TMX is overhauling the system that connects Canada's public markets.Mark Blinch/Reuters
TMX Group Ltd. is forging ahead with plans to refresh the plumbing that connects Canada's public markets for the first time in 17 years.
The Toronto-based company says it is going to spend between $55-million and $60-million to integrate the two systems that today process and finalize trades in Canadian stocks and derivatives. John McKenzie, the company's chief financial officer, discussed the change on Friday during an earnings call. TMX is spending $10-million on this initiative in 2017. It expects to incur half of the total costs in 2018 and finally complete the project by 2020.
TMX acquired the platform to clear and settle trades in equities, fixed-income and money markets in 2012 as part of a deal that saw a group of Canadian financial institutions, known as the Maple Group, consolidate assets across the sector. TMX already owned the system that handled derivatives trades. The institutions behind the Maple Group said that bringing the two platforms under one roof would result in cost savings for all users and boost risk management across the market. But TMX has been slow to fulfill this promise.
In June, TMX said it hired India-based Tata Consultancy Services to replace the technology and once this is done, it expects to save as much as $8-million in expenses each year, starting in 2020.
This initiative is part of a bigger push at TMX to trim costs, simplify processes and become more efficient through better technology, as the business faces pressure to evolve. The company's $931-million acquisition of Trayport Holdings Ltd., a British-based provider of software for energy traders, brokers and exchanges, is a big step in that evolution. TMX says the deal, which was announced in October, will help it bolster its data-and-analytics business, pursue growth outside the Canadian market and generate a larger slice of revenue that's recurring instead of transaction-based.
During the three months ended Sept. 30, TMX generated $166-million in revenue, down 8 per cent from the prior year. But lower costs helped push its profit 32 per cent higher to $52-million.
The Toronto Stock Exchange has had its best start to a year in some time. During the first nine months of 2017, it welcomed 21 new corporate listings and saw 13 issuers graduate up from the TSX Venture Exchange. However, revenue from its listings business still slid 6 per cent in the third quarter, hampered by less financing activity from existing issuers.
In the summer, the stock market was especially quiet – and the company's results took a hit. Trading activity on TMX venues tanked: volume on the TSX, TSXV and Alpha tumbled by 20 per cent, 23 per cent and 17 per cent, respectively.
But TMX saw growth in trading across other asset classes such as fixed income, energy and derivatives.