TMX Group Limited (X) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the TMX Group Limited Q2 2022 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, July 29, 2022. I'd now like to turn the conference over to Paul Malcolmson, VP Enterprise Sustainability and Investor Relations. Please go ahead.

Well, thank you, Michelle, and good morning, everyone. I hope that you and all of your families are staying well and enjoying the summer. Thank you for joining us this morning for the second quarter 2022 conference call for TMX Group. As you know, we announced our results late yesterday afternoon and a copy of our press release is available on tmx.com under Investor relations. This morning we have with this John McKenzie, our Chief Executive Officer; and David Arnold, our Chief Financial Officer. Following opening remarks, we'll have a question-and-answer session. Before we start, I want to remind you that certain statements made on today's call may be considered forward-looking. I refer you to the risk factors contained in our press release today and reports that we have filed with the regulatory authorities. And with that, I'd like to turn the call over to John.

Well, thank you, Paul, and good morning everyone. Thank you so much for joining us today to discuss TMX Group's financial performance for the second quarter and for the first 6 months of the year. And let me start by echoing Paul's comments in terms of wishing everyone an excellent summer, a well-deserved good summer after 2 years that have been more challenging. Now David will join us in a few minutes to take you through the second quarter results in detail. But before he does, my comments this morning will really focus on TMX Group's performance throughout the first half of the year, the progress that we are making on our enterprise growth initiatives, and the proactive measures TMX has undertaken in an effort to address the needs of our broad and diverse stakeholder group and to help push the evolution of our capital markets ecosystem to ensure we maintain our competitive edge into the future. Now in many respects and this is no secret anyone listening, the 2022 business environment looks very different from the same time last year. Macroeconomic conditions, geopolitical events, including the conflict in Ukraine, rising interest rates and inflation concerns have negatively impacted global markets. And it is a stark reality for our clients and peers across the financial industry and people around the world. But before we begin to examine the business impacts, I want to take a moment to pause and send our thoughts out to support all those people who are directly and indirectly affected by these global challenges. Now turning to our performance. Overall, TMX continued to deliver positive results, both for the second quarter and the first 6 months of the year despite the impact of significant and persistent headwinds on some of our key businesses, including capital raising and equity trading activity. TMX reported revenue of $573.2 million for the first 6 months of the year, which is a 15% increase from the same period of 2021, due to higher revenue from derivatives trading and clearing, Trayport and capital formation. Increased revenue was partially offset by lower revenue from equities and fixed income trading and clearing due to lower trading volumes on the Toronto Stock Exchange and TSX Venture Exchange. Now while our revenue included $60.3 million in the revenue from BOX, which was consolidated in January 2022, as well as revenue from our 2021 acquisitions, $21.1 million from AST Canada, acquired in August 2021 and $0.8 million from Tradesignal acquired in June 2021. Now excluding revenue from last year's acquisitions, revenue was down 1% from the first 6 months of 2021. And on an adjusted basis diluted earnings per share was $3.71 in the first 6 months, a decrease of 2% from 2021. And total operating expenses increased 27% compared to last year or 4% when you exclude expenses related to BOX, AST Canada and Tradesignal. And TMX's performance in the first half of 2022 again highlights the power of our resilient business model and underscores the efficacy of our adaptive long-term diversification strategy. TMX's corporate purpose is to make markets better and empower bold ideas and it's a central and guiding theme in that strategy, our pledge to our vast and varied group of stakeholders. And we never lose sight of the importance of our role at the center of the market and what this ecosystem of opportunity means to the country's economy and the people in the communities from coast to coast. Now turning to each of our business areas. Revenue from capital formation in the first 6 months of 2022 was $137.2 million or 5% increase from last year. And the year-over-year increase reflected the inclusion of revenue from AST Canada and higher revenue from initial and sustaining listing fees, partially offset by lower additional listing fees, reflecting a decrease in the number of financing transactions and dollars raised on TSX and TSX Venture. And coming off a record second -- 2021, global conditions have been less favorable for capital raising in 2022 due to inflation concerns, rising interest rates and increased volatility. And while the IPO market slowed year-over-year, we proudly welcome new listings to the market in the first half of 2022, including Bausch & Lomb, Ivanhoe Electric, Dream Residential REIT and 2 large Florida-based SPACs, Agronam Acquisition Corp and FG Acquisition Corp. And we remain actively engaged with potential IPO candidates in all sectors as well as dealmakers from across the interconnected ecosystem. And we also continue to see evidence of the strength of TMX's unique value proposition for companies looking to access public markets. TSX Ventures Signature Capital pool company program is thriving. And despite the overall challenging capital raising conditions, TSX Venture added 46 new CPCs in the first half of 2022, a 24% increase over the first half of 2021. Now consistent with TMX's corporate purpose, our work to ensure we remain a market of choice for the next wave of great companies poised to come to market is proactive and it's an always-on campaign. So in June, TSX Venture launched Venture Forward. It's a new community-driven program focused on strengthening Canada's crucial public venture market. This collaborative long-term initiative is designed to engage our public venture stakeholders, including entrepreneurs, investors, financiers, lawyers and advisers to help identify priority challenges and friction points and map out a plan to pursue workable solutions. We have begun to reach out to stakeholders to help frame the issues. And our next steps include developing near and longer-term plans. And we intend to publish highlights of our findings and feedback along the way with planned next steps by the end of the year. June also marked the in-person return to the Prospectors and Developers Association of Canada or PDAC convention. And for years, our exchanges have proudly supported this massively popular and annual event, which brings mining companies, investors and policymakers from all over the world together into Toronto. And it makes good sense. TMX is the world's premier marketplace for resource companies to raise capital. More than 40% of the world's public mining companies are listed on TSX and TSX Venture. And we were honored this year to participate in the International Mines Minister Summit at PDAC 2022. The theme of this year's summit, an annual meeting of leading mining representatives and governments from around the world was ESG and emissions reductions and the increased production of lithium, nickel, copper and other essential minerals in the global efforts to achieve net zero. And we shared TMX's perspectives with the ministers on how governments can help support a thriving mining sector by minimizing regulatory burden where appropriate, by committing to make the necessary infrastructure investments and to fostering collaboration with local communities and specifically indigenous communities. Mining is a rapidly evolving industry. And as the transition to low-carbon economy continues to gain momentum, investors are paying close attention. And so we recently launched a new benchmark to serve the needs of investors seeking increased exposure to and deeper insights into the clean tech and energy transition story. The new S&P TSX Battery Metals Index measures the performance of TSX and TSX Venture-listed companies focused on the exploration, development and production of select commodities that serve as significant inputs in the decarbonization of the transportation sector. Now I'd like to turn to derivatives. Excluding BOX, revenue from Derivatives Trading and Clearing was $75.3 million in the first 6 months of 2022, an increase of 5% from last year. Now the increase was driven by 15% higher revenue from CDCC due to repo dealer activity and fee changes and a 2% increase in revenue from Montreal Exchange, reflecting higher overall volumes and fee changes on the SXF, particularly offset by a slightly unfavorable product and client mix. Total volume increased 2% over the first half of 2022, with strong growth in overall open interest at June 30, 2022, up 25% as compared to the same point last year. Now in the midst of a volatile and turbulent market environment, investor demand for tools to effectively and efficiently manage risk increased year-over-year. Volumes traded in options grew 21% over the first half of 2021, led by trading in the energy and financial sectors and reflecting increased activity from our institutional investors as well as our retail client base. Trading and ETF options also gained strong momentum, particularly in the second quarter amongst institutional investors with volumes up 11% compared to the first 6 months of 2021. And volume in index futures trading was up 19% in the first half of the year compared to 2021 as clients moved to manage exposure to volatility in equity markets. The first half of the year was also marked by sustained growth in our newer Government of Canada bond futures contracts with 38% increase in the volume traded in the CGF or the 5-year contract and 155% increase in volumes traded in the CGZ, our 2-year contract. These recent additions to our product suite are proving effective and creating efficient cross-market trade opportunities and continue to gain in profile among global investors. Now the maturation of the CGF product itself is a definitive success story, it is now -- as it has now reached levels of liquidity, where introductory incentives are no longer required to sustain its growth. Moving now to Trayport. Revenue in the first half of the year was $79.2 million, a 7% increase from the first half of 2021, 14% in common currency or pound sterling and driven by an 18% increase in trader subscribers, annual price adjustments and consultancy revenues. Now the conflict in the Ukraine and the impact of the corresponding sanctions continue to drive increased volatility in global energy trading markets. And Trayport's core network of dynamic tools and solutions supports the needs of traders across the European energy markets and connects clients to execution venues and clearing houses across key power and natural gas markets. Now while primarily focused on meeting the demands of a robust market during the first half of 2022, Trayport also has successfully advanced on its global strategy to diversify and to move into new asset classes and geographies. In June, Trayport announced a minority investment in Ventrix, a cloud data technology company that offers a platform for data acquisition, integration and business intelligence. And under a new partnership agreement, Trayport will further expand its product offering to meet the growing client demand for data and analytics. The Ventrix solution complements Trayport's existing suite of data, automated inaugural trading tools and will further enhance decision-making and improve the overall trading experience. In closing today, I want to commend as always our people for the work that they do and their everyday contribution to TMX's success and specifically to thank our team of professionals for their efforts this summer in transitioning TMX into a hybrid working environment. I'm very confident that the new balance of virtual and in-person work will ultimately prove more stimulating, engaging and productive for all of us. And we don't have to look too far for compelling and relevant examples of the value of renewed in-person engagements. In June, our team hosted 2 annual trading conferences in-person for the first time since 2019; the TMX Equity Conference in Toronto and the Canadian Annual Derivatives Conference, or CADC in Montreal. Each of these signature events brings together professionals and industry experts, our partners across the capital markets ecosystems to share perspectives on the current and future state of our markets, and to exchange ideas on challenges and opportunities across the Canadian equities, fixed income and derivatives landscape. So I'd like to thank everyone in the market's division, to our stellar marketing and support teams for pulling together 2 extremely successful and well-attended events. In addition, last week, we also took an important step forward towards TMX's reconciliation journey. A diverse group of business leaders from across TMX gathered in Windaki, a First Nation in Quebec to participate in an immersive shared learning experience to develop TMX's foundational principles and philosophies for reconciliation. This 2-day session featured a productive open exchange of ideas and perspectives, highlighted by invaluable insights and experience shared by members of our host community, the Huron-Wendat nation. The efforts of the team and the contribution from our generous hosts will help to define the long-term vision of and tactics for how TMX can contribute to a future of shared prosperity for indigenous businesses and communities. This should be no surprise. This is what we do at TMX. TMX is a purpose-driven, people-driven organization. Employees across the enterprise are unified by our unwavering commitment to make markets better and empower bold ideas. And this mindset fuels all of our client and stakeholder engagements and guides our business and corporate initiatives during robust and thriving markets and even more importantly, when challenging conditions negatively impact key components of our ecosystem. In all market conditions, the pursuit of meaningful ways to do better, to be better is constant. And for TMX, making markets better includes ensuring that we have the most resilient, robust and reliable operating systems and protocols, constantly striving to adapt our products and services across the franchise to meet the evolving need of the modern marketplace and our increasingly global client base and activating TMX as a leading voice for measures to create conditions for our enduring success. So with that, let me say thank you, and I'll turn the call over to David.

Thank you, John, and good morning, everyone. As John mentioned, our results for the second quarter reflect the continued resiliency of our diverse business model with overall revenue growth of 17%, including increases across all of our business segments. Revenue, excluding the Boston Options Exchange or BOX for short, which we consolidated on January 3 this year, AST Canada, which we acquired on August 12, 2021, and Tradesignal, which Trayport acquired on June 1, 2021, was up 1% in the quarter compared with last year. We managed our cost increases to below the current rate of inflation in Canada in the second quarter, with operating expenses, excluding BOX, AST Canada and Tradesignal, up 7% compared with Q2 of 2021 and year-to-date when compared with the same 6-month period a year ago, our costs were only up 4%, well below the current rate of inflation in Canada. We reported an increase of 20% in our diluted earnings per share this past quarter, benefiting from a decrease in income tax expense compared to Q2 of 2021, where we incurred a $19.8 million charge due to a U.K. corporate income tax rate change as well as an increase in income from operations of $5.4 million compared with Q2 of 2021. Our adjusted diluted earnings per share decreased slightly by 1%, largely driven by higher operating expenses, partially offset by higher revenue. Turning now to our businesses. We saw year-over-year revenue increases in all of our segments and I will start with the businesses that saw the largest year-over-year increases. Revenue in derivatives trading and clearing grew by 89% this quarter compared to Q2 of 2021 since we now consolidate BOX, and that represents $27.3 million of revenue, which is included in the segment for Q2. Volumes on BOX increased by 20% compared to Q2 of last year, and BOX's market share in equity options grew to 6%, up 1% from Q2 of 2021. Derivatives trading and clearing revenue, excluding BOX, was up 9% in the quarter, driven by a 16% increase in CDCC revenue and a 6% increase in revenue from the Montreal Exchange. The Montreal Exchange revenue increase reflected first, a 2% volume increase this quarter compared with Q2 of 2021; second, a favorable product and client mix; and third, positive impact on trading fees on the heels of the pricing changes for our S&P TSX-60 Index Standard Futures, or SXF, which came into effect in January of this year. Turning to capital formation. Revenue grew by 6% this quarter, which included approximately $12.2 million of revenue related to AST Canada. Excluding AST Canada, revenue in the quarter decreased 12% in capital formation primarily on the heels of lower additional listing fees in the quarter due to decreases in both the total number of financings and the total financing dollars raised and a slight decrease in initial listings fees. The additional listing fees decrease on TSX reflected a 27% decrease in the number of additional listing transactions billed at the maximum listing fee of $250,000 and a 16% decrease in the number of transactions billed below the maximum fee when compared to very strong levels of activity in Q2 of last year. This decrease was partially offset by higher sustaining listing fees in the quarter, reflecting an increase in the market capitalization of TSX and TSX Venture issuers at December 31, 2021, over the prior year. Revenue in our Global Solutions, Insights and Analytics segment was up 5% over Q2 of 2021, with these increases from both Trayport and TMX Datalinx. Revenue from Trayport was up 5% in Canadian dollars or 14% in pound sterling. Our 14% increase in pound sterling was primarily driven by a 17% increase in trader subscribers, annual price adjustments and a onetime consultancy revenue for development services. Revenue in our TMX Datalinx business, including colocation, grew 5%, driven by increases in data feeds, colocation as well as benchmarks and indices, partially offset by a reduction in revenue from lower usage-based quotes. There was a favorable foreign exchange impact of approximately $1 million from a weaker Canadian dollar relative to the U.S. dollar this quarter when compared with Q2 of 2021, which accounts for roughly 2% of the 5% year-over-year increase. The average number of professional market data subscriptions for TSX and TSX Venture products decreased by 3% in the quarter compared with last year, where subscriptions on the Montreal Exchange were up 3%. Revenue from our Equities and Fixed Income Trading and Clearing segment was up 3% in the quarter. Within the segment, Equities and Fixed Income Trading revenue increased 7% in the quarter compared with Q2 of last year despite a 9% decline in overall volumes of securities traded on our equities marketplaces, reflecting a favorable product mix within TSX and the impact of April 2022 price changes on continuous trading for securities with a share price below a dollar. While trading volumes on TSX securities increased by 9% in the quarter, volumes on TSX Venture Exchange and TSX Alpha Exchange decreased by 39% and 11%, respectively, when compared with Q2 last year, which is why our overall volumes of securities traded on our equities marketplaces is down 9%. Despite overall volumes of securities traded on our equities marketplace has been down, our market share increased by 5%. On the fixed income trading side, revenue increased by revenue increase versus Q2 a year ago, reflecting higher activity in Government of Canada bonds and swaps. Revenue from our CDS business was down 2%, reflecting lower issuer services and corporate action revenue, partially offset by higher revenue from custodial fees and standby liquidity facilities compared with Q2 a year ago. Turning to our expenses. Operating expenses in the second quarter increased by 32% compared to Q2 last year. Included in this increase are the costs associated with BOX, which we now consolidate as well as the 2 acquisitions, namely AST Canada and Tradesignal as well as costs associated with those transactions, namely AST integration costs, amortization of acquired intangibles for AST Canada and BOX and the transition services agreement with AST, all of which, in aggregate, amounted to $28.7 million of expenses in Q2 of 2022. Excluding the aggregate amount of expenses associated with BOX, AST Canada and Tradesignal, which I just mentioned, this translates into a year-over-year increase of 7% for operating expenses compared with Q2 of last year. The higher expenses reflected higher headcount and payroll costs, increased long-term employee incentive plan costs as well as increased expenses for travel and entertainment, including hosting our conferences and events, which are returning to in-person after a hiatus during the last few years. In addition, expenses were reduced in the second quarter of last year due to a release of a provision for restoration costs of -- for our data center. These increases in costs were partially offset by lower short-term employee incentive plan costs, lower severance and acquisition and related costs related to AST Canada in Q2 of 2021. Turning to our integration of AST Canada. Our integration of AST Canada continues to progress very well. We expect total revenue and expense synergies of approximately $10 million, which is up 25% versus our previous estimate of $8 million, which will be substantially achieved by the end of 2024. As it relates to 2022, we now expect at least $3.5 million of these cost synergies in 2022, which is up from our original estimate of $2 million for 2022. We continue to expect integration costs related to AST Canada of approximately $20 million over the 16-month period from September 1 of last year until the end of this fiscal year, December 31. Looking at our results sequentially, revenue only decreased $1 million from Q1 of 2022 to Q2 of 2022, which reflected lower equities and fixed income trading and derivatives trading and clearing revenue, which was primarily driven by lower BOX volumes in the quarter. This was mostly offset by higher capital formation revenue driven by higher other issue services revenue and additional listing fees revenue from Q1 to Q2 of this year. Operating expenses increased $2.5 million or 2% from Q1, including an increase of $3.7 million related to AST integration. There were also increases in technology spending, director fees, travel, and performance incentives. These were partially offset by lower salaries and payroll taxes of $3.2 million, lower legal fees and lower termination allowances. Turning now to our balance sheet. In the second quarter of 2022, we spent $61.3 million repurchasing 460,000 of our common shares under our normal course issuer bid program. Our debt to adjusted EBITDA ratio was 1.7x at the end of the quarter. And we also held over $432 million in cash and marketable securities at the end of the quarter, which is approximately $227 million in excess of the $205 million we target to retain for regulatory and credit facility purposes. Last night, our Board of Directors approved a quarterly dividend of $0.83 per common share payable on August 26 to shareholders of record as of August 12. In the second quarter, we paid out 44% of our adjusted earnings per share, which is marginally below the midpoint of our target payout ratio of 40% to 50%. So that concludes my formal remarks, and I'd now like to turn the call back to Paul for our Q&A period.

Thanks, David. Michelle, could you please outline the process for the question-and-answer session?

[Operator Instructions] Your first question comes from Geoff Kwan of RBC Capital Markets.

John, you were talking earlier just being engaged on the issuer side and the pipeline. I was just wondering if you can expand on that a little bit. Just how it's changed in recent months, both on the IPO, but also the follow-on for whatever visibility you have? Just trying to get a sense as to if things are looking a little bit better.

Yes, I'm happy to do that, Geoff. Thanks for the question. It's an interesting dynamic when you look at the activity in 2022 because when you look at it simply in reference to 2021, it looks quite challenging. But interestingly, if you actually have a look back and look at our 2022 activity both across the senior market and the venture market as compared to, call it, the 4 years before '21, you're going to find this is actually one of the strongest markets that we've had. So I think that's why actually some folks are surprised that we're not seeing larger revenue challenges than they would have expected in this marketplace. So with respect to your pipeline question, the pipeline actually for new issues continues to grow. It's difficult to give guidance in terms of when companies can come to market because it really is around market conditions for them to do the financing. But that's why we wanted to reflect some of the names that actually got public financing done because those are ones that actually become benchmarks for other transactions to build off in the future. So we do see that positive momentum in terms of potential listings, but it's hard to say what time they'd come to market. The other silver lining that we talked about a bit in the comments was the activity that you see in venture around -- particularly around CPC. So capital pool company programs because they're founder-based they're less sensitive to what's going on in both market volumes and valuation and volatility. And so those transactions are getting done even in difficult markets. And I think I said earlier that they're up about 24% year-over-year. And we've listed almost 50 new ones this year. So that gives you a bit of context. We are continuing to see financing transactions. You see that in the transaction data that the transaction activity is still robust. But just at a smaller size than you would have seen last year. So in another way, that impacts our revenue because we're actually seeing fewer transactions that are capping out at the caps because they are smaller-sized deals. So overall, all -- if it wasn't for 2021, we would be talking about what a healthy market this is. And it's only in reference to last year that you're seeing the delta.

Okay. My next question was on the TSX Trust AST Canada. You've talked about that sensitivity of 25 basis points higher rates is roughly about 200 -- sorry, $2.5 million of additional annual revenue. The Bank of Canada overnight rates up 225 basis points so far this year. Now is that interest rate sensitivity based on the overnight rate? Or is there another interest rate benchmark just because if we used the overnight rate, that would imply kind of like $22.5 million of annual revenue? And just wondering how much of that would have been captured in the Q2 revenues?

So thanks, Geoff, it's David. I'll start and maybe John can add any extra color. It's not as simple as monitoring a Bank of Canada overnight rate change and then extrapolating it fully to the trust revenue line on net interest income, primarily because of really a couple of factors. One is -- not all of the deposits that we receive generate the same level of net interest income. On some of our arrangements, the arrangements with the clients have us passing on some of the rate hikes to them, so not as easy as doing that. And then what I'd say in Q2 is given the timing of the rate hikes, it had a modest impact. It will have a more material impact in Q3. And then, the third thing, which is very important, is balances, right? Balances fluctuate depending on various corporate actions. And we struggled internally to predict those because it's like predicting capital formation or derivatives trading revenue, which is very much market-driven. So those would be the variables that play, but the key takeaway is it isn't a straight line. And we would look to anywhere between $4 million to $5 million of net interest income over the course of this year given where rates are. But once again, Bank of Canada had a rate meeting coming in September. So we'll have to stay tuned on that, too.

The $4 million to $5 million, that's what you're saying, I guess, relative to what we saw in Q2, that would be the annual lift given where rates are today?

Yes.

Okay. And then just my last question was just on Trayport. The average total subscribers I think was down very slightly kind of quarter-over-quarter. Obviously, it's had a very good gradual increase since you acquired it. Just wondering if there's any color you can give on that.

Great. So, quickly before we do that, John -- just -- Geoff, I wanted to make sure I heard your question or answered it correctly. So when I said the $4 million to $5 million, that's for the balance of this year, right? We think it's about $8 million for the full year. Hopefully that helps.

And I'm laughing a bit, Geoff, on the question on Trayport because it's -- we only ever get asked about the sequential if the sequential is down or the year-over-year if the year or the year is down because I'm going to remind everyone that year-over-year we're up 17%. So I'm going to take that opportunity to do that. On the sequential piece, all you're actually seeing there is a restructuring in terms of one of the activities in a single broker that offset what otherwise would have been subscriber growth sequentially. And so what I mean by that is a broker had an underperforming desk that they chose to wind down. It would have had some dedicated traders associated with it. So those trader subscriptions are no longer there because that business of that broker isn't there anymore and that offset what otherwise would have been growth in the quarter. So it's nothing to take any concern to in terms of the overall strength of the health of the business. And I think we indicated in David's notes about 9 new net paying clients in the quarter as well, which will contribute to subscriber growth in the future quarters. But that was the step down in terms of that sequential impact.

The next question comes from Etienne Ricard of BMO Capital Markets.

On equity trading, could you please comment on how competitive dynamics have changed since CBOE closed on the acquisition of Neo back in June, if at all?

Yes. To be candid, they really haven't changed in any material way. So CBOE was already active in Canada with their ownership of match now. Neo already an active player. So we haven't seen material changes or material changes in the business model. And you'll see that in terms of our overall market share continues to be pretty much either flat to up from where we were a year ago. So it's something that we are constantly monitoring and constantly engaging with clients to make sure that we are meeting their needs. We talked earlier about the actual trade conference that we just initiated in June. That was extremely effective in terms of bringing the trading community, understanding what their pain points are, their net needs are. And also the stress-test some of our ideas in terms of market reform and get real-life feedback from the trading community. So our competitive position here continues to be to focus on what the client needs are, so they don't need to trade anywhere else.

Understood. And on TSX Trust, given you have previously noted, this business has a higher growth potential over time. Could you comment on what led to lower trends for agency fees on an organic basis year-over-year?

I mean, that would be a combination of all the fees within Trust, so transfer aging the trust activity. So very much like the other parts of the TSX and TSX Venture financing area when we have lower transaction activity. There are also lower trust or transfer of corporate actions. So the overall book of business, the overall client base continues to grow in trust and transfer. But you have a lower activity levels in the first half of the year as compared to a year ago.

Okay, great. And I think you've been buying back stock more activity in Q2. Looking forward, should we expect you to become more meaningful acquirers of your stock?

Good question, Etienne, you're right. We did purchase a substantial amount of our normal course issuer bid authorized allotment this quarter. It isn't something that we actually direct. We have a standing order at -- based on a ratio and our broker of record then executes accordingly. We have about 5,000 of our normal course issuer bid outstanding. And we are evaluating various different capital deployment strategies, right? And one of the things we have to obviously do is look to the organic growth initiatives that we have underway as well as sun-setting some of our very large initiatives like our post-trade modernization, which, as you know, now goes into industry testing. And so given the opportunities we have for capital deployment, whether it be for organic growth, whether it be for dividend increases, increased share buybacks or M&A activity as we monitor what transpires on the pricing front in the marketplace. I would stay tuned. But right now we've got about 5,000 remaining to go. John, do you want to add anything?

My simple summary of David's comments is we are remaining and keeping our flexibility in what has been a bit more of an unsettling marketplace. So we are evaluating all tools. And we want to maintain maximum flexibility and the strength of our balance sheet so that we can actually take advantage of opportunities as they come.

Your next question comes from Graham Ryding of TD.

We saw a nice lift quarter-over-quarter in AST revenue. Was that largely higher-margin income? Or what would you attribute that to?

Margin income was part of it. But there were a couple of other parts of the business that did well. And so I wouldn't say it is all margin income at all, Graham.

Okay. I know you don't give specific expense growth. But maybe you could just help us think about the growth we saw this quarter, if you strip out the acquisition, plus 7% year-over-year. I think it was 2% year-over-year last quarter. So how should we be thinking about what's a reasonable expense growth expectations? Should we be thinking closer to sort of the 4% you've done year-to-date? Or is this 7% growth in this quarter potentially a run rate for expense growth?

Yes. I'd guide you towards closer to the first half of the year, cumulative, so the 4% to 5% kind of range.

Okay. That's helpful. On the derivative side, your interest rate derivative volumes are actually down year-over-year. That surprises me somewhat. I just thought in an environment of rising rates it might actually foster higher interest rate derivatives activity. Could you provide any color there, John?

Yes, I'm happy too. So in the long term, you're absolutely right, Graham. And so when you actually -- you see growth in terms of other parts of the interest rate curve, the challenge in the short term and particularly the challenge this year is the biggest impact year-over-year has been in the products like the back, so the short-term 30-day product. And when we're in an environment where there are rapidly changing Bank of Canada rates and they are not predictable in terms of timing or amounts. That's difficult for speculators or hedgers or other people to use those products. So it's -- what I'd call it is -- it's not constructive volatility in the short term when there's not good predictability about those rate changes. So as that normalizes in a higher rate environment, you're absolutely right that it'll give more tailwinds to support the product. But in the short term, when the timing and size of Bank of Canada rate changes are less predictable, it's harder for people to use those products and they take on more risk when they're doing them, which is not the intent of the product. So we do see this being as a short-term issue as bank rates make some quick changes and then that will stabilize and give more tailwinds.

Okay. That's helpful. And my last question, if I could, just the CDS modernization project. I think it's on track to finish in the first half of 2023. Is there potential here that this could be pushed out further and the CapEx could be increased again? Or how are you feeling about that project at this stage?

I'm feeling cautiously optimistic. Is that hedging enough for you? We spent a lot of time on this on a regular basis. I'm going to take the opportunity to give a shadow to the folks that are working on us because this has been an extremely challenging initiative, especially in the backdrop of COVID. Any time you're doing large-scale software development in multiple jurisdictions and you can't put people in the same room to solve challenges, that does make the time to do things like user acceptance testing and finalizing the development much more challenging to finish. But what we had in the last couple of weeks, and we've been through 2 different Board sessions on this, was a significant milestone in terms of that we are now nearly complete all of our internal user testing and have announced to the street when we are going to be going live in mid-September for industry test and development. And we've committed to the industry at least 9 months to do that. So that gives us the higher degree of kind of cautious optimism around the timing to execute this because we're now at a place where we've got the product. It meets the needs, it's functional. And we can put it into the hands of the clients starting in September. So they can do their own testing and development over the next year to be ready to go live in 2023. The estimates that we've given both around timing and around total capital are all reflective of that and reflects some contingency that there still could be some unknown challenges as we go through that process. So best information we have at the time and a reasonable degree of certainty in terms of that real milestone that's come through that we're going to be live in market in the fall of this year.

[Operator Instructions] The next question comes from Jaeme Gloyn of National Bank.

The quarter included a lot of good to see pricing increases across various businesses, somewhat unexpected, I guess, or maybe it wasn't necessarily hinted out on previous quarters. Is there anything that you can share in terms of what's in the pipeline from other price increases that could be in proposal stages or something that you're more shopping in the background?

Jaeme, I appreciate the question. And so I mean, obviously, I can't share things that we haven't made public yet in terms of either filing with regulators or notices to clients. But what I will let you know is that we are actually actively looking at those other businesses that weren't part of the price changes we've already announced. So businesses like listings and capital formation or in some cases, we haven't done pricing on the senior market. I think in 4 years and on the venture market in 10 years, we are looking at what are the appropriate changes we can make there that are still consistent with maintaining a very strong competitive position, both domestically and globally. And that's when we are actively looking at. And I would expect to be communicating both with regulators and the street in the near term.

Okay, great. And then just in terms of some of the new trading initiatives, I assume these are coming from customer-driven demands. Can you sort of maybe elaborate on what you're expecting from a -- are there market share benefits for TMX? Or are there fee benefits for TMX, like what are the knock-on effects for your business by introducing some of these new products and tools?

It actually depends on the tool, so some of them are actually about driving incremental market share, incremental, also strengthen the liquidity, so the overall quality of the volume as well. In some cases, like the work that we did on market on close and the work we're doing on dark, those are also, as you said, those are premium offerings that drive also a higher yield. So they are more valuable products to the street and they command a premium in terms of the revenue impact. And I think you're seeing some of that in terms of the revenue growth in equity trading year-over-year because while volume is off, the actual yield is up and the overall revenue growth is there. So you're exactly right. It is a combination of those pieces. And it's driven specifically by identified client needs of the community.

Okay. And if I'm thinking about it maybe more a bit of a modeling question, I guess, right now. But we're seeing higher capture rates flowing through on equities and trading. Now there's some noise because income is in there, too. But is there more upside to, let's say, revenue per contract trade or for equity trade in the last couple of quarters given some of these new initiatives? Or are you seeing like that as maybe more of a high watermark? Just trying to get a little bit more insight into where the revenue per trade can trend towards over the next several quarters to years?

Yes. So you've got to look at 2 things. Yes, we're seeing more premium revenue in terms of the mixture of revenue, in terms of the kind of amount of the volume that's in the closer in those other dark products. But it's also, Jaeme, look at the shift in terms of the trade across higher-value securities across all markets. So we've got trade value growth in TSX. I think year-over-year, we're up about 17% in dollar value traded, where Venture has been -- has declined somewhat year-over-year. So when you get the higher stock prices, you also have a higher tier in terms of revenue capture because of the lower share prices on some of the venture stocks are a different capture rate as well. So you've got to look at that business mix as well.

Yes, understood. But absent any changes in business mix or assuming that all seasonal like be?

Sustainable.

[Operator Instructions] There are no further questions at this time. Please continue.

Well, thank you, Michelle. And just before we close, I want to give you 2 updates from the Investor Relations team. Amanda Tang, who most of you know well, will be off the maternity leave for the next year or so. Just this past Monday, Amanda had a boy, Phil, their second son now and everyone is doing very well. Congratulations, Amanda from all of us. While Amanda is off, Amin Mousavian will be filling in for Amanda. Most recently Amin was our financial planning and analysis function. And I know you'll all enjoy working with Amin. In closing, I want to thank everyone for listening today. If you have any further questions, the contact information for media as well as for Investor Relations is in our press release, and we'd be happy to get back to you. Stay well, and have a good weekend, everyone.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.