ASX Limited (ASX) Earnings Call Transcript & Summary

Good morning, and welcome to ASX's financial results briefing for the 12-month period ending 30 June 2020, and thank you for taking part in this virtual presentation. My name is Dominic Stevens, I'm Managing Director and CEO of ASX. To begin, I'd like to acknowledge that this briefing is being held on the traditional lands of the Gadigal people, and I pay my respects to elders past and present. This morning, I'll begin with an overview of the result, and an update on how we've been navigating through COVID-19. Gillian Larkins, ASX's Chief Financial Officer, will then take you through the detail of the result. I'll then discuss how we're executing our customer-focused, technology-driven strategy before concluding and opening up for Q&A, first from analysts and then from the meeting. So let's begin. Our FY '20 financial performance reflects another solid year for ASX. All of our business lines increased revenue, driven by higher market activity and demand for our services. The strong operational performance was underscored by the diversification of our listings business, particularly the growing technology sector and vibrant secondary capital raising market. The availability and liquidity of our trading businesses open across the period, providing vital price discovery, capital allocation and risk transfer, and the reliability and functionality of our Data & Technical Services businesses, which provide resilient earnings streams through both volatile and calmer times. FY '20 was ASX's eighth consecutive year of revenue growth with revenue rising $74.6 million, an increase on 8 -- of 8.6% on PCP. Total expenses rose $23.6 million, an increase of 9%. This leaves ASX with EBIT growth of 8.5% year-on-year, an increase of $51 million and the highest growth rate in EBIT since 2010. As expected, interest and dividend income was down on last year. This was caused by 2 factors: firstly, the RBA cash rate target has fallen to almost 0, a trend that started before COVID-19; and the margins earned above that rate have also fallen significantly. This means that both the earnings on ASX's own capital has dropped and the margins on assets held by ASX as collateral have also fallen. Given the short average life of our investments, this effect will be more pronounced in FY '21. Despite lower net interest and dividend income, the strength of our operations supported underlying NPAT for the period of $513.8 million, an increase of 4.4% on FY '19. Underlying EPS of $2.654 per share was also up by 4.4%. Following the Board's annual review of the valuation of our balance sheet investments, the carrying value of our 45% stake in Yieldbroker, the OTC rates trading platform has been reduced by $15.2 million. This is a noncash item that's not tax affected and reflects a more difficult near-term trading environment. Taking this noncash significant item into account, ASX's statutory NPAT of $498.6 million was 1.4% up on the prior period. The Board has maintained its policy and recommended a dividend of 90% of underlying net income for the year, amounting to a final dividend of $1.225 per share, bringing total FY dividends to $2.389 a share. Overall, it's a pleasing result, particularly given the market challenges we've managed, alongside the significant amount of foundational building we've achieved. Before I hand over to Gill for more detail on the financials, I want to update you on the challenges of, and our response to, COVID-19. Shortly after presenting our first half results in mid-February, what had been a new type of flu at the beginning of the year had turned into a global health pandemic. From there, panic gripped the world and markets experienced significant upticks in volume and volatility. As you can see on the slide, in Australia, this culminated in trading activity peak of Friday, 13th of March, when 7 million trades were registered in CHESS, double the pre-COVID peak set in August last year. This was a significantly larger volume spike than we'd ever seen before in both absolute numbers and in percentage terms. Surpassing the tech wreck, the GFC and the European debt crisis. The volume spots were seen across our whole business: futures volume for the month of March were 11% above their previous monthly high set in March 2019; ASX Collateral hit a new peak of $37.5 billion, up 30% on the previous peak in late September 2019; and Austraclear volumes reached a new daily settlement high of $169 billion, 29% higher than the previous pre-COVID record set on 15th of March 2019. Turning to the next slide. You can see that the volatility paints a similar picture. The market's response to COVID-19 led to the greatest sustained intraday volatility ever seen in Australia. In fact, 8 of the 10 largest intraday ranges in the history of the ASX 200 occurred during March 2020. We also saw record daily margin calls, increasing 130% from their previous high as well as a record number of surveillance alerts, doublings of calls to our help desk, a huge increase in market announcement and the list goes on. Importantly, over this period of record volume and volatility, ASX produced uptime or reliability and resilience of 100% across all our key trading and post-trade systems. Moving now to how COVID-19 affected our activity drivers. Secondary capital, as you can see on the slide, was up 44%, contributing to the highest total capital raised in over a decade. Cash market trading, which also drives clearing and settlement volumes, saw its best year on record, with value traded up 30% on FY '19. It was also pleasing to see in these most volatile of times, when the value of liquidity and trust at paramount, ASX's share of lit market activity increased. Futures volumes were down 1% on the year as growth in the first half was offset by lower volumes in the second. Volumes initially rose with COVID uncertainty, but the RBA's yield curve control measures have reduced the volatility in volume at the short end of the interest rate curve. Austraclear saw a particularly strong growth in FY '20, with volumes up around 15% as issuance increased, particularly in the fourth quarter. These trends support the strength of our diversified business, which helps ASX deliver resilient performance across different business cycles. So now looking to how we responded and continue to respond to the COVID-19 pandemic. We remain focused on protecting our people and operations as well as supporting our customers and markets. This is consistent with our approach to sustainability. Our sustainability is defined by our trusted actions, our resilient operations and the efficiency of our markets. On trusted actions, I'm proud of the commitment and flexibility shown by our workforce during this period. Over a single weekend, 95% of our workforce transitioned to working from home. To support this move, we made a one-off payment to help with setting up of workspaces at home, and we increased our efforts to support the mental and physical well-being of our people. Equally important with the measures put in place to protect those who needed to remain on-site to keep the markets open. The need for resilient operations is always important and particularly so when markets are reacting to external shocks. The volumes and volatility experienced in the first week, ASX work-from-home put tremendous pressure on the company to ensure the market continue to have access to reliable infrastructure. It also meant navigating unprecedented market moves, including, for example, responding quickly to changes in clearing margins and making intraday margin calls. We also took action to support our customers and to ensure market efficiency. For example, ASX worked pragmatically and expeditiously with regulators and the equity capital markets on capital raising flexibility to help support listed companies, and we updated project time lines for CHESS replacement and ASX Trade refresh to allow customers to focus on immediate and critical day-to-day challenges, whilst also working from home. Our ability to respond to the challenges arising from COVID-19 was enhanced by the investment we've made in operational resilience and risk management over the past 3 years. So while the markets have stabilized in the months since March 2020, it will become some time before we return to normal market conditions, whatever normal now means. However, from a strategic perspective, ASX remains well positioned to continue to execute our customer-focused, technology-driven strategy, which is outlined on this slide. This strategy has been in place for a number of years and recognize the importance of governance, strong risk management and operational foundations across the organization. It's also been driving a transformation of ASX's technology stack, which I'll talk to a little bit more later. We build an exchange for the future. Those organizations at the forefront of technology innovation will succeed, not those relying on aging legacy systems. By being technology-driven, ASX can deliver more customer-focused products and services, collaborate better with its customers and allow its customers to collaborate with each other. In a strategic sense, COVID-19 and its ramifications have accelerated the market trends to which our strategy is designed to pursue. I'd suggest it would have -- has accelerated them quite significantly. The drive towards digitization, straight-through processing, workplace mobility, collaborative technologies, richer data sets and standardization to enable all of this has accelerated in the last 6 months. We are confident the investments we're making in these technologies now will reap benefits for many years to come. ASX is strong, diversified and resilient. We're focused on realizing the efficiencies from the technology and the digitization of our economy. This is the right place for the exchange to be investing and will generate benefits for ASX, our customers and for Australia's financial markets. So with that, I'll now hand you to Gill to take you through the FY '20 financials. Gill?

Thanks, Dom, and good morning to everyone. ASX's result for 2020 reflects the market impact COVID has had on our operations. The business saw elevated market uncertainty and volatility, predominantly in the second half of the year, which boosted cash equities trading, secondary capital raisings and our post-trade services offering, with a flattish interest rate yield curve in the second half that saw derivatives trading step down from last year's high revenue growth, and our interest income line impacted as the repricing rolled through. Our COVID response, as mentioned by Dom, required additional resourcing that increased our expenses above previous market guidance. I will provide detail on this later in the presentation. 2020 saw us impairing our investment in Yieldbroker, which was reviewed in light of current market conditions and outlook and has been treated as a significant item in our accounts. Turning to the financials on Slide 12. Starting with the top line. Revenue for the year is up 8.6% from FY '19, reflecting 2 strong halves of heightened trading volumes, although in different business units. For the year, total expenses for the group increased by 9% with depreciation and amortization remaining at a similar level in the second half to the first. Moving through the table, you will see that the growth in revenue more than absorbed the higher-than-expected growth in expenses, allowing ASX to achieve a solid EBIT growth of 8.5%, leading to a similar EBIT margin of 69.5% to last year. Interest income is down 19.3% due to lower investment spreads in cash rates and also due to the inclusion of lease financing costs through the new lease standard this year. However, this was offset by strong participant balance growth. Underlying profit after tax increased by 4.4%, but taking into account the significant item booked this year for Yieldbroker, we've delivered a statutory profit after-tax increase of 1.4%. These results have allowed the Board to declare a dividend of $1.225 for the half, bringing 2020 full year dividends to $2.389 per share, 4.5% more than FY '19. Now to the revenue results of our key business lines. ASX has a robust business model across multiple asset classes that positions us as an integral component of Australia's financial market infrastructure. 2020 was a year that saw revenue growth in our Derivatives and OTC business, fall back from the highs of previous years to an increase of 4.5%, which is more in line with our revenue CAGR for this business over the last 5 years. However, 2020 also saw our equity trading offerings across the 3 sub-business areas of Issuer Services, cash market trading and Equity Post-Trade Services achieved higher than normal revenue growth for the year due to the volatility in the markets, particularly in March. This more than absorbed the lower revenue growth in the second half of the derivatives business, allowing for an 8.6% increase in revenue overall. Our Listings business also contributed to the overall growth, with the elevated activity in secondary raisings, coupled with the increase in ETF and warrants trading, more than offsetting the decline in annual and initial listing fees. The continued growth in ASX's core businesses and our strong balance sheet allow the company to develop adjacent offerings. Our stake is simply, a provider of e-conveyancing, a new broker of fixed income trading venue, complement our Derivatives and OTC business. Our share of their trading results, albeit currently immaterial, is now absorbed in this ASX business line. Our Listings and Issuer Services revenue is 7.3% higher than last year. The increase is mainly due to Issuer Services, which saw strong growth of 25% for the year through heightened activity in the second half. Listings have more subdued revenue growth due to a number of factors. Our annual listing fee revenue was down 1.6% due to a lower number of build companies and a change in the mix of entities within the fee tiering. The lower number of IPOs for 2020 also contributed to lower annual listing fees. The lower number of IPOs is obviously an outcome of the current market conditions, hence initial listing revenue was down 4.1% with $27 billion of capital raised, down close to 28% from the prior year. The increase in the second half was due to 1 sizable IPO at the end of the financial year. The second half of 2020 saw strong secondary market activity, leading to a 44.5% increase in capital raised. This is less noticeable in the revenue contribution for 2020 due to revenue being amortized over 3 years. On the right-hand side of the slide, you can see each of the previous year's amortization contribution for both initial and secondary listings, which provides guidance to the revenue composition for the next little while. Of note, it was pleasing to see an increase in other listings revenue due to continued growth in exchange-traded products and the warrants offering. Moving to the Derivatives and OTC Markets slide. Our Derivatives and OTC Markets business has seen a notable decline in futures volumes since the end of March. As we enter a period in the medium term of low interest rates. Although our futures and OTC revenue increased by 4.1% in 2020, this is coming off the last 2 years' CAGR growth of 6.2%. The 1.5% decline in futures volume for this business, most markedly in the second half, was softened by an increase in average fees, up 4%, largely due to lower proprietary traders' activity. The value cleared through the OTC clearing service was up 28.3% on last year, predominantly in the first half, coming gradually down in the second, a trend we have seen continue into the first trading month of 2021. Of note was the increase in our commodities offering with electricity contracts up 30.5%, albeit off a comparably lower base. Austraclear saw higher registry and transaction activity, with revenue coming in 10.6% more than FY '19, firmly supported by the increase in issuance of treasury bonds and semi-government securities. The value of assets in the ACS collateral service was $43.4 billion compared to $22.4 billion last year. In contrast, equity options continue to decline in retail volumes, with single stock options volume down 10.7% on last year and index options down 12.8% due to a subdued fourth quarter contrasting to the volatile session seen late in the third quarter of this year. The strong result for the Trading Services business was underpinned by the market volatility in the second half of the year with cash market trading contributing half of the 11.5% growth. Cash market trading revenue was up 23.9% on last year, with on-market value traded up 30.5%. Auction and Centre Point value traded were collectively up 18.6%. Information Services saw 2 strong halves, contributing to a 10.7% revenue increase from last year, assisted by an increase in equities and futures market data distribution and indexed royalties from Standard & Poor's. And Technical Services saw an overall increase in revenue of 4.4%, mainly due to a rise in the number of ALC cross-connects and income from our diverse connectivity through the ASX net offering. And finally, moving on to our fourth business, Equity Post-Trade Services. Cash market clearing revenue was up 19.5% to $65.3 million, reflecting an increase of 29.9% and on-market value cleared. Revenue from cash market settlement increased by 14.5% to $62.1 million due to most notably growth in settlement messages and transactions and conversions. The strong year-on-year activity resulted in high customer rebates totaling $14.4 million versus $3.5 million in 2019. Turning now to operating expenses. Total expenses came in at $286.2 million, 9% higher than the previous year. The expense uplift was 1% higher than guidance due to costs attached to COVID, namely heightened variable and asset fees attached to market activity and lower annual leave taken by employees. But in the COVID-related expenses aside, there are expected increases in other expense lines across the ASX portfolio. Staff costs increased by 13.8% due to the expansion of headcount over the last year to support both project and license to operate initiatives. Occupancy costs decreased 46% to $9.7 million with the adoption of the lease standard, which has moved this cost into the D&A line. Equipment costs grew due to the additional license subscriptions for cybersecurity and digital initiatives, while administration expenses increased by 15.6% through higher insurance premiums and bushfire donations. Variable costs were 28.5% more due to high COVID-induced market volatility and transaction volumes, especially the costs associated with the production of CHESS statements. A lift in the supervisory levy, up 12.9% was due to recent ASX fee revisions and the higher transaction activity. This all led to an operating expense rise for the group of 9.7%. The depreciation and amortization line grew from 2019 due to the addition of amortization of the leases previously in the operating expense line, netted off by lower asset additions to the slide compared to last year. Our guidance for expenses next year is in the range of 6% to 7% growth, inclusive of both operating expenses and depreciation and amortization. Net interest and dividend income decreased 19.3% to $83.8 million for the year. A few components make up this line. Firstly, because of decreased earning rates, our group net interest income declined by 53%. Half-on-half, you can see the market impact of the decrease in investment spread in the last 3 months of the year. The inclusion of the lease financing costs added a further $3.4 million of cost leading to an overall decline in group net interest income of 67.5%. Conversely, our average participant balance increased to over 31.2%, which negated the decreased investment spreads from 51 to 37 bps. This led to a slight increase in net interest on collateral balances of 1.2%. The near-term expectation is that rates will remain low. So looking ahead, the portfolio's composition should remain constant. However, portfolio returns will decline as maturing investments continue to be replaced with lower-yielding investments. Also of note in this slide is the dividend revenue foregone this year due to the sale of our shareholding in IRESS in February 2019. Moving now to examine ASX's balance sheet on Slide 20. ASX's balance sheet is strong and positioned conservatively with the most notable difference being our total margin and commitments of $13.9 billion, up 12.9% from last year. This is due to the increase in average collateral balances from participants, offset by the reduction of our own funds with the payment of the special dividend in September 2019. We currently have a Standard & Poor's long-term rating of AA-, hold no debt and have increased our investments with an additional investment of USD 10 million into digital asset and $8.7 million into Sympli, partly offset by the yield broker impairment of $15.2 million. We have been able to support capital expenditure this year of just over $18 million. This is inclusive of our CHESS replacement project, new secondary data center and corporate actions program. Much of our technology work continues into FY '21, and we are expecting capital expenditure to the tune of $90 million to $95 million for this coming year. Underlying profit after tax increased by 4.4%, also leading to an underlying EPS increase of the same amount. And accounting for the yield broker impairments to significant item due to its nonrecurring nature, the Board has determined a second half '20 fully franked dividend of $1.225 per share, bringing total ordinary fully franked dividends for the 12 months to $2.389 per share, representing an increase of 4.5% on FY '19. The dividend can be fully funded from retained earnings and represents a payout ratio of 90% of underlying NPAT in line with our dividend policy guidance. Despite the challenges of the year, ASX has produced a strong result that allows management to continue its strategy to strengthen the foundations of our business while investing in both core and adjacent growth opportunities for the future. We remain confident this strategy is working well for our shareholders, customers and Australia's financial markets. With that, I will hand back to Dom.

Okay. Thanks, Gill. Let me now provide an update on ASX's strategy. Many of you have heard me talk about our Building Stronger Foundations program. At the end of calendar 2019, up to 3 years in significant progress we've completed this program and transitioned it into business as usual. In FY '21, we'll continue to progress initiatives that build trust, integrity and resilience in our business. These include improving our clearing risk management systems, developing our compliance culture, evolving our investment product listing rules and providing greater support for employee well-being. ASX is also -- has an important role to play in ESG. You'll note in our annual report released today that we've increased our focus on this area significantly, and this will increase further over coming years. ASX is building the exchange for the future. We believe the contemporary technology, digitization and straight-through processing can bring significant efficiencies and benefits to our customers and is central to our long-term success. While our replacement project attracts plenty of media coverage, it is only one of a number of initiatives undertaken to contemporize our technology. This is particularly relevant to our cash equities technology stack. One thing becoming clear to all businesses in an age of APIs and data is the need for modern technology right down to the foundations. It's no longer possible to meet stakeholders' expectations by having a glossy front end, sitting on a legacy database infrastructure. Looking at ASX's progress over the last few years, we can see that a significant amount has been achieved. By the time CHESS is rolled out, the equity business will have a stack of technology that is contemporary from top to bottom. So I start at the bottom of the chart on Page 24 to demonstrate this. Our data center and communications infrastructure have undergone a major upgrade with a brand-new secondary data center, an upgraded internal network at our contemporary ALC facility and a full replacement of our 6 ASX Net communications networks into 1 system. Naturally, our increased investment in cybersecurity also continues. In data and analytics, we now have a new data visualization tool across the firm and internal data science capability, DataSphere, which we're now exposing to external clients, and we're also replacing our enterprise data warehouses in early 2022. Our application layer saw an upgraded market announcement platform in 2018, the upgrade of our smart surveillance technology in 2020. There will be a significant upgrade to our equity trading system in the next few months. And of course, the CHESS replacement in 2022. Finally, in the digital space, we've rolled out a new website, which is currently running parallel until our existing site is switched off in October. We're also upgrading our Investor and Issuer portals with Issuers now effectively entering all corporate actions digitally via smart forms. ASX is working on enabling the information to be used -- enabling that information to be used to allow a comprehensive suite of straight-through processing services. These investments will enable ASX to meet customer demands faster with better solutions. They also continue ASX's history of being at the forefront of technological change in our industry. ASX is leading the drive to use global standards to automate processes, which will reduce risk, generate cost savings and enable straight-through processing for our customers, and in turn, produce benefits for the industry. A good example of this is our corporate actions STP project. This project offers benefits to all parties involved in the corporate actions value chain. For investors, they receive more timely and accurate data. Custodians and registries will benefit from receiving richer data and they'll be able to reduce their data entry risk by receiving structured and machine-readable data that comes with global ISO20022 format. Issuers will benefit from entering the right data at source with online smart form validation of the information for accuracy, completeness and compliance with the listing rules. Lastly, we believe the entire industry will benefit as fintechs and service providers utilize the rich structured source of truth data to power new product and service ideas. In addition to corporate actions STP, work to contemporize CHESS continues. Many of you would be aware, we recently consulted with the industry on a proposed new go live date, with which an overwhelming majority of users were comfortable. At past results, I've referred to the efficiency and risk reduction benefits the new system will deliver. We see positives for issuers and investors as well as for CHESS users, fintechs and other service providers. For investors, the new system offers strengthened security protections and electronic holding statement options. It will also remove the challenges of tailing registration details to 1990's technology standards. Issuers will see cost savings from the electronification of holding statements and enjoy greater control over their data. But in the same way, the corporate actions STP project will encourage innovation among fintechs and service providers, ASX's DLT-enabled CHESS tools and infrastructure has the potential to open up a world of opportunity for others to design, build, innovate digital multiparty solutions on ASX's world-class ledger. So turning now to Slide 27. Over the last 5 years, we've been fostering a larger, more vibrant listed technology sector, not only with locally based technology companies, but with global tech companies, too, who see the power of an ASX listing. ASX is a globally competitive exchange for technology listings, particularly those in the $100 million to $1 billion market cap range that may not get the attention of larger U.S. markets. These companies have also been some of the best performers on the exchange, including during the pandemic. Over the last 5 years, the net number of technology stocks listed on ASX has increased by $49 million to $202 million. In February this year, S&P and ASX launched the S&P ASX All Technology Index, covering 50 companies across the technology spectrum. Its growth since the depths of the COVID that set off in March reflects the resilient and maturing nature of technology businesses in a rapidly digitizing world. This index gives investors better insight into the sector, enables easier and more transparent ETF- and index-based investing and enhances the attractiveness of the Australian market. More recently, we've been very focused on the actions of the RBA in managing COVID-19. The RBA's yield curve control has led to historically low interest rates and lower volatility of rates, given the stated yield targets after 3 years. This means that demand for hedging and speculation in short-term interest rates will be lower over the coming year. In response to market interest, both before and after COVID and due to the significant issuance from the AOFM in the 5-year maturity period, ASX is planning to launch a new 5-year bond futures contract. This contract will also link well into overseas markets where many government yield curves have a very liquid 5-year futures contract. We're hoping to launch this contract in the next 6 months. Interestingly, while we're currently seeing less interest in hedging and speculation in short-term rates, the underlying size of the bond market is rapidly increasing. As can be seen on the chart on the screen, this year's net issuance of almost $200 billion is multiples of the average issuance of around $40 billion over the last 12 years. As well as being positive for ASX is Austraclear, this increase in issuance should help volumes across the whole bond futures complex. And turning now to our final slide in today's strategic update. ASX continues to pursue opportunities where we feel that we can use our expertise and experience to drive further digitization across financial markets and other adjacencies. While these initiatives have all been slowed somewhat due to COVID-19, they did make good progress over FY '20. Our DataSphere business now has workspaces and data sets in place available via a web portal. A new marketing campaign started this month, and we're progressing partnerships with third parties. This initiative enables ASX to better analyze its own business, and will make it easy for organizations to access, analyze and share financial market data. Our Sympli initiative provides a more intuitive and cost-competitive solution for the e-conveyancing industry. This initiative has been slowed by the impacts of both COVID and the Hayne commission, AUSTRAC issues at the major banks. However, we expect to be connected by -- to all 4 banks this financial year. And importantly, the New South Wales government and the ACCC have been very supportive of interoperability in this market. And finally, we look to -- we continue to look at opportunities that leverage the ability to build digitized multiparty workflow solution on distributed ledgers. To be clear, our focus is first and foremost on implementing the new CHESS system, therefore, opportunities here will probably be crystallized after CHESS goes live. Notwithstanding that, it's interesting to note, a number of market infrastructures and vendors are beginning to develop projects using the DAMA language. So I'll now share our thoughts on outlook and sum up. Like all businesses at present, it's impossible to make solid forecast about the future in the current market. However, we're closely watching the following issues going into FY '21. In our market-facing businesses, equities continue to experience heightened volume and volatility. Given the many uncertainties in both Australia and the world, we see the market remaining volatile and unsettled in the medium term. In the futures markets, the story is more complex as reduced volatility at the shorter end of the yield curve has seen lower demand for 3-year bonds and bank bill futures. However, this is less of an issue for the longer end of the curve, which will also be helped by the significant bond issuance programs this year. Austraclear should also benefit from the bond issuance over the coming year. Below the EBIT line, FY '21 will also see lower absolute returns on ASX's own capital and margin balances held at the clearing house. In our listings business, the volatility of the last 6 months has driven a slowdown in new IPOs. However, the effects of the pandemic have seen significant need for new capital for existing businesses, which continues to translate into a steady stream of secondary raisings. So to conclude, through the challenges of the last 6 months, ASX has demonstrated the value of its diversified business and its ability to deliver consistent returns. Our work over the past few years to strengthen our risk management and invest in technology helped us meet the demands of COVID-19. And we're continuing with our strategy of being customer-focused through the lens of innovation. And we've made great progress in refreshing our technology stack, which will allow us to leverage our expertise into the future. So thank you, everyone. And I think we can now move to questions, and I'm happy to hand it over to the operator to start moderating.

Your first question comes from Ed Henning with CLSA.

Just to start off with, you've touched on futures, the short end of the curve, obviously, less volume going through, but hopefully, you're going to get some more on the long end of the curve with the issue of the 5-year bonds. Just weighing all that up, do you anticipate a really big headwind in futures going into FY '21 as things stand at the moment, even with the issuance of the new 5-year bond coming through?

Hi, Ed. Yes. I think, well the 5-year, that's probably in the second half of this year. But I think that -- I think the best way of actually looking at that is actually just -- the fortunate thing about ASX is that you can get those numbers coming out on a monthly basis. In fact, if you really wanted, you could probably get them on a daily basis. And I think if you go back and look, you can see that equity futures are doing fine. Commodity future's doing fine. The 10 years is doing fine. And if you look at the bills and the 3 years, they've sort of come lower over the last few months. And I think probably the best way of -- it's very hard to predict how that's going to play out over the course of the year, but maybe the best way is to look back over that last 3 or 4 months. It sort of came down. It sort of recovered a little bit. I think that's probably the best indication of where we're sort of going to over the course of the year. But my advice would be to keep your eye on the monthly numbers as they come through. And I think if you do actually look at those and offset, you can make your judgments about the intensity of that.

And just a second question on information and technical services, they were down half-on-half. How are you seeing the outlook for those businesses moving forward in the current environment?

Look, I think there still remains demand for info and tech services, as you would have seen sort of as far as cabinets and some of the other infrastructure on the technology side. On the information services business, there's still been, particularly across maybe index and benchmarks and just some of the other sort of information for services we provide, there's still sort of like, growth there. I think given the -- particularly the tempering, perhaps of some of the prop trader activity, which has sort of come off, and we'll see how that plays out over the course of the year as people sort of reset the way that they want to trade sort of in what is quite a different market, we'll see how that plays out. Probably, that has been an area of reasonably strong growth. And I think probably like maybe sort of maybe not as strong as it has been. Gill, do you have a...

Yes. I would actually add. I think, certainly, you've seen high demand over the last 3 years. And you can see that just temper enough, becoming more stable. So I think when you go to our appendix and you actually see the run rates over the last little while, I think that growth is coming off. This is also the area where we do review our pricing annually, and we're just holding off at the moment due to COVID, and we're actually looking. Normally, we would have an annual increase, right. Should just holding off for the first 6 months of the year, so that might have a little bit of impact into that line. So I would like to think that growth was actually going to come off a little bit from where it has been.

Yes. Okay. And just to touch on that question on the annual review of some of your fees. Can you just go through -- you just said you're going to hold off on one of the fees there in the first 6 months. What fees do you anticipate to come through in '21? And what fees are you holding off at this point? Is it around increases?

Yes. Actually, there are no changes at the moment other than the one that I just talked about. So in our listing area, that is the same. We have no changes in derivatives on the OTC. We are holding back for the first 6 months for technical services, and there's no change for our Settlement and Clearing businesses, so I hope that helps.

Your next question comes from Andrei Stadnik with Morgan Stanley.

I wanted to ask 2 questions. The first one, coming back to rate features, what kind of volumes should we be expecting from the new 5-year product? Is it going to be broadly similar to where the 3- or the 10-year products have been, seeing their activity levels previously?

I think that's -- Andrei, thank you. I think that's a hard one to predict. I think the history of futures contracts are that they are hard to get started. But if you can develop a sort of a core of liquidity, it tends to sort of like be self-reinforcing or whatever. So hard to predict that, particularly over the course of the next year, how that gets started. What I would point out is, I think that almost like being an ex-swap dealer myself. It's like the 5-year mark was always sort of like an interpolation of the 3s and the 10s. And now you've got the 3 sort of not moving and the 10 bouncing around, makes it harder maybe to think about the 5s. So I think they'll be -- that will help the market, is there. I think as I mentioned in my prepared remarks, a lot of bond markets in the world actually do have a liquid 5-year point. And so then the arbitrage of the spread or margin between, say, U.S. rates and Aussie rates over the course of over 5 years is actually an easier thing to sort of like manage. And then actually, if you look at the AOFM, where they're issuing, there's quite a bit of issuance into that point. So the interesting thing will be maybe could that start with a big issuance from the AOFM in the 5 years that, that actually then is managed via an EFP, so the 5-year futures contract that actually then gets that process started. So hard one to sort of like judge. Obviously, we'd like to see it as liquid as the 3s and 10s. I think that would be a little bit ambitious in the early days. But I certainly think the good thing is there's a real reason and a real demand for this. And it's something not just COVID-related, it's something that people have been talking about in the background for a while. And I think this has actually sort of brought it to the fore. So we hope that we can hit the ground running a bit with this. But I think the second half of this financial year will play that out.

My other question, just in terms of what's behind the 6% to 7% total cost growth, what -- how much is OpEx adding to that? And how much is other initiatives?

We don't really look at it that way, because the majority of actually that 6% is obviously staff, but also probably maintenance fees or actually license fees attributed to maybe our digital project or other rollouts. So that's the way we look at it rather than variable versus fixed.

I think another, just to add to that, I think that if you look at the slide I brought up, in that all the things we're doing across the whole plethora of technology from sort of like bottom to top, is -- they are CapEx projects, but they also involve software licenses and upgrades of various things, which actually flow through a little bit to the OpEx line. So certainly, I guess, in some of the sort of like equipment and administration lines, you're getting a little bit of sort of like flow over from CapEx going into there as all of these things are set up to create where we're trying to get to, which is a totally contemporary platform across our business.

We have a couple of systems going live in the next 3 to 4 months. And so that's when we actually have to start paying the licensing fees as OpEx. So that's really what the difference is, so I hope that helps.

Your next question comes from Matt Dunger with Bank of America.

If I could just touch on the derivatives volumes, which are obviously very topical at the moment, and I appreciate that I'm the third person to ask a question. The open interest falling a lot more than the daily volumes, is that likely to be reflective of future conditions? Or is there a reason that you think the open interest might be falling faster than what the daily volumes are doing?

Yes. It's an interesting question, Matt. Good pickup. I think these things sort of like, there's 2 things I'd say. These things move around. And I'd say speaking very high level and anecdotally, when you've had -- often when you have a trend in markets. And then there's sort of like a blow off and a very volatile period, actually, then you have a period of actually -- people take risk off a bit. And so perhaps you see open interest falling. But I think there's another thing going on there as well in -- over the course of the next year. And we saw a lot of this with the bond issuance that was done. There was sort of like $15 billion-or-so of issuance in the 30-year bond, which is an enormous amount of [ divi one ] coming through. And that resulted in a lot of trading in EFPs in the 10 years. And I think across the curve, as bonds get issued and not only government, but semi-government and corporates, there will be pickups there from that. So I think probably the first one, I'd say, is a more temporary thing. I think that some of the prop traders might have actually had a good experience through March. Some might have had a lesser good experience through March. And so therefore, they would actually pull back, have a think about it and then maybe move forward a couple of months later. So I think that's a bit more transient. I think that actually, the fact that the underlying bond market is going from whatever it is, $0.5 trillion to $0.75 trillion or $800 billion or whatever that might be, that actually means that if you think about the velocity of turnover and the need for open interest, there's now the underlying thing that actually those derivatives are based on has become -- will become a 40% bigger beast than it was. So I think that's a more longer-term thing as far as open interest good is concerned. But it depends, of course, how much people are using it for hedging or are they just using it to flow through. And actually, the futures don't sit as open interest, but they just sit as a trade and go out the other side.

Your next question comes from Andrew Buncombe with Macquarie.

I just had the one, just in relation to the CHESS replacement delay. Can you just remind us whether there's any incremental costs associated with that? And if so, can you give us some color on the quantum?

Thanks, Andrew. I'll probably take that as a, less as a CHESS question, but more as an overall -- again, going back to the chart across the whole stack of technology that we're doing. And I'd say -- and this is going to be a debate in the industry or across all businesses is, what is the productivity of work from home or whatever. But one thing I would say is when you go into delivery phase, which we are with ASX Trade, we've just been through with the secondary data center, we've got a number of other things we're sort of rolling out at a lower level with the market, then, of course, CHESS. What you see is that they tend to be very collaborative periods where everyone's got to come together. And so these things are just going to take more time. So I think the CapEx increase that you're seeing is actually a bit of a reflection of the corpus of that, CHESS being obviously a piece of that, but also ASX Trade and other things that are just going to take a little bit longer because ASX needs more time, the industry needs more time. Everyone wants to actually -- at the beginning of this process, it was just, can we just stop everything for 3 months while we just get on top of all this volume and volatility, and then we'll come back to it sort of thing. So I think, yes, that's flowing into Capex. You're seeing that in Capex. Maybe, Gill, do you have any comment on that?

Yes. I would say probably about 3 years ago, it was quite a large jump to move from $50 million to $75 million. And I think at that time, people have actually got projects underway, completed them. And I think, actually, we've got these projects that we've probably got more capacity. We know we can see line of sight worth, and we actually know how much it will actually cost to get these things in now. So I actually think 3 years of knowledge or buildup. Certainly, the technology team, we brought in the FTEs to support it. I think probably after 3 years, we actually probably know better about how these projects are going and how much they cost. Agree about CHESS from the original date, which was March '21, that's now April '22, that is an extra year. However, you won't see anything until we do go live, and that would be amortized out over 10 years. So everything is manageable, if that makes sense.

I don't think -- the last thing I'd say on that is, the good thing is you can see there that a lot of these things have actually fallen into place in FY '20. There is a few of them that are -- the back end of this year and into early FY '21. And then really, it's the enterprise data warehouses and the CHESS project coming in, in the next year. And then we get to a situation where I think we're sort of like over the main hump of this, and that will be a fantastic position to be in.

Your next question comes from Nigel Pittaway with Citi.

Just a couple of quick questions for me. First of all, just on the Issuer Services line, I think there was a -- you're talking about, obviously, a strong second half. And presumably, that was a big spike in securitizations in the fourth quarter. Is that correct? And basically, presumably, it's a spike and not likely to continue? Is that a fair assessment?

So in Issuer Services, as opposed to -- as the securitization would fall into Austraclear and into the registry piece of Austraclear. So within Issuer Services in the equity side of the business, the primary market facility, there's been a lot of secondary. So there's a lot of use of that facility in actually issuance. There is also transfers and conversions in and around, moving stock across CHESS. And then there's also sending out issuer statements to our customers.

All right. Okay. So is there any -- so is that -- anything in that, that sort of one-off be recurring? What's -- how should we sort of think about that?

That's a good question, Nigel. I think if you looked at the volume spike in March, you'd say that like question would be, would you see that again? I think that as going back maybe to my outlook statements, that equity market volatility and volume probably remains elevated, but in -- over the next short while, I don't see us moving back to the more, sort of volatile times of March. So if you actually say they're going to be higher, but probably not with the blow off that we had through March and April. And probably the second that is coming through.

Right. Okay. And then just secondly, on derivatives and the yield. Obviously, you're saying less prop trading has led to higher-yielding derivatives. Presumably, that actually continues and probably grows a bit in an average sense, given the consequence of lower volumes, I guess, will be lower prop trading. Is that a fair...

Yes. Hard one to pick, and prop as a percentage of market has sort of come back a bit certainly over this year. But I guess the question will be as to how probably sort of like reworks itself? Is it going to -- people who might have been focusing on the bills, might they move out and focus more on the 10 years? And they, at the moment, they're in the process of sort of working their way through that. So it's sort of really hard to pick. I think you're right in saying it probably won't turn around fast. Will it go lower? I'm not sure. Maybe we've come to sort of a bit of a lower end of the range here and we'll hold for a while.

Your next question comes from Ashley Dalziell with Goldman Sachs.

Just an initial question on the cash equities market share improvement through the half. Could you touch on -- do you think there's been any sort of structural ongoing shift in market share? Or was it really just a function of the huge levels of activity that we saw around COVID? And maybe just the weight of, I guess, real money investors sort of overshadowing the high-frequency side of the market?

I think -- yes, again, another good question and sort of we'll see how it pans out. There's a couple of things going on. There's a little bit of market share change in a lit sense between us and Chi-X, but that's not huge. There's actually a move towards the lit market. As you saw, I think I said there was something like 8 out of 10 of the most, busiest sort of intraday moves have happened. So there's been a lot of moves happening during the day, and that would bring people to where the liquidity is during the day, which is the lit market. And so the lit market itself has actually had quite a bit of an increase in percentage sense against auctions and Centre Point, to some degree, but also against blocks going on in the market. And maybe that's just because in such a fast-paced market, those things are harder to actually get working. And so volume has sort of flowed right into where they can -- there's this instant liquidity and people can trust that. And that's the ASX lit market. So probably, over time, that might -- that I would say maybe that unwinds a bit. I think the market share of broker blocks has sort of gone down and would it come back up again? I think it's just how much by it probably does, yes.

Okay. That's clear. Just a second question on the deriv's business outlook. I mean just coming back to, I think, it was Andrew's question and your comment around the trend in contracts that we've seen over the last few months, probably a good guide in terms of the path into '21. I mean just pick that apart a little. I mean the trend in contracts over the last few months has been down 25-, 30-odd percent. Are you saying that's sort of -- at this point in time, your best estimate as to what '21 looks like over '20?

Yes, you go.

I'll give it a go. Certainly, I think, in the past, the volume of the activity has been around the shorter end. And so as people switch here, of course, the volume will move to the longer end of what percentage that is, we're still waiting to see that flush out. But certainly, our expectation is it won't be as high as what we had in the shorter end, probably about 4 or 5 months ago. So look, that's probably about as best as -- because we had more volume in the short end.

Yes. I would say that I think the best way of looking at it is actually to go back and look in the last 4 or 5 months. I do note that it's sort of like -- as I think I said before, sort of after the blowoff, sort of there was a couple of -- a number of marketplaces who actually just pulled out sort of 100% for a while as they reconfigured to come back in. So I think it was sort of maybe it was like overblown a bit. And then it actually -- it has come back. And the other thing I'd say is also that, obviously, if you're a trader or a swap desk or whatever and you're managing flows, it's not as if you can just sit there now and say, oh, I know that rates are going to stay at 0.25 bps, so I don't have to hedge anymore. You have VAR limits and you have controls around such that actually, when you have those things on your book, you've still got to keep within those risk limits and controls or whatever, because it's capital intensive. So I think there is an ongoing need for that hedging, obviously, less because people aren't feeling that, that's going to move as much. And also the speculation in those markets is going to be less because people feel like there's not going to be the moves that they might see in the 10 years or in, perhaps in other sort of ASX markets. So I think that sort of like, maybe you come down, maybe you've started to move back a little bit now. And probably over the next 3 to 4 months, if you watch the volumes, you'll be able to see where this is sort of settling down at. That's probably the best I can give you, I think.

And as Dom mentioned, looking at our July activity report and the next one will come out very shortly, I think that's our best way of actually following where the volume is going to guide.

I appreciate it's important because it's a big part of our business. But the good thing is, you can keep up to it on a day-to-day basis. I'll be watching those numbers as well.

Your next question comes from Wei-Shen Wong with WatersTechnology.

I'm just curious on the ASX Trade refresh and also your project on replacing the enterprise data warehouse. So for ASX Trade refresh, I'm just curious, once completed, which is aimed for the end of first half '21, which is December. What would the experience mean for market participants? And then on the enterprise data warehouse, I mean, how are you going about doing this replacement?

Okay. So ASX Trade refresh, and sorry, I didn't get the full thing.

The experience when we get out of that.

Yes. The experience. Yes, so -- Yes. That is, yes, in the second half of this year, as you said. The experience, it's basically upgrading to the most -- the product is an OMX NASDAQ product. It's being upgraded to the actual latest release of that, which actually becomes part of their whole new, what's called the NFF, NASDAQ Financial Framework. And that actually is a big change around the nonfunctional way that the system actually sits. So it's not a huge change in functional for the market, and that's a good thing because the market's got a lot of things on at the moment. But it basically raises the foundational nature of the technology a bit higher or a lot higher. Enterprise data warehouse is basically, when going back with CHESS, CHESS actually is, obviously, the clearing and settlement system, but there are a whole lot of related databases, transport layers, communications, mechanisms, databases, et cetera, that sits sort of around and at the back of that, as you can imagine, and that is a project that's been going for a few years now. And actually, it's not something that's sort of just finishing in 2022, it's actually a project in 3 stages, of which we finished the first stage. We're actually a long way through the second stage and the final stage finishes there. And that's effectively upgrading all of our database stores into a much more modern facility that we can sort of like lean on going forward. And I think the other good thing I would say about that is that, that will form the base of, with our derivative business, where actually we could bring those 2 things together if we think about the next stage going beyond 2022.

Just leading off that. In terms of the -- you said now you're in the second stage, what is -- what are some of the processes that are involved in that? And moving into the third stage, what would ASX need to do to be able to complete this project in FY '22?

I think probably that's better a question. I'm happy to have a sort of like a one-on-one on that rather going through like technology specifications of the system at the analyst briefing. Thanks.

Your next question comes from Siddharth Parameswaran with JPMorgan.

Just a couple of quick questions, if I can. Just one on expenses. So we've seen quite a sharp increase in your guidance on CapEx for next year. And I know you don't give long-term guidance on expenses, but one would think that over time, there will be upward pressure on that 6% to 7% that you've guided to for next year as well. I mean am I thinking about that the right way? Are those kind of levels likely to continue? Or maybe even increase going forward, given the quantum of increases that we've seen in CapEx?

Well, I think...

Or are there any offsets the other way?

I think everyone will be saying the same thing at the moment. It's very hard to predict and forecast right now because of the situation everyone's in. However, we feel comfortable when we do our 5-year planning. Obviously, we do that ourselves. And we feel comfortable that probably 6% has been the run rate before we took on the FTEs, probably about 2, 3 years ago -- sorry, employees, not FTES. That was elevated. We came back I think really, the large costs that we're seeing are, as we said before, the support for the technology that we're putting in. But we actually feel quite comfortable that, that's a good range to be able to invest in technology, in the business and also look after our employees. So we feel that, that's probably around the right number, but we've got to wait for another year to this COVID piece to come through. But right now, I don't see any point in having it higher. We're talking about it being higher, would that be right, Dom?

Yes. No, I agree with what you said there, Gill. And I think there's a lot of things here, sort of like market-led increases, which are a little bit variable cost, like the regulator charge, things like insurance is higher. There's a whole bunch of things that are sort of like, are not helping in that sense. But what I would say in -- on the CapEx side is that -- and this is sort of looking sort of a little bit maybe too far into the future to be too definite, but I would say that in doing what we're doing here and what I showed you there, what that is, is effectively like an application stack, which is very reflective of the equity business, but all the other things are being put in place for, across the whole firm. So when we go to the next stage of this, 2 things: one is, it won't have to be doing all of those firm-wide things because the firm-wide things have been done; and when it comes to the application pieces, it's going to be less starting at the beginning and starting from scratch, it's going to be more sort of moving the transactional pieces more onto effectively technology that we've already rolled out. So I see that as a sort of the second stage being a smaller stage of that when I look at some of the derivatives technology that we've got. And so I think it's sort of like the peak of this, is this sort of getting through CHESS and the database piece out to 2022. And I think it could look like -- I don't want to speak too early, but on more sort of positive about the outlook pass there. If that helps.

Okay. Yes, great. Just a second question, if I can, just on DataSphere and Sympli. I mean could you give us an update just on what the contribution is at the moment to the P&L? And when you think they might be making something that would be worth calling out?

Well, I don't think -- we haven't split those things out. And I don't think we will, for a while, the data speed thing will be part of the data or the information services piece in the business. I think as far as DataSphere goes, that's sort of like, I don't think it's been too much affected by the COVID thing. So they're actually out there at the moment. They have -- they're actually talking to customers, they've got some product design stuff on the way. They're talking to custodian, talking to banks, talking to buy side, on the fixed income side. So there's some interesting stuff going on there. Sympli has, is basically through most of its build. And really, it's just been the unfortunate sort of confluence of a whole range of things that you already know of everything from Hayne to COVID, around actually getting the attention of technology departments to be able to sort of get all those connections done. But I think we feel a lot more confident about 2 things: one is, the interoperability of the industry. I think that since we last spoke at this forum, that whole thing has sort of like turned very, I think, really very positive; and the other thing is, I think that after the sort of like March to sort of June period, I think, actually, the banks are actually engaging better such that I think we can get what we need to get done over the course of this year.

And maybe if I can just add to that. We're happy with the progress of both initiatives. Sympli, we still have a share of loss because we're actually still in the set up stages of that. That is a very similar number for the full year than it was for last year. So if you go back, we've got a change in disclosure, where we now put it up into the Derivatives and OTC line. But if you go back to last year's numbers, you'll see what that number is. But certainly, we haven't come out with revenue forecasts for either of those 2 initiatives yet.

Your next question comes from James Cordukes with Crédit Suisse.

Just a question on the investment spread. I know that remains -- it's come down, but it's still relatively elevated versus your longer medium-term guidance of 20 to 30 basis points. If I look forward and look at where the BBSW rate is currently, it looks like it could fall below the guidance range. I mean what are the reinvestment rates that you're getting in that product -- sorry, on those funds at the moment?

Sorry, so just to be clear, 2 things. One is, sort of like of our own capital, where we're earning sort of outright rates is really like the RBA rate.

And maybe I'll just start from the start. There are 3 ways that we make money out of interest income. The first one is obviously interest on our own cash balance, and that has come right off like probably every other company in turn right now. The second way is that we make interest income on the participant balances that we hold. That is at the same rate. So that's obviously going to be very low coming into the year as well.

And that's the margin over.

That's right. And then we have haircuts on the initial margins that we hold. And if you look at that, we have a certain charge on that. And so that's a little bit different to the interest, the cash rates that we actually get on the 2 other lines. And that's actually what's kicked up that interest income line, so I don't know whether you want to.

Yes. And I think the only other thing is really around the fact that, that as I think I said, I might have said it, maybe even Gill said, too, is that like, there's investment in securities that have a term and as those securities roll off and this sort of hits sort of between March and June. And so as those securities roll off, as in late last FY and early this year, that actual -- the margin piece, not the absolute rate piece, because that has already fallen, but the margin piece is starting to compress as well.

Yes. And I guess my question was really focused just on that large flat margin piece. So for example, last year, you said, I think it was 39 basis points with the spread over cash that you might have made on that. And I think the longer-term guidance was 20 to 30 basis points, but are we looking at kind of a [ technically a 0 ] environment here even if I look at kind of where bills are trading versus the cash rate at the moment?

Yes. And I'm not sure with the 20 to 30, I think that's a confluence of the latter 2 things that Gill spoke about, which being, there's sort of one more -- a more fixed style charge and the other one is a floating margin. And so the floating margin is going to come down, and it probably is more sort of coming down into, I would say, more of the teens. And the other more fixed charge will remain. So you get a confluence of that, which maybe that's what gets you to the 20 mark.

And the previous guidance of 20 to 30 would still be right.

There are no further questions at this time. I will now hand back for closing remarks.

Thank you. Okay. Well, thanks, everyone, for taking your time this morning, which I'm sure has been a very busy morning across the board. So good luck for the next year, and thanks very much for your time. Thank you.