TMX Group Limited (X) Earnings Call Transcript & Summary

All right, everybody. Welcome back. Good afternoon. My name is Jeremy Campbell. I'm the exchanges, brokers and asset managers analyst here at Barclays. And today, it's my absolute pleasure to welcome John McKenzie, TMX' Chief Executive Officer, to be at Virtual Americas Select Conference. I wish we can be meet and chat in person, John, and share a pint later today, but I really appreciate your time being here nonetheless.

I'm happy to be here, and I will raise a pint in your honor later on.

John, so you've been in the CEO seat for a bit over a year now, if we include the interim time frame as well. And prior to that, obviously, you had served as a CFO for a number of years. So maybe in case some of the folks that are newer to the story, I think it'll be worthwhile to give a little bit of an overview about TMX and especially the transition that you guys have made over the last several years from a bit of a regional exchange to where the company actually is today.

Yes, I'm happy to. So I'm excited because I'm getting the chance to lead the organization when the strategy we put in place is really starting to get legs and show progress in the marketplace. So as you said, we started as more of a regional marketplace. We've grown to be now 1/3 of the revenue outside of Canada. We were more of a transactional exchange business. We're now in a business where more than 50% of our revenues are recurring run rate revenues. And our growth franchises that we really focus on for the organization that people are excited about are our capital formation franchise, which is unique to TMX because we've got both a junior and a senior market. And as most people will be surprised, more than 2,600 listed companies and over 3,000 listed issuers. We've got a growth opportunity around derivatives as we continue to globalize that platform and add more products and service offerings to it. And we've been building out in data analytics, partly through our acquisition of Trayport, which we did at the end of '17, which we've now been adding new products to it, either organically built analytics or acquisitions like VisoTech and the one we just announced around Tradesignal. So our focus going forward is really to take that franchise of a business, continue to drive growth where we see growth, and couple it with a couple of other really important pieces around our strategy of ensuring we've got the right talent and culture to support it and that we use our position in the marketplace, that position of privilege and trust, to advocate for better markets because if we can make the market stronger, more companies list, more people can trade and the rising tide will lift all boats.

Yes. Great. And then I think you having the benefit of having seen it from the CFO seat now being the chief executive seat, forming the plan and executing the plan is really interesting. I think we -- and I know you guys have just appointed the new CFO this past month. But kind of marrying what you guys showcased in your 2018 Investor Day, right, where you laid out a bunch of different growth targets and areas of focus. Just wondering, you kind of covered a little bit in the prior answer. But maybe some of the biggest runways for growth and what you're excited about. And maybe how the growth prospects might have changed a little bit since you laid out the vision and the 2018 Investor Day.

Yes. And it's less of a change. It's more about what we've learned in the market in the last couple of years has actually reinforced that we're on the right path. So as you said, we're looking for long-term growth of mid-single digits on the top line and double digits on the bottom line because we've got great operating leverage to grow top line growth while maintaining a really efficient cost base. As you said, we focus our growth investments in areas where we can actually exceed that mid-single digit. So we believe that our derivatives franchise, we can do high single, low double. We believe that same for Trayport that we can do mid-singles around capital formation as we continue to build that out with more issuers and more services. And then even within that, we've got our TSX Trust operations, which is a smaller piece of cap form, but much higher growing that we're growing at more than double digits, and we've got an investment coming up to help bolster that going forward. So that strategy remains intact. It's been battle tested through COVID and the business has outperformed across all of those metrics. And then it really reinforces our focus now as identifying investment opportunities, both organic and inorganic, to continue to accelerate this and overachieve what we put forward in that 2018 Investor Day.

Yes. And I think some of the interesting things that you and I have unpacked together in our conversations is that, especially for TMX, it's much more of an and proposition between top line growth and margin expansion and cost discipline. I guess what kind of macro backdrops would have to kind of come through here for you guys, either to exceed or miss these financial targets?

Well, they're very much -- the long-term target, so they're really designed to be agnostic to the macro cycles that we work through. And because we've got a portfolio of businesses and some will react different in different market cycles, we can have times where derivative trading is going to be very strong because we're in a good volatility or interest rate environment, but maybe equities will not be. Or equity trading has got a lot of volatility, and it's quite strong, but that makes it hard for capital raising. So we do look at it to the long-term there, Jeremy, because that takes us through multiple cycles. And we don't want to worry about cycle to cycle how we're doing and focus on how we're growing year-over-year.

Great. And maybe let's take a moment here and drill down on Trayport a little bit. It's very much intended to, let's say, European energy and data and analytics platform. You guys acquired this at the end of 2017. You've augmented the platform with things like VisoTech. And I know we've talked about this at length in the past. But just in case, maybe, again, in case new investors are kind of subscribed here in the audience. Maybe just a quick overview on what Trayport does and why it's so important to energy traders in the market?

If you think about it from the energy market, the energy market for both kind of consumers and producers is disaggregated. So many pools of liquidity by either in exchanges or brokers and different traders, Trayport is the one stop for our trader to go to see that entire landscape on 1 screen. So if they're trading in German power, Trayport is the 1 product that puts all those different liquidity providers on a single screen and gives them the ability to execute either with brokers or bilaterally or with exchanges or cleared. And so that's really the power of it is that aggregation of marketplaces. And for the products that are on Trayport, 80-ish percent of all trading flows through a Trayport screen, but the real benefit in terms of it from a business standpoint is it's not a trading product, it is a data product. It's subscription-based. And so it's steady state, it's SaaS, it's recurring and it's very scalable as we build it out to new products and geographies over time.

Yes. I think one of the things that resonated when we did our little mini teach-in session, which, by the way, if anybody tuned in is interested, we still have a replay link of that from last fall. But one of the interesting things that I took away, John, was the different kind of user bases that you have. You've had more speculative traders. You had corporate hedgers, and then you had utilities actually operating in those platforms. So I guess maybe in the broad context of the existing ecosystem that Trayport has, where do you see the greatest near-term opportunity for Trayport? Is it kind of new data analytics product rollout? Is it new user adoption, more international expansion? How do you think about that?

Yes. And it's going to be yes, yes and yes, quite candidly. And we're trying to sustain the high-growth rate there. So we need to be firing on all those different cylinders. So there is more opportunity for user adoption. So we basically sell Trayport as an enterprise license in a lot of cases. So we'll have a new client come on. In the first quarter this year, we had 6 new clients come on. They may take a handful of seats the first time around for just 1 or 2 asset classes. And as they get used to the platform, well, now they also want to trade power on it, or they want to trade coal on it, or whatever they want to add to. And when we renew, we expand that usage. So you'll see that in our metrics. Our -- one of our main drivers of revenue growth is our subscriptions. And our subscriptions, our seat license, they were up about 5% quarter-over-quarter as part of our overall 9% to 11% growth rate. But as you said, it's -- we're also trying to add more services to the suite. So what do traders need to be successful? You mentioned VisoTech earlier on. That's a great product. It's an algorithmic trading solution that's really geared toward power traders. So power traders that need to be able to trade in the spot market and they need trading tools, we integrated that into our dual platform, and we sell that as a premium service on top. Organically, we built our own data analytics platform, so that people that are using Trayport, they want to retest their strategies, look at deep data analysis on the energy market, they've got the ability to do that now. So again, that's another premium on top that helps to lift it. And the acquisition that we just announced with Tradesignal gives us advanced charting and technical analysis. Again, so it will be a premium service on top that we can distribute across the platform. But quite frankly, in some of these things, like Tradesignal, it's got capabilities that we can also use in the broader TMX because these are tools that are built for the energy sector, but they're not unique to the energy sector. We can use them in equities and fixed income and derivatives as well.

And then I know, obviously, in this past 10 years, how energy markets have literally been all over the place. And so kind of wondering, maybe just digging into how much of this macro backdrop in energy and oil and power what is the -- what are the read-throughs to what's happening at Trayport? And obviously, as we've discussed, it's more about subscription, recurring revenue business model, but I'm just -- but just wondering if healthy energy markets has a positive implications for clients? Or if there's some other lateral that we could think about regarding Trayport?

It does. And certainly, at the beginning of the COVID cycle, that was probably our #1 worry. It was the lack of health in the energy market. Would that dislocate some of the clients? And we didn't see that. We actually saw our continued strong usage, and we saw our clients renew. The energy sector itself is not only is it -- have been quite volatile, but it's also changing. So the energy mix is changing, you're getting more renewable and renewable power into the mix. That actually just brings new users into the platform. So you're broadening the user base of who wants to interact with Trayport. And even on the more traditional side of the energy platform, the energy spectrum, and you think about oil markets, which are probably what a year ago were the most distressed, we just actually recently signed our first oil broker on the platform. So because those markets are fragmented, we've got a broker that's going to put their prices on the Trayport screen because Trayport will be a good vehicle to start to aggregate that marketplace. So Trayport is that tool that helps to take these markets that used to be, in some cases, phone-based into 2021. And so they can interact in electronic means the way that other marketplaces do. So in all cases, it's -- Trayport solves a problem for the industry. And the more complex the energy markets gets, the more valuable Trayport gets to the clients.

And then presumably the more electronic it all is, the more useful data analytics and predictive things that you guys already have in the platform would be to the end user then as well.

Exactly. And it will just be more demand for more.

Yes. And then, I guess, at the end of 2019, Trayport announced a partnership with the Nodal Exchange here in the U.S., allowing kind of the Nodal traders use the dual screen at Trayport. Maybe can you just explain where we are today in terms of that partnership and how you kind of envision this potentially expanding the footprint or offerings at Trayport?

Yes. So within the partnership itself, we're actually well advanced now. So they are a paying exchange client like any of our other exchange clients, their parent, EEX, is one of our clients in Europe. And we're working with them in terms of rolling it out to their traders and getting prices on screen. And candidly, through 2020, that didn't go as fast as we would have all hoped, as people were disrupted in terms of COVID and in terms of intermediaries not being available to do the work, but that work is progressing. If I put it in a different analogy, though, it's -- if you think about Nodal as one of the pieces that we need to build-out in North America, we are still in early innings of this game. So very much like the way Trayport built out in Europe, it built out through multiple exchange and brokerage relationships to start building liquidity. And so this is 1 piece of liquidity that we need to build in the U.S., and it's a really good one because Nodal trades about 50% of the U.S. gas and power. So they're a really good partner to start with, but we need to keep building more around. And that's actually why the refined oil announcement, while we haven't talked about it very much, is so important because this is a broker who's committed to putting oil pricing on screen in North America, Europe and otherwise. So that's another building block in North America. And if you take our road map from how Europe builds out, is this is what we need, more building blocks and then we could start to create some critical mass around pricing and liquidity that brings new traders onto the platform. Trayport was built out in Europe over a decade. And so it took a while to get that critical mass. When we start in North America, we're not starting from a white sheet of paper, though, because we already have the system capabilities, we have some of the relationships already existing. Some of the clients we work with our clients in our European operations already. So we've got a head start. So I'm not saying it's a decade to build out, but it is still a long-term strategy in terms of building that out.

And I presume that given the size and the scope of the North American market, if you guys are successful on building that ecosystem, the opportunity is very large.

Well, if you think about just in terms of the number of traders, there are thousands of traders in the U.S. market that are trading energy, very similar to Europe.

Great. I think let's move on for a moment here to the derivatives complex in the Montreal Exchange, which is the only derivatives exchange up in Canada. I know over the past year, the low rate environment has been a little bit of a headwind for the derivatives business, given that rate product are one of your main subsets. I guess just maybe as we look ahead here, a couple of things that we've discussed in the past are I think in the second half of the year now, you're going to begin to launch extended trading hours in Asia. I think maybe this got pushed back a little bit from the first kind of thought here. But a couple of years ago, you kind of extended this trading hours from just North America to Europe. Maybe how do you envision the incremental volume activity resulting from further expanding into the more like 24/5 type Asian market?

Yes, it's a great question. So our success was deep in Europe. So far, we're doing, on average, about 6-plus percent of the flow is coming from a European times entry. And if you go back a year ago when we were getting into the real height of COVID taking off, initial thought would have been that might actually pull back in terms of people retreating to their comfort zones, but it actually went the other way as high as 10% in terms of that engagement. So the engagement was steady throughout this. And the Asian expansion piece, you're right, we were hoping to get it done in Q2. We've got some incremental work to do around the regulatory and the participant readiness side. So to be cognizant of those stakeholders, we're going to do it in the back half of the year. But the anticipation with the demand from Asia and making the access and clearing seamless, that plus Europe, we should be able to get to what we've seen other exchanges get to, which is 15% to 30% of their flow coming from their off-market trading hours. And that's certainly our objective that we're building towards as we launch this out.

And then John, maybe just the use case and the utility, what would draw, I guess, like an Asian trader to the Montreal Exchange and some of the Canadian derivative product that you have, whether it's some of the ESG stuff or there'll be equity indices versus primarily what you have as a rate base complex. I guess what's the appeal to that for the traders that are out there in that part of the world?

Yes. So there's a basis, which is the opportunity to actually trade Canada. So let's start with that piece. And when we talk to asset managers in the region, who want to have exposure to the underlying Canadian economy, you can do that through, as you said, an equity index future. It gives you that broad-based basket access to Canada, but they also need the fixed income side as well in terms of either they want the rate exposure over the hedging strategy or the exposure to the fixed income and the yield curve there. So there's different ways of different asset managers who want to be able to trade and get exposure to Canadian assets. And what we've learned through the past is you have to make it easy for them to get here. Because Canada, we're 2% to 3% of the global economy. So if we don't make the access really easy, then it's going to be easier for an asset manager on the other side of the world and say, you know what, I'm just going to take the U.S. as my proxy and not go there. But the Canadian basket is actually quite different. We've got more unique energy companies and resource companies, a really growing tech sector and, as you said, a different ESG lens on it. So for asset managers that want to get that exposure, these are products that are going to make it easier for them to do that.

I'm sure the CME guys would love for you to ignore that conflict a little bit more, but that's not the world, I don't think. And I think it's worth noting here because it kind of baffled me the first time we were doing work on it, but John, am I correct in your calling that about 40% of your derivative volume comes from actually outside of Canada?

That's correct. And we'd like to see that be 60%, like some other global exchanges.

Yes. And then I think let's kind of double-click on the rate side of things a little bit because in the past, you've had -- you had a lot of launches. So you have the core short-term contracts, and you have a relaunch, the 2-year. The 5-year is kind of getting up to speed after launching -- relaunching a few years back. And then, of course, you have the 10-year at this point. So I guess, first and foremost, how do we -- how should we think about it? Is this more like a coiled spring element where you're doing all the blocking and tackling, getting all your partners lined up and ready to go, so that when rate ball comes back, you'll see kind of an escalating volume. And maybe where are -- you see other opportunities on the rate ecosystem that are ripe and be kind of filled in?

Yes. So you're exactly right. You get the whole product suite in place, then not only are you ready when volatility returns, but you're also ready to participate regardless of where it is on the yield curve. So even though the interest level in the short-term of the curve has continued to be pretty soft in that almost near 0 rate environment, there has been more volatility on the later part of the curve. So we've seen growth in our 10-year products, even though the short-term backs or -- product has been down. As you said, the pickup we're getting in those midterm products is also good. So the 5-year continues to do well. The 2-year, we only just launched in the first quarter. It already has over 10,000 contracts traded a day on it, and that's in the midst of a low rate environment. So just that speculation around potential for either rate increases or inflation get some interest there. There's also client demand for us to get our 30-year product out. And that's the one we're targeting for the back half. And that will give us then that full complex so that traders can get exposure everywhere they want, but they can also treat different parts of the curve, which either they want to be short on the short end and long on the long, and they've got the ability to do that with our products. So it makes it easier to transact everything you need to do on exchange versus doing it all in the OTC world. On the flip side, we're looking at other products that are interesting and complementary, so while not rates-based, we're launching a dividend future, which gives a different type of exposure to yield in the Canadian market as opposed to just being on the fixed income rates. So that will appeal to a different piece of that trading community.

So you're opening the market to a little bit more cyclic activity across the curve or even on swaps, some more arbitrage. And then even maybe on the financial institution side to make sure more granular hedging.

Exactly. To be candid, while the volumes are -- they're not where they were a year ago, particularly on the short end of the curve, when you look at how we've built sequentially quarter after quarter after that real step down in rates, I think in Q1 this year, we're up sequentially 30% to 40% from Q4 last year. So the interest is there. And the open interest in the contract is up double digits.

Yes. I know you mentioned the dividend contract. Are there any other non-rate-based contracts that are maybe yet to come that you're particularly excited about?

Yes. I mean the biggest ones is that we're continuing to push and build out the ESG products that we brought to market last year. So ESG on the TSX has the composite, ESG on the 60. Those will continue to build. But we also have got some really exciting things going around on the single name products. So we're the only market in the world to launch ETFs on Bitcoin and Ether. We now have options available on those ETFs. So for someone who wants to trade in those commodities without the hassle of worrying about wallets and the transactions to do it, we've got a clean way to engage in that. We have a single name future complex that allow us to put futures on those products as well. And that's actually been one of our fastest-growing areas in terms of our overall complex has been in the single name products.

Great. And I know we hit on 2 of the primary things where international is a really key part of the story between Trayport and then expanding the derivatives complex. But I guess, maybe last broader question around international. Can you just remind us how much of your revenue comes from off -- outside the Canadian borders at this point? And what other international opportunities that you see and look to expand out from here?

We're about 1/3 today. So about 33%. And certainly within our growth strategy, in terms of the areas that we've talked about in terms of derivatives and Trayport and even with capital formation, a lot of that growth comes from outside of Canada. So we, even organically, plan and expect to extend that. When we look at M&A opportunities to build up the franchise, certainly, there's a premium in terms of what we look at for things that are recurring revenue base, things that we can scale with our businesses and that have an international client exposure to them. Those are 3 key things that we're looking at.

Great. And you mentioned cap formation [indiscernible] there for a couple of questions here at this point. I think that's a business that's seen a ton of momentum over the past year after 2 prior years of, let's generously say, muted activity to a certain extent. Can you talk about maybe what's been driving such great growth? Is this -- do you see this a little bit more of a catch-up versus some of the lighter activity the prior few years? Or is there part of this kind of engagement boom kind of trickling through into the cap market sector as well?

So there are a couple of different things in there. So certainly, some of the just additional financing activity, there probably is some catch-up in that because when you're coming through the end of '19 and 2020, at end of a long cycle, with low-cost debt, there was a lot of companies with balance sheet. So we're already pretty levered as we got into COVID. So having a really strong equity trading environment has been really good for companies to raise money. And that's been part of the key things. So really strong trading activity, strong valuations and people getting successful transactions done. And this is a case where liquidity begets liquidity. As people get successful transactions done, other companies will test the market to do that. The IPO side, the new issue side is, I think, a more interesting story because it's really broad-based expansion in terms of the number of new innovation and technology companies that are coming to market that are seeing success of others and following on the path and really strong investor participation and interest in those names. So when we look at the -- just financing raise and the number of new issues, I think between our 2 markets, TSX' financing is up 100%. Venture financing is up 200%. And we're doing more new issues in this market than we've probably done in the past. This is probably the best market about 15 years in terms of that activity level. It is broad-based. It's multiple sectors engaged, but the innovation sector is the really interesting story on it because -- and we would have talked about this years ago. We looked at -- this was an area we were targeting in terms of trying to build out the innovation franchise in a way that was meaningful to what we were doing in resources. In quarter 1 of this year, our innovation sector topped $500 billion for the first time and now was rivaling and bigger than the mining sector for the first time ever. So this is something that we had predicted 5 years ago and now seeing it come to pass is exciting because there's so many great companies that are raising money and expanding their businesses. Innovation alone, we've raised, I think, in the first quarter, just over $7 billion in the first quarter. That compares to $8 billion in all of 2020, and 2020 was the previous record.

And John, you mentioned the metric exchange. I think it's probably useful for some folks that may not be as familiar with your junior-senior construct that you guys have. Maybe to just expand upon that a little bit. And maybe in the context of what you're just talking about between diversifying away from just energy and mining and toward innovations or even, obviously, most people have seen Canadian cannabis listings as well. But maybe how that junior-senior structure has helped you gain more traction and that kind of expand away from what you hadn't listed on the core basis previously?

Yes. For those who don't know, the venture exchange is unique in the world in terms of being a full-fledged equity exchange geared towards small-cap issuers, where in other regions like the United States, these are companies that would never meet the standards for a NASDAQ or NYSE. They would be OTC or just held private. And so our market structure allows a company that -- of small size to raise public money and to use the public market to raise future rounds of financing. They're usually brought to market through a private placement. So it is actually an intersection of private equity and a public exchange to get that liquidity with retail trading. We've got some really unique features in there for companies to go public. So very much -- and we've been hearing a lot about the U.S. SPAC phenomenon. We've been doing it on the venture exchange for decades. We call them capital pool companies. They are small-sized SPACs. I think we have over 130 of them active today, and founders have a period of time to be able to bring a private company to the public market through a reverse takeover. So it's been a really good feeder for companies on the venture. And then over time, companies on the venture are a feeder for companies on the TSX. So over our history, we've graduated over 700 companies that have started a small junior companies on venture, grown up and become senior TSX companies. And today, represent about 20% of that senior index was companies that came up through this channel. So not only is it a really important financing vehicle for growth stage companies, but it's a feeder for companies that are going to be the next superstars on TSX in the future.

Yes. Great. And then I think just within cap formation, you guys obviously did an acquisition -- point acquisition from AST Trust last year. I know it's an area that you've been excited about for a number of years, but growth could accelerate after the 2018 Investor Day. Can you just talk about the outlook of the trust business and kind of what keeps you excited here at this point?

Yes, the trust business, and even before I get to AST, this is one that we have been growing, and it hasn't been showing -- you said it hasn't showed up in the results in the last couple of years. And I know in my number of meetings, I said, be patient. We're adding clients to the platform. And we had -- we went from about 13% of share market on transfer agency to I think we're up to 24% today, because our relationship with issuers as they come to market is unique, and we're able to win more than our share of new clients. We do more than 50% of the new wins. When the market turns, so that company started doing corporate transactions and capital raising and trust activity again, we had a bigger base to build off of than we had before, and that's why we're seeing kind of 40% growth in that franchise in the first quarter this year as it's been really an active market on a bigger client base. But what we were missing the whole time was the large-cap clients. We were doing really well in small and mid-cap, ETFs, but the large companies are hard to switch. They don't come to market as often. They've got more complex needs. And so that's where the AST transaction opportunity came from. So AST Canada is a similar type of business, but it's got fewer clients, but they're bigger. So it's actually a bigger revenue business than what we have today, fewer number of clients, but it brings with it technology that we can use to expand our services broadly, products that we don't have on offer today like employee plan management, and other servicing needs like call center capabilities, things like that, so we can serve those bigger issuers. And we do believe that once we get this closed in Q3, all regulatory approvals permitting at the time, that's going to be a combined business, we're going to be able to continue to grow at double digits there forward off a bigger base, and that's what we're excited about.

That's great. And then I guess, this is a European-based conference, although we probably have a lot of the North American friends tuned in here today. But obviously, ESG's big everywhere, but especially European as well, and for a number of years. And it's just gaining global importance at this point. And I know, obviously, we talked about this a little bit earlier, you have an ESG futures type of product, but just want to open up the question and allow you to address any other opportunities you see as a firm to really kind of dive deep into the ESG side of things?

Yes, I'd love to. And I'm going to guide folks that haven't to go to our website, look at our new sustainability report that we just launched last week. This is our second time around on it. And it lays out our vision around being an ESG leader in the marketplace, and that has a dual track to it, which is, one, as a public company ourselves, how do we set the right example of how a public company should behave in terms of the reporting that we do, the way that we engage with stakeholders. I think we're the first exchange to report against SASB. We did it again this year. We're committed to doing TCFD this year as well. We're committed to be net 0 firm by the end of 2020 as well. So all these things that we're trying to move the needle and set the right example of what an ESG leading firm can do. Separately, the bigger impact we have is the role we play in the marketplace. And the twofold strategy we have there is enabling our listed issuers to tell their own ESG stories and connect with investors more meaningfully. With that, we have an ESG 101 program that we help engage and train and give them best practices in terms of how to engage with ESG. And then just recently, we've announced a partnership with IHS, IHS Markit, to launch a reporting portal. So to make it really easy for issuers to report against ESG metrics, be again, SASB or TCFD or whatever they need to report against. Because we've got to recognize that it's easy for the top 200 companies to do this. They've got deep resources. They can put resources against that disclosure work. But a lot of our companies are mid-cap and small. So if we can help them on the reporting tool, we can help them raise the bar on disclosure and help more ESG-oriented investors to connect to them. On the other side of the investor lens, we are looking at putting more sustainable product on market. You talked to the ESG features already. We're also going down the path of putting sustainable bonds right on exchange. This will be unique for Canada because we don't have a really big on exchange bond market, most of it's OTC. So this is going to be kind of a new foray in terms of making these products more retail available and leading with the sustainable products because that's where the investor interest is coming from.

That's great. And I want to kind of dig in a little bit for a moment on just the cash equity side of things because you talking to a guy that works up to an equity department of a large investment bank. And we never think of cash equities as a high-growth business, let's put it that way. Although in this year, we're having a lot of elevated volumes and elevated volatility a lot of activity. In the U.S., we've seen a massive rise in retail engagement and retail trading activity. Just wondering, have you guys seen the same type of impact going to play through on the cash side of things up in Canada?

Yes, we absolutely have. It's got a different flavor than what you saw in the U.S. So we've got -- retail participation in our market has gone from kind of pre-pandemic, 35%, 36% of the flow would have been retail-oriented. In the first quarter this year, it averaged 46% with a high of 48% in February. Overall, volumes up over 100%, but really oriented to the piece that's more retail in nature. So our TSX, our more senior markets, was kind of in line with a year ago, I think, 5%-ish. Our alpha market, which trades both senior and junior stocks, but is an inverted market, so it really does cater to the retail trading platforms, it was up 80-plus percent in the quarter. And our venture market, as we talked earlier, which is really -- I mean, these are, in some cases, penny or low dollar trade stocks, so they really are retail oriented, that's up about 175% year-over-year in terms of that trading activity. So it's much more broad-based than I think what we saw in some of the U.S. activity that was around some social media trade and meme stocks and things like that, that really wasn't the driver. It's that broad access that retailers are getting for these companies. And I do believe there's an element of this. This is going to be an element that will be sustainable. And I'm not going to say it's sustainable at what we saw in Q1 because I think we've already seen that kind of peak trade-off. But I do think we're going to get to a new normal that's in excess of what we were pre-COVID because you've got access tool for retail investors that have never been as available in terms of either discount brokerage or app-based trading, the low cost of capital to trade. And when you put down the backdrop of actual higher disposable income and people working from home, all that mix has generated this broader activity in retail. And it's allowed retail traders to get comfortable with doing it directly. So that education doesn't go away even when people go back to work.

Assuming everybody doesn't move their money over to Dogecoin.

Exactly. Well, if they do, we'll put an ETF on it, and they could trade it on our market.

And then, John, sticking with cash equities for a second here. Obviously, there's always headlines every couple of years of a U.S. firm entering the Canadian market and trying to make a little bit of a splash. There was another one this past year. Just kind of wanted to get your take and how do you view the potential for kind of increased competition up there in cash equities up in Canada?

Yes. It's a great question. We have a lot of competition already for cash equities. And I think Canada as a marketplace is only 1/10 the size of the U.S., but we've got 13 active markets trading that mix. Now in terms of treating our own names, we do about 2/3 of that trading activity. So the rest is spread through a handful of other players. So I do believe anyone that wants to either come in, launch or bring in new marketplaces has got to add value. They've got to add value to the street, to the dealer community to have a reason to be there and fragment liquidity some more. You saw a year ago, we talked about CBOE came in and they bought MATCHNow, a dark pool operator. And we hope they'll bring some of their capability they're known for globally to add more value to the marketplace. Because what the marketplace isn't asking for is just more venues to spread it anymore because that just creates more connectivity costs and data costs without actually providing more liquidity. So that will be the test. People have got to add more value, and that's where we focus is ensuring that our marketplaces are adding value. We ensure our fees are competitive. We had features and functionality. We've talked a bit on our call about our dark offering, which we continue to expand. We're looking to add conditional order types on that as well to give another functionality for the street. So our approach is keep serving all those needs of the client, and they don't need to go anywhere else.

And then you mentioned engagement, hopefully, remaining high on the retail side of things, even when we get through the pandemic, the worst of it, hopefully, at this point. But John, outside of you getting a steak at a restaurant for the first time in a while, with the [indiscernible] here, can you talk about any opportunities for your business coming out of this whole COVID-19 pandemic lockdown type of environment?

I think one of the biggest thing coming out of it is that like others, we've learned how to do work differently. So I think our franchise becomes a lot more scalable than we were in the past. We've automated a lot of the workflow that we do to bring companies on where that used to be historically more paper-based. We digitize more of the processes in the company. So I think it allows us to be actually more nimble and scale up in a way that we weren't able to in the past. I'd also like to see people face-to-face again. I do think throughout this, we've actually lost something in the ability to strategize, engage with clients and plan out where you take the future to. That isn't just -- it's just not the same when you do it through a Zoom call. I think that's really important. But I don't think work goes back the way it was. We expect to be a hybrid model. We expect to travel less and engage digitally more. And again, I just think it allows us to scale up globally in a way that we haven't before because you're not as geographically tied to how you build your business in this new model.

And putting maybe your CFO hat back on for a moment, your old -- dusted off a little bit from the shelf behind you. And as you kind of think that answer to the question I just asked, and you think about the outlook over the big picture on margins, and I'm not asking for any guidance here, John. But how do we translate that over time? And I think you look at some of the U.S. exchanges that are a little bit more mature without some of the growth initiatives that you're plowing into. And you're seeing some of the more transactional ones have like a 60-plus type of margin versus I believe you guys were at closer to like high-40s for 2020. So how do we think about marrying this hybrid model with the expense outlook and margin improvement story over the next few years?

Yes. So very much with the guidance that we do and the ability to continue to grow the top line over the long-term in the direction that we've said, the discipline that we put in the cost base, we do think, as I was just talking to, this business is highly scalable and it will allow us to grow into more margin expansion. So we do take that cost disciplined approach. We look at everything we spend on. We ask people to identify savings so we can redeploy that into the growth areas. We use an agile approach, not just to our business initiatives, but also to how we fund things across the firm. And so that flexibility allows us to put the money where we need to grow without rapidly expanding the franchise. So that gives us the leverage to grow the top line in those mid-singles and drive the bottom line in double digits. That's where we get the margin expansion lift is the output of that trade.

Great. We only have like another couple of moments here left. But I know we traveled a lot of ground today. We unpacked a lot of information. But as you sit here today and you look forward over the next kind of, call it, 3 to 5 years, what are you most excited about? And maybe just what are some of the key takeaway items that you want investors leaving the session with?

I'm going to start with, I mean, the takeaway items is if you haven't looked at our organization well, have a look again because I think you picked up on a line I use as well, which is the business is firing on all cylinders. And it's actually exciting to see the execution of these growth strategies we've been putting in place, getting real traction in the marketplace. And there's a piece that we haven't talked to at all yet, which is the piece that gets me excited for the next stage forward. In some of our work we're doing right now, we're looking at what's going to be that next foray on data analytics in terms of where the market is going, where we can be a meaningful player. So J. Rajarathinam and the team, this is their full-time approach on strategy and innovation is those next leading products investments, M&A opportunities to build out more on the data analytics side. And looking at those sectors and areas that are unique to us where we can provide value, be it, as you mentioned, cannabis, other commodities, energy sector, emissions. We're one of the largest energy lister in the world. So these are people that need renewable credits and emissions products, things like that. So there's a lot of interesting things that we don't know yet, which ones are the ones that are going to take off. But I think in the portfolio of possibilities we're looking at, there's going to be another top product there coming out in the future.

Perfect. We'll have to leave it there, John. But I really appreciate your time today, and look forward to seeing you, hopefully, perhaps, in person, maybe at some point later this year, but certainly maybe in London next year.

Absolutely. Thank you so much.

Thanks, John.