all of our equity markets, trading volumes were up 24% in the quarter, 73% in March, compared to last year.

In our Montreal Exchange, overall derivatives volume traded in Q1 2020 was up 27% compared with Q1 of 2019 with a 33% increase during the month of March, compared with last year. In a quarter marked by unprecedented events, we did see some consistency in terms of the impact marketplace trends have in other areas of our balanced business model.

High volatility had a negative impact on capital raising conditions in Q1, compared to Q1 of last year. Additional financing activity on the Toronto Stock Exchange decreased, compared with Q1 of 2019, particularly the number of larger transactions as issuers chose to avoid unpredictable and severe swings in the market.

As a result, revenue from our capital formation business was down $1.7 million or 4% year-over-year, somewhat offsetting the increase in the overall revenue in the quarter. As the world begins to emerge from the initial phase of the COVID-19 pandemic and contemplates the next important steps to recovery, the future is harder to predict than ever.

What I want to ensure all of our stakeholders that even as the company has taken necessary measures to adapt how we work in the new business world, TMX’s roadmap for growth remains in place. Our comprehensive digital capabilities have enabled us to keep markets running and allow us to stay connected to our clients despite physical dislocations.

All of our trading platforms and the vast majority of our client offerings and processes are fully electronic. And as we surveyed, the still evolving and uncertain business landscape, timeline-specific initiatives may require some tweaking.

But TMX’s corporate strategy and competitive value proposition fundamental to our success has not changed. TMX remains focused on executing our comprehensive and cohesive long-term global strategy centered around our growth champions, capital formation, derivatives, and Trayport.

In the capital formation business, while capital may remain on the sidelines to some degree over the near-term, we continue to target specific regions where TMX’s unique ecosystem and sectoral expertise give us a competitive edge. By necessity, our immediate focus is on supporting this crucial important element of our business.

History has shown public markets fuel progress and we are confident that public markets will again play a leading role in the economy find its feet. The capital formation process was critical in the funding along with entrepreneurship and innovation, while creating jobs for Canadians and fueling economic growth.

Over the past few months, TMX has undertaken various issuer-support initiatives including relief measures and successful government policy advocacy campaign and we continue to work together with all listed companies and all of our stakeholders to weather the COVID-19 crisis and lay the groundwork for future success. Perhaps now more than ever, sustainability is a priority topic for all companies.

With an eye on helping issuers meet evolving investor standards and build their companies stronger and more resilient into the future, we launched ESG 101 in March. This new centralized hub features resources designed to help TSX and TSX Ventures to understand the fundamentals of Environmental, Social and Governance or ESG reporting.

Over the last few years, ESG factors have become priority criteria for investors and asset owners and sustainability practices have become increasingly important considerations for companies across all sectors. And we are proud to announce today that TMX has reached a new milestone in our own ESG reporting, the inaugural TMX Group Environmental, Social and Governance report will be made available shortly on our website.

The goal of this report is to inform all of our stakeholders of our progress of incorporating ESG matters into the TMX Group’s corporate strategy process and operations. It’s an important first step for TMX and we look forward to hearing your feedback.

Initiatives previously announced remain on track at this point including the launch of a new Canadian overnight repo rate average or CORRA future product planned for mid-June and the next phase of MX’s extended hours initiative to sync with markets in Asia, scheduled for 2021. And on to Trayport.

Revenue from the core subscriber business, including VisoTech was up 16% in sterling over Q1 2019 with a 10% increase in trader subscribers and an 8% increase in total subscribers. Activity in the signature European and Asian benchmark LNG contracts was strong in the first quarter.

Volumes in the TTF contract increased 44% in the first quarter of 2020, compared with the same period in 2019 and record average daily volumes were recorded through the JKM contract in recent months. The increase in volumes in these markets resulted in an expansion of the market participants which drives growth in the number of subscribers connecting with Trayport to these products.

The trend of algorithmic powertrade in Europe, intraday markets continues to grow and in the first quarter intraday volumes on the EPEX spot grew by 37% over the same period in 2019. In closing, I want to share a quick observation and pass along one more very important thank you.

For TMX, as for many of our issuers, early may is typically is a very busy time both operationally and for our corporate reporting functions. I can tell you from personal experience, the escalating pace of work during the day is leading up to results is as familiar and near tangible element of a public company’s reporting process.

Suffice to say, the Q1 2020 reporting has been a very different experience. The buzz around the office has been replaced by a new virtual working reality.

And over 95% of all TMX employees are working from home and have been for almost two months now. At the outset of this pandemic, necessary precautions were taken to protect our critical operation staff and they have been on site as needed.

On behalf of our senior leadership team, I want to thank TMX employees for their perseverance, adaptability, and above all, exemplary dedication to the company throughout these last two months. Your consistent focus on maintaining continuity and service excellence to our clients across the marketplace is most appreciated.

And while we are fortunate to be able to do our jobs remotely and maintain high operational standards, we look forward to the days ahead when the office is once again abuzz and we can enjoy face-to-face interactions with our co-workers and our friends. In closing, I want to emphasize that as those recovery measures begin to take shape, TMX remains firmly focused on serving clients across all of our markets with excellent and executing against our global growth strategy.

And with that, I will turn the call over to Paul, who will provide further color on our first quarter results. Thank you.

Thank you, John. Before commenting on the financial results, I want to echo John’s comments and extend my sincere gratitude to healthcare providers, first responders and essential service workers fighting the COVID-19 pandemic on the front-lines.

On behalf of Julie as well, I want to send our best wishes to everyone listening on the call.

Now turning to our results. As John said, revenues were up 12% from Q1 of last year.

This was driven by significant increases in trading and clearing revenue with a high volatility, particularly in the month of March. We also continued to see strong revenue growth from Trayport as was the case in 2019.

Operating expenses were up 2% over Q1 of 2019, with our operating leverage we saw a 23% increase in income from operations over last year and an EBITDA margin of 59%. To recap, diluted EPS was a $1.24 at 14% from last year.

The growth was somewhat reduced by a tax adjustment over $7 million or $0.13 per common share related to a change in the UK tax rate. Our adjusted EPS, excluding this tax item and the amortization of acquired intangibles was $1.53 and up 18% over last year.

Looking at revenue, the high market volatility during Q1 and extreme volatility in March drove substantially higher trading and clearing volumes. The average VIX was over 31 in Q1 of 2020, compared with 16.5 in Q1 of 2019 and in March 2020 alone, 2020 alone, the average VIX was over 57 versus 14.5 in March of 2019.

In equities and fixed income trading, there was a 27% increase in revenue in Q1 2020 compared with last year driven by the substantially higher volumes on both TSX and Alpha. As John said, the overall volume of securities traded on our equity marketplaces increased by 24%.

CDS revenue increased by 12% from Q1 of 2019, reflecting higher clearing and settlement revenue due to the higher volumes, increased custodial and event management fees, as well as higher international revenue. In addition, recoverable costs of $1.1 million related to CDS’ clearing operation that were netted last year, were included in both CDS revenue and SG&A expenses in the first quarter.

The increases in revenue were partially offset by higher rebates. The 24% increase in derivatives trading and clearing revenue was also driven by substantially higher market volatility, and also by uncertainty around interest rates, particularly in the month of March.

As John indicated, there was a 27% increase in volumes on MX. The impact from the higher volumes was somewhat offset by lower revenue per contract due to an unfavorable client mix.

There was also an increase in revenues from REPO clearing in Q1 compared with last year. Now looking at Global Solutions Insights and Analytics or GSIA, revenue in Q1 2020 was up 7% over 2019 driven by increased revenues from Trayport.

Revenue from Trayport, including VisoTech, which was acquired in May of 2019 was up 16% in both Canadian dollars and in sterling terms. As John mentioned, this was driven by a 10% increase in the trader subscribers and an 8% increase in the total subscribers.

Revenue from TMX Datalinx increased by 1% from Q1 2019 to 2020, driven by higher revenues related to benchmarks and indices, as well as collocation. This was partially offset by lower revenues related to underreported usage of real-time quotes in prior periods, as well as advertising.

In addition, there was a favorable impact from a weaker Canadian dollar relative to the U.S. dollar this past quarter, compared with 2019.

This also drove the increase in the other revenue line but we recognized net foreign exchange gains on net monetary assets. Really the only area of revenue decline was in capital formation, as John mentioned.

The trend we saw in 2019 around lower secondary market activity has continued into 2020, particularly noticeable in March with the extreme market volatility. The decline in initial – pardon me – additional listing fee revenue on TSX in Q1 was the largest factor driving the decrease in capital formation revenue of 4%.

The number of transactions build at the maximum listing fee of $250,000 on Toronto Stock Exchange declined from 27 to 18, or by 33% from last year. The decline was somewhat offset by an increase in additional listing fee revenue on TSX Venture where there was an increase in both the total number of financings and total financings to dollars raised.

There was also a decrease in sustaining listing fees reflecting a decline in revenue from issuers on TSX Venture and also NEX which is a board for issuers that have fallen below TSX Venture listing standards. This decline was attributable to a decrease in the amount of annual, sustaining listing fees from an increased number of suspended issuers and a small decline in the market cap of issuers from the end of 2018 to the end of 2019.

Somewhat offsetting the decrease, there was a slight increase in sustaining listing fees on Toronto Stock Exchange, as we expected, due to the increase in the market cap from the end of 2018 to the end of 2019. Initial listing fees in the quarter decreased year-over-year, primarily due to a decline in the amount of deferred initial listing fees recognized in Q1 of 2020 compared with Q1 of 2019 and while actual IPO activity was slightly lower in Q1, we were still number two globally in terms of new listings according to the World Federation of Exchanges.

Revenue from TSX Trust increased slightly compared to 2019, reflecting higher revenue from transfer agent fees, somewhat offset by lower corporate trust fees and recoverable revenue. As I mentioned, operating expenses were up 2% from Q1 of 2019, the increase in cost was partially due to higher employee performance incentive plan costs.

In addition, there was an increase in SG&A expenses related to projects and recoverable cost related to CDS’ clearing operation, as well as higher expenses related to VisoTech. Offsetting these increases, there were strategic realignment expenses of $3.3 million in Q1 of 2019 with no similar costs in Q1 2020, as well as a reduction in travel and entertainment costs.

Looking at our results on a sequential basis, revenue was up 9% from Q1 of 2019, largely attributable to increases from equities and fixed income trading, derivatives trading and clearing, GSIA, including Trayport, as well as other revenue. Operating expenses in Q1 2020 were up 3% from Q1 2019.

The increase in cost was largely related to higher employee performance incentive plan costs of $8.1 million. There was also an increase in payroll taxes of $3 million.

Offsetting these increases, the recoverable cost related to CDS’ clearing operations that were reclassified to SG&A expenses were $5.3 million for Q4 of 2019, compared with only $1.1 million in Q1 of 2020. This is what drove the sequential decline in CDS revenue, as well.

In addition, there was also a decrease in travel and entertainment expenses, as well as in recruitment cost from Q1 2019 to Q1 2020. Income from operations increased by 15% from Q1 2019 to Q1 2020, largely due to the higher revenue and somewhat offset by the higher operating expenses.

Just a comment briefly on the month of April, our market stats varied as you might expect with our diversified business model. We saw 50% increase in equity volumes, compared with April of 2019, which was not surprising but the average VIX being 42 for the month.

In our derivatives business with current interest rates being so low, and less uncertainty around rates, we did experienced a 4% decline in volumes in April compared with the same month last year. And finally for secondaries and our capital formation business, additional listing fees built on Toronto Stock Exchange were relatively unchanged on a year-over-year basis for April.

However, there was a decline in financing dollars raised and the number of financings on TSX Venture compared with April of last year. Turning to CapEx, we just want to give you a brief update on the modernization of our clearing platforms, specifically on Phase 2 related to CDS.

As you know, we spend almost $44 million up to the end of 2019 on capital expenditures related to Phase 2, an additional $7.4 million of CapEx is spent in Q1 of this year. Overall, we now expect to incur between $100 million and $110 million in capital expenditures over the previous range which was $95 million to $105 million.

We still plan to quit this project by the end of 2021 and we’ll continue to provide updates on the CapEx and also on the timing. And just a comment on the balance sheet, we’ve reduced our debt by about $8 million from the end of 2019 to March 31.

We also spent $10.5 million to repurchase 100,000 of our common shares under our normal course issuer bid through to the end of March. With a strong EBIT in Q1 our debt-to-adjusted EBITDA ratio was exactly 2 at March 31, down slightly from 2.1 at the end of 2019.

We also held $267 million in cash and marketable securities at the end of the quarter, which was $82 million in excess of the $185 million we target to retain for regulatory and credit facility purposes. Yesterday, our Board declared a dividend of $0.66 per common share, payable on June 12 to shareholders of record on May 29.

At 43% of our adjusted EPS, this is well within our target payout ratio of 40% to 50%. And now, I would like to turn the call back to Julie.

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

Okay. Thanks.

Good morning. Just wanted to ask you to talk a little bit about how you'd expect your data business to be impacted by elevated market volatility, as well as this transition to a virtual work environment, if at all, perhaps both with respect to Trayport, as well as professional market data subs for your core trading venues?

Well, good morning. Thanks, Nik for the question.

That’s a great way to start with that one today. So, let me take those two pieces in part.

With respect to our more traditional market data business, so the market data subscriptions, really it is impacted by whether or not people are working physically in office or remote, it’s more of a subscription-based model based on users. So there are two things in this market activity that can drive change there over the long-term.

One is, when we go through spikes and valleys in activity, that can be to usage-based quotes being picked up higher when there is more retail activities from non-pro users, now a lot of those we’ve actually moved on to enterprise contracts to take some of that volatility out. But over the long-term, it really is a factor of industry employment.

So, as long as industry employment remains robust, whether that they are in office or remote, that would drive what the subscription base would be for that business. On the Trayport side, again, it’s a similar model and Trayport’s clients are largely working remote, as well.

So, it is again subscription-based, its enterprise agreements more so with Trayport. So it’s less subject to kind of the ins and outs of day-to-day activity, and those contracts are generated longer-term over multiple years.

And even during this dislocation during the people work in home Trayport has actually been continuing to renew contracts with long-term clients and multi-year agreements. So that’s very positive.

Now when you think about Trayport, you think of what worries you in this market. It’s just certainly, the health of some of the clients, because the energy sector has got some of the most volatility in it, but as we’ve seen so far, because you can monitor the client's usage of the Trayport system, we've seen 90% to 95% of those traders are continuing to be active on the platform.

So, at this stage, everything looks very positive going forward.

Okay. That’s great.

Thank you.

Hi, good morning, everyone and thank you for taking my question. Could you talk a little bit about the outlook for the capital formation business in the near-term?

How long do you expect secondary financing levels to remain depressed? And what criteria is necessary for IPOs to come back into the market in a substantial way?

Well, that’s a fantastic question, Melinda. And if I could answer that with accuracy, I would probably be the most popular person on the street right now.

Candidly, we – in terms of when we think about the market, and we think about how to model going forward, we look back to previous market dislocations. So, 2007, 2008 in terms of financial crash, other than market downturns like that, where you see a step down in capital raising activity and then what usually follows and we’ve got all this historical information if you don’t have them, we can provide it offline, is a substantial uptick in capital raising to come later.

And if you think about the fundamentals, really what’s going on with the clients themselves, balance sheets that are already stretched, already stretched through 2019, because it was down market for capital raising from an equity standpoint and a lot of low cost debt. We go into this crisis and companies are adding more debt on to the books and there will be a need across the board for equity refinancing on these companies.

The challenge is, I can’t give you guidance in terms of when that happen. We can give you guidance and look to the other periods in the past to see what those recoveries have been, whether they’ve been three months or six months or 12 months, what I will guide you to is that, some of the best capital raising markets come after downturns.

All right. Thank you.

Appreciate it.

Yes. Thank you.

Good morning.

Good morning, Jaeme.

Questions just related to the balance sheet and capital management outlook for the remainder of the year. Balance sheet obviously in a very good spot with leverage at the lower end of your targets.

Cash flows are really solid. I was just hoping you can give us a commentary around how you are thinking about capital deployment?

And specifically, as we think about other large cap Canadian financials, where dividend and share buybacks are restricted? How are you thinking about dividend increase going into the end of the year?

Yes, so, couple of components that are in there Jaeme, number one, we recognize that we are a company that is in a strong position in this marketplace. Our balance sheet is at strong position and our strategy is intact.

So, look for us to continue to have a priority around using capital to advance our strategies. So, we are going to be actively looking for investment opportunities that makes sense to accelerate strategy.

Continuing with all the same discipline, we've had in the past about making sure that they create value for shareholders. But, we are not going to step away from the market in terms of looking at investments in this period.

Now, in the abundance of caution in the near-term, from a balance sheet priority standpoint, and the use of free cash flow, I am going to prioritize keeping our debt level low over things like executing on the buyback, in terms of where we prioritize first, I think that’s just prudent in this environment. But we don’t see any change in our approach to dividend going forward.

We would expect to maintain our target range and as earnings continue to grow, we would expect a dividend to grow with it.

Thank you.

Hi guys. This is Jason Weber on for Jeremy.

The color around Trayport so far has been…

Hi, Jason.

How is it going? The color around Trayport so far has been very helpful.

And I believe you guys are about six months into your partnership with the Nodal exchange. Given all the volatility that we’ve seen in the energy markets, can you talk about how this has impacted your partnership for going forward?

Thanks.

Yes. Thanks.

That’s a great question. The – I mean, the partnership going forward is strong and we’ll continue at this.

Clearly, there are some disruption just as you have – with people being this large in terms of the timing of rolling things out. But that being said, one of the silver linings is when we’ve had Nodal traders at home working remotely.

There has been a capacity to do things like test the Trayport system. So, that rollout continues.

We continue to work on that expansion. It’s one of the important pieces of expanded into the U.S.

and I believe and I don't have those stats on me that Nodal has performed quite well in the U.S. market during this disruption.

So, all things continue forward. But like any of other initiatives, there, we could see some months push here or there just because of the availability and access to people when they are disrupting at home.

But no change in the partnership.

Perfect. Thank you.

Hi, good morning. Just wondering if any update on the CEO search and is the kind of COVID-19 market environment impacting the timeline?

Yes. Thanks, Geoff.

No update today. The Board is – I mean, you can imagine, they are quite active on this.

This is the number one file to the Board. The search committee process was fully underway at the beginning of this year looking at embedding both the internal and external candidates.

There is some impact around timeline as a respect to COVID-19, just in terms of availability and access to people. But they are working through that and doesn't expect there to be any long-term hurdles associated with it.

So, I don’t have an update for you around timeframe. Other than that that process continues to be well underway.

Okay. Thank you.

Thank you. Good morning.

Want to talk a little bit about the TSX trading engine and the disruptions that happened in Q1 as a result of the spike in volume. So, the two parts to the question, one is, what actions have you implemented internally to prevent a repeat of that occurrence, i.e.

to increase capacity? And two, has there been any regulatory response or conversations in light of the other trading engine issues?

Okay. That’s a really important question, Paul.

So, can you please stay on if I don’t get all this for you, feel free to clarify anything on the end of it. Going back to the disruption we had on February 27 and we can talk in a bit more about what caused that.

That disruption was caused by a spike in messaging levels, but not just daily messaging, messaging that was coming in on a per second basis at levels not only not seen before in our marketplace but not even scale to or tested to. So we build our systems at multiples of previous peaks and previous average of messaging had been about 70 million transactions a day - or sorry, messages per day.

What we saw on Feb 27th by the time, we needed to close the market was 170 million messages, but spiking on more than 10,000 a second across all the partitions that we operate. And that’s what created the backlog in our messaging layer.

So, we never want to be close. So I want to make sure that’s clear from the outset and our commitment to our clients is that we are there and we are open and reliable.

So this is not where wanted to be. But we do take a lot of pride in the way that team rallied around immediately was able to triage what that issue was and put a fix in place that night to substantially expand the capacity of the disc space or messaging layer that handles all that throughput of messaging.

The after effect of that is two-fold and I’ll talk about performance in March and then I will talk about also what we are doing with the systems. Performance in March, when the volatility we saw days that were in excess of 2x, what we saw in Feb 27th.

So, in terms of the fix being in place, more than substantial capacity to manage everything we saw in March, which was more than we’d even seen in February. So the fix was right to do what we needed to do.

In addition to that, we’ve added lot more monitoring capacity, in terms of reporting availability, capacity utilization, these statistics that we shared both broadly throughout the organization and with the Board, we were doing that before. We upped that as well.

Now, we would that have caught something that had happened in February 27th not likely because that accelerated in terms of market activity so quickly from the previous averages that it wouldn't have been an indicator regardless. Now long-term, we already have a team that’s working on and what are the next steps on modernization of this platform.

So, priorities on 2020 include both capacity and capital upgrades that we'll be doing to that system as well as some design changes that we’ve identified from an engineering standpoint to look for where there are those types of choke points and take them out of the architecture and reorganize around it. So, there will be more changes we’ll be doing to the systems throughout later this year.

We are not doing that right now in the midst of this environment, because there would be a high degree of risk in terms of executing that both when the markets were so volatile, but we are in the distributed work environment. But that will be our focus going forward.

Paul, let me pause there and see, does that cover off what you are looking for or is there any follow-up questions on it? I want to make sure we get this right.

Yes. No.

That makes – I think all of that makes sense from an internal response standpoint and then just finally, I guess, was there any kind of conversation or response from regulators on this?

Right. Yes, from a regulatory standpoint, I mean, this is a kind of thing what we treat regulators like partners.

So, all throughout this right from the beginning, we are letting the regulators know what the issue is, what we are doing about it and there are actively responding and asking questions. There is no regulatory action that’s coming out of this.

The proactive actions on our part to ensure that we could operate the markets effectively and reliably. And as we continue to do that, we’ll keep the regulators up to dated on our progress.

Thank you. I think that covers it.

Hi, good morning. Can I just touch on expenses .

When I look at sort of the pieces that were driving the expenses this quarter, it doesn’t seem like anything in there is too one-time in nature. It seems like stuff like around CDS and compensation around higher share-based compensation, et cetera could be a recurring theme.

Can you maybe just speak to, if there was any seasonality or anything or any reason why expenses would deviate from what we saw this quarter?

Yes, the only seasonal piece is, Q1 is generally a higher quarter for us. Because that’s when see higher payroll expenses, restructured payroll taxes, those types of things.

So, there is always a spike in Q1 and I’ll leave it with Paul and Julie to offline actually give more color on that. Other than that, there is no kind of material one-times in the quarter.

It’s a really reasonable clean quarter. The upticks that we saw in terms of compensation costs, they were a reflection of obviously performance in the quarter and the performance of the stock price that’s compared to a year ago as it affects our long-term plans.

So, no significant one-times.

Maybe, I’ll just add in that number, John talked about on the payroll taxes was $3 million. The other thing to think about in Q2 and Q3 is just the treatment we’ve had around the recovery – or recoverable expenses in CDS where you are going to see them showing up both in revenue and also in SG&A expenses for Q2 and Q3.

And then, kind of back to normal Q4 when we made the adjustment last year.

Okay. That’s helpful.

Thank you.

Yes, thanks. Just wanted to just follow-up on some of the activity in the U.S.

from the SEC around market data and there may be putting a little bit more controls on that. Do you have any commentary on what's on in the U.S.?

And just confirm to us that things are still in a very stable place here in Canada or surrounding that topic?

Yes, Jaeme, I am happy to. I preferred never to commentary on things that are going on in the U.S.

for lots of reasons. But with respect to market data, it does seem to be they are getting to some closure on that file.

We did actually see some of the pieces that the SEC was objecting that they’ve actually relented on and in terms of some of the access fees that actually that go through now. They’ve certainly put more scrutiny now around future data changes across the marketplaces.

I don’t see that as having any material impact on the Canadian market at all. We already have a fairly robust regulatory regime around both market data fees, how they are priced, how they are shared amongst the marketplaces.

So, what we are already further along in that regime in the U.S. was.

So, I don’t see anything there that indicates any change for us and we are not getting any feedback from the regulators that would look at anything different from our own market data business at this point.

Okay.

I just had one more question, if I could. On the CDS fee increases that you mentioned, that you were going to the regulator with last quarter, I believe, just could you give us some update on there perhaps, does that process get delayed, because of the remote backdrop that we are operating in.

But more importantly, given any sort of feedback you got from the industry, how are you feeling about how likely it is that you’ll get these CDS fee increases?

So, with respect to the way that started the question, in terms of the regulatory backdrop, that’s a reasonable expectation. This is going to take a while to work through the process and the priorities for ourselves and the regulators are more on continuity of operations ensuring both issuers and participants can continue to operate in this market environment.

So these are files that are difficult to advance in the near-term. We certainly did get feedback from the industry in terms of the public commentary causes.

You can imagine that if you are making a recommendation to change fee structure that you don’t usually get clients who write letters of support. There are two things that came back from the feedbacks that we got.

One was around, whether or not this technology innovation infrastructure investment needs to get done at all. There are some industry participants that will be happy to stay on the type of the system you are – we are on already.

And then the other feedback being is this the right piece for participants to pay. So, we think we are in a very strong position in terms of the reasonableness of the approach.

We operate with some of the lowest clearing fees in the world and we are putting in modern technology. And so, it’s a win-win for the participants.

So, the fee change we are looking forward is modest in that regard and so, we are going to continue to push that ahead with the regulators over time. On the earlier piece of feedback about whether or not this is really – things that the industry needs to do, March has proved that out for us.

We talked earlier in the call around restructuring around the trading systems. What we haven’t talked about is, other pieces of the systems that are also critical for the marketplace.

The clearing system is, while it’s very reliable. It’s extremely robust.

It does operate on mainframe technologies and it’s up to 20 years old in terms of that type of technology and it frankly isn’t scalable the way the trading system is. So that ability that we had to go into our trading system and expand capacity in an almost real-time basis, we can’t do that with the clearing system and to give you some examples of how important this is, our clearing system was originally designed and scaled for about seven million transactions a day.

In March, we had a peak day of 5.7 million. So, too close to comfort.

Now the team is being quite responsive to that to going back to the system, reprioritizing some processes and virtually expanding the capacity and that’s what we believe we can actually get more like 10 million messages or transactions a day out of this. But it does reinforced the need for modernization that for a system that’s so critical to the underpinnings of the flow of capital in the country and the risk management systems that we rely on, it needs to be on market architecture.

So, I think that argument is now past in terms of why this needs to be done. And we'll keep working through with the regulators on how to fund it.

That’s it for me. Thank you.